Thursday, July 22, 2010

McAlvany Weekly Commentary, July 21, 2010

Deflation in Real Currency Terms

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Is Now a Good Time to Buy Gold?

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

While we’re convinced gold and gold stocks are destined for much higher levels, buying when prices are low can mean the difference between a double or triple and a ten-bagger… a week in Malibu vs. a week in Milan.

There’s no secret formula to buying low, and we aren’t holding the right hand of Midas, but there are periods when prices tend to be lower than others. And if those tendencies play out, it can give us the opportunity to snag a high-quality asset at a bargain price.

So, how do you get a bargain price? You cheat.

I think the secret to getting a low-cost basis on all your gold and gold stocks is this: only buy on significant price pullbacks.

And this can be done without trading or using technical analysis.

I think there’s a good chance we can cheat this summer. For example, here are the average monthly increases in gold since our bull market began in 2001. (more)

The Scariest Unemployment Graph I've Seen Yet

The median duration of unemployment is higher today than any time in the last 50 years. That's an understatement. It is more than twice as high today than any time in the last 50 years.

OK, you're saying, but what does this mean? Does it mean we must increase the duration of unemployment benefits to protect this new class of unemployed, or does it mean we need to stop subsidizing joblessness? Does it mean we need to expand federal retraining programs, or does it mean federal retraining programs aren't working? Does it mean we need more stimulus, more state aid, more infrastructure projects, more public works ... or does it mean it's time to stop everything, stand back and let business be business?

You're going to find smart people make a case for all six of the above public policy directions. (I tend to side with the first of each coupling.) It's hard to know for sure how to design public policy for historically unique crises precisely because they are historical orphans, without precedent to show us the right way from the wrong. (more)

Roubini Global Economics: Don't Jump into Gold

By: Robin Knight
CNBC Associate Web Producer

Gold has outperformed all other core assets over the last ten years and the financial crisis has added fresh impetus to buyers of the precious metal, but now is not the time to jump into the gold market, Roubini Global Economics (RGE) said in a note to clients Wednesday.

"The concerns propelling the price of gold specifically are very real and should not be ignored. But is now the time for investors to jump the gold bandwagon? We wouldn’t encourage it," RGE said.

Gold [XAU=X 1186.5 -5.30 (-0.44%) ] has gained an average 15.3 percent per year in dollar terms since January 2001, the note pointed out. The precious metal is attractive to investors concerned about high inflation, persistent deflation or the risk of a global financial meltdown, the note added. (more)

BNN: Top Picks with Don Lato

Don Lato, managing director, equities, Goodreid Investment Counsel Corp., shares his top picks.

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The Retirement Nightmare: Half of Americans Have Less Than $2,000 Banked for Their Golden Years

The days of quietly retiring with a nest egg built up from years of savings from a long career on the verge of disappearing. For tens of millions of Americans, facing rising costs, shrinking incomes and growing debts they already have disappeared.

"One out of three working Americans does not have retirement savings beyond Social Security, and about 35% of those over 65 rely almost totally on Social Security alone," Dallas Salisbury, president of the Alliance for Investor Education and the Employee Benefit Research Institute (EBRI) , explained to AlterNet. "Of the remaining two-thirds of working Americans that have some retirement savings, 27 percent report less than $1,000, 16 percent between $1,000 and $9,999, 11 percent between $10,000 and $24,999, 12 percent between $25,000-$49,999, and 36 percent $50,000 or more." Perhaps the most shocking number is that half of Americans have $2,000 or less saved for retirement. (more)

New Tax on Gold Is Hidden in Obamacare

By: Julie Crawshaw

President Barack Obama’s healthcare reform legislation reportedly contains an added provision that would tax gold coin and bullion transactions.

The tax comes in an obscure section of the tax code that deals with purchases by self-employed people and small businesses, ABC News reports.

Starting Jan. 1, 2012, small businesses and self-employed people will have to issue 1099 forms, which are used to track and report the miscellaneous income associated with services rendered by independent contractors or self-employed individuals, for every vendor with whom they do more than $600 business in a calendar year.

