Wednesday, December 14, 2011
Gerald Celente : "I do not think the COMEX has it ( The Gold) and I have been hearing stories coming out that what they are delivering isn't as its finest as it is supposed to be and I also do not believe that the CME Chicago Mercantile Exchange has the money to back what they are saying were going to do " Gerald Celente told RT America this 13 December 2011 " something is wrong here " he added
Amid a market that has taken investors on its own version of Mr. Toad’s Wild Ride, tech giant Google (NASDAQ:GOOG) has been quietly advancing. Its recent rise from the October abyss has brought it to a key multi-year resistance level.
The $630 price area has acted as an impenetrable ceiling, halting each and every attempt from the search behemoth to return to its all-time highs north of $700. If GOOG is finally able to break out in the coming weeks, higher prices are likely to follow.
Unfortunately, many traders become quickly discouraged by the expensive price of GOOG stock and conclude they are unable to participate. But option traders know that spreads provide the ability to structure cheap trades on stocks that appear out-of-reach for the undercapitalized retail trader.
Consider the following bull-call spread idea, for example. You could buy to open the GOOG March 640 Call and, at the same time, sell to open the GOOG March 660 Call for around $8 ($28.60 – $20.60).
The max risk comes out to $800 and will be incurred if GOOG remains below $640 at March expiration. The max reward is capped at the distance between strike prices ($660 – $640 = $20) minus the net debit, which comes to $1,200 ($20 – $8 = $12). The maximum reward is captured if GOOG resides above $660 at March expiration.
The cost of the trade is equivalent to purchasing about 1 and 1/3 shares of stock — cheap by just about any standard. By going out to March, traders allow GOOG plenty of time to stage its advance higher. As is the case with any breakout pattern, traders need to wait for prices to break through resistance before pulling the trigger.
Already, a movie character depicted as carrying a large quantity of cash can be reliably assumed to be doing something illegal. Meanwhile, the rise of phone-based mobile payments services such as Square and the emergence of a complete mobile banking industry in Africa point to the arrival of the day germ-ridden cash will be as inconvenient for small transactions as it is for large ones. At that point, cash will be left with its rump use as a medium of exchange for drug dealers, tax evaders, and other shady operators and we can expect countries to start banning it altogether. The first country to impose that ban will find there’s an appealing hidden benefit: Without cash, there’s no need to ever have an extended recession.
Why would a cashless society be a depression-less society? Starting about 40 years ago, it became clear that central banks had the power to end most recessions pretty easily, independent of fiscal stimulus. If your economy is saddled with idle resources—unemployed workers, vacant office spaces, factories that aren’t running all their shifts, trucks cruising down highways half-empty—what you need to do is increase the flow of spending through the economy. You do that by cutting interest rates. When rates fall, business investment, homebuilding, and durable goods purchases all rise and next thing you know everybody’s back to work. That’s how the American economy worked from the mid-1970s until 2008, and there wasn’t much more to say about it. When recession comes, cut interest rates, and growth restarts. Economists could happily move on to more interesting topics, such as: How do countries get rich rather than simply escape recession?
As Paul Krugman wrote in a 1999 Slate column about Japan’s decadelong depression, “whereas U.S. interest rates in early 1982 were in double digits—and could therefore be sharply reduced—Japanese short-term interest rates have been below 1 percent for years, apparently leaving little room for further cuts.” Japan couldn’t reduce interest rates to spur economic activity, because interest rates couldn’t fall below zero.
Today, the United States is in the same boat. That doesn’t mean there’s nothing a central bank can do to fight a recession, but it does mean the standard formula of simple rate cuts won’t work.
Now we come to the miracle of the cashless society. Stop for a moment and ask yourself why the interest rate can’t be reduced much below 1 percent. The trouble is cash. At any given time, relatively little paper currency circulates in the United States. Instead, most of the American money supply consists of bank accounts and other electronic stores of value. People prefer to keep money in bank accounts because it’s convenient and because you get interest on it. If the rates were driven below zero—in effect a tax on holding cash in the bank—people would just withdraw money and store it in shoeboxes instead. But what if you couldn’t withdraw cash? What if all transactions were electronic, so the only way to avoid keeping money in a negative-rate account was to go out and buy something with the money? Well, then, we would have solved our depression problem. Too much unemployment? Lower interest rates below zero, Americans will start spending and investing again, the economic will grow, and unemployment will go back down to its “natural rate.”
Some people could, it’s true, try to horde gold, diamonds, or other valuable primary commodities. But this would amount to a price boom, creating mining and exploration jobs. It would also increase the wealth of everyone who already owns jewelry, expanding their consumption. The savvy investor, meanwhile, will realize that the price of gold is sure to crash when the recession ends and interest rates go back up, which should put a break on hoarding.
So is all hope of stopping recessions lost as long as we’re saddled with cash? Not necessarily. Fiscal policy and efforts to boost future expectations of inflation can have a similar impact: Higher inflation in the future is more or less equivalent to a negative interest rate. Berkley economist Brad DeLong proposes a Rube Goldberg scheme to combine a negative nominal interest rate with sporadic lotteries that would invalidate currency with certain serial numbers. The idea is that while people might try to stockpile cash, the knowledge that bills would be destroyed at random should inspire people to spend. But boosting inflation or randomly invalidating currency are bizarre and unpalatable proposals for the economic and political elite. Scrapping cash, on the other hand, is simple and elegant, which is why it will happen some day soon.
