Tell me what you think

[maxine]

Well it seems the US government has been calling all the shots. That will not likely change in a hurry. Over time they have successfully shifted the world monetary standard for commerce from gold to US treasuries. There is no turning back.   China has a store of trillions and the Middle East oil sheiks have been getting filthy rich being paid in US dollars.   It's not likely that they would abandon the US dollar even though there has been talk of this. As for the dollar being debased by printing presses, it stands to reason that as poorer world communities demand a share in the pie, one of two things must happen.  Either the pie has to get larger or everyone must take a smaller slice. We have no choice but to trust that the pie will be enlarged judiciously assuming that no one wants to take a smaller slice. In truth I think events are unfolding by the seat of the pants. However, The laws of supply and demand are well known so is it likely that the supply of dollars enlarging the pie will exceed the demand for them anytime soon?
The Central banks might as well sell their stockpiles of gold  except that they make a lot of money pimping it by leasing.  However at present there are fewer takers so gold can be leased at a discount.  In other words banks will pay a premium to whomever is willing to lease.  Does this suggest that investors(speculators) are lining up to play this game right now?  Maybe they got  margin calls.

[Uboat]

JDH – interesting commentary to the current market.

I think we could expect a short rally until January in line with your description of an optimist: “The optimist would also tell you that we are at a triple bottom, which is very strong support, so we should rally from here.”

Friday’s last hour trading action convinced me that the market is looking for reasons to rally. In a bear market, traders usually unload stocks over the weekend. The year-end positioning of stock portfolios and hopes in the change of government could also contribute to a rally. 

Gold benefited from Fridays’ market rally and a drop in the value of the dollar and is traditionally strong towards the end of the year, so I will buy if it stays above MA50.   
 
 

[sunseeker]

Uboat.
I am feeling more confident over the future of gold after this last week. I had pencilled in break through $750 gold as a good omen. I also intended to add to my positions at that point, but I was away and I missed that opportunity.

I was reading an item of news this week which contained a link that took me to an article on “The Jerusalem Post” website. It suggested that the Israeli Air force where engaged in bombing practice for a strike on Iran within weeks. For whatever reason the article has since been pulled. If however it does come to pass, and the Israelis do strike in Iran then I expect the market will suffer, and oil and precious metals will shoot up further in response.

Although after seeing the share prices of some companies move up on bad news, and some move down on good news, anything is possible. I am guessing this is why some of our more prolific posters have been uncharacteristically quiet of late (big hint).
GTLA

[davidslane]

I'm lost, that's why I've been quiet.




I'm still thinking we get a big rally into March/April.

This will be partly driven by confidence (and euphoria) in the new US administration which will push the dollar down and everything else up (gold, commodities, oil, stocks --- and interest rates on bonds).


Gold could touch $1,050 or even $1,200.
Silver back to $15 or even $20.


But then I think we come back down to test 750 on the S&P again and gold pulls back again, maybe to $875.

I don't see gold going to the moon (at least not before 2011), nor do I see the DOW going to 5,000.


I see bland horizontal trading ranges for 3 years between 750 and 1100 on the S&P.


I've also lost confidence in all the micro caps and uranium companies in general (I'll keep Energy Resources, Paladin and Denison as my main plays).  Maybe uranium will come back in 2 years but for now, I'm taking tax losses and moving into gold stocks.


The only stocks I like now are gold and silver and even then only for a trade into Q1.
NGD, NXG, MFN, AUY for gold and SSRI, HL and SLW for silver.  Mid to Large size that should move better than the majors but are not risky like juniors.


I would expect to short into any rally taking us back to the 200 day MA on the DOW and S&P, but I want to see the markets get close to those resistance points before I short.





But with all said and done, I'm ready for a big 35% three to six month rally in the markets.

Let's see if I'm right.

[sunseeker]

DSL
Good to hear from you.
I hope that you are right.

Just for the record.

http://raggiungere.files.wordpress.com/2007/03/you-are-here.jpg

Join the club.

Just going to have a look on EBAY to see if anyone has a financial compass for sale.

