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

So I saw an interesting thing the other day on the Jon Stewart . It was a discussion between Stewart and Mike Huckabee. As you might imagine it was confrontational, but not to the degree of say Bill O'Reilly and Rep. Barney Frank.



The crux of the first part of the conversation was on their differences on fiscal conservatism versus liberal policies. Stewart advocates larger Government. By that he means larger influence of Government in the daily affairs of the citizenry. He wants a Government that mandates what cars are made, what profits are allowed and who is lent to. He wants a Government that spends more to provide a mandated healthcare and smaller military.

Huckabee is the opposite of all these things.

But Stewart makes good points in his argument, tinged with sarcasm and humor. Which is great for a parody, but fails to deal with the issues at hand on a more serious level.

Take what Huckabee points out. This Democrat-led Congress failed on every level, and in each Party, to deal with the mortgage crisis which led to the credit crunch. In fact several members of this Congress either lied or have no idea what the hell is going on when they stated the economy was fine. That major financial institutions were secure - which was said at several points in the year - just prior to several major meltdowns. How can we expect a Congress that inept to resolve issues in the stock market, or anywhere for that matter.

And Stewart makes a common misconception as well. He makes the assumption that regulation prevents bad policy. The 2 are not the same.

It was bad policy decisions that made the U.S. auto industry focus on SUV's when hybrid and smaller cars were more logical decisions. Regulation would not change that. And it was the bad regulations, mandating unqualified lenders get home loans, that caused the mortgage crisis in the first place. And bad regulation practices let lead-coated toys into the nation. And it was lack of action by these same oversight groups that failed to prevent or even anticipate the meltdown of Fannie Mae and Freddie Mac as examples.

And one thing I want to directly point out that Jon Stewart said.

"Conservatives would say 'I want a big military'. Well that's Government... The fact that you would trust the Government with tanks and nuclear weapons but not to pass out cheese to poor people. You know, you've got to figure, so...I don't get it!"

Get this. In New Orleans the Government with some 15 agencies failed to provide water to people in the Dome for 3 days during Hurricane Katrina. But there has never been a nuclear weapon that has gone off accidentally or been lost. Nor has a tank been lost. The Government has proven in multiple actions that it is quite good at protecting this nation, when allowed to do so, and engaging in war or military actions.

But in terms of helping the citizenry it is far less efficient. Part of the reason why is the fact that the Government is so big concerning domestic issues that its right hand does not know where is or what is being done by the left. Big Government hurts the people, smaller Government does so less.

Liberals seem to want a Government that is involved with all aspects of daily life. They want Government to make decisions for them, or to assist in that decision process. Yet we see that the more Government there is, the less that is done or done efficiently. So why do Liberals expect that a Government-run healthcare system will be more efficient or helpful than FEMA or the VA or the Post Office, as an example.

And that is no joke at all.

Labels: Barney Frank, Bill O’Reilly, Congress, credit crisis, Jon Stewart, Mike Huckabee, mortgage crisis

Wow, the words are flying now. The Presidential race has taken a step to overdrive as both the candidates attack each others past. And the points picked by the McCain campaign seem to have the Obama campaign flustered to say the least.

The Obama campaign has been targeting the investigation of McCain in relation to the Keating Five investigations. Senator McCain was vindicated in that investigation and found to be without blame. Yet this was a huge problem at the time, and may again be, as the economy flounders in the wake of the mortgage bailout and the credit crunch.

With all eyes on the Dow Jones Index, which had dropped as low as 781 points down in the day. Expectations that all the problems of the mortgage crisis were averted by the $700 billion bailout have been proven false, which really should be no surprise. Europe and other world markets are now facing their own problems which again rippled from the initial failure of the Fed, Barney Frank and Chris Dodd on their Congressional banking committees, and President Bush. Note that neither Senator Obama nor Senator McCain were responsible for this economic fiasco. But with the introduction of the Keating Five Obama is trying to paint McCain as fiscally irresponsible.

Of course if the record is to be looked at only McCain has tried to reform Fannie Mae and Freddie Mac and highlight problems while Democrats denied the existence of a problem. And only McCain actively worked on improving the bailout plan from what was essentially a blank check to an unwatched Treasury Secretary, with repayment going to Democratic pet projects of dubious nature (ACORN) instead of the public.

The McCain camp has targeted the highly questionable association of William Ayers and Senator Obama. I admit that I have trouble with the close association of the potential next President with a known, and self-admited, terrorist that actively was involved with the bombing of Government buildings on American soil and remains unrepentant. And it is accurate that Senator Obama has initially described their association as a friend, and has backed away from that since the early Primaries while the major news media has avoided all discussion of the matter.

