Friday, July 8, 2011
Key points: $5 a gallon gas all summer but long term plan is still $150-$200
Obama will continue wars in the middle east with the aim of deposing all governments so oil production will cease (last to fall will be Saudi Arabia)
BP Liberty oil rig in Prudhoe Bay Alaska is being prepared to develop a massive reserve once oil stops coming out of the middle east (http://www.offshore-technology.com/projects/liberty-project/)
Gold & Silver prices will remain relatively constant until around September when they will start to go up
The US will default on the national debt
Long term be concerned about Russia and China presumably because they will be pissed once the US defaults and the bonds are worthless.
first there is going to be world war 3, now there isn't, gas is going up but then it isn't. The people at the head of Bilderberg group don't care if a certain proportion of the USA are waking up they are beyond all that. They will keep the oil relatively low so you buy it, you'll know when world war 3 is about to kick off, the price price of oil will suddenly explode that will be the pretext to it.
In the midst of all these different crises, global markets rise and fall in lockstep with news coming out of Europe and the U.S. The U.S. stock market, after suffering a correction phase since April, snapped back last week, scored the best week in two years, but only to retreat again after the long July 4th weekend. The commodity and currency markets are not immune either with investors switching back and forth between risk-on and risk-off trades.
In this environment, one has to ask ...Are there other indicators signaling a global market doomsday?
According to Oxford Analytica, there are fifteen "Global Stress Points" ranging from medium to extreme high impact to the entire world. These are listed below ranked by its potential impact by Oxford (See Graph). Around 60% of the "stress points" are related to geopolitics, war or unrest, while only about five events could be classified as financial crises.
- Dollar Collapse
- Taiwan / China Armed Hostility
- Israel / Iran Armed Conflict
- Mexico State Hollowing
- Global Protectionism
- Latin America Hydrocarbon Disruption
- Iraq State Institutions Collapse
- Russia Military Aggression
- End of Euro
- India / Pakistan War
- Pakistan State Collapse
- Argentina Sovereign Default 2.0
- North Korea Military Conflict
- War in North Africa
- Lebanon Civil War
Since a U.S. dollar collapse is ranked as the greatest risk to the world, and dollar's fate is largely dependent on if the bond market has faith in Uncle Sam, it might be helpful to add five additional warning signs that the bond market is freaking out (See Chart):
- Prices of bonds maturing start falling (i.e., investors start to demand higher interest rates to hold U.S. government debt)
- A narrower spread between rates on Treasury bills and other short-term credit or near substitutes, e.g. LIBOR - This would be a sign of waning faith in the U.S. government.
- A narrower spread between Treasuries and near substitutes - A sign of falling creditworthiness of Uncle Sam
- Price spikes in U.S. CDS (credit default swaps, insuring against a U.S. debt default) - According to Markit, the most noticeable movement has occurred in 1-year spreads, which have converged closer to 5-year spreads, and is up about 430% since early April, while 5-year CDS also has risen about 46%.
- Higher volatility in the U.S. bond market - Another sign of lost confidence from bond investors.
|Chart Source: the Washington Post|
So far, out of the 20 signs, there's one that's sending up a red signal flare - U.S. sovereign debt CDS, which is directly linked to the dollar (See Chart Above).
The U.S. does not have control over many of the indicators listed here, but at least the No. 1 risk factor --the U.S. dollar--is influenced by the national debt and by the monetary and fiscal policies set by the U.S. government and the Federal Reserve.
The longer the debt ceiling debate lingers, the more likely the bond market would start reacting and demanding higher interest rates. A sovereign credit downgrade as a result of missing the debt ceiling deadline would just translate into billions more in interest payments, piling on to the existing debt.
The United States is not like Iceland or Argentina, resorting to default as retorted by some could mean calamity not only to its citizens, but also to the rest of the world. Unless the government and this Congress get their act together, there will be no bailout, and instead of one lost generation to the Great Recession, there could be multi-generation missed in the next Grand Depression.
Disclosure - No Positions
This has been an interesting year for both gold and oil. There has been wild price swings due to extreme political, economic and weather events round the globe making these commodities a little more difficult to trade than normal. That being said if we look at the charts it appears we could be at the beginning stages of another major rally in both stocks and commodities.
