Everybody Panic

by Addison Wiggin – March 16, 2011

  • Stocks hammered, again… Japan, nukes and reminiscences of the ‘flash crash’…
  • The “nuclear renaissance” declared dead… and a viable candidate named to replace it…
  • Vancouver favorite Marc Faber on the one sure thing that will follow falling stock prices… how it will affect every decision you make this year…
  • Shiite hits the fan in Bahrain… the proxy war between Saudi Arabia and Iran heats up…
  • Gold and silver assume their natural role in the used car market… paranoia creeping in over Anonymous, the CIA and Martin Armstrong… the S&P reaches a critical low… and more…

A second reactor at the Fukushima Daiichi nuclear plant in Japan may have ruptured. Plans to douse the reactors with water via helicopter had to be abandoned. Radiation levels are apparently too high.

"The nuclear renaissance is dead," concludes Chris Mayer, after several days of deliberation that began early on Saturday at JFK airport in New York, where we heard news of the first explosions.

"In investing, you have to change your mind when the facts change. In the last two days, the picture for the nuclear industry clouded over, big time.

"Japan alone makes up 11 % of the world’s demand for uranium. I suspect it will use less in the future. I suspect many of the plants in Europe, both planned and existing, are in jeopardy.

"The whole process of developing nuclear energy will slow. The industry will feel the chill from Japan for years. That’s my guess.

"The facts won’t matter. Look at what happened in the Gulf after BP’s oil spill. All drilling ceased. It didn’t matter what your safety record was. And even now, drilling permits are incredibly difficult to come by.

"The stakes are far greater with nuclear."

This morning, the Chinese suspended approval of all new nuclear projects — a big step for one of the world’s most aggressive nuclear programs.

But that particular meltdown is not our beat, is it? The economic and financial one is…

The nimble investor will have to pivot to new opportunities that result. "The problem for the nuclear industry," says Chris, "is an opportunity for natural gas, for instance.

"Natural gas-powered utilities will look easy and cheap compared to nuclear. Japan will import more liquefied natural gas (or LNG) to meet the shortfalls created by its nuclear industry."

In light of the earthquake and tsunami and nuclear crisis "institutional investors will revise their expectations for global GDP growth in 2011," advises our forensic accountant Dan Amoss of Strategic Short Report. "When they do that, many will lighten up on their allocation to stocks."

Thus, the Dow and the S&P are adding to yesterday’s losses. The Nasdaq got crushed nearly 4 % in the first 45 minutes of trading this morning.

"The stock trading community seems as spooked as it was in the wake of last May’s flash crash," Dan continues. For evidence, he points to Vancouver veteran Dennis Gartman’s daily missive yesterday.

"Panic is the order of the day," says Gartman, “and there are times when panic is actually the better part of investment valor. It is better to panic and remain liquid than to retain one’s sense of ‘cool’ and step into the fray…

"This is going to become vicious, and it is going to get much, much worse before it gets even modestly better."

Beware.

Falling stock prices add up to one sure thing — more easy money from the Federal Reserve.

"I think Mr. Bernanke doesn’t know much about the global economy," our friend Marc Faber tells CNBC, "but he probably watches the S&P every day.

"We may drop 10-15 % ," Faber continues. "Then QE3 will come, [then] QE4, QE5, QE6, QE7 — whatever you want. The money printer will continue to print, that I’m sure." Later, he added, "Actually, I made a mistake. I meant to say QE18."

That said, his outlook for Japanese stocks is much in line with our own Trade of the Decade: "This huge selloff is an investment opportunity in Japanese equities," although he cautions, "if a meltdown occurs, then all bets are off."

Easy money is already having its affect in the U.S. Wholesale prices, which trotted upward in December and January, reached a full gallop in February.

The producer price index (PPI) rose 1.6 % . Even after the usual statistical sleight of hand applied by the Bureau of Labor Statistics, the number is more than double what the Street expected.

Annualized, it’s 19.2 % .

That’s for finished goods. If you move further back in the production chain, prices for crude goods rose 3.4 % last month. And February was no fluke. PPI for crude goods has risen 20.7 % over the last six months.

But "core" PPI excluding food and energy remains under control. And as we learned a couple days ago, the Fed believes we have nothing to worry about because the new-and-improved iPad costs the same as the old one.

