Cheaper than Dirt

For those of you not aware, there's a site out there that levels the playing field in terms of cost comparison.  The PricedInGold website, hosted and run by Charles Vollum, is a fantastic source for price comparison and current economic understanding.  If you would like to listen to a recent interview with Mr. Vollum, please CLICK HERE. There is one basic tenet you must accept, or at least suspend disbelief long enough, in order to fully understand and appreciate the information provided.  You must approach with an understanding that gold is money... not a commodity.  OK, in reality it's both, but that's why it's money.  What gold is not, is a "speculative" commodity.
Now, for those of you incapable of viewing anything besides paper as money, for the sake of your education, pretend we're using any other commodity as the medium of comparison.  In reality we all think this way, while our initial reaction at the grocery store is to count how many US Dollars we've spent, what we really do in the back of our heads is compare products to each other.  We tell ourselves, we can buy two boxes of spaghetti or only one box of penne.  We can buy our kids those toaster pastries which are unhealthy and expensive, or for the same amount of money actually fix them a healthy breakfast.  We can eat for a week on a box of cereal or a month on a container of oatmeal.  We all do this, so I'm asking, is that instead of thinking in terms of how many US Dollars something costs (because let's be honest, over the last 10 years the diminishing value of US Dollars and the inability for average household income to keep up has raised our cost of living and our blood pressure), think in terms of relative values between products.  Too confusing to think of how many ears of corn compares to gallons of gas compared to your morning coffee and college tuition?  That's where the single medium of gold comes in.  Frankly, that has been the purpose of gold since we moved beyond etching paintings on cave walls and small tribes traded through barter into a more organized system. Information's great and all, but how is this practical?  Information for its own sake is generally reserved for academics, but practice is what really matters to the rest of us.  What you will learn by a little time spent on this site is that today, we live in one of the least expensive times in our history!  It makes sense.  100 years of massive technological advances and we still enjoy the same coffee beans and sourdough bread we did back then.  Technology should naturally cause price reduction over time, production costs should diminish and the amount of money in circulation to buy the same goods and services can be deflated.  This is natural progression.  Thousands of years ago most people were farmers, or they didn't eat.  Today, a small handful of people have the ability to feed the world (why the world isn't fed today is a conversation for another day).  If you compare these goods to each other and eliminate the Federal Reserve Note middle-man, this is exactly the case. So why does it make sense to view gold as a constant?  Well the only other option is to argue that since 1975 or so, it's become 3900% more valuable (and at the highs of 2011 it was almost 5500% more valuable).  I have a hard time swallowing that.  It's industrial uses are certainly there, but nothing like other precious metals like silver.  Jewelry production certainly hasn't increased that much, and mining production hasn't fallen off enough to increase the demand.  Yet gold will continue to climb on international demand, despite US market analysts at the major media houses whose budgets are paid primarily by the Wall Street firms will try to tell you that gold is in a speculative bubble (which, according to them has perpetually and repeatedly already "popped" since about 2007 - see recent Roubini statements). So let's say I'm right.  The majority of the world knows I'm right, and even a healthy minority of Americans do too, but let's just pretend that I am right and gold is actually the constant that levels the playing field for everything else.  Then how can I possibly argue that goods and services today are the cheapest they've ever been when the constant we're measuring it against is itself at an almost 4000% return in terms of US Dollars had you owned it since 1975?  Well, if gold is the constant, and as mentioned above technology and other factors decrease production costs and therefore should lead to decreased prices, then yes, things should "always" be cheaper as time marches on. A few examples of some everyday things (ok, so not everyone goes to Yale)...

yellow line is cost in gold, the gray-blue line is USD

And a few things to consider regarding your own household income...