Let’s just jump right into the charts…
Gold Miner Stock Bullish Percent Index:
If you take a look at the bullish percent chart for gold miner stocks it appears that stocks are trading at the lower reversal zone. The last time we had a similar setup like this gold rallied 15% and gold stocks jumped nearly 25% over the following 3 months.
Gold Bullion 4 Hour Futures Chart:
This chart of gold shows us that a bottom formed in early July and that buyers are now in control. It looks as though we are getting the first impulse leg which should top out around $1550. After that I would expect some type of pause or pullback before price continues higher. This is also when I will be looking to enter precious metals as long as price and volume action confirm this upward thrust.
Energy Sector Bullish Percent Index:
While these bullish percent charts are not the best for entry points in the market, they do warn us of possible tops or bottoms. This allows us to adjust our protective stops, entry prices and or profit targets. This BP chart of the energy sector looks as though it’s trying to bottom. I would like to see the June high get taken out on both the BP chart and XLE etf before thinking energy is in a new uptrend.
Crude Oil 4 Hour Futures Chart:
This chart shows the inverse head and shoulders pattern which formed over the past couple weeks. Simple analysis provides us with a short term bullish pattern and price target.
Mid-Week Trading Conclusion:
In short, I feel the US dollar is about to start heading lower once again and that will help boost stocks and commodities. Most stocks and commodities are trading just under key resistance levels so the next couple trading sessions are important. We need to see another push higher for these resistance levels to be taken out. If that happens then the sky is the limit for the next rally.
Also, I would like to see the energy and financial sectors start to rally here and Also we need to see the US dollar head back down in the coming sessions.
While it is unclear what precisely has given Obama confidence to announce that his meeting with congressional leaders on deficit reduction and the debt limit was "very constructive" one thing is very likely: it involved the change of the definition of CPI. As we reported some time ago, one of the serious proposals to deal with the deficit situation is to make a revolutionary actuarial adjustment and change the way the actual definition of inflation. As we reported: "Lawmakers are considering changing how the Consumer Price Index is calculated, a move that could save perhaps $220 billion and represent significant progress in the ongoing federal debt ceiling and deficit reduction talks. According to congressional aides familiar with the discussions, the proposal would shift how the Consumer Price Index is calculated to reflect how people tend to change spending patterns when prices increase. For example, consumers tend to drive less when gas prices increase dramatically. Such a move is widely seen by economists as resulting in a slower rise in inflation." Today the WSJ's Damian Paletta follows up on this ludicrous yet serious proposal: "One proposal in the budget talks that is getting a serious look from all sides would switch the government’s way of measuring inflation and delivering a big impact on tax, spending, and entitlement programs. How big? It could save roughly $300 billion over 10 years. That big. The idea of using this different measure of inflation, known as a “chained” consumer price index, has won support from numerous deficit-reduction commissions as well as many liberal and conservative economists." Yet reminding everyone that there is no such thing as a free lunch in finance, the "biggest savings—an estimated $112 billion—would be from slowing the growth in the cost-of-living adjustments for Social Security beneficiaries." Sure enough someone is unhappy. Enter the AARP which is already screaming, justifiably, bloody murder should the administration proceed with what will be an outright slashing of Social Security obligations. "AARP will not accept any cuts to Social Security as part of a deal to pay the nation’s bills,” said Rand. “Social Security did not cause the deficit, and it should not be cut to reduce a deficit it did not cause." Did Obama's war with America's seniors just enter Defcon 1?
First, some more details on what is actively being contemplated as a "budget rescue" measure":
The idea of using this different measure of inflation, known as a “chained” consumer price index, has won support from numerous deficit-reduction commissions as well as many liberal and conservative economists.
To be sure, it’s complicated stuff. But it’s seen as a central way of reducing the deficit because it simultaneously cuts spending growth and increases tax revenues. And many also like it because much of its impact doesn’t come from “cuts” in spending. Rather, it would reduce the “growth” of spending pegged to inflation. And it would affect the way tax brackets and deductions adjust for inflation, so it could appear less like a tax increase than simply raising tax rates.
Some liberal groups and top lawmakers believe that it’s the same thing as slashing benefits and have been holding press conferences pre-emptively blasting the idea to try and keep it out of any deal. And some influential conservative groups believe the impact on taxes is tantamount to a tax increase and are likely to fight it.