The McCain camp has also targeted the association of Obama with Tony Rezco and Rev. Wright. I disagree with these associations being used against Obama as much as I disagree with The Keating Five tactic. Obama has never been found to have been influenced by either man in this voting record since he engaged in politics in Illinios. Without a reason to be alarmed, their less than perfect public images are just mud to be thrown at the candidate. And I have discussed my thoughts about the attacks using Rev. Wright, which I feel are a sidestep to a racial attack, in depth during the Primaries when Senator Clinton first used the tactic.

But the fact is that neither of these items being used by each camp address the fact that the economy will be weaker and troubled during at least the first year of the next President’s term. It is unrealistic that further cuts to taxes will be immediately available to stimulate the economy. It is equally unrealistic that adding 800 billion in new spending will be possible.

Right now Senator Obama is talking about taking on House Speaker Nancy Pelosi’s dream of a second stimulus plan. Considering the over $1 trillion spent this year just on failing banks and finance companies I can’t imagine where this money would come from, or how it would be any more effective than the first stimulus plan. Infact it would be less effective considering the economic landscape.

As for McCain he continues to believe that lowering corporate taxes is the only solution, which I believe will be a hard sell.

The fact is that right now the drop in the Dow Jones Index, and the up coming horrendous 4th quarter earnings that will reflect the slowdown in the economy, are helping Senator Obama and Democrats. There is no logical reason for this, since both Parties were equally lax and culpable in the creation of this problem (though arguably Democrats are slightly more at fault especially if the past is considered). But if the economy continues to falter drastically, and the promise of a 2nd stimulus plan gains attention (as it likely will) the chance of Obama winning the election increased dramatically.

And if that is what happens, for the reason of the economy, the real pain will start. In my opinion the weakest plan, and the least fiscally flexible plan, is held by Obama. With him in office, and a Democratic Congress again, I expect new record low approval ratings, double digit inflation, double digit unemployment, and an increase in taxes of all Americans by 7 – 15% minimally. Essentially a return to the environment that President Carter created.

But we will see if I am correct and if the various mudslinging attempts of the campaigns have any backlash.

Labels: Bill Ayers, Dow Jones Index, mortgage crisis, Nancy Pelosi, President Carter, Presidential election race 2008, Rev. Wright, Senator Barack Obama, Senator John McCain

I have been talking about the economy and the repercussions of the failures in the financial markets for some time now. Back in 2007 I was discussing the effect that oil would have on the economy, and I hinted at how the sub-prime loans would affect banks from New York to China.

But in all that is the fact that while I was an experienced stockbroker, I am not an expert in mortgages nor real estate. With the bailout plan being debated and now finalized I wanted to get a more accurate view of what to expect. So I went out and found a more credible source of information to ask questions of.

The result is my interview with Mr. Gregg Cordero, owner and primary broker of Remax in the Binghamton and Broome County of New York State. The interview has been transferred to video for you to view. The interview took place on Thursday, and the delay was resulting from the limitations on getting the video edited and made into a video clip.

I expect that the conversation will provide some insight and answers for the questions homeowners, real estate owners, and those interested in any aspect of real estate markets might have. And I expect that particularly shrewd minds will be able to see their own opportunities and forecasts on the economy.

Labels: American economy, Binghamton, Gregg Cordero, Michael Vass, mortgage crisis, New York, real estate, Remax, sub prime loans

Considering everything that is going on in America today I’m just not sure what is the most troubling thing happening.

Of course the major media is hyping the mortgage crisis bailout, which has now become dubbed a ‘rescue plan’, and politicians are making the most of this coverage to promote their political party’s Presidential candidate while blaming all the woes of creation on the other Party. But it’s the other things the major media isn’t talking about that has me equally as distraught.

There is the fact that the Bush Administration has quietly approved a $25 billion loan to the auto industry. There is the fact that Senator Obama is feared to be incapable of winning the election in just over a month, not because of his political views or plans for the nation but because he is Black. There is Barney Frank and Chris Dodd screaming that anyone and everyone else but their banking and finance committees are to blame for the current crisis, or for not seeing the impending problems as late as this July. And there is House Speaker Nancy Pelosi.

Nancy Pelosi is special. In a kind of special needs kind of way (and I don’t want to insult those with such needs by associating Nancy Pelosi with them).

She is the most powerful woman in politics right now, if you can believe it. She is 2nd in line for the Presidency if anything happened to President Bush before the election. Yet she has run an extraordinarily expensive budget in her position as Speaker, with a Congreess that has achieved the least in at least recent memory. She presides over a Congress that has the lowest approval rating since ratings have been kept.

But that is not enough. She has tried to block any discussion of domestic drilling, like Pharoh forbidding the name Moses from being spoken. Which is fantastic for her since she makes money on that delay because she owns stock in alternative energy companies. She also helped to write a bailout plan that allowed the Treasury Secretary to wield sole control over virtually a trillion dollars. When that failed she helped write another plan that took any repayments and gave them to a Democratic pet project, ACORN, which is under federal investigation. And now we learn that paid her husband just under $100,000 from political donations – which she voted to ban in 2007.

