Gold booms after global strife… Byron King on whether the precious metal is still a buy
Stimulus bill a done deal… details of the final 1,073-page fiasco
States in peril… revenue crash causes budget crisis from California to New Jersey
Wal-Mart surprises Street… Rob Parenteau on retail’s sudden comeback
Stocks dive toward new crisis lows… equity advice from Mayer and Buffett
Plus, have you noticed? One major index quietly up 30% YTD
So how’s the financial world faring so far this week? One chart should set the scene:
A seven-month high for our favorite metal may be sign that investors are losing faith in…. umm… everything. In fact, gold is up 33% since October, making it one of the planet’s finest asset classes during this “credit crisis.” Who’d have thought?
“I’m still very bullish on precious metals like gold and silver,” notes Byron King. “In the medium-to-long run, the stimulus bill will not be good for the U.S. economy, and I think the dollar is going to get burnt into toast over the next few years.” (Toast wouldn’t be that bad, we think… at least you could eat it.)
“If you are looking for gold stocks, find companies with high-grade ore in the ground and enough money in the bank to fund the current operational plans. I’m also looking at metals companies that are attractive to potential suitors, like large miners that want to pick up some great reserves.
“The bottom line is you need to own precious metals. Own gold. How much? For now, the more, the better. Own coins, if you can get ’em. Own bullion, if you can get it. Own shares in good miners with reserves in the ground while you can buy ’em. Just get some gold.”
Byron’s got a handful of gold stocks just like he described above in his Energy & Scarcity portfolio. Get the tickers — and a whole lot more — by subscribing, here.
(And there’s a whole other way to profit from gold’s rise… check out the P.S. below.)
By the time you read this, Barack Obama will have likely signed the stimulus bill, bringing to law the most hyped piece of legislation of the last few decades. He chose a special location to sign the bill, one of great historic importance and apropos to the credit crunch — the Denver Museum of Nature and Science. Huh? Yeah, among the 50 states, Colorado is purportedly on the front lines of the “green” energy revolution. Barack wants to play the part of George Washington this time around.
Anyway, the final price tag on this bestial bill exceeds $787 billion. Reduced to its simplest form for convenient public consumption, the new law looks like this:
The pie chart helps lawmakers avoid coming up with their own excuses for not reading the 1,073 pages of drivel littering the House floor right now. If you don’t want to come up with your own excuse, you can read some of the details here.
The only reason to write something this long is to dissuade anyone from reading it. As flat tax champion and former Vancouver marquee speaker Steve Forbes once wrote, "Abraham Lincoln’s Gettysburg Address, which defined the character of the nation, is all of 268 words. The Declaration of Independence runs about 1,300 words. The Constitution, which has served us for more than 2 centuries, comes to some 5,000 words. The Holy Bible has 773,000 words. The federal income tax code and all of its attendant rules and regulations: 9 million words and rising."
One thing Congress wants to make sure you do understand: The bill’s “buy American” clause is still intact. Despite widespread warnings of 1930s-style protectionist meltdown in global trade, Congress went ahead and passed the provision.
The final version requires building and public works projects funded by the package to use only U.S. goods, like steel, iron, copper, concrete or wood. The revisions in the bill say the clause can’t violate existing trade agreements — giving the chocolate-making countries in Europe some relief. But as Reuters pointed out today, “Countries such as China, India, Brazil and Russia, which are not members of an international government procurement agreement, would be shut out.”
Just what a country in debt should do… shut out its bankers and trade partners…good thinking.
California might be grabbing all the headlines, but there’s a long line of state governors with their hat in their hands waiting for federal bailout money from this bill .
Kansas announced over the weekend it is suspending income tax refunds and state employee paychecks. New York, facing a $15 billion budget gap, is implementing all sorts of odd new taxes, including a 4% smack for downloading music and videos over the Internet. John Corzine is cutting programs left and right to fill the $2.1 billion gap in New Jersey.
In the Trendsetter State, Gov. Schwarzenegger is still flexing his muscles in front of the State Senate. The state has already shut down $3 billion in projects, delayed $3 billion in tax refunds and welfare checks and forced government employees into shortened workweeks. They’ve got three weeks to close the $42 billion gap between tax receipts and spending… or the state will simply run out of cash.
The credit crisis might lead to another improvement Californians would be happy with too: the legalization of marijuana.
Illegal weed sales exceed $14 billion in California each year — ironically just a billion short of California’s budget deficit last year. Considering the potential tax revenues at stake, it might be too tempting for the Governator to say no. According to a recent Harvard study, a national legalization of marijuana would reap $7 billion in annual tax revenues and save over $13 billion in law enforcement costs. That’s not even taking into account the assured boom in junk food sales.
Four more banks failed over the weekend, brining the 2009 total to 13. Friday the 13th proved to be bad luck, indeed, as the FDIC shut the doors of banks in Florida, Nebraska, Illinois and Oregon. All told, they took a $341 million chunk out of the FDIC’s apparently limitless coffers.