Perhaps with enemies on both sides the idea just might have a chance.
Spread across the entire budget, chained CPI is a big money maker. Reducing the deficit by roughly $300 billion over 10 years would make it one of the most vital components to any deal that aims to reduce the deficit by $2 trillion to $4 trillion over that span
Simply said, the proposal, if enacted, would reduce the NPV of the future SSN liabilities which as is well known are among the biggest portion of future entitlements, and while the data adjustment would not change much in current terms, it would impact how much is obtained from the fund by future SSN recipients.
Not surprisingly, the AARP has finally understood what changing the CPI definition means. Theresulting angry letter is the first response. Many more will follow.
AARP CEO A. Barry Rand this morning offered the following strong statement as key congressional leaders meet with the President today to discuss a framework for a deal to raise the debt ceiling and to address deficit reduction. AARP is focused on protecting Social Security and Medicare for the millions of beneficiaries who have paid into the systems over their working lives, and reiterates its position that Social Security and Medicare benefits should not be on the table for deficit reduction.
“AARP will not accept any cuts to Social Security as part of a deal to pay the nation’s bills,” said Rand. “Social Security did not cause the deficit, and it should not be cut to reduce a deficit it did not cause. As the President and Congress work to negotiate a deal to raise the debt ceiling, AARP urges all lawmakers to reject any proposals that would cut the benefits seniors have earned through a lifetime of hard work.
“AARP is strongly opposed to any deficit reduction proposal that makes harmful cuts to vital Social Security and Medicare benefits. Social Security is currently the principal source of income for nearly two-thirds of older American households receiving benefits, and roughly one third of those households depend on Social Security benefits for nearly all (90 percent or more) of their income. The deficit debate is not the time or the place to talk about Social Security. AARP will fight any cuts that are proposed to this important program, including proposals to reduce the cost of living adjustment for beneficiaries (COLA)—such as the proposed chained CPI—which AARP also believes should not be considered as part of the debt ceiling or deficit reduction negotiations.
“AARP also strongly urges the President and congressional leaders to reject any proposals that would impose arbitrary, harmful cuts to the Medicare program or shift additional costs onto Medicare beneficiaries. Half of all beneficiaries live on incomes of less than $22,000, and many already struggle to pay for their ever-rising health and prescription drug costs.
“Some have proposed requiring Medicare beneficiaries to pay even more for their Medicare benefits, either through higher co-payments or higher premiums. AARP strongly urges you to reject higher costs for people in Medicare. Before we shift additional cost burdens onto beneficiaries, Congress should address the real problem of increasing health care costs throughout the entire system.
“Throughout the deficit reduction and debt ceiling debate, AARP will continue its efforts to raise the voices of our members who depend on Social Security and Medicare for their health and economic security,” Rand concluded.
Alas, we doubt this statement will do much to change the mind of the administration which is now openly robbing America's elderly to fund its relentless spending and specifically the uberwealthy which continues to transfer the NPV of future obligations into currently overfunded checking accounts. We wonder how long before other popular organization enjoin the protest, although we have no doubt would be.
U.S. REITs were created in 1960 by Congress as a way for all to have access to large-scale, income-producing real estateaccessible. To qualify as a REIT, the trust must comply with IRS rules. These rules include: 1) distributing annually as dividends at least 90% of its taxable income, 2) investing at least 75% of its total assets in real estate and 3) deriving at least 75% of gross income from real estate.
The 90% distribution requirement along with no corporate income taxes are the reasons REITs yields are often above average. However, it is important to note that because REITs pay no income tax, their dividends are not eligible for the special treatment as a "qualified dividends", which are normally taxed at 15%.
When comparing REIT yields to investments with qualified dividends, you must always look at them on an after-tax basis. REITs trade on major exchanges and have become immensely popular since their introduction.
This week week, I screened my dividend growth stocks database for REITs with a yield at or above 5% and have increased their dividends for at least 10 consecutive years. The results are presented below:
W.P. Carey & Co. (WPC)
Yield: 5.1% | Years of Dividend Growth: 12
W. P. Carey & Co. LLC is an investment firm that provides long-term sale-leaseback and build-to-suit transactions for companies worldwide and manages a global investment portfolio. WPC is technically not a REIT, but a Limited Partnership focusing on Real Estate.