“Financial Leasing Services Inc. (FLS), owned by Paul F. Pelosi, has received $99,000 in rent, utilities and accounting fees from the speaker's "PAC to the Future" over the PAC's nine-year history...

FLS is on track to take in $48,000 in payments this year alone - eight times as much as it received annually from 2000 to 2005, when the committee was run by another treasurer [which is now her husband].”

So we have Democrats that won’t cross racial lines, asleep while watching the nations money, pushing to give people homes they can’t afford, spending money they don’t have without control, blocking the near-term solutions of America’s energy needs for personal profit, and violating laws they are supposedly trying to pass, while doing the least work in Congress possible. You have to admit it is an impressive cluster of failure all at once.

And Senator Obama has no intention of not spending another 800 billion dollars in new spending, nor failing to raise corporate taxes in a decidedly negative economy. But he will speak with Iran about not building nukes – pretty please. And he will tell Russia that they are being bad when they invade other nations, after he thinks about it for a while.

Honestly I don’t mind Obama’s inexperience that much. In combination with his other plans for the nation means that things will get worse though. But the supporting cast that would come with him, especially if Democrats were to win the Congress again, really spells “Danger Will Robinson, danger!” (Those older readers will get the reference).

But I wonder for those that don’t follow politics everyday, that aren’t up at 5am reading the latest political news, what bothers you most?

Labels: Congress, financial news, mortgage crisis, Nancy Pelosi, race in America, Senator Barack Obama, Treasury Secretary Paulson

I love listening to Harry Reid. He is absolutely partisan and 2-faced. He is the best example of what polispeak means. Listening to hear him talk today you just can’t escape this.

He is speaking about Republicans that didn’t want to go to the meeting at the White House yesterday, but he has no comment on the fact that Senator obama wouldn’t go until the President asked him to be there.

He speaks about Senator McCain and blames him for the failure of the deal, but fails to mention that there was no deal. House Republicans, and many in the Senate never liked the Paulson bailout proposal. There was no deal, except as expressed by Democrats and the media.

He wants to blame McCain, but he forgets that he stated earlier this week that there could be no deal if McCain was not on board, which he was not. He refers to McCain as an outsider, yet McCain is an active Senator with responsibilities to those that elected him.

Democrats like Chris Dodd and Harry Reid, and Barney Frank want to make it seem like this deal is good for America, yet those that look closely at the deal think it is not. And they want to add to the bail out items that are not part of the issue. They want to include the $50 billion that House Speaker Nancy Pelosi advocates, that does not have to do with the bailout but is another stimulus plan that is ineffective and a waste of money.

Democrats are being very political here. They are trying everything they can do to phrase this as a Republican or Senator McCain problem. They want to rush forward and throw money at this problem. That type of plan did not work when Bear Sterns failed, or when Fannie Mae and Freddie Mac failed, or when Lehman failed, or for AIG. They seem to think that throwing your money, my money, at this problem is more than just filling a leaking tub with more water.

Not one Democrat can state that the Paulson plan, as proposed and what they are trying to advance, will work and prevent another problem in a month. Not one can explain why a single person in the position of the Treasury Secretary, should be left with virtually sole responsibility and accountability of nearly $1 trillion dollars.

Harry Reid, and Chris Dodd are speaking about how they will be in D.C. and working on this deal all night tonight, and Saturday and Sunday if necessary. They are saying this is the most important issue before them. Yet they support that Senator Obama go off and focus on a debate, that can be postponed. This is the most important issue in America right now, that’s why all of Congress is doing their jobs – except for Democratic Presidential candidate. And the Republican Presidential candidate is the one being blamed for doing his part of the job.

Either Obama or McCain will be President in a little more than a month. One of those 2 will be faced with the resulting issues that this mortgage crisis bail out will cause. But Democrats believe that neither should be involved in the terms or process of this deal. That seems smart doesn’t it.

I find it completely partisan and polispeak when Barney Frank states that everything is fine in 2003 and July of 2008, and now is trying to blame everyone else for what he failed to stay on top of. Chris Dodd is no better. And as I mentioned above Harry Reid has flipped as well. Not to mention how Senator Obama sprinted from the meeting with the President yesterday to get out and in front of cameras, instead of going back to Congress to wotrk on the deal more as McCain did, is quite telling on who is using this as a means to win the Presidential election.

Our elected officials need to stop with the politicing and focus. This deal needs to resolve the liquidity issue, and ensure that we are prepared for the difficulties to come. It does not need to give away money to pet projects that otherwise would never pass. It is not an ad for the election campaign. It is not a gift to Wall Street, nor an open invitation for every company and industry with sagging sales to line up at the door. Neither should it be the start of the American Government as a real estate broker/business.

