The Ghosts of 2008, Gold Stocks, A Currency Play, Bank Role Reversal and More!

by Addison Wiggin & Ian Mathias

  • Deja vu all over again… are stocks just following the 2008 playbook?
  • Bill Jenkins shares his favorite global currency
  • Gold bugs beware: Gold chart forecasts a sell-off
  • Yet league of famous funds (and Chris Mayer) are buying up gold stocks
  • Plus, are we reading this right? A bank bails out the government?


  We’re scanning markets of the world today and scratching our heads… haven’t we heard this before?

  There was a scare at the start of the year — banks were in trouble, the housing market was crashing and unemployment was rising. The S&P fell at a rate unseen in a long, long time. But then, a sucker’s rally! The worst was likely over, they said… stocks were oversold. The U.S. consumer, China and oil companies promised to lead us out of this mess. And of course, the current administration’s new multibillion stimulus plan will kick in any second.

After bottoming in early March, stocks soared well off their lows. With the S&P 500 at break-even for the year, stocks now face an inflection point.

Wait a second… what year is it?

We need not remind you of what happened in the second half of 2008. But it’s not worth worrying about… it’ll be different this time!

  Stocks took quite a tumble Thursday. The worse-than-expected jobs report gave traders more than enough reason to be short into the three-day weekend. The S&P 500 fell nearly 3%. Since reaching its 2009 high in early June, the S&P is down 5%.

  Major indexes are in trouble again today. The Dow and S&P opened down 0.75%, mostly thanks to sour moods left over from Thursday.

  And just as in 2008, the smart money says there is more pain ahead:

“You may have green shoots, whatever you want to call them,” said market sage and author of The Black Swan Nassim Taleb. “You may have temporary relief, but you are still in a world that’s breaking. We’re in the middle of a crash. So if I’m going to forecast something, it is that it’s going to get worse, not better."

And the root of all our woes, Mr. Taleb? “The monkey on our back is debt.”

Amen. This should be deja vu to our most dedicated readers…Nassim shared a similar sentiment at the 2007 Agora Financial Investment Symposium. We expect equally prophetic forecasts from our speakers this year. If you haven’t signed up to join us, better get on it right now… the show starts in two weeks.

  Just like in 2008, the logical move is to sell dollars and buy useful assets, like gold. But just like last year, the current trade du jour is buy greenbacks, sell everything else. After Thursday’s, stock sell-off, the dollar index broke out of its recent range. It had been hovering just around 80 and now goes for 80.7.

  “The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Medvedev told the international press today, yet another call from a BRIC nation to ditch the dollar. He’ll meet with President Obama this week. We wonder if he’ll have the stones to bring this up:

“In the long term, we must also think about a single unit of payment such as the International Monetary Fund’s Special Drawing Rights. We cannot be hostages to the economic situation of a single country, as is happening today with the United States.”

  “Of the major world currencies, I have to say that Australia’s dollar is my favorite,” writes our currency man Bill Jenkins. “It has an edge because of its commodity-related economies and currencies.

“Now, Canada has the same edge. In fact, you may hear the Canadian and Australian dollars called the CommDolls (commodity dollars) for short. But Canada is inextricably tied to its neighbor to the south (namely, us), and that’s more than just a little problematic.

“Australia, on the other hand, is not tied to the United States. Instead, it’s better placed to trade with another resource-hungry nation — China.

“As China attempts to lift itself up by its own bootstraps, Australia comes into the picture. It has been widely understood that Australia is a little China. Not in culture, custom or language, but in economics. A significant part of Australia’s commodities flow into China, and the more the Chinese move ahead, the better it is for Australia.

“Also, let’s consider that Australia’s central bank is still holding its interest rates at 3%. In a fairly stable country, with a fairly stable currency, that is one heck of an attractive rate. Why, it is downright appealing!

“Indeed, Australia may now become the benefiting member of the next carry trade. After all, if can you borrow money at 0.25% and invest it at 3%, you stand to make a decent haul. And as risk appetite re-enters the market, you can bet your bottom dollar that Australia will likely be a real beneficiary.”