Realty Corp. (O)
Yield: 5.2% | Years of Dividend Growth: 17
Realty Income Corporation is a real estate investment trust that owns a diversified portfolio of 2,339 retail properties as of Dec. 31, 2009.
HCP, Inc. (HCP)
Yield: 5.2% | Years of Dividend Growth: 11
Health Care Property Investors, Inc. is an equity-oriented real estate investment trust, based in California, that has direct or joint venture investments in health care-related facilities across the U.S.
Corporate Office Properties (OFC)
Yield: 5.3% | Years of Dividend Growth: 14
Corporate Office Properties is a real estate investment trust that owns, manages, leases, acquires and develops suburban office properties located in Mid-Atlantic region of the U.S. and other select markets.
Washington Real Estate Investment Trust (WRE)
Yield: 5.3% | Years of Dividend Growth: 14
Washington Real Estate Investment Trust is a real estate investment trust that owns and develops income-producing real properties in the greater Washington metro region.
Urstadt Biddle Properties (UBA)
Yield: 5.4% | Years of Dividend Growth: 17
Urstadt Biddle Properties is a real estate investment trust that acquires, owns and manages commercial real estate properties primarily in the northeastern United States.
National Retail Properties, Inc. (NNN)
Yield: 6.2% | Years of Dividend Growth: 20
National Retail Properties, Inc. is an equity real estate investment trust that in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.
Senior Housing Properties Trust (SNH)
Yield: 6.3% | Years of Dividend Growth: 10
Senior Housing Properties Trust, a real estate investment trust (REIT), primarily invests in senior housing properties.
Getty Realty Corp. (GTY)
Yield: 7.6% | Years of Dividend Growth: 15
Getty Realty Corp. is a real estate investment trust that specializes in the ownership and leasing of retail motor fuel and convenience store properties and petroleum distribution terminals in the U.S.
Gold stocks have had a nice bounce over the past couple weeks and gold investors are likely wondering if this long period of underperformance by the miners is finally drawing to an end. Even though gold is more than $150 higher than it was in November 2010, gold stocks are still at the same level as they were last November. Instead of leveraging gold, gold stocks have underperformed gold during this time period, and disappointed gold stock shareholders. Back in June I wrote an article about gold and gold stock divergences and discussed how gold stocks are often knocked down by selling in the general stock markets. This appears to be what happened over the past two months as even though gold trended higher, gold stocks went lower along with the rest of the stock market.
Investors familiar with the gold market might know that gold displays a seasonal tendency to be strong in the fall and spring and experience its weakest months in the summer. Gold and gold stocks have also displayed a stark contrast in performance when looking at the first half of the year compared to the second half of the year since 2003. The HUI has been up only about 2% during the first half of the year on average since 2003, but has gained almost 20% on average in the second half of the year. There has been only one down period during the second half of the year which occurred during the 2008 financial crisis. This year has also been the worst first half performance for the HUI since 2004.
Gold’s performance has also been much better during the second half of the year than the first half. Like gold stocks, gold has only had one down period during the second half of the year which occurred in 2008.
The final table shows the difference in performance between the HUI Gold Miners Index and gold during each time period. The first thing that jumps out is the fact that gold stocks have underperformed gold on average during the first half of the year since 2003, and outperformed gold during the second half of the year. Notice that in only three years, 2003, 2006, and 2009, that the HUI performed better than gold in the first half of the year. This year has been the weakest relative performance for the HUI versus gold since 2004. And in 2004, gold was down during the first half of the year along with the HUI. So this year has been likely the most painful first half of the year for gold stock investors, since gold was up but gold stocks drastically underperformed.
One key technical indicator to watch to see if the June lows will hold in gold stocks is the volume coming into gold stocks. Lack of sustained buying pressure is usually what has kept the gold sector from making a meaningful breakout in the summer. This has led to choppy action during the summer months which whipsaws traders trying to catch a breakout and a new trend higher. The next series of charts demonstrate this concept by looking at GDX and volume over the summer months since 2006, when GDX was created.
In 2006 gold stocks made a June bottom, but volume coming into them dropped off to start September and it wasn’t until October that buying pressure sustained itself higher.