Anything short of that is false and stupid, and baseless polispeak meant only to prop up the political futures of selected individuals.

Labels: Barney Frank, Chris Dodd, Harry Reid, mortgage crisis, Nancy Pelosi, Presidential election race 2008, Senator Barack Obama, Senator John McCain

I just can’t step away from the most pivotal issue in the election and the lives of Americans right now. The spin in the media is that Senator McCain is avoiding Senator Obama on a debate of foreign policy – something McCain has experience at for decades and Obama has a speech in Germany. And many are calling the deep desire of McCain to serve the nation, as was called for by Harry Reid yesterday, a political stunt. Though they ignore the school boy-esque scolding that Obama received when the President called him to the White House today.

But I am tired of hearing Democrats and some media pundits running around blaming every economic woe of the nation on Republicans. There is certainly more than enough blame for all the politicians in Congress, which is why it has the lowest approval rating ever. Republicans have screwed up and spent more than they should. But Democrats have been no better, in fact those that are critical to the finance of the nation have been particularly blind. Mr. Magoo could have foreseen more with their level of information and influence over the years.

But lest my words be seen as partisan, which to an extent I am sure they are as with any pundit or blogger, I present talking heads from across the spectrum of the cable news media and pundits, as well as politicians themselves. Listen to those that we have elected, and their votes and assurances. Then tell me this is only a Republican caused problem.

And please explain to me why we should believe that those that planted the seeds for this problem, and fostered it to the debacle we are required to deal with today, should be believed when they say they have a solution

History of mortgage crisis back to 2003


Fannie Mae and Freddie Mac contributions – Sept 18 2008


Chris Dodd was watching closely but did nothing – August 2007


Treasury Secretary Paulson progress made – February 2008


Barney Frank – Improving regulation of Fannie Mae and Freddie Mac July 14 2008


Obama accuses McCain of opposing reform


Have Republicans tried to do anything?


S. 190 [109th]: Federal Housing Enterprise Regulatory Reform Act of 2005 - A bill to address the regulation of secondary mortgage market enterprises, and for other purposes.

So I also ask this, If Senator McCain did not go to Washington D.C., if the President did not call Senator Obama to the White House, are you sure there would be a resolution to the bailout crisis? Would that resolution be in the best interest of the nation?

Is a debate, that could be easily rescheduled, more important than the potential of 4 out of 5 Americans losing their homes and jobs?

And lastly, isn’t it a bit hypocritical that Democrats claim that the debate must happen because America wants this; yet they defended Senator Obama when he refused for 2 months every request that was made for Obama to join McCain in speaking directly with Americans at town hall meetings across the nation?

Labels: Barney Frank, Chris Dodd, Congress, Democratic Party, financial news, Freddie Mac, mortgage crisis, Senator Barack Obama, Senator John McCain, Treasury Secretary Paulson

So the news has now been reported that Senator Obama does not plan to accept Senator McCain’s offer to go back to D.C. and work on the bailout and not the Presidential election.

Senator Obama believes that he can both work out the problems with the bailout and step before the nation for a debate on Friday. He believes that he can focus on both issues equally.

Senator McCain has already stated that he believes that the political debate can wait until the financial future of America is resolved.

I feel that Obama is placing politics above the nation, and his constituents that elected him to office. Both of these men are Senators, as is Joe Biden. They have a responsibility to the voters that put them in office up until they are elected by voters for a different office.

The polispeak will fly today. Some will laud one or the other Presidential candidate. I can clearly see the benefit to the nation of the actions of McCain, I do not see that benefit from Senator Obama. Obama is choosing to hold a speech about how great he will be for the economy once he is elected, while McCain will be speaking with Democrats, Republicans, and the President about keeping the economy going up to and through the election. Which makes more sense.

How well will Senator Obama be able to review documents on the bailout, and shake hands with undecided voters? How well will he be able to speak with Congress, while he is kissing babies and approving attack ads? How well will he be able to confer with economic experts while he is practicing his debate points.

Yes a President must do more than one thing at a time. But if Warren Buffett is correct, and this is the financial equivalent of Pearl Harbor, Senator Obama is saying he would rather go overseas for a meeting than deal directly with the situation.

Was the fear of following McCain’s lead on this potentially devastating financial fiasco so great as to refuse to do his job. Is his desire to be President so great that he would rather lead America in a depression, with millions unemployed and/or homeless than serve as the Senator he has been elected to be in relative economic stability?

Perhaps this, more than the debates themselves, will be the turning point in the election. And I have to wonder what most Americans will prefer. I for one agree that the debates for the election (which can be rescheduled for another day out of the 41 remaining) are not as important as my work, and as a consequence my house.