That’s their story… and they’re sticking to it. The Fed announced in a statement yesterday that THEIR "measures of underlying inflation have been subdued."

Well, la di da.

Even though it’s a minor change from January’s statement, which said "measures of underlying inflation have been trending downward," there has been no change to near-zero interest rates.

Rates will remain "exceptionally low" for an "extended period." Zzzzzzz…

"Until very recently," Marc Faber, adds in his CNBC interview, "very few people criticized the Fed’s policies under Mr. Greenspan and Mr. Bernanke."

But that’s changing. "Over the last few months, a lot of critical comments have come up about the Fed and its money-printing habit," Faber continues, no doubt noticing what we have written just this week about the Anonymous manifesto and the iPad debacle.

And… tomorrow comes a new phase of critique. Rising prices of food and energy will come under the scrutiny of the House Subcommittee on Domestic Monetary Policy, chaired by our friend Rep. Ron Paul. Among the expert witnesses who will testify is investment banker Lewis Lehrman and James Grant, publisher of Grant’s Interest Rate Observer.

If you’re old enough, you might remember Lehrman almost beat Mario Cuomo to become governor of New York in 1982. A year earlier, he and Paul emerged as the dissenters on a commission appointed by President Reagan. The commission’s task: to investigate a return to the gold standard.

The "minority report" Paul and Lehrman submitted to the Reagan administration has become an underground "must-have" argument for reasserting gold in the international monetary system. Just in time for tomorrow’s hearing, Laissez Faire Books is republishing the "lost gold bible" in conjunction with our friends at the Ludwig von Mises Institute (LvM). Keep an eye out tomorrow for word about how you can get a free copy.

It’s even uglier this morning in Bahrain than yesterday. The 1,354-year-old conflict between Sunni and Shia Islam is rising toward a crescendo:

  • Police opened fire on protesters in the capital Manama. Six people are dead, and the protesters have been chased from the square, where they’d been camped out for weeks
  • In a village south of the capital, reports are emerging of the security forces shooting and wounding up to 200 Shia with buckshot
  • King Hamad has declared martial law.

No sign of the Saudi Arabian troops who rolled in with tanks yesterday; they’re staying in the background for now.

"Saudi Arabia’s incursion into neighboring Bahrain is a risky move," says former USA Today and Washington Times reporter Barbara Slavin, "that could further inflame domestic unrest in both countries and give a propaganda boost to Tehran’s campaign to cultivate the Arab street."

As we said yesterday, Bahrain is quickly turning into a proxy war — Saudi Arabia versus Iran, Sunni versus Shia… with the U.S. Fifth Fleet stationed in the middle of it all.

We see oil has popped up $2 this morning, to $ 99.25. Just one spark in the wrong place could easily send it to $ 220, confirming everything Byron King has been warning about for four years. To safeguard your portfolio accordingly, look here.

So much for January’s bounce in new home construction. Housing starts plunged 22.5 % in February — the biggest one-month drop since 1984. At an annualized 479,000 units, we’re very close to the record low of 477,000 reached in April 2009.

Building permits, a reliable indicator of future construction, also fell 8.2 % , to the lowest level on record.

More than half of U.S. workers have retirement savings totaling $ 25,000 or less, according to the latest annual survey by the Employee Benefit Research Institute. The $ 25,000 figure does not include a primary residence. But it also doesn’t include their workplace retirement plans.

If it really matters, the precise percentage of people with less than $ 25,000 saved is 56 % . Meanwhile, 29 % of workers have less than $ 1,000 saved. Worse, 34 % of workers say they tapped into their savings last year to meet expenses.

Thus, 20 % of the people surveyed say they plan to retire later than they’d figured on. That’s all? Looks as if a lot of people are still living in denial… counting on a Social Security program that went into the red nearly six months ago.

As an alternative, if you’re looking for steady retirement income, you’re well advised to look into the "Plan B Pension" recommended by Lifetime Income Report editor Jim Nelson. He tells you how it works in this presentation.

How’s this for the "sign of the times" bucket? A guy in Texas who wants to sell his 2003 BMW… is willing to accept gold or silver for payment.

From the Austin, Texas, Craigslist:

"2003 bmw zhp with M package, like new must see, alwaysed garaged, Carbon fiber trim, short shift 6 speed manuel, black on black and much much more must sell. Found another car, make offer.