In 2007 buying pressure in gold stocks picked up and continued right at the start of September after an August selloff.
In 2008 the summer doldrums led into the fall financial crisis and panic selling in the gold stocks. The down volume actually started in March when gold topped and continued all the way until November.
In 2009 it was very obvious where the buying pressure picked up as you can see on the chart immediately when September started the volume jumped up dramatically. In the summer months there was no pickup in volume and thus the choppy action sideways.
2010 was different than previous years in that the pickup in buying pressure actually started in August instead of waiting until September.
This year so far the bottom in buying pressure has actually been in May even though gold stocks made a lower low in June. If the trend higher in buying pressure has started this early then there’s a chance June has seen the lows of the year.
An early bottom for gold stocks to start the second half of the year would align well with the fact that gold stocks performed so poorly to start the year compared to the price of gold. It’s just going to depend on whether money flows into the sector now or waits a couple more months for the seasonally strong period to start.
The Intel Hub
By Dr. Mark Sircus - Contributing Writer
July 7, 2011
If you thought the global financial crisis of 2008 was difficult, wait till the sequel comes to your doorstep. Some investment professionals feel that the sky could soon be falling as recent events have led many to brace for the worst.
The world and everyone in it should be preparing for some very difficult days ahead but that is not happening because most are drinking some kind of happy tea. An unprecedented financial storm of unknown scope and dimension is upon us but it is crushing certain people, cities, states and countries before others.
Many are perceiving and reporting that the fundamental economic outlook has changed substantially over the last couple of weeks.
“There is a growing sense of despair in Brussels. Unlike previous attacks on the euro project, the latest downgrade of Portugal’s debt by the ratings agency Moody’s feels like the beginning of the end.
Those economists and fund managers, who argued that a second bailout for Greece with private sector involvement would mean something similar for Portugal and most likely Ireland, are hitting their target. Like a 19th century battalion holding the line against oncoming hoards with depleted firepower and an officer class at war with itself, the euro’s supporters are in a desperate situation,” writes theGuardian.
A clear majority of the uncrushed are certain that there is nothing to worry about and go about their business as if life will continue on as it has these past few decades. But 100 percent of the crushed have no doubt that there is a civilization-scale catastrophe taking place and that there will be little or no recovery from it for as far as the eye can see into the future.
John Rubino wrote, “For a couple of years now it’s been clear that the world was about to fall apart, with the only question being which local failure turns out to be the catalyst for a systemic breakdown. So many things were on the verge of blowing up… yet none of them did.
The world’s governments have engaged in a heroic period of “extend and pretend” that has kept the system together longer than seemed possible. But now the game seems to be ending. It’s still not clear which bomb will go off first, but a bunch of fuses have gotten very short indeed. Here’s a survey of old crises that are finally coming to a head.” You want to see something that blew up this week?
“In the past week the ten-year interest rate increased by 12%. That is a monster change. This equates to 2,000 Dow points or 240 on the S&P,” writes Bruce Krasting in his essay “Are the credit markets getting unstable?”
If that trend continues, the fuse will light the powder and western civilizations financial system will come down hard. The price on the benchmark 10-year note edged lower, pushing its yield to 3.20%, up from Thursday’s yield of 3.14%. Last Friday’s losses continue what has been a sharp decline in bond prices.
Ron Holland said, “Today we find the United States and most of Europe in a similar situation. We risk an eruption and collapse of the mountain of unsustainable sovereign debt built up over the last two decades.
Frankly, the U.S. dollar and national debt situation is so dire and our means to contain a sovereign debt crisis so limited by multiple wars, Washington’s debt and political incompetence at home that anything could happen—almost overnight.
Even a minor foreign policy or economic event like a Greek default or Middle East crisis could wreak havoc with the precarious interlocking sovereign debt pyramid in the West. American and most European governments and the central banking elites, which created the criminal sovereign debt fiasco, are only trying to buy more time to delay the inevitable.
This inaction means the threat of an immediate U.S. dollar collapse cannot be ruled out. Therefore, readers who have not protected themselves certainly have cause to worry because now could be too late.”
We are now only 60 days from the need of the United States government to fund half a trillion—467.4 billion to be exact—dollars of debt.“This is the amount of debt that matures through August 31 and has to be rolled over or the U.S. is bankrupt… in every sense of the word.