Labels: Congress, mortgage crisis, Polispeak, Presidential election race 2008, Senator Barack Obama, Senator John McCain

I just got off the phone with a friend of mine. He too was a former stockbroker, and concerned about the bailout. He believes that the $700 billion should be approved, because we cannot let this go on for a prolonged period of time.

I was informed that Jim Cramer was on cable television discussing how this bailout must be approved lest 5 million homeowners hit the market all at once. I was informed that other stockbrokers we know are looking at the potential for the market to drop up to another 1000 points if this bailout is not approved immediately. And I was reminded that this is not a situation that will resolve itself.

My friend remembered that this problem did not start last moth, or this year, or last year. He was clear in that this is far beyond politics. That we as a nation are facing the serious potential of a depression if this is handled wrong.

But as I listened, and reflected on my previous thoughts on this issue, and all the news that has been made available I was reinforced on my opinion.

The bailout as it stands is not in the best interest of the nation. Throwing money at a problem will never resolve it. Politicians and regulators have no understanding of the depth or causes of this crisis. Had they any understanding they would have seen the problem over a year ago. In January they would have reacted properly, but they all had no clue. Giving them even a Trillion dollars will not end the problem.

The bailout is meant to be an investment for the public. But this investment currently has no established value, no terms of repayment, no system of repayment, nor any assurance that future repayment will not be needed. I have a problem with that.

Honestly this is not like getting a credit card or a loan. In both of those cases you are assuming part of the cost of those that fail to make their payments in the interest rate you pay. You are provided documentation that states how you share in that coverage. It’s a system maintained by the private business that created the system.

The bailout, as proposed, is a mortgage – for some like me a 2nd mortgage – to which we receive no benefit other than the security of knowing the financial system might continue for another day. And while my friend believe that the next President will not directly raise taxes in the wake of this bailout, I believe that must. My friend believes that we will see social programs cut, and on that I agree as well.

The next President will have to raise taxes. While I doubt they will ask for the $5,000 to $10,000 that is estimated for the bailout from each American taxpayer, I do believe that taxes will increase for everyone by 5% at least. Because of the bad decisions of some people and several businesses. And that does not take into account some of the very costly programs one of the Presidential candidates wants to implement.

I also believe that no matter what the terms of the bailout ends up as, the market will lose over 1000 points from where it is now. With the eventual return of short-stock trades, a 4th quarter for retail companies that will by abysmal, and increasing costs for crude oil and heating oil, the market will have little choice but to turn down. The picture is dire. But taking blind action is no better than inaction.

We need time to figure out what to do, and how. To determine the full cost, and how the public can be repaid. To unravel the actual valuation of these properties, and to decide how many homeowners in default will be allowed to lose their homes – because the only way some will not is in a dreamworld.

I believe that some $200 billion should be used to fill the water in the tub, and then time spent to find the actual leak. Before the 4th quarter ends we should be able to answer the big questions facing us now – how much, how long, will we be paid back, and how to get the money back.

Maybe I am wrong. Maybe my friend, Cramer, and others are right. But I have to tell you that I am afraid, not of what happens if this works but what happens they are wrong.

Labels: financial news, Jim Cramer, mortgage crisis, tax increase

Warren Buffett has made a significant symbolic action in our economy. He has invested $5 billion into Goldman Sachs, the bank. Not the investment bank but the commercial bank that it has now become. The difference may sound small but it’s huge.

In doing this he has signaled his long-term belief that the American economy will weather this storm. Which few doubted. But this one act is hardly enough to resolve all the issues between now and his normal 5 – 7 year investment window.

Now I realize confidence needed to enter the markets. And the doubt of the bailout plan did not help anything. This is a great stabilizing factor. But the bailout plan is not a smart bet, and will not benefit the nation near-term.

The reality is that the Government wants to give Ben Bernanke $700 billion dollars to accept the bad debt of the financial markets. This is the same individual that failed to identify or resolve the problems in the financial markets that I saw back in January at least. And he is planning to accept every problem every size bank can shovel into this deal.

Have no doubt that every bank is working out how they can get their debt passed onto the taxpayers. These are individuals that were smart enough to create the derivatives that regulators are not smart enough to see as a problem for over 5 years. And suddenly we think that more regulation will prevent bad decisions and prevent being unable to understand what is happening in the markets.

The Government should not be in the business of owning banks. The Government is not smart enough, efficient enough, nor reactive enough. The Government is not able to take on debt at a realistic valuation since it does not understand the value, and thus every dollar spent on the bailout will be a waste. And the Government has never been able to intervene in the financial markets to the benefit the nation or investors.

I would bet that Warren Buffett was asked by the Government to step into the market. He is too strong a figurehead to be ignored, and thus symbolically stabilizes the markets. And the fact that Goldman had to become a less powerful commercial bank, and thus seek out deposits to shore up its bad books and loan reserves, to get the investment by Buffett is telling indeed.

