Addison Wiggin – October 24, 2011
- “Vulnerable” markets rally on talks… about plans… for new programs… in Europe (seriously). Cofnas on the big ups (and downs) in store this week…
- To the rescue (heh): White House expands mortgage-assistance program; Fed to buy more mortgage-backed securities. Amoss suggests where your money (not housing) will benefit…
- Gold and silver learn how to float… the Chinese put a floor under copper…
- Pension crisis piques in Rhode Island… it and other worst-off states… where do you reside?
- A celebrity endorsement for Patrick Cox’s “nutraceutical”… readers question the wisdom of mass bank withdrawals … offer a few choice thoughts on our “Project X”!… and more!
Another weekend… another summit of European leaders… another inconclusive conclusion.
Be careful: Today’s news is rife with “Yeah, because it worked so well last time” detritus. (And not just from Europe.) Enjoy.
“European leaders took their first steps toward a new plan to stem the euro crisis,” says The Wall Street Journal, “admitting that their last grand plan, agreed to only three months ago, has failed.”
On this news… of “first steps” toward a “new plan” from the same people who dreamt up the “failed” old plan… traders are yawning. And rightly so. It’s a financial and economic problem. Policymakers will prove to be helpless in solving it in the long run.
European stock indexes are flat. U.S. stock indexes are slightly up.
“The markets are very vulnerable this week as European leaders meet to tackle the Greek sovereign debt problem,” advises our currency trading specialist Abe Cofnas, skeptical the complacent tone will last long, especially with another summit coming Wednesday.
“In my view, it will be a battle of perceptions. The political leadership will attempt to forge a perception of a controlled approach to solving the sovereign debt problem. At the same time, we can count on the market to provide a countervailing force of cynicism.”
“As a result, the German DAX Index is likely to suffer an intraweek cycle of optimism and pessimism” — big ups and downs.
The DAX — Germany’s benchmark stock index — has proven a powerful moneymaking tool in the “binary options” market that Abe follows. Since Sept. 6, he’s made six recommendations based on movement in the DAX. They’ve delivered gains of 161%, 72%, 120%, 125%, 117% and 66%… all in four days or less. Plus a “bonus” play that delivered an 18% gain in only a few hours on Friday.
Abe recommends ways to trade his view on the euro crisis, right here.
Wall Street is adding onto Friday’s big rally, the S&P about to crest 1,250 for the first time since the precipitous plunge in August.
In addition to unjustified optimism over Europe, there’s bullish news on both the earnings and the merger-and-acquisition fronts…
- Caterpillar’s earnings and revenue beat expectations; earnings were up 44% over the previous quarter
- Health insurance giant Cigna will buy HealthSpring for $3.8 billion
- Tech giant Oracle will buy RightNow for $1.5 billion.
“The S&P 500 managed to close above 1,225 on Friday,” Jonas Elmerraji told Penny Momentum Trader readers in his Sunday alert, “pushing through a price level that’s previously acted as a significant barrier for the index.”
“The S&P’s thrust above resistance is a very good sign for investors right now — but more telling will be whether or not we get continuation into early this week. The coming week is going to tell us a lot about what to expect as we approach November.”
In another destined-to-fail attempt to revive the housing market, President Obama is expanding the Home Affordable Refinance Program.
Launched in 2009, HARP allowed people with underwater mortgages to refinance… provided their mortgage was no more than 125% of the home’s value.
The aim was to help 5 million homeowners. To date, fewer than 900,000 have signed up. Little wonder: Why sign your life away to stay stuck in an underwater home, even at a lower rate, when you can either walk away from the home… or skip on your payments and gamble that the bank won’t foreclose and put yet another house on an already saturated market?
The Fed’s solution?
Lift the 125% cap on that loan-to-value ratio.
Seriously.
Meanwhile, the Federal Reserve is on the verge of buying up still more mortgage-backed securities — as it did during the first round of “quantitative easing.”
“From 2009 through March 2010,” explains Strategic Short Report’s Dan Amoss, “the Fed purchased $1.25 trillion worth of MBS” — taking rotten mortgages off the banks’ balance sheets and onto its own.