Treasury must “roll over” almost $500 billion in debt that matures during August 2011. New debt is issued and the proceeds are used to repay the maturing debt plus interest due. Treasury will require market access throughout August to avoid defaulting on maturing debt. About $380 billion in short-term T-bills maturing, plus $90 billion in long-term securities,” reports Tyler Durden.
Greece agreed last week to bind itself in another round of debt servitude. Violent demonstrations notwithstanding, members approved another round of tax increases and spending cuts to keep Europe’s own extend-and-pretend game going a while longer.
Think of Greece as maxed out on five credit cards, taking on a second part-time job, holding yard sales and applying for a sixth card just to keep up minimum payments on the other five. Everyone knows it’s a losing game but they, as well as other governments around the world, have been playing at the table of unlimited debt through credit.
The world’s financial system is hanging by its teeth and the entire western world is ailing from debt overdosing.
What we have been experiencing these past decades is roaring prosperity compared to what is coming down the road. As the economy collapses life is going to get very strange; our problems and the chaos are going to get a lot worse.
The free market is dead and we have all arrived at a sort of involuntary socialism where the largest banks rape and pillage everyone else. “At the start of the second half of 2011, with a global economy in complete disarray, an increasingly unstable global monetary system and financial centers in desperate straits, all this despite the thousands of billions of public money invested to avoid precisely this type of situation.
The insolvency of the global financial system, and of the Western financial system in the first place, returns again to the front of the stage after just over a year of political cosmetics aimed at burying this fundamental problem under truckloads of cash,” writes GEAB.
There is no other possible end state then a full collapse of paper and digital wealth, which in today’s world would be a catastrophe of civilization-destroying capacity. Silver Shield says, “The dollar collapse will be the single largest event in human history. This will be the first event that will touch every single living person in the world. All human activity is controlled by money.
Our wealth, our work, our food, our government, even our relationships are affected by money. No money in human history has had as much reach in both breadth and depth as the dollar. It is the de facto world currency. All other currency collapses will pale in comparison to this big one.
All other currency crises have been regional and there were other currencies for people to grasp on to. This collapse will be global and it will bring down not only the dollar but also all other fiat currencies as they are fundamentally no different. The collapse of currencies will lead to the collapse of ALL paper assets. The repercussions to this will have incredible results worldwide.”
“Those areas that have lived highest on the hog in the dollar paradigm will most likely be the worst places to live when the dollar collapses. We will not be as fortunate to muddle through this collapse like we did in 2008 when it was a corporate problem.
This time around, it is a national and global problem. The global Ponzi scheme has run out of gas as the demographics decline, as cheap abundant oil declines, as hegemonic power declines,” continues Shield.
Peter Yastrow, market strategist for Yastrow Origer, told CNBC. “What we’ve got right now is almost near panic going on with money managers and people who are responsible for money,” he said. “We’re on the verge of a great, great depression. The Federal Reserve knows it.” And there is nothing they or anyone can do to stop it.
“If you think that the banking system of the western world is strong enough to guarantee the debt of the western world, you’re totally out of your mind.
That’s the reason they’ll do everything possible to paper over the Euro crisis to prevent the defaults in order to prevent another crisis in banking that definitively would occur, that absolutely would occur from a default. This fact is ravingly positive for gold. You would have a complete collapse of the western banking system if Greece goes down,” writes Jim Sinclair.
The middle classes around the world are being impoverished
just to pay interest on the sovereign debts to the
banking elites who are enjoying the life of the filthy rich.
The world is just waiting for the spark to start the run-out of the dollar and our Treasury debt. Any serious financial or natural disaster could trigger the long overdue collapse and bring the Ponzi-type deck of cards down almost overnight on top of us.
In the meantime Washington and European governments will simply throw its people’s wealth and promised benefits at the problem thus buying them more time to do what they do best—steal all the money and power they can.
Concentration of wealth is at obscene levels and these are the people that Jesus the Rabbi talked about when he talked about the rich, the eye of needles and the chances of getting into heaven.
From what I have seen these people are not planning on going to heaven and in fact have been spending billions of their dollars building underground centers and complexes. Seems like human hell for can you imagine these people having to live in tight quarters with each other?