The fact is that nothing will prevent the markets from going lower in the short-term. They need to. And if there is to be any real confidence we need to see other investors step up and make similar styled investments. I want to see the Blackstone Group, and Apollo Investments to make similar steps. Bill Gates too. But that is not happening yet.

The Government has been given time, to sort out what it will do. My advice would be to let the markets sort out the problem created in the markets and bad decisions. Because all a bailout does is tell the markets that the Government will step in every time they make an overly greedy decision. And if you think I am wrong, go back and look at what the auto industry is asking Congress right now.

But perhaps one of the worst things a bailout will signal is opening the floodgates on mortgages. If we bailout bad bets by financials, why not bailout the home owners that made bad decisions? And if we can help those home owners, how the hell can we not say that people like myself that made a smart decision on their loans deserve help too. Why should my taxes go to help pay a mortgage that is not my own? Especially since all those home owners had to do is read their documents and do the math.

The Government is not responsible for correcting the bad decisions those it governs makes. But in making the bailout a fact that is exactly what it is doing. And that is more than a small step towards a socialist government and away from a Democracy.

In the Star Wars movies there is a scene where it is said that

“This is how Democracy dies. With thunderous applause.”

But I believe that that is not the only way we can lose it. It can die with a funnel of money draining from the people. Not as dramatic or poetic, but perhaps far more effective and deceptive.

Labels: American economy, Ben Bernanke, financial news, Goldman Sachs, mortgage crisis, Warren Buffett

I was speaking with an old friend and colleague of mine today, and he reminded me of something I had forgotten. As I have mentioned before I was a stockbroker, and I worked with my friend for a few years. While we were at the same firm one of my bigger positions was in Lehman.

Now at the time, thru most of the 90’s I felt that Lehman was a great buy. It was one of the better managed brokerage houses, and well diversified. It weathered the Mexico financial crisis without huge exposure, and had few losses in derivative trades, that took down Barrings.

In fact after I left the brokerage industry and entered the investor relations industry I wrote a review of Lehman back in September of 2005. At the time the stock was trading at the post-split price of $56.60. That was 2x book value and an excellent price in my opinion. The stock went on to run, reaching a high of $85.80 in January 2007. A nice 54% gain in 16 months. Who would be unhappy.

I believe at the time I stated

“Perhaps as Warren Buffett has said, “Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.”

Well it’s been 3 years now and that same investment looks horrendous. I have to admit that if anyone has held the stock all the way down they have to be pissed off. The company ruined its great cash and book value with bad calls in mortgage and asset-backed loans. The fact that a buyer must be found is the clearest answer of how risky the investments they made were.

I have to say that I am glad I am no longer a stockbroker. But I would also like to say that the call I made was correct at the time. And that I believe that I would have pulled my investment in January of this year at the latest, around $66. My posts of that time identifies that I was looking forward to a horrible year, and that is coming to pass as well.

So I am man enough to stands up and say what I called correctly, and what I missed as well.

But I’ll add this. If I had free capital that I could leverage without fear of loss, I’d buy options and/or stock in Lehman right now. With great risk sometimes comes great reward.

Now some would say I am insane. I don’t think so. My bet is that Lehman is too diversified and too large to be allowed to fail. Like Bear Stearns something will be done to mitigate the loss in the company.

There are too many stocks, 401k’s, pensions, and other assets directly tied to the financial institution. There are too many stockbrokers and staff. Too many corporate loans. And definitely too many mortgages to let this go under completely. My bet is that they will be absorbed by another brokerage or bank. Possibly even an insurance company.

And consider this. Politically this would be horrible if it fails. It will hurt both Democrats – because Congress failed to act to help ensure mortgages would not get worse and helped in the loss of jobs – and Republicans – because this is happening on President Bush’s watch.

Plus, if this bank is allowed to fail it will shake confidence in U.S. financials and the Dollar. Loans and Treasury bonds will be called or sold to deflect losses and prevent future hits. The combination of these events and the resulting hit to the economy will be devastating. I would imagine a full 3% of the nation would be sent to soup lines directly.

So if I am right Lehman will be taken over, but at what price? I expect a range of $3.50 to $5. At the top it means a gain of 41%, at the bottom a loss of 4%. I like those odds. Especially in this environment.

Now I could be very wrong. The Government might let this brokerage fail. That will hurt a lot and have repercussions, but ultimately it will be good for the market. But I think seeing Lehman tank or sell for $2 is distasteful for too many. A slight premium to the current close of $3.65 would be a big positive for the market.

And if you have read some of my posts on how I see the economy I don’t think you are too surprised by this outcome.

“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. …

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.”