[richmanch]

Thanks for the write up JDH. I'll be pretty surprised to see DOW at 5k, but I'll be buying if it does. My plan is to continue to accumulate stocks in this market--the deeper we go, the better off I'll be in a few years. I'm thinking that financial, energy, tech etfs will double in five years, and that's conservative. I can't predict the next few weeks or even few months. But five years? This is a good buying opp--the best we may see for a long time. I am holding gold stocks just in case. If Israel bombs Iran, my energy etfs, which I was buying hard on Friday, will double almost immediately. Oil would gap up above 150 and quickly take out 200 and 300 if Iran freaks.

I have to say something about this part of your post, JDH:

"50% of voting age Americans no longer pay taxes. They receive from the government, and therefore have no incentive to work."

That's a crude distortion, if not an outright lie. To somehow attribute this economic downturn/market meltdown to lower wage workers is pretty bizarre. I'd gently recommend that you read someone other than Ann Rynd. Try Albert Camus. Or, yours truly, new link/signature below.

I know that might come off a bit harsh--but I take offense at non-Americans preaching about what's wrong with America, especially when they suggest that it's the ethos of half the population.

[yellowcaked]

Want to see who really pays the taxes?



And check out these stats:

http://www.ntu.org/main/page.php?PageID=6

We should implement a flat tax where everyone has to pay unless you are disabled and cannot work.

[richmanch]

Wanna see who are the biggest welfare queens in America?

It's the red states--Alaska, Kansas, Texas, etc. All those farm subsidies.


http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962_pf.html

http://www.tnr.com/politics/story.html?id=21a83b02-cab0-408b-b9b7-3c9d7ee83ef6

[Uboat]

I have to say something about this part of your post, JDH:
"50% of voting age Americans no longer pay taxes. They receive from the government, and therefore have no incentive to work."
That's a crude distortion, if not an outright lie. To somehow attribute this economic downturn/market meltdown to lower wage workers is pretty bizarre. I'd gently recommend that you read someone other than Ann Rynd. Try Albert Camus. Or, yours truly, new link/signature below.
I know that might come off a bit harsh--but I take offense at non-Americans preaching about what's wrong with America, especially when they suggest that it's the ethos of half the population.

'I have always been fond of the West African proverb: "Speak softly and carry a big stick; you will go far." ' (Theodore Roosevelt) 

richmanch – on my next trip to Barcelona, one of my favorite European cities, I will look for your novel “Home to Barcelona”.

[whatsupdoc]

50% of voting age Americans no longer pay taxes. They receive from the government,
and therefore have no incentive to work. A “soak the rich” methodology is now politically
expedient if none of us are rich anymore

JDH - 50% of the voting age Americans encompasses just about every
American over the age of 18. Can you share your source that came up
with this data?  It would be interesting to study the demographics in relation
to age, race, gender, income, occupation, health status, retirement status, etc.

Another question that comes up is exactly what taxes are these 50% of voting
age not paying? Federal taxes? State taxes that vary from state to state? Social
security taxes? Property taxes that vary from county to county? Sales taxes that
varies from state to state, Inheritance taxes? Yearly auto registration taxes?  It
seems to me that it is not possible for 50% of all Americans over the age of 18 to
escape not paying some form of tax.

Can you be a little more specific as to exactly what it is that 50% of voting age
Americans are receiving from the government that gives them no incentive to
work?  Is it free health care? free housing? free food? free clothing? free college
education? free transportation?. The government's response to the victims of
Katrina was so abysmal that I am having a difficult time believing that this same
government is indefinitely giving 50% of voting age Americans such a good free
ride that they have no incentive to work.

I also don't understand your statement "Soak the rich" methodology when all I
see is the recent trillions of dollars going to bail out the toxic gambling debts of
the very rich. This is not taking into account the gazillions of dollars they did not
pay in taxes on their profits on the unregulated CDS trades, whereas we regular
folks have to pay taxes on all our profitable trades. Judging  by the expeditious
trillions of dollars materializing for bailing out the financial institutions and for
the rich man's wars with next to nothing for our crumbling infrastructure and
dwindling services, it seems to me that it is in reality "Soak everyone but the rich"
methodology that has been politically expedient.

