by Addison Wiggin & Ian Mathias
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’Tis the season, Part 1: Frank Holmes on why gold is poised to take off any day now
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’Tis the season, Part 2: Why stocks are due for a pummeling after Labor Day
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The commercial real estate shakedown of 2010… Jim Nelson on a scheme stinking up Capitol Hill
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“Way off the realities”…. Reader in China takes issue with Chris Mayer’s China thesis
Steady as she goes. Gold is sitting tight at $1,212 this morning. It popped up from $1,200 yesterday the moment that first-time jobless claims numbers came out… and hot money fled for safety.
So what’s the outlook from here?
“If history is any guide,” says U.S. Global Investors chief and Vancouver favorite Frank Holmes, “gold is about to get even more attractive because we are heading into the fall and winter gift giving season.” The Muslim holy month of Ramadan is just around the corner… followed by India’s Diwali festival, Christmas in Europe and the Americas and then Chinese New Year.
“Looking at more than four decades of seasonality, September has been the best month of the year for gold. In a typical year, the September price rises 2.5% above the August price.”
“And to make the case even more compelling,” Frank adds, “the gold price has risen in 17 of the 21 Septembers since 1989, by far the best success ratio of any month of the year.”
July is usually a sleepy month for gold… but not for U.S. Gold Eagles this year. Buying in May heated up to levels unseen in over a decade, and then cooled off in June. July turned out to be the second-best month this year.
Speculation continues to abound about whether the Mint will issue collector-grade uncirculated and proof Eagles this year — which it did not in 2009. The Mint says it’s “continuing to work with current and potential blank suppliers to increase the supply of silver and gold blanks in amounts that may make it possible” to do so. Stay tuned.
(If all this sounds intriguing, but the lingo trips you up, our Beginner’s Guide to Coin Collecting is still available.)
So what about gold stocks? “September is historically an even better month for gold stocks,” says Frank Holmes, “as measured by the NYSE Arca Gold Miners Index. The strong correlation between the gold price and gold-mining stocks explains much of the average September jump for gold stocks, which have historically offered leverage to the gold price.
“This leverage is shown on the chart of how bullion and the miners have fared in late-summer and fall rallies during the gold bull market that began in 2001. These uptrends have generally occurred between mid-July and early October, though in 2004, it extended into late November.
“The gold price has climbed an average of 12.4% during the 2001-09 seasonal rallies even as the price steadily moved into four digits. As good as that result was, the impact on gold stocks was even stronger — their annual jump averaged more than 26%.”
If you want to be on board, there’s no time like the present. Byron King recommends a basket of gold stocks — everything from the biggest names to a small fish George Soros is betting on — in this report.
In a report that should have shocked no one, retail sales grew at a snail’s pace in July — 0.4% to be precise. Take away incentives by the automakers and higher gasoline prices… and sales actually fell 0.1%.
Those higher gas prices headlined a 0.3% increase in the consumer price index in July. Over the last 12 months, the Labor Department reckons consumer prices have risen 1.2%.
Are the figures manipulated? Sure, but the real takeaway is this: This report will do nothing to dissuade the Fed from the notion that deflation remains a far bigger threat than inflation.
Wall Street traders digested these figures and decided… not much. The major indexes opened flat. About what you’d expect on a Friday in August, when hardly anyone’s trading anyway.
Beyond that? “When people come back in September, we’re going to see a pretty tough fall,” Addison says in a new interview with Futures magazine. “It looked like the economy was improving in the headlines [during] the spring and that helped contribute to people feeling optimistic about the stock market, but that headline optimism is going to fade before the end of the summer.
“We’ve passed through a historic sucker’s rally that will end this year. We’re still suffering from spending way more than we can afford to spend and until we can figure that out, U.S. stocks are going to suffer right along with the economy,”
Steve Sarnoff, looking over his charts, reached a similar conclusion in yesterday’s issue. He ventures to say we could soon revisit the "panic" days of 2008.
If and when that happens, history proves there is still one class of stocks you can count on for hefty returns — the smallest stocks.
That's why our small-cap and OTC stock guru Greg Guenthner is rushing around the office right now. He's culling a list of about 20 tiny stocks… working the phones… double-checking his research.
On Sunday, he's broadcasting his latest OTC play. He’s proven that just three OTC plays like the one he's about to release can grow to… well, let’s just say a staggering amount of money in a very short time. You’re invited to examine the numbers for yourself in this presentation… still available through midnight tomorrow night. If there's another "panic" in store, Greg's research is a great way to stay above the fray.
Here’s another potential catalyst for the market’s next leg down: Call it the commercial real estate shakedown of 2010. This is something our income-investing specialist Jim Nelson has been eyeing for months — as a result of the $1.4 trillion in CRE loans maturing in the next three years.
Of these, an astronomical amount are underwater,” Jim observes. “A large portion are in ‘nonaccrual status’ — which just means the loans are past delinquency.”
