Bernanke Walks Free: What to Do Now

April 18, 2013

  • “An easy place to get killed”: Chris Mayer on the stock market at a precarious moment… and a strategy that can resist market whipsaws
  • Elmerraji spots “the make-or-break level” for the S&P 500 as he reopens our “Aspiring Traders Wanted” campaign
  • “Tinfoil hats”: Doug Casey takes aim at claims of gold manipulation
  • A windowless apartment for an extortionate rent… a real-world cost of living lost on the purveyors of “chained CPI”… an ideal place to park your short-term cash… and more!

  “I continue to think the market is an easy place to get killed right now,” suggested Chris Mayer to his readers yesterday.

“The consensus seems to think all is well with stocks because of the Fed’s money printing efforts. (Along with the rest of the world’s largest central banks, I should add.) The idea being that this money will push up the market. It’s done so in the past, so why not again?

  “The problem is,” Chris avers, “you can print all the money you want, but you can’t print new businesses. You can’t print new products and new ideas. You can’t print manufacturing plants, shopping centers or farmland.

“There is a real world out there. And it’s made up of people and things. The world’s central bankers and politicians simply distort and corrupt that world. The pattern of economic and social life has changed in profound and immeasurable ways — thanks to years and years of messing with it by central planners of all stripes.

“This unnatural pattern needs repeated interventions to keep it going. The more and more it goes on, the more and more interventions needed just to keep it together. At some point, though, it’s like propping up Bernie (as done in the film Weekend at Bernie’s), and the whole thing is ridiculous.

“We’re there now. The financial ‘markets’ are broken. I put that word in quotes because there isn’t a market. It’s an opaque, manipulated mess. And the world gets what it deserves for letting these criminals run things. If it were up to me, I’d put Ben Bernanke behind bars, along with his crony capitalist friends.”

No, Chris is not retreating to cash and ammunition. He has, however, prudently trimmed his Capital & Crisis portfolio to eight high-conviction names. Five of them are so strong, he’s put them in what he calls “the coffee can portfolio.” An odd name, for sure: You can learn about the origins of the name… and how this “lazy man’s” strategy could multiply your money 11 times over… by watching this short presentation.

100  The major indexes are adding to yesterday’s sizeable losses. Blue chips are holding up better than small caps. At last check, the Dow was 14,571.

No earnings misses this morning, but some key economic numbers came in — say it loud; say it proud — “worse than expected”

  • First-time unemployment claims: up to a “meh” 352,000
  • Mid-Atlantic manufacturing: barely growing, according to the Philly Fed survey. New orders are actually shrinking
  • Leading indicators: down a skootch after three months of gains.

  “Yesterday’s big leg down helped shove the S&P 500 all the way down to trendline support,” says our trading specialist Jonas Elmerraji.

“The big price swings in the S&P have some equally big implications for traders right now. One of them is the idea that volatility is pouring back into the stock market after a long absence. A rebound in volatility shouldn’t be hugely surprising – volatility is cyclical, after all, so a move higher in the VIX has been due. But remember that volatility can be in both directions (as we’re seeing this week), so volatility added in the middle of a rally can actually help push stocks higher.

“And until the uptrend breaks in the S&P 500, everything that happens is in the context of a rally. The 50-day moving average is going to be the make-or-break level to watch in the S&P — it’s acted like a pretty good proxy for support over the course of the rally that started in November. By definition, if the 50-day gets taken out, the orderly uptrend in equities is over.”

[Ed. note: Jonas kindly requests your participation in an experiment. It will be much like the one he conducted six months ago. “We took a small group of novices from C-grade knowledge of the markets when they started,” he says, “to grade-A mastery of trading in just a single week.”

For this next round, Jonas is again seeking 75 volunteers. Only there’s an even more lucrative twist this time. It doesn’t matter what the S&P is doing. It doesn’t matter how much experience you have. And participation is absolutely FREE. Here’s where to get started.]

  Gold took another run at $1,400 in electronic trading overnight… and held it for maybe a picosecond, just before the Comex opened at 8:30 a.m. EDT.

The same thing happened Tuesday. At last check, the bid was $1,388. Silver rests at $23.28.

  “I don’t expect [gold] to drop much more,” says Doug Casey, “and I’d be very surprised at a drop below $1,000 an ounce, but there is no law of nature preventing it from doing so.”

His guidance now: People “should stick with their plans, buying consistently and lowering their dollar cost average. The lower it goes, the more gold at better prices they will own.”

 “Once a sell-off starts pushing investors into panic mode,” Mr. Casey says of gold’s action Friday and Monday, “that negative momentum can seem to take on a life of its own, making the downturn longer and deeper than a rational response to the situation merits or, indeed, than most people can imagine.

“In other words, it’s a normal — albeit radical — market fluctuation in abnormal times. The sellers are apparently treating gold as a speculation, which is a mistake. They should view it as a bedrock financial asset, something you buy and put away for the very long haul. It’s not a trading sardine.

“There are, of course, plenty of theories that flood the Internet every time gold sells off when it seems like it should be advancing — mostly conspiracy theories. The proponents don’t like it when we call their theories conspiracy theories, but that’s what they are. They allege it’s all because of the bullion banks, or the Bilderbergers, or the Trilateral Commission, or the Council on Foreign Relations, or the Fed’s crash team or some other nefarious agency.

“I have good friends who are otherwise quite knowledgeable and rational who sincerely believe that such groups are constantly knocking the price of gold down. I know they mean well, but I have to put these theories in the tinfoil hat category.”