[JDH]

I didn't think my offhanded comment about taxes would generate so much controversy.

What I should have said was "just over 50% of Americans of voting age pay income taxes."  You can find this information on various places on the internet; I got it from the Basic Points publication by Donald Coxe.

My point was not to criticize Americans; I suspect the numbers in Canada, or many other countries, are the same.

And yes, I realize that everyone who buys a gallon (or liter) of gas pays taxes, so it would be almost impossible to avoid paying taxes.  I have not done a detailed research study on the subject, nor do I intend to; instead, I am simply trying to make a point:

Twenty years ago the percentage of voting age adults paying income taxes was higher than it is today.  Here's a chart: http://www.taxfoundation.org/research/show/542.html
(Yes, I realize this is a chart of tax liability, not actual taxes paid, but it gives a general idea of taxes paid).  I'm not saying that means people are bad.  Obviously the population is aging, and living longer, so obviously there will be more retired people today than there were 20 years ago, and therefore there must be more people not paying income taxes.

However, if, for whatever reason, you do not pay taxes, you will be less inclined to object to tax increases.  If there are more people not paying income taxes, there will be more people not objecting to tax increases.

So what?

So, I'm an investor, and I'm trying to discern what will happen in the future.  If I believe taxes will increase, and if I believe government spending will increase, that means I believe inflation will be a problem in the future.

Which is why I want to own gold.

And that's my point.  Whether I agree or disagree with U.S. tax policy is irrelevant.  What I think is going to happen to my investments is relevant, so I look at whatever clues I can find, and attempt to project forward based on that.  The equation is simple:

Higher taxes are generally not good for an economy long term, so I am not long the market, and I am holding gold.

[davidslane]

Now, many of you may agree with everything I have just said, but you may counter with the thought that “it’s all baked in”, meaning the collapse has happened, and the worst is over.” Perhaps, but what indication do you have that the worst is over?

Do you believe that the real estate market has bottomed?

Do you think there will be no more government bailouts?

Do you believe that the automotive industry is back on track, and won’t need to restructure?

Do you believe we have avoided the credit card crunch, where banks experience massive bad debts on their credit card portfolios?

The market looks 6 to 9 months ahead, so, although I agree with everything you mentioned above in terms of what should happen, I also believe that all of these problems are known by everyone and is baked into this market --- which is why the S&P hit 750.  Meaning, if everything you said comes to pass, we go no lower than 750 on the S&P going forward as 750 is the "everything sucks" low mark.


At the same time, the market is now starting to price in the expectation that all of Obama's heavyweight economic picks will solve the problems.  With the exception of some short term trading noise of ups and downs, I expect the euphorea to pull the S&P 500 towards its 200 DMA upwards of 1,150 into April (I expect the 200 DMA to be around there by April).


Of course, the reality will be somewhere between JDH's pessimistic projection and the euphoria that a new US administration will save us all.  So, come April, reality will kick in and down we go as we begin a 4 year consolidation period.


Market expectations should have a floor in now at 750 and a ceiling at 1,150 on the S&P 500.


Look at a nice bear market chart from 1972 to 1982 (the 30's work too except that WWII screws up the charts so they are harder to make inferences from).


See how we have big, huge drops that come every few years in a bear market: 1970, 1974, 1978, 1980, 1982.

Same goes for the 1933, 1938 or 1940 or 1942.


Once the bear market low was made, it wasn't surpassed for that cycle (1933 and the again in 1974). And the low was made typically at the front of the bear market cycle.  Not the middle or end.


But the market didn't drop off the chart and the world didn't end during those bear markets. The markets kept rallying (and the best rallies were right off the lows) and then would get over done and come down.  Eventually, a new bull market started.


The big question: have we made the low for this bear market yet?

I would say the initial crash low in 2002 of around 7,500 on the DOW was the low (and follows other bear markets as the low occured early in the bear market cycle).



Does that make 2008 equivolent to 1938 or 1978 or an earlier point of 1933 or 2002?


