A Case of the Mondays

April 22, 2013

  • Bad news from blue chips, housing… The best chance yet for an Internet sales tax to pass Congress… a new way to game economic statistics… and a Bernanke disappearing act
  • Despite all of the above, stocks hold their own: Elmerraji pulls apart the latest S&P chart
  • Gold rallies further above $1,400… plus a gold number that could set a record this month
  • “Massive, massive buying spree” for gold: Dispatches from six world hot spots
  • The case for copper… a copper theft that departs from the norm… is there no end to bogus statistics?… and more!


  “In the first quarter of 2012,” read the statement issued before this morning’s open, “Caterpillar dealers added machine inventory of about $875 million, and this year, they reduced machine inventory by about $700 million.”

By all rights, the market should be having — as the annoying receptionist in Office Space said — “a case of the Mondays.” We count at least six items that should be dragging the market down.

For starters, Caterpillar delivered a whopper of an earnings miss. Or to be more accurate, CAT failed to guide analysts sufficiently low a few weeks ago to deliver an earnings beat today. (Props to our Dan Amoss for spotting CAT’s sickly state on behalf of PRO-level readers weeks ago.)

But wait, there’s more…

 “Health care reform… is making hospital CEOs very careful about their capital investments,” warns Frans van Houten, CEO of the Dutch conglomerate Philips.

Bad news for the giant U.S. health care sector, the top-performing S&P sector this year: Philips beat expectations, but van Houten tells CNBC that sales of its health care products will take a hit… and growing sales of its pricey LED light bulbs won’t be enough to overcome that hit.

 Nor is there cheer from the housing sector this morning: The National Association of Realtors says sales of existing homes dropped 0.6% between February and March.

Naturally, the “expert consensus” was looking for a small increase.

 Out of nowhere, the Senate could vote as early as today to enact an Internet sales tax.

As we’ve chronicled before, lawmakers have tried and failed to take this step since 1999. This time, it’s a rush job: Posted on the Library of Congress website only over the weekend, Senate Majority Leader Harry Reid used a parliamentary maneuver to bring it up for a vote without going through committee.

“For the first time,” says a Wall Street Journal editorial, “online merchants would be forced to collect sales taxes for all of America’s estimated 9,600 state and local taxing authorities.”

There’s a small-business exemption. Really small — $1 million in annual sales.

 “Data Shift to Give 3% Lift to U.S. Economy,” says a front-page story in this morning’s Financial Times: “Intangible Assets Add Billions to GDP.”

“The government is changing the way it does its accounting,” muses Chris Mayer, who still reads his newspapers on paper, the old-fashioned way. “As a result, the U.S. economy will be 3% bigger. Whoopee. Tell that to the unemployed. Tell that to folks who haven’t seen their real wages go up in a decade. Next time you get your paycheck, see if it’s 3% bigger.

“More evidence that modern-day macroeconomics is a farce and a joke at best. At worst, the whole discipline is a sinister apology for the growth of government and a nefarious way for Ph.D.s to get paid in a world where their skill set is worth a plate of warm beans.”

 Speaking of which — and in what might be the most unnerving development of all — Ben Bernanke is blowing off Jackson Hole.

The Kansas City Fed’s every-August confab in Wyoming has become the premier event for global central bankers and a touchstone for the market’s navel-gazers — especially the Fed chairman’s address. It was at Jackson Hole in 2010 that Bernanke telegraphed “QE2” loud and clear — setting off a new leg of the stock market’s bull run.

This year? He has what Reuters describes vaguely as a “personal scheduling conflict.” It’s the first time in 25 years a Fed chairman has skipped the event.

Hmmm… Maybe he knows something? He has a scheduling conflict because he’s headed to the proverbial “secure undisclosed location”? Heh…

 In the face of all these ill omens, the market is… holding its own. The major indexes are in the red, but not much. The S&P rests comfortably above support at 1,550. The Nasdaq has barely budged.

“Stocks are holding their ground early in this morning’s session — predictably,” says a confident Jonas Elmerraji. “The broad market has followed a script all the way back to November, so it’s not hugely surprising that the S&P 500 is continuing to follow that script today. Context matters a lot right now. Even though last week was the single biggest loser for the S&P, it didn’t even erase the gains that the S&P made during the previous week.

Still Intact

“That predictable trading,” Jonas adds, “is setting up some attractive buying opportunities for stocks in the weeks ahead.” We think the sound we heard down the hall was Jonas smacking his lips.

Good timing, too: Today is your last chance to sign up for the “Aspiring Traders Wanted” experiment for which Jonas began rounding up volunteers last week. Last fall, he proved in his first experiment that in only five days he could take someone with C-grade trading knowledge and bring them up to an A grade. With that level of mastery, you could start racking up 50% gains or more in a mere 21-day span.

Participation in the experiment is absolutely free. You have nothing to lose except five minutes of your time in each of the next five days — no staying glued to a screen all day. Come midnight tonight, we’re closing the doors, so act now.

 Gold is rallying to start the week — up to $1,426, more than $100 higher than the low point during the Midas metal’s swoon last Monday.

 With nine days left in April, sales of U.S. Gold Eagles this month are already the third-highest on record. The total so far is 167,500 ounces.

“Sales for coins have jumped this week,” said Raymond Nessim, CEO of MTB in New York — one of the Mint’s “authorized purchasers.”

“The price drop,” he told Bloomberg, “has definitely given a big push to sales.”