Retailers are showing small blips on the life-support monitor this morning. Wal-Mart, for example, surprised slumbering stockbrokers yet again with better-than-expected fourth-quarter earnings.
Little surprise, there, though.
“The 20% annualized pace of contraction in retail over the past six months,” writes our Rob Parenteau, “could not be sustained without delivering the United States to a point of mass starvation.
“Still, the free fall phase may be over, but the contraction is certainly not.
“Retail sales have been dragged down in part by the plunge in unit auto sales. Total units sold have already plunged below a 10 million annualized run rate — a level last observed in the 1980-2 double-dip recession. Eventually, replacement demand will become a factor supporting a bottom, and we are within months of approaching the 1971 spike down below 8 million units, the low of the past four decades.
“The Fed’s intervention in the asset-backed market is aimed in part at thawing the deep freeze in auto sales, but we suspect households will remain focused on rebuilding their saving rate. Purchases of big-ticket consumer durable items will continue to be postponed as precautionary saving becomes imperative.”
If you’re interested in real leading indicators of the credit crisis, rather than the useless sound bites you get from the mainstream press, check out Rob’s edition of The Richebacher Letter, here.
The Big Three automakers are due to turn in restructuring plans to Congress this week … if they want to maintain government funding, that is. GM is rumored to be cutting its number of brands in half, firing thousands of employees and closing more factories. Chrysler and Ford will likely follow suit. Officials from the UAW will, no doubt, continue to deny their own planned obsolescence.
The Dow nearly fell 300 points in the first half hour of trading this morning. Now flirting with 7,500, the Dow is a breath away from testing its credit crisis lows. No amount of stimulus can help the Big Board now.
“Just remember this,” urges Chris Mayer, as stocks seem poised for another dive. “All it takes is a few really good ideas to make a bundle in the stock market. Some stocks you buy, make some money with and sell. Some you lose on. But the biggest dollars will come from a few stars you buy, hang onto and then watch go up something like fivefold in a few years.
“Just a few great stocks can make all the difference. The odds of finding one of those rare gems is a lot better in a market like this than in one that’s been steadily rising for years. So don’t give up the quest.”
What’s the world’s greatest investor doing these days? Buying up the debt of legendary American brands. Warren Buffett’s Berkshire Hathaway picked up $250 million worth of debt from Tiffany & Co,, the famous jeweler. Factor this in with recent purchases of Harley-Davidson, Swiss Re, Goldman Sachs and GE and the trend is clear… the Oracle’s on the hunt for world-famous businesses in desperate need of cash.
Remember this mantra too… it could be a whole lot worse: Japan announced today its economy shrank a stunning 12.7% in the fourth quarter of 2008. That’s four times worse than the reported American contraction in the fourth quarter and the worst three-month stint for Japan since 1974.
China could care less. As the whole world burns, the Shanghai Composite has quietly climbed to a nearly six-month high. The index is up 30% year to date.
Despite the fundamentals plaguing the dollar, today’s flight out of stocks has the dollar on the up and up. In fact, it’s soaring…the dollar index is up a point and a half from Friday, to over 87.5.
And dollar strength spells oil weakness today. Light sweet crude is down two bucks, to $35 a barrel.
“With all the hubbub,” writes a reader, “over executive pay and who should regulate it, doesn’t it seem strange that no one addresses the root cause: that shareholders are deprived of their rights to make appropriate management decisions because of arcane state laws (proxy and other) and indefensible SEC rules that allow management to ignore stockholders and control companies for their own benefit, instead of managing for the benefit of shareholders. Management is simply not accountable to shareholders!”
“Dwight D. Eisenhower,” starts another, “in his farewell address to the nation warned of the growing threat to the nation from the military-industrial complex. Subsequent administrations have ignored his warning, to the peril of the country and the economy. Military spending is the least productive in the long run, doing nothing to build up the country. Instead of tanks, missiles, aircraft, etc. that our fear has bought us, we could have a first-rate health care system; a great educational system; up-to-date, state-of-the-art infrastructure; and fully funded Social Security programs.
“We have, in our paranoid fear, squandered all of these for military prowess, which impoverishes the nation in the end. The GAO has reported the audit of military spending every year since 1989 has not passed muster because the military has not been accountable. We, as Russia before us, are sinking under the inordinate weight of this monster.”
The 5 Min. Forecast
P.S. Congratulations are in order this morning. If you’ve been keeping score at home, you already know that Alan Knuckman of Resource Trader Alert locked in a gain of exactly 100% in 99 days today — his first trade since taking the helm of our flagship commodities service. Alan told readers to buy a gold spread back in November, and they’re cashing out half their position as we speak… a clean double, while the Dow fell 12%.
If you haven’t been playing alongside, to celebrate the trade, we’ll offer you a special discount on Resource Trader Alert. Save over $300 bucks if you subscribe by Thursday — get the details here .