Does that mean we have corrections in 2010 and 2012 before a 12 year bear market cycle is over and we can start up again (maybe inflation induced)?


I just think those of you who are looking for new lows under 750 on the S&P are wrong and will miss some great rallies.  Yes, the rallies will come down again, but if you keep looking down, you'll miss what's going on above you!


Good luck all.

[Uboat]

Fundamentally I agree that we have not seen the worst yet with the real estate market, government bailouts, automotive industry and credit card crunch.

But, most of these problems have been evident already earlier in the year when markets and individual stocks were higher by 40 to 90%. So, most of the negativity is already baked in.

Now the psychology of the market is releasing pent-up steam . Recent bad news have been ignored and markets rallied last week as we are heading into the traditionally bullish year end adjustment and buying season. High expectations in the Obama team support the rally. I expect a sobering effect in January, therefore I am looking for short term trading opportunities in December.   

[JDH]

On November 1 I posted a chart of the DOW between 1928 and 1934.



The market crashed in November, 1929, falling from almost 400 to under 200, rallied early in 1930, and then continued to slide, finally hitting bottom at 45 in July of 1932.

I agree that the market is a forward looking indicator, and therefore the problems of early 2009 are "baked in".  I also agree that, based on the action in early 1930, a substantial rally off the lows is possible, perhaps even likely.  The rally in 1930 brought the market up 48%, but that was not enough to bring the market up to it's previous highs.

On the plus side, a new, popular president should give the markets a lift, as will the likelihood of a dead count bounce as seen in 1930.  However, there are many factors working the other way, including:

1. end of year tax loss selling
2. increasing terrorism (in India this past week, but the risk elsewhere continues to exist);
3. generally horrible economic conditions, and
4. increasing reports on the internet of the possibility of severe earthquakes over the next few weeks (normally I ignore the quacks who predict natural calamities, but these predictions are now appearing in the mainstream media as well: http://www.google.com/hostednews/ap/article/ALeqM5gFMHRVlmLRQtwwnjzoDjOGi6iMqAD94NSS4O3 )

Therefore, I must conclude that while a short term rally is probable, I still believe we have not yet seen the lows of this bear market.

Again, I hope I'm wrong, but I'm holding cash just in case.

(And I hope I'm wrong about the collapse of the gold COMEX market, but I'm not the only one worried: http://news.goldseek.com/GoldSeek/1228061100.php )

Maybe it's just the snow on the ground here in southern Ontario at the end of November that has me talking crazy......

[richmanch]

Good posts JDH and everyone. I agree almost 100% with David's response.
I've been looking at the charts of all the other bear markets, and have drawn some of the same conclusions.

I would ask you, JDH, thinking objectively, how much would you discount a healthy, but not overheated, stock market for all the problems that you named? If it's more than 50%, then there is still room to the downside. Otherwise, it is baked in.

The only variable not accountable is "this time it's different." That's the only reason that I could see for anyone to be very pessimistic at this point. But, to my mind, this isn't "different." We usually see that sentiment in reverse. People said that the housing boom was "different." The tech boom was "different." Even earlier this year, the commodity boom was "different."

I think the psychology of being a pessimist at this point, is the same as it was at the end of the uranium bubble (and it was a bubble).

The move has been made--the market has already crashed. I'm not the kind of investor who is going to try and squeeze out the final 10% of a move. I am just more comfortable with the idea that I can always add if it goes down, and wait it out. I can wait 3-5 years on long positions.

Having said that, I did not get caught up in the euphoria this week, especially the low volume drifts up on either side of the holiday. In fact, I did some selling, expecting a moderate pullback at some point.

The thing that I am most bullish on is energy. Oil, Gas, some exploration companies, and even, gulp, some uraniums. They are good bets long term, and could easily spike on news.


I just read your update JDH. That chart is the most compelling case, along with the unknown real estate bottom. For me, it's more personal. I have some long positions, and some stink bids. I was driving myself crazy earlier this year--deciding to buy and sell  day to day, week to week. I'm trying to balance my portfolio so I can be happy if it goes up, or goes down, with a bias towards an eventual recovery.
That's enough out of me for today. GLTA