The new regulation is designed to gain more tax dollars to finance some of the healthcare bill’s other provisions. (more)

Matt Simmons Says Gulf Clean Up Will Cost Over $1 Trillion, Sees BP At $1, Says "We Have Now Killed The GoM"

Matt Simmons shares some startling revelations in his latest Bloomberg TV interview, in which he says none of the propaganda matters on TV 24/7 (photoshopped or not) as the ultimate clean up cost will likely be well over $1 trillion, and a result he is unconcerned about his BP short. He ultimately see the stock going down to $1. What Simmons alleges however is far more startling and audacious: that this is a joint cover up effort between the administration and BP, in which both entities keep throwing sand in the eyes of observers while distracting everyone from the matter at hand: "What we don’t know anything about is the open hole which is caused by the drill bit when it tossed the blow-out preventer way out of the hole…and 120,000/day minimum of toxic poison has now covered the floor of the Gulf of Mexico. So what they’re talking about is the biggest environmental cover-up ever. And they knew that that well, that riser, would finally deplete. And then they could say it’s over." On blaming the catastrophe on Transocean: "For two days they kept saying it’s a rig fire. When the rig sank they could no longer call it a rig fire. It’s a riser leakBecause if they said the truth they would all go to jail." The conclusion: "Unfortunately, we now have killed the Gulf of Mexico." (more)

Watch Out! Those With Debts Will Go Broke in Coming Deflationary Depression – Here’s Why

We have had massive monetary creation for decades now which we have finally come to the day of reckoning. We do not know if the top will be next month, next year or even later but we certainly are getting to the top where we cannot buy our way out of the problem through a new stimulus injection… The truth is that a terrible, deflationary depression is probably starting in the coming months.

It is all about the amount of money and the prices for assets when there is less money. The American government has pumped several trillion dollars into the economy in the last two years. However, the value of real estate has gone down many trillions more, in both commercial and residential real estate. The value of stocks has still declined many trillions from the October 2007 high, even taking into account the substantial recovery since March 2009. In short, there is a lot less money going around today than there was in October 2007, even when you add back in the trillions put back into the economy by the U.S. government. (more)

Euro Weakens As More Stress Test Leaks Are Disappointing

US dollar is softer on the day vs. the majors, gaining only against EUR and SEK as markets search for direction ahead of Friday’s stress test results. The euro is trading softly after making a marginal new high for the cycle vs. the dollar at 1.3029 Monday, and break of the 1.27 area would signal a move back to the July 13 low around 1.25. Euro is perhaps being pressured by less favorable leaks of bank stress tests (see below), which are feeding into market concerns that the tests will not be as rigorous as hoped for. The yen was firmer across the board, suggesting risk aversion is back in play today, while the Swiss franc was mostly firmer. EM FX was mostly softer, with Eastern European currencies faring poorly today. Biggest gainers on the day so far vs. USD are JPY, CAD, ZAR, INR, and NOK, while biggest losers vs. USD so far are CZK, EUR, PLN, RON, and HUF. China concerns continue, leading markets to pare back CNY appreciation views to the lowest since early June, while Brazil expected to hike 75 bp today (see below).

Asian markets were mostly higher, as MSCI Asia rose almost 1% today. HK outperformed, while Japan, Taiwan, and Singapore underperformed and were down on the day. European markets are higher so far today, with Euro Stoxx 50 up over 1%. Futures markets are currently pointing to a flat open for US equity markets today. (more)

Gerald Celente: 'This isn't reform, its depression'

Obama Mortgage Plan May Fuel Wave of Foreclosures

The Obama administration's effort to help those at risk of losing their homes is failing to aid many and could spur a rise in foreclosures that would further depress the housing industry.

More foreclosures would force down home prices and that would deter already-ailing homebuilders from starting new projects.

As a result, the economic rebound could suffer. Each new home built creates, on average, the equivalent of three jobs for a year and generates about $90,000 in taxes paid to local and federal authorities, according to the National Association of Home Builders.

"Foreclosures hold down the pricing for everybody," said Marty Mitchell, vice chief executive officer of Mitchell & Best Home Builders in Rockville, Md. "As a builder, we have to be cognizant of foreclosures, if there are more coming along, because it affects pricing across the board." (more)