The Wall Street Journal floated the MBS purchase possibility on Friday: “Fed officials believe their past purchase programs helped to lift stock markets,” reports the WSJ’s Jon Hilsenrath, “ by driving investors from low-risk investments toward riskier investments.”
“Hilsenrath is widely viewed as a media liaison for Fed chair Ben Bernanke,” Dan notes helpfully. Heh.
“The market isn’t that stupid,” says Dan. “If we see $1-2 trillion worth of MBS purchases in a QE3 plan, it would be little more than a sugar high for the stock market. Plus, the rallies will be more and more focused in precious metals and tangible assets, as fewer investors will buy into the idea that QE translates into sustainable GDP growth.
“The Occupy Wall Street (OWS) movement would shift its focus toward the Fed, since QE3 would only raise the cost of living and give the rich another outlet to speculate their way to more wealth.”
“In the end, such a plan would starve savers of income, provide lower rates for solvent mortgage borrowers, and once again put upward pressure on basic necessity prices. So in Bernanke’s mind, it must be great! Get ready for QE3.”
One of the two sure-fire recession indicators we’ve been keeping an eye on is stubbornly refusing to acknowledge a double dip.
The Chicago Fed National Activity Index for October came in this morning at —0.21. Anemic by Chicago Fed standards … but it’s a slight improvement over last month… and more important, a move away from the critical —0.70 figure that’s signaled every recession in the Great Dollar Standard era.
The other sure-fire recession indicator we follow — the Philadelphia Fed’s State Coincident Index — comes out tomorrow.
“Rhode Island’s $14.8 billion pension system is in crisis,” reports The New York Times, only now catching up to something we’ve been cluing you into for months — the looming crisis in state and local pensions.
Ten cents of every tax dollar is going to retirees. The state treasurer sees that figure rising to 20 cents in the not-too-distant future.
The problem is one we identified more than a year ago — “the 8% illusion”. Public pension plans typically expect an annual return of 8%. In the past decade, Rhode Island’s actual annual return is closer to 2.4%.
Heh.
Rhode Island doesn’t even make the Top 10 on the putrid Pension List — our list of states in deep [explicative deleted] from pension obligations to state and local workers. To fund previous promises, every Rhode Island household would have to shell out another $1,576 in taxes every year for the next 30 years.
Where does your state stand? Our report American Oases lays it all out. It’s free to every new subscriber of Apogee Advisory. Access here.
Gold is staging a modest recovery after a small beat-down on Friday. The spot price is up to $1,651.
Silver is also up, to $31.65.
Copper prices are up 7% after a report showing Chinese manufacturing once again growing. The “flash PMI” figure from HSBC rose above the dividing line between expansion and contraction.
The bid on a pound of copper is $3.45.
“Whatever daily disaster leads the news cycle,” said Byron King on Friday, as if anticipating this development, “the fact is that people everywhere still want their world to work.”
“People want food and clean water. People want housing, and they want the lights to come on when they flick a switch. They want gasoline for their cars (and they want cars!). Basically, people want stuff, and that requires a resource economy to deliver the energy and minerals that the world needs.”
Nothing like a celebrity endorsement to boost the fortunes of a new product. And the “nutraceutical” that Patrick Cox is so enthusiastic about has just won plaudits from Richard Petty, perhaps the only man to transcend the sport of stock car racing, ever.
“The back story,” Patrick explains, “is that a member of Petty’s family has macular degeneration and has found that this supplement is helping with the condition.
“Petty is an extremely smart guy and has done his homework regarding the supplement’s mechanism of action. Petty likened our bodies as we age to a race car with a defective thermostat. With no way to know that the car is overheating, some part will eventually get too hot and fail. ‘With a good thermostat,’ Petty analogizes, ‘I can keep my temperature down and do a lot more laps.’”
“I love this analogy,” says Patrick. “Inflammation is very much like the engine overheating that tears down components and shortens working lives. And this nutraceutical drops the engine temperature by turning the thermostat back on so that individual body parts do not overheat.”
The list of conditions this supplement can alleviate and/or prevent is nearly endless, and new research on its ability to combat Alzheimer’s is especially promising. No wonder Patrick labels it a “panacea”… as he explains in this brand-new presentation.