That’s just a snippet from Bill’s latest special report, which his Master FX Options Traders received over the weekend. Only subscribers have access to this report, which includes his provocative new short euro trade. If you want in on the action, click here.

  From a technical standpoint, gold looks set for some short-term pain. Just like stocks, the gold chart is taking a page from 2008. Check it out:

When it hit the fan last year, gold failed to deliver the righteous moonshot many had forecast. It certainly was a better place to be than stocks, but gold still suffered. Until further notice, the same playbook appears to be in use today… gold may be the once and future money, but the dollar and U.S. Treasuries remain the ultimate flight to quality when the going gets tough.

After sticking to a tight range the last few weeks, gold fell today along with stocks. The spot price shed $10, to $925 an ounce.

  “I see everything coming up roses for gold and those who mine it,” says Chris Mayer, armed with proof he’s not the only value hound with his eye on gold.

“For the first time in a couple of decades, some of America’s most successful, big-name investors are buying gold. David Einhorn, the hedge fund manager who predicted the downfall of Lehman Bros., recently bought gold for the first time.

“And then there is John Paulson, the guy who made billions of dollars by correctly anticipating the housing bust and credit crisis. Paulson just plunked down $1.3 billion for an 11% stake in AngloGold. He’s also got a big position in Kinross Gold.

“Peter Munk, the 81-year-old chairman and founder of Barrick Gold, also offers up his own anecdote about gold’s broadening appeal. ‘I have had more phone calls in the past six months than ever before — from people who have $120,000 inherited from grandmother, and from hedge fund managers with millions,’ he says. ‘I am not saying George Soros, but people of that caliber have told me they are buying gold.’

“You no longer have to be a gold bug to think gold will rise in price. In fact, this buying by some of the world’s greatest investors may be the leading indicator for a quick 116% climb — to $2,000 per ounce or higher. Give gold the cold stare of a professional handicapper and the odds look very good, indeed.”

Chris just gave his Capital & Crisis readers another gold stock for the long haul. He tells us it’s “a miner in a in politically safer area with a growing production profile, falling costs, a good balance sheet and a stock that is cheap on the face of it.” Sounds hard to beat, eh? For access to this pick and the rest of the C&C portfolio, click here.

  Oil’s down today, too. The front-month contract is off $2, to $66 a barrel.

  The American service industry contracted again in June, the ISM reports today. Their monthly gauge of the service sector scored 47 last month, 3 points below a “growth” reading of 50. At least that’s an improvement from May’s score of 44. In fact, June was the third straight monthly increase… we’ll keep on an eye on this one.

  The FDIC closed down seven banks late Thursday, a single-day record for the credit crisis. That brings the total to 52 for the year. Considering the five bank failures the week before, it’s clear the pace of bank busts is accelerating.

  Last in today’s deja vu issue, a role reversal that doesn’t remind us of the last 18 months whatsoever. Get this: A struggling bank bailed out a municipality over the weekend.

In an unfortunate sign of the times, many communities across the country canceled fireworks shows for the Fourth. You know the drill… budgets are tight, revenues are down, savings are nil.

New Providence, N.J., was one of those towns, until its local bank stepped in. Investors Savings Bank blew the dust of its wallet and wrote New Providence a $12,000 check to finance the fireworks display. That’s a tiny sum, even for a community bank, and probably equal parts philanthropy and marketing. But good grief… it’s the first such role reversal we’ve heard in a long time.

  “How can we expect a heavily debited consumer-based economy to ‘recover’?” asks a reader, with a barrage of rhetorical questions. “When borrowing and spending drives the economy and unemployment soars and credit shrinks, how can we expect an increase in spending? When our goal is to recover and we have issues like this to deal with, can we really get there from here? I don’t see how it’s possible. In my opinion, we have been in a depression for over a year and our path from here is down, not up. What am I missing? How can our consumer economy recover? What will a recovery from here look like?

“By the way, paying a million dollars to have lunch with Buffett, who just lost $30 billion, is beyond stupid. Buffett can make it in good times, but in bad times, do just the opposite of what he does and you will get some of his money!”

Thanks for reading,

Ian Mathias

The 5 Min. Forecast


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