“Even more are set in ‘extend and pretend’ mode. Meaning lenders know there's no market for these properties. So they are just letting at-risk borrowers continue to make whatever payments they can.”
“The commercial real estate lobby isn't going to miss an opportunity to beg for money. A colleague forwarded me a letter this lobby sent House representatives asking them to support Rep. Shelley Berkley's Community Recovery and Enhancement Act.” Get it? The CRE Act? Wow, they’re clever.
“The bill itself — no doubt written by the very same lobbyists — would give investors a 50% tax cut on investments on commercial real estate debt. But this will only delay the problems. And it won't even do that great of a job doing that.
“We can't imagine the private sector picking up all the troubled loans for just a 50% tax cut. Many of these properties are in such bad shape, they resemble the ‘toxic loans’ that came out of the residential market in 2007-08.”
The bill sits in committee. But “depending on where it goes from here,” Jim says, “we could be looking at a catalyst for the second dip in the market.”
That’ll make solid dividend payers an even more attractive alternative. Jim sees one that’s so solid, he calls it the “other” government-backed retirement program. He’s just put together a presentation about it… which you can see here.
“I found the exchange on Glenn Beck entertaining,” a reader writes. “I've never listened to his radio show in its entirety, but I have caught brief snippets (about all I could tolerate). I find him to be sort of a ‘conservative light,’ with little or nothing in the way of original insight or analysis. Sounds like an affable fellow, though. Still, he makes $28 million and I don't…”
“Say what you want, but Beck was calling the bad news about the housing market as far back as 2 1/2 years ago. He called the short fall on the banks, and brokerage houses, well before they went public with the mess that they are in.
“The reason Beck has such a loyal following is he's the one with hope and change. This administration promised that, but so far, it is just the same old business inside the Beltway but just with a Chicago twist…”
The 5: Wow, Beck was calling BS on the housing market way back in early 2008? We might be impressed were it not for the fact we published a report called The Total Destruction of the U.S. Housing Market… in early 2005.
“Help me understand something,” another writes. “You said ‘instant forgiveness’ on underwater mortgages would instantly screw anyone holding mortgage-backed securities. True enough, but what would happen to these folks if the extend-and-pretend game ended and the loan defaults were finally recognized? Wouldn’t the end result be the same — they'd be screwed either way?
“One more comment: You said, ‘This administration has a history of hosing bondholders (GM and Chrysler),’ but if my memory serves me correctly, didn't the hosing start during the Bush administration in 2008? I voted for Obama and have to say I'm disappointed in the lack of any real change, but I'm also tired of people blaming all our problems on him and the Democrats when, in my opinion, no political party has clean hands in this mess.”
The 5: Yes, holders of mortgage bonds are screwed no matter what — eventually. We just figure the housing proposals most likely to win the day in Washington are the ones that forestall that moment of recognition you speak of until the last possible moment. And that’s been the case no matter who’s occupied the Oval Office.
“Chris Mayer’s latest thesis of buying Chinese consumer stocks is way off the realities in China,” writes a reader who says he’s lived there since 2005. “I just spent three weeks in Suzhou, one of the five economic engines of China, working and talking to friends and former colleagues.
“Their ‘brothers’ and ‘sisters’ (cousins) in their late 20s, 30s and 40s are moving in with their parents because they can't find work. If you are a construction worker or real estate agent, you are doing fine, but everyone connected to the consumer economy is getting laid off. Beijing's numbers are about as reliable as D.C.'s first stats on all things — before ‘revisions.’
You are joining the ‘FOOL’S RUSH’ just before collapse. Of course, people will take your investment dollars because they are bailing before the big crash here. Just like the mainstream media are now telling the domestic fools that it is a good buying opportunity so those who sign their paychecks can bail out from the ‘rising stock market’ in the USA before the next big dip — as you all rightly call it, the depression.”
The 5: Chris replies, “It’s a big country, and there is room for debate. I’d say the reader reflects consensus, which is the only way to explain the valuations of some Chinese companies. Thankfully, I’m an investor first, not a macroeconomist. So I couldn’t care less about Beijing’s numbers any more than Washington’s. I focus on the real world.
“In Mayer’s Special Situations, we picked up a company that plays right into consumer demand for 3.5 times earnings. It just reported a 150% increase in sales and earnings. That’s real economics.”
You can check out that write-up… plus Chris’ report packed with seven companies poised to profit big from Chinese consumers. Every one of them is listed on a U.S. exchange for easy purchase. And you get all of that with a $1 trial membership to Mayer’s Special Situations, still available for a very limited time.
Regards,
Dave Gonigam
The 5 Min. Forecast
P.S. As of this writing, only 36 hours remain before we take down Greg Guenthner’s presentation on the immense potential of the OTC stocks he follows. If you want to be on board when he issues his next recommendation on Sunday, you need to check this out before midnight tomorrow night.