Assuming the pace keeps up, April will break the December 2009 record of 231,500 ounces — a number reached only because it was the first time in a year the Mint had sold Eagles in “fractional” sizes less than a full ounce.

 As for Silver Eagles, the biggest sign of a major supply shortage at the U.S. Mint is that sales remain stuck where they were last Wednesday — 2,387,000. Many dealers are telling clients they face a six-week wait.

“I was in my local coin shop that I have used for years,” a reader confirms. “They are quite large, and do a lot of business at three locations in Naperville, Aurora and Montgomery, Ill. I was told — Saturday — that it would take them six weeks minimum to bring in Silver Eagles. They have always been very modest in their markups, and told me as of today, they would sell to me for $6.50 over spot.”

 Nor is the U.S. alone: Demand for physical metal worldwide amped up last week as the paper prices cratered…

  • Hong Kong: The Chinese Gold and Silver Exchange — a century-old institution — nearly ran out of bullion Friday. It awaits deliveries from Switzerland and London… on Wednesday
  • India: “My sales are 50% more than last year,” a dealer in Mumbai’s Zaveri Bazaar tells Reuters, “and we expect good business to continue as weddings will last till July”
  • Thailand: Many gold shops have closed temporarily. “I took this chance to make minor renovations instead of opening the store only to lose more cash,” one owner tells the Bangkok Post. “Since the week began, the sharp fall in gold prices prompted people to rush to the shop to buy gold. Our gold bullion is out of stock and we are not going to place orders until the global prices settle”
  • South Africa: Krugerrands are subject to a “massive, massive buying spree” in the words of Glenn Schoeman, chairman of the South African Numismatic Dealers
  • Australia: “It’s just like the sales after Christmas,” says Nigel Moffatt at the Perth Mint
  • Dubai: Coins and bars alike are in short supply: “It has become increasingly clear over the course of the past week that the fall in the gold price was triggered by speculative traders operating in the futures markets,” says Aram Shishmanian, CEO of the World Gold Council.

“Their short-term view of generating a trading profit,” Shishmanian adds, “is in stark contrast to the views of long-term investors in gold, as evidenced by the massive wave of physical gold buying that began over the weekend and accelerated following Monday’s further decline.”

 “Even in a slowing global economy,” says Dan Amoss, “the world will still consume a lot of copper.”

It takes a brave man to talk up copper at $3.13 a pound this morning — close to an 18-month low.

Dan is undeterred: Demand is not collapsing into a black hole, and in the meantime, “production costs are up a lot in recent years, and heading even higher.

“Chile’s enormous copper mining industry, source of one-third of the world’s output, is losing its competitive edge. Costs for electricity, water and wages are rising, and ore quality is declining. Chile’s ore grades are down, joining the rest of the world in a well-established trend: According to BHP Billiton, average ore grades of copper worldwide have declined an average of 2.8% per year over the past decade.

“BHP Billiton’s president of base metals recently said mining copper in the U.S. is now cheaper than in Chile. The lowest-cost copper producers are positioned to perform well in the future.”

Today’s 5 PRO introduces a copper miner with low-cost operations worldwide, including in the U.S.

 As copper thefts go, this one’s a little different.

Earlier this month, thieves absconded with two bronze plaques that adorn the Pont Alexandre III bridge in Paris.

Pont Alexandre II Bridge

The only witnesses at present: nymphs and winged horses…

“The city of Paris declined to comment on the value of the ornamental pieces stolen,” says a Reuters dispatch. Identical copies will be made to replace them as quickly as possible: “It’s not a question of metallic value but of historic value,” said a city spokeswoman.

Well, it’s more manageable than some other copper thefts around France: In 2010 alone, copper thieves along the country’s extensive rail network were to blame for 5,800 hours of train delays.

 “I feel your pain,” writes our reader in the Denver area. He wrote in last week to describe his cost of living, prompting an expat in New Zealand to write in with an even more hair-raising tale.

“My point was not to compare cost around the world. It’s about the lying and the misrepresentation and coddling of the welfare state, and the conniving of the agencies that produce these numbers to represent that all is well, that there is nothing to see here, people, move along.

“The numbers are massaged and presented to promote confidence and growth and pretend that Main Street is growing and that the government is doing good and well and protecting and providing for the masses.

“The opposite is the real truth. As you in New Zealand participate in daily, I am sure you get the same lies and misrepresentations about how good things are in relation to what they really are.

“The current gold market appears to justify my thoughts. Manipulation in the paper markets should have driven buyers out of the physical market. The real Main Street buyer, the people who are the real economy, rushed to buy. Where is the disconnect between big financial entities and the government and the public at large? They do it because they can. It is called a transfer of wealth and power.”

The 5: “The days to come,” writes David Baker at Sprott Asset Management, “will prove if this surge in physical demand is an aberration, or the beginning of a new chapter for the physical gold market.

“If it represents the latter, precious metals investors may be wise to ignore the ‘paper’ price of gold altogether.” Zero hour approacheth…


Dave Gonigam

The 5 Min. Forecast

P.S. Strange doings here at the office. Addison is around, but I haven’t had a chance to talk with him since last Thursday. And The Daily Reckoning hasn’t published a weekday issue since last Wednesday.

Inevitably, rumors start going around under circumstances like these. I won’t speak out of turn and share any of them here, but when I know something factual that’s for public consumption, you’ll be the first to know…


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