“The idiots advocating ‘take your money out of banks,’” writes a reader jumping right into the mailbag with a theme from last week, “are acting the same way as Obama — who never has a clue about the full results of his actions.”
“Two things come to mind. First: Our financial system is teetering on the brink of collapse, so why would you want to throw another big log on the side of collapse? Second: Did they ever consider the fact our government is looking for someone else to blame for their mess?”
“If money leaves the banks, and the system collapses, whom do you think will get the blame? Find a more constructive way, you fools. Get the people now in power out! You’re marching on the wrong institutions!”
“March on Washington with the right message and I’ll join you.”
“The idea of bringing down the big banks,” adds another, “is counterproductive for the very people who feel their lives have been adversely affected by the economic disaster caused by big bank greed.”
“It’s tantamount to protesting at the open barn door after the horses have escaped… with all the loot.”
“The economy may be bad now, but to harm the banking sector, and system even further, would also harm the general economy, as large-scale business activity needs large banks. To do more harm to banks harms the economy these people are so vociferously complaining about…and it does absolutely nothing to foster the growth of business, and jobs.”
“Let’s say enough people take enough money out of a MERS-affiliated bank to cause them to fail. What will they have accomplished? Nothing but more destruction.”
“Besides, it would be more cause for Congress to do another TARP-style bailout… because… and get this straight: Congress and the Fed are not going to let this country’s big banks fail.”
“The bank thing is pretty disgusting,” muses another. “I bought into the student debt idea and struggle today to pay it off. Part of that debt is owed to Bank of America. I’ve taken responsibility for it and never missed a payment. It was my choice, and I need to deal with it.”
“When I consider that I’m paying out both ends, it’s pretty discouraging, though. My taxes go toward padding the pockets of irresponsible bankers as they climb in bed with politicians and enjoy the comfort of mattresses stuffed with dollars fleeced from the people.”
“As I consider how we’re getting raped and then the judge is granting reparations to the rapist, it’s tough to continue to recognize my responsibility to pay these crooks back for the money I’ve borrowed. I mean they’re pulling it out of my nose anyways. Am I wrong?”
“Love the letter. Keep us thinking.”
“Thank you for your note about the new venture,” reads the first of several emails about what we’ve labeled “Project X” — the effort that pulled us away from The 5 late last week.
“Congratulations, Addison, on this new project of yours,” says another. “I am extremely interested.”
“Gulch Gorge? A place to escape the modern world,” speculated one reader about the nature of the effort, after we said in our note on Friday that it’s not a newsletter, book, conference or documentary.
Another wondered if it was the launch of a fund. Nope, it’s not that either.
“Project X has got to be another crock!” exclaimed one skeptic who did not specify which of our previous efforts amounted to a crock.
“As clichéd as it may sound,” writes another reader, “many out here in the world of crazy investments, especially us older ones, really do trust you.”
“Our prayer is that you and yours could provide some genuinely workable answers that would provide some relief to the inundation of waves of uncertainty and rivers of anxiety as to what our government helpers will do next to confuse the issues more perfectly.”
That’s a high level of expectation… with some continued hard work and dedication from the team involved, we think Project X will live up to it.
We’re still not in a position to pull off the veil. But we can tell you it’s at least six years in the making… and the effort has taken up the attention of all our editors, many of whom you’ve read in today’s issue. Every one of them has drawn on his unique area of expertise — macroeconomics, natural resources, income investing, small caps, high-tech, currencies, you name it — to make this happen.
We’ve encountered countless obstacles to making it happen. On Friday we mentioned the 11th-hour involvement of the lawyers. Today, after a weekend-long drive, one of our key people on the project showed up at the headquarters of the outfit with whom we’ve partnered… and there was a gas leak. Six fire trucks showed up and the building had been evacuated.
Bring ‘em on, we say. Lawyers, highway miles and fire trucks be damned! Project X is a go!
We’ll formally take the wraps off it later tonight. Keep an eye on your email inbox for instructions on receiving your invitation.
Cheers,
Addison Wiggin
The 5 Min. Forecast
P.S. You get dibs! As you’re already a subscriber to at least one Agora Financial service, you’re first in line to gain access to “Project X.” Please watch your inbox… we’ll let you know how to receive your invitation later this evening.