I still stand by these thoughts I mentioned in July. I still say Citigroup is the real big fear. I still think that crude oil prices will run back up to $160 per barrel over the winter. I still expect large increases in inflation and unemployment. Freddie Mac, Fannie Mae, and Lehman are the tip of the financial iceberg. Be prepared.

My friend stated

“Well this is just like Xerox and Kodak. Back in the day they were on everyone’s list to own. They were thought to be too big to drop. But today nobody speaks about them. Why shouldn’t the same thing happen to financials?”

That is very true. But the real question is how we transition to the new financial stock leaders. Opportunities always exist in even the worse markets. You just need to sit back and pay attention, and know your risk tolerance.

I may be wrong again, but I’m willing to tell you my thoughts. You can make your own decisions on how best to manage and invest your holdings.

[By the way, here are how a few other of my calls went.


• AMD – May 2005 – $16.08 High $40.54 in February 2006 now $5.75
  
• AMLN – February 2005 - $22.48 High $50.81 in October 2007 now $20.18
  
• ERTS – November 2004 - $47.79 High $68.12 in January 2005 now $44.99
  
• SIRI – September 2004 - $3.00 High $7.95 in December 2004 now $0.95
  
  Just wanted to be clear and honest on what I have publicly said in the past.]
  

Labels: AMD, AMLN, ERTS, LEH, Lehman Brothers, mortgage crisis, SIRI, stock market investors, stockbroker

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

How rich do you feel if you are making $31,850 or more?

If you are like most families and individuals in America, I imagine that you don’t. In fact I would say most would feel relatively poor. Not because of a lack of luxury items or failing in a competition with the Jones’ but because of a scarcity of essentials and a knowledge that loss of everything is possible.

Americans in the middle class don’t feel rich because they are the ones losing their homes to the mortgage crisis. They are the ones incapable of affording better colleges (or sometimes any college) for their children. They are the families most often without healthcare coverage and unable to afford medical costs.

And they are the ones that are going to feel even worse if Democrats, and the Presidential candidates Senator Clinton and Senator Obama, get their way. I don’t say this because of some ideal, or dedication to the Republican Party. I say this because that is exactly what they are voting for.

“Senators voted 52-47 to reject a move to extend tax cuts for middle- and higher-income taxpayers, investors and people inheriting businesses and big estates.”

and

“Obama and Clinton both promise to reverse Bush's tax cuts for wealthier taxpayers, but the Democratic budget they'll be voting for would allow income tax rates to go up on individuals making as little as $31,850 and couples earning $63,700 or more.”

So, if you make $31,850 or more you may not feel like Bill Gates and Warren Buffett but you are going to get taxed like them.

This is not a surprise because for all the statements by Democrats that running scared from Iraq will turn the economy around, and their implication that universal healthcare is the same thing as free health care the facts are that more money will come out of our pockets to pay for it all. Your pocket, whether or not any of the things you will be paying for will provide a single benefit for you or those you know.

This is what a Democratic President will provide. Some may believe that this is a small price to pay. Some may believe that all businesses should pay more in taxes. And some may believe that terrorists and those hostile to the existence of America will give up their fights just because we turn our backs.

But I believe that increasing the taxes that the middle-class and businesses pay will not improve the economy. I believe that giving money TO problems rather than spending money to FIX the problems is foolish. I believe that turning your back on a bar fight will get your head cracked open from a chair smashed upon it. I believe that nothing is free, and some things are too expensive to be worthwhile.

The Democratic candidates have marched across America saying they will only tax the rich. They have said that they will only affect big business. They have said that they will make America safer. All are great things. But the facts of their actions indicate they are lying if not confused.

“Under both Democratic plans, tax rates would increase by 3 percentage points for each of the 25 percent, 28 percent and 33 percent brackets. At present, the 25 percent bracket begins at $31,850 for individuals and $63,700 for married couples. The 35 percent bracket on incomes over $349,700 would jump to 39.6 percent.”

So here is the big question for the up-coming election. If you aren’t rich at $31,850 and the Democrats are going to increase your taxes, what other plan proposed by them is equally skewed to your disadvantage?

Labels: American economy, Bill Gates, college tuition, Democratic Party, Iraq War, mortgage crisis, Senator Clinton, Senator Obama, tax increase, tax rates, universal healthcare, Warren Buffett

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

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

While in New York City recently I visited with several old brokerage friends. During that visit we all discussed the market and what may potentially be on the horizon.

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.

My friend disagrees. His view is that if I am correct in these outcomes, then the Fed will be forced to lower rates further immediately. He feels that this is the only way to stem the problem that is the mortgage crisis. This is especially true when you consider the increase in credit card debt.

“All the people with million dollar homes that would be refinancing and getting an extra $200,000… They find it hard to change their lifestyle quickly. That says nothing about most people who are feeling deflation. And add those paying the mortgage with their credit card and you have a market that needs the Fed to cut.” – Paraphrase

Sound reasoning. But I don’t think a bear market is avoidable.