NYSE Just a Fraction Away From a Breakdown Break under current support could lead to test of October low
On Monday, the news that impacted U.S. stocks was again all about Europe. Both Moody’s and Fitch rating agencies warned of credit downgrades. And Fitch predicted a “significant economic downturn in Europe.” European markets took a big hit with Germany’s DAX down 3.4% and France’s CAC 40 off 2.6%.
But even though Europe’s troubles were the focus of yesterday’s sell-off, China also has investors concerned due to a reported slowdown in November export growth. The Shanghai Composite lost 1%.
Banks and financial stocks were sharply lower. But so was the technology sector following a profit warning by Intel (NASDAQ:INTC). The big chip maker lost 4% due to hard-drive shortages. Advanced Micro Devices (NYSE:AMD) was off 4.3% and Micron Technology (NASDAQ:MU) fell 1.2%.
Volume was surprisingly low yesterday with the NYSE trading just 777 million shares and the Nasdaq crossing 438 million. Decliners outpaced advancers on both exchanges. On the NYSE, decliners were ahead by 4-to-1, and on the Nasdaq, the ratio was a negative 3-to-1.
Yesterday, the focus was again on the U.S. dollar. The dollar has a direct inverse impact on the price of stocks and commodities, and the PowerShares DB US Dollar Index Bullish Fund (NYSE:UUP) is close to a major breakout.
Yesterday’s gap up is very bullish (bearish for stocks), and it was accompanied by a buy from the stochastic. But in order for it to complete a breakout it must punch through both the $22.40 bearish resistance line and October’s high at $22.62.
The NYSE Composite is an important chart indicator because of its broad market representation and predominant role as a market leader since the low of March 2009. But since July, it has been the Composite that has failed to follow through on rallies and led the decline in the July/August, October and November “corrections.”
With the index now just a fraction away from a breakdown through the 7,285 support line, as well as the 50-day moving average at 7,330, traders should follow its track very closely. A break under the current support could easily lead to a test of the 6,985 line and the October low. Note yesterday’s sell signal from the stochastic.
Conclusion: Yesterday’s sell-off with its focus on financial and technology stocks puts the ball back into the clutches of the bear. But headlines continue to dominate the markets, and so if the focus shifts to this week’s important U.S. economic reports the bulls could assert themselves again. At 8:30 this morning, the November retail sales forecast is for 0.5%, and at 2:15 p.m., the FOMC meeting’s decision will be announced.
And on Thursday, the jobless claims, producer price index (PPI), core PPI, industrial production, and the Empire State Index, as well as the Philly Fed numbers, will be released. Friday brings us the consumer price index (CPI) and core CPI.
Question: A few years ago, I remember hearing that money market funds were covered by FDIC protection just like certificates of deposit and savings accounts. Are money market funds still FDIC-insured?
Answer: The short answer is no, money market fundholders don't have the same guarantees that holders of CDs, money market deposit accounts, and checking and savings accounts have.
But your memory serves you well because money market fund investors were accorded extra protections when the financial crisis evolved in 2008. At that time, a large money market mutual fund, the Reserve Primary Fund, "broke the buck," meaning its holdings dropped in price, which in turn caused the fund's net asset value to drop lower than $1. That event created panic selling among some holders of money market funds, prompting the Treasury Department to start a new program, similar to FDIC insurance, for money market funds.
Under the Treasury's program, investors who owned money market funds before Sept. 19, 2008 (the date that the Treasury introduced the program) were guaranteed to be "made whole" if their funds' net asset values dropped below $1. (This FINRA posting provides details on the program.) The Treasury's program expired a year later, however, meaning that the Treasury, FDIC, or any other entity do not insure the assets in money market mutual funds. Thus, if the peace of mind of a guarantee is important to you, you'll need to stick with CDs, money market deposit accounts (not to be confused with money market mutual funds), and checking and savings accounts. Just be sure to mind the limits on FDIC insurability.
Not All Is Lost
That said, the fact that money market funds aren't insured doesn't mean you should automatically eschew them. Yields on nearly all cashlike vehicles are low across the board right now, but at other points in time, money market mutual funds might provide better yields than you'd obtain with other cash products. In addition, money market funds also offer daily access to your money, which is not an option for CD holders. Finally, there's the convenience factor: If you frequently move money into your long-term investments from your cash accounts, holding a money market fund with your investment provider can make these transfers seamless.
It's also worth noting that, notwithstanding the high-profile case of the Reserve Primary Fund, money market funds have a good record of preserving investors' capital. Since the introduction of the first money market fund 40 years ago, there has been a very small handful of funds that have broken the buck; all the rest have maintained stable net asset values. And following the financial crisis, the Securities and Exchange Commission, which regulates money market funds, imposed more stringent standards on money funds, instituting new requirements for liquidity, credit quality, and maturity.
If you do opt for a money market fund for your cash holdings, take a common-sense approach to ensure that you don't get stuck with an outlier. As with all investments, be on high alert if a money market fund offers an appreciably higher yield than competing funds and does not have ultralow expenses; that can be a red flag that it's taking more risks than its peers are. (Morningstar doesn't provide data or analysis on money market funds, but you can find data about current yields and expense ratios on your financial providers' websites.)
It also makes sense to stick with money funds offered by very large providers with extensive operations outside of the money fund business. Thus, in a worst-case scenario in which a money market fund's NAV falls lower than $1, the provider could contribute the cash to make investors "whole." (Several financial providers quietly did so during the financial crisis; shareholders suffered no ill effects.) Finally, if you have a lot of cash on the sidelines, it's worthwhile to spread your positions among multiple providers for diversification purposes; you might also consider splitting your cash assets among accounts that offer FDIC protections as well as those that do not.