"selling for 11,700 or trade for M3 will pay difference or c5 vette. looking for track car more hp. call lets talk XXX-XXX-XXXX or text.thank you..Will trade for gold or silver bullion as well.."

"I’m confused," writes a reader. "With the threat of meltdowns on all fronts, precious metals value (alternative money) is dropping? Please explain."

The 5: When high rollers trading on margin get scared, they need to raise cash, fast. They sell whatever they can get a price for. Metals fell during the Panic of 2008, too.

But they recovered. Quickly. Yesterday was a blip. Gold was down at most $ 50 from its all-time high. And for the beating silver got, it still remained above the price it fetched a month ago.

Now you have a guy willing to take bullion for his Bimmer. Ordinarily, that fact might signal a top… but we haven’t had anything resembling a blowoff rally. We view this pullback as another buying opportunity. [Ed note. If you’re still on the sidelines, but want to get in the game, you can learn about nine ways you can still get rich on gold, right here. Or if silver’s your thing, we have six ways to play that in this report.]

"If the broken window economic theory is true," a reader adds to a thread that started with the Japan disaster, "I expect Japan will have a total GDP of the U.S., China — and what the heck, let’s throw in Zimbabwe — within the year.

"Meanwhile, we already have an economic Chernobyl here, including 44.1 million now on food stamps, a U-6 unemployment rate of somewhere around 17 % , Zillow.com telling us almost a quarter of homeowners are underwater, with total housing losses over $ 1.7 trillion, 21 % of children now living below the poverty line, and 10 million households reportedly not able to heat their homes without assistance.

"Who needs a tsunami, Chernobyl or even a 15.0 earthquake?"

The 5: "The idea that eradicating a large quantum of people’s possessions," Switzerland-based money manager and former editor of the U.K. edition of The Daily Reckoning Sean Corrigan writes, "or evaporating a sizeable fraction of their nest eggs would contribute to ‘prosperity’ is to reckon that in hefting his rock up the hill for all eternity, Sisyphus was the most tireless ‘engine of growth’ for Hades at large."

Heh. Amen.

"While it is great news that Martin Armstrong is free," another reader writes, "if, in fact, he is… I am concerned that he has not been heard from. It is entirely reasonable that after being incarcerated 11 years, he may want to disappear for a while. It is also curious, since he was a prolific writer in captivity and one would think he would keep at it.

"Please report anything you hear, since you are becoming all we can trust."

The 5: The media picked up the story after yesterday’s 5 went out. Bloomberg News got hold of someone from the Bureau of Prisons, who says Armstrong will finish his term under home confinement from now till September.

"I would like to take the time to thank everyone who has stood by me these many years," Armstrong writes in a one-page PDF posted at one of his ‘unofficial’ websites.

"I’d stay away from Martin Armstrong," cautions another, "and any Facebook revolutions, Anonymous, etc. The FBI or CIA could be nervous and have a protocol. They may try to shut down the Internet, or just Agora Financial, in view of any mass rebellion talk."

The 5: We’re sure the CIA and FBI have their protocol. But c’mon, it’s designed to keep you safe!

"The Iranians are building a huge embassy in Managua," Secretary of State Hillary Clinton let slip last year. "And you can only imagine what that’s for," she added, encouraging the imagination to run wild. There are evil people out there, and they need to be contained.

Besides, what fun would The 5 be without a little intrigue?

Regards,

Addison Wiggin
The 5 Min. Forecast

P.S.The S&P 500 has traded below 1,300 all week. This, you may recall, is a key level that Jonas Elmerraji of our small-cap team have been eyeing since last month.

"It’s not incidental that we emptied our portfolio a week ago Monday," Jonas says. "Since then, stocks have slid, and even commodities like oil and silver have floundered."

"I’d love to take credit for being prescient enough to predict the market’s slide this week, but frankly, our positioning is thanks to our strategy of using S.T.O.R.M. to follow the markets, and not attempting to force the market to follow us."

S.T.O.R.M. is a five-step system Jonas developed to deliver steady, reliable double-digit gains in a typical time frame of about three weeks.

When Mr. Elmerraji cleared the portfolio on Monday, March 7, readers closed out four plays for an average gain of 12%… after an average holding time of just 12 days. And you don’t have to stay glued to a screen all day to make it work. Jonas does that for you. It couldn’t be easier. He explains the whole process right here.


rspertzel

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