The fact that the mortgage crisis is far closer to its beginning than end. I expect that there are far more homes in danger than has been seen to date. Even with the highly selective mortgage bailout stated by President Bush, many are going to be at risk. Credit card debt can only float for so long. With the added pressure of oil at or above $100 per barrel, which I expect mid-January as I stated above, more will fail even if rates are lowered (less than 2 points).

Add to this the fact that financials are at high risk. The early infusion of foreign capital may look good now, but this does nothing for future and continuing losses. It’s window dressing. With re-insurers like ACA in trouble and Japanese banks are unwilling to help bailout the shortfall (due to very limited exposure to this risk), the sector will be weak. Historically if financials are stagnant or falling so goes the majority of the market.

That says nothing of the potential of a Democrat becoming President. Again historically a negative pressure on the market. It is even graver with several prominent Democrats nearly promising to increase corporate taxes (or outright take their profits – especially oil companies).

The Fed can lower rates, but that will not stop the general malaise I see coming. At the least the first half of 2008 will not be good. A move to 11,000 seems inevitable. If I am correct then the question is this.

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?

Labels: ACA, bear market, Citigroup, credit card debt, democrat, JP Morgan, Michael Vass, mortgage crisis, New York City, overseas investments, President Bush

When will oil prices break thru the $100 a barrel mark? That is a question that Europe and America are considering now, even as OPEC has decided to hold production levels steady, and the question of an American recession loom on the horizon.

Though President Bush has taken action to halt the mortgage crisis, the demand and cost are still serious issues. So serious in fact that BP has just inked a $5 billion deal with Husky Energy to take a position on the huge oil sands reserves found at Alberta oil sands deposit. Previously the cost and difficulty of oil sands had prevented BP from getting involved, but with oil at nearly $100 a barrel there has been a need to change.

Oil sands are a mixture of sand, water and heavy crude, which is difficult and expensive to extract. But the partnership expects to be able to produce oil at a cost of about $40 a barrel.

Even if America, and subsequently Europe, falls into a recession the demand for oil is likely to increase (though more slowly) as technology consumes more and more. The expectation that future innovation in the recovery of oil from oil sands is probable.

Recently the Energy sector has been targeted by analysts looking at the S&P 1500 as the top sector recommended. And if the mortgage crisis fails to get worse, while America avoids falling into a recession, demad for oil will likely increase as the winter storms start to affect consumption. The demand for cheap and plentiful oil, without the influence of OPEC and the turmoil of the Middle East politics, is on the horizon.

Given that, the outlook for global energy stocks seems positive in the near-term at least.

“We like the outlook for raw-materials and energy shares very much,” said Pat McHugh, who helps manage about $310 billion as a portfolio manager at MFC Global Investment Management in Toronto.

Labels: BP, Husky Energy. OPEC, mortgage crisis, oil sands, President Bush, S P 1500

The ripple effect from the mortgage crisis here in America continues to reverberate around the world. As in China and Asia

“With the chance that U.S. markets will be receiving another rate cut by the Federal Reseve, Hong Kong rallied and took much of the Asia markets with it. Even the Chinese banks, which are expected to raise the reserve ratio to a high of 17%, gained with expectation”

the actions by President Bush and the expectations on the Fed have affected gold prices and stocks.

“This re-iterates that in America they will do anything to stop sub-prime. It has put confidence back into the US market, and that is why guys are going out of gold.”

Even with this resurgence in confidence, and the prospect of lower rates in American and subsequently the rest of the world markets, there is still the possibility that a recession is in America’s future.

Several factors remain in the air that will influence the outcome of the economy and the price of gold and gold stocks. Sales for the holiday season, and the amount of discount being provided by retailers, are being watched closely for clues on year end and first quarter corporate numbers. Energy prices, which were recently as high as $100 dollars for a barrel of oil, has helped to put pressure on the economy as well.

“When will oil prices break thru the $100 a barrel mark? That is a question that Europe and America are considering now, even as OPEC has decided to hold production levels steady, and the question of an American recession loom on the horizon.”

Not to mention the predictions of Goldman Sachs

“Goldman Sachs said today that investors should sell gold in 2008 to take advantage of the steadying dollar.”

Yet with all of this gold rose above $800 on Tuesday. To say that speculation is in the air is the least of things. With so many factors inter-related, geo-political unknowns and the impending primary voting on the horizon there is no surprise that February gold futures contracts were recently quoted at $855.

Will the futures contracts be accurate? Will America fall into a recession? Will a Democrat be elected President? No one is quite sure, but the answers will become apparent very soon.

Labels: 2008 election, china stocks blog, Energy prices, February gold futures contracts, Federal Reseve, Goldman Sachs, mortgage crisis, OPEC, President Bush