Ooh, them’s fightin’ words. Doug will be back as usual this year for the Agora Financial Investment Symposium in Vancouver. But a newcomer this year will be Sprott’s John Embry. “There’s this unseen hand in the market that has been forcing the gold and the silver price,” Embry told Canada’s BNN network a few days ago. Fireworks may ensue.

And Barry Ritholtz might bring a can of gasoline. He got a respectful hearing last year when he said gold is “a trade, not a religion.” But this year? Check out what he tweeted on Tuesday…

Whatever the rest of 2013 holds, you’re best off navigating it with the most expert guidance you can find… and that’s what we’re assembling for this year’s symposium. Our experts might not always agree… but we think enough of you, dear reader, to let you reach your own informed conclusions.

Besides, what fun is it when everyone marches to the same dirge? For dates and an early-bird registration discount, check out this invite.

  The euro is stabilizing at $1.303 after a good whacking yesterday.

All it took was the head of Germany’s central bank suggesting the European Central Bank “may cut interest rates if new information warrants the move.” Notice how he hedged that — “may,” not “will.”

“But that didn’t stop the markets from taking the euro to the woodshed,” comments EverBank’s Chuck Butler.

Today, currency traders are watching the G-20 meeting in Washington. “The G-20 members,” says Chuck, “will be repeating their February statement about their pledge to ‘move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility.’

“That’s all fine and good, but as soon as the G-20 members pack up their dark suits and head home, Japan will get right back to their task at hand, which is to weaken the yen so much that it spurs inflation for the Japanese economy.”

[Ed. note: In a day and age of “zero interest rate policy,” EverBank has moved heaven and Earth to create a money market account that delivers a respectable yield. Through midnight tonight, Agora Financial readers are eligible for a bonus rate on EverBank’s Yield Pledge Money Market account. If you need a place to park cash, this is hard to beat: Check out the yield and take advantage here.

Know that we have a business relationship with EverBank, and we may be compensated if you open an account. But we wouldn’t tell you about this opportunity if we didn’t believe it was a good deal.]

  “They’re high,” says apartment developer Mike Blum of Insight Property Group, talking about rental rates in Washington, D.C. “The incomes are generally pretty good as well.”

2010 census figures reveal the nation’s capital has the second-highest rental rates in the country, exceeded only by San Jose. Two more recent surveys find D.C. the most expensive housing market in the country.

Nothing like being in the belly of the beast to insulate yourself from the fallout of housing bubble, huh?

Case in point: an old roller rink above the Harris Teeter grocery store in the Adams Morgan neighborhood. It’s being turned into apartments. Eight of the units at the center of the rink won’t have windows. Only a skylight.

“It looked like D.C. apartment mania had finally met its match,” says the alt-weekly Washington CityPaper: “Who would pay thousands of dollars every month to live in a windowless apartment?”

Go figure: The place will be ready for move-in next month, and developer Borger Management says three of the eight windowless units are already leased… at $2,300 a month.

“If I had the money,” says Jason Hogan, Borger’s director of corporate marketing, “that would be my first pick out of all the homes.”

So the head marketing guy at the outfit developing the place can’t afford it? Oy…

  “It’s really getting exciting in the precious metals market,” writes an excited reader from the U.K. “Today, I spent all my free cash on a 5-kilo bar of silver for cost of GBP 3,455 — there is 20% value-added tax (VAT) on silver here. My grandchildren will buy property with what I squirrel away!”

  “I keep hearing about this 2% inflation or less, or core consumer inflation,” writes one of our regulars, “but one of your sister publications shows the price of mining gold rise from approx. $800 to $1,400 an ounce in four years. So who is lying?

[Note for the irony-challenged: This is a rhetorical question.]

“The simple life,” he goes on. I rent. I don’t want a mortgage. This year, just recently, my rent increased 12%, I was shocked the rental market here in Denver is out of sight.

“I was thinking about getting a smartphone, but the access fee that was $30 a month is now $40 per month. That is 33%. I continue to drive as little as possible. Just too expensive

at $3.57 a gallon, and I have not seen it decrease lately.

“My cable, phones and Internet continue to increase yearly. A co-worker just received a 15% increase in his bundled service. I use to pay about $17 for water and trash where I live. It now fluctuates, depending on the time of year, from $40-55.

“I buy very little beef these days. Just too expensive. I wonder if a person could survive on the dollar menu at Micky D’s. Doubtful. Don’t get me started on the increases that I have incurred on medical costs, and Obamacare hasn’t even hit me yet. I keep putting off Doctor visits. So much for the push for preventive care. I can’t afford the prevention.

“These are real-world costs, not chained CPI events. You either can afford them or do without. The government lies about substitution; it only goes too far.”

The 5: Just wait till they apply chained CPI not only to Social Security payments, but the indexing on income tax brackets. Both are in the president’s current budget proposal…


Dave Gonigam
The 5 Min. Forecast

P.S. You know Bitcoin’s moment has arrived when it’s a topic of conversation at a financial giant’s annual meeting.

“One of the first shareholder questions asked at Discover Financial Services’ annual meeting was how Bitcoin could affect it,” according to The Wall Street Journal. “CEO David Nelms says the credit card company is following it but ‘we at this time don’t see significant impact.'”

Meanwhile, a Bitcoin exchange has… bit the dust. “BitFloor announced Wednesday it is closing its trading operations,” CNET reports, “and plans to return its remaining funds to its users.” BitFloor says its U.S. bank account is “scheduled to be closed.” Hmmm…

It’s rough and tumble in the Bitcoin world, for sure. That’s why we’re scrambling to assemble a “Bitcoin bible” — everything you want to know and the government doesn’t want you to know. It’s days away from release. To get your copy as soon as it’s ready, go here.


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