yellow line is cost in gold, blue is cost in USD

DJIA

open 12,003.30

close 12,080.38 up 76.02

day high12,099.87

day low11,971.29

today's volume 127,250,559

3mo avg. daily volume 166,653,114

Average P/E  13.4

1 year change +15.59%

DJTA

open 5,147.51

close 5,201.22 up 42.67

day high 5,220.88

day low 5,141.43

today's volume 15,604,888

3mo avg. daily volume 16,502,725

Average P/E  20.0

1 year change +17.31%

ALL THAT GLITTERS IS NOT PAPER PROMISES

As a result of the Dodd-Frank Act enacted by US Congress, a new regulation prohibiting US residents from trading over the counter precious metals, including gold and silver, will go into effect on Friday, July 15, 2011.  
As a result, although the courts’ interpretation of Section 742(a) is unknown, Section 742(a) is likely to have a significantly negative impact on the OTC cash precious metals industry. Here too, it is essential that those who offer to be a counterparty to OTC metals transactions seek professional help to discuss possible operational and regulatory contingency plans. 
The actual rule CLICK HERE; a transaction if it "results in actual delivery within 28 days or such other period as the Commission may determine by rule or regulation based upon the longer period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved;" Alas, the commission has decided not to intervene and keep the exemption status window so small as to affect virtually all exchanges which transact in the gold and silver spot market. 
(from the Zero Hedge Blog) 

Eliminating the OTC markets on precious metals, and limiting purchases to those which can be delivered within 28 days should cause some minor panic movements in metals prices and OTC markets over the next few weeks.  Short term this should be very good for those looking at increasing positions in the tried-and-true physical positions in these markets as one would assume that sell-off's over the next few weeks will hopefully bring pricing down on the metals market in general.  However, as it limits the exposure available in these markets, the long term outlook for physical product should prove enticing to those who understand the bigger picture.

THIS IS SPARTA!!!

The hottest topic these days is Greece.  With sovereign debt piling up and a European Union debating action, or in a less polite way of saying it, doing their best to shirk the Union's responsibilities, buying Greek debt at 30% or so interest seems rather exciting.  However, with default an expectation, one should force themselves into positions of patience, waiting for the "pennies on the dollar" scenario that is likely to present itself.  The European Union may have gotten ahead of itself with all the additions over the years, extended past the strengths of England, France and Germany to those of lesser capable nations like Spain, Portugal, Ireland, Italy and Greece (what we call the PIIGS).  The question remains, does Greece eventually bow out gracefully or not?  The outspoken Merkel and her German counterparts will likely fall back on the wishes of their domestic constituency and leave the PIIGS for the slaughter.  We all would hate to see another Weimar Republic-esque downfall where neighboring countries are pouring into Greece, or Italy, or Spain searching for huge values, leaving the country bankrupt, and the purpose of the Union was to avoid these situations entirely, but when all else fails, Greece doesn't keep Merkel in office, Germany does, so the political pandering will lean more towards the home-front.

International attention has been on this for, in my mind, one reason.  This is like allowing the opposing coach to watch your practice right before the Super Bowl.  The real game to come is the default of larger markets like larger portions within the Euro zone (ie Italy) and of course impending concerns over our own national debt here in the US.  How the IMF and European Union handle this situation will set precedent for coming incidents further down the line.  

SPEAKING FOR THEMSELVES

Options are limited these days.  After the down days posted last week and the HUGE volume of trades followed by a moderate rise today on average to down volume, one would deduce that the markets have lost their luster.  The average person may not be clawing their way past competition for hedge products like land, certain commodities and metals, but they are certainly using their money for mortgage payments and food instead of their brokerage accounts.  As the future becomes more clouded, we tend to adjust our eyes to something closer.  Why debate growth over the next 20 years when we're busy making sure we're fed over the next 20 days.  Bernanke will keep the system afloat through Quantitative Easing packages as long as the rest of the world will allow, but bailing water on a sinking ship doesn't fix the hole, and over time that hold will get bigger.  The markets are speaking for themselves, the only think that has shown real growth in recent years in unemployment figures.  Deflation may be a bullet in the head, but our current inflationary problem is one in the stomach, and the end result will be the same.

DJIA

open 10,968.41

close 10,948.58 down 19.07

day high 10,998.53

day low10,892.76

today's volume 141,822,141

3mo avg. daily volume 185,699,525

DJTA

open 4,584.19

close 4,576.64 down 6.93

day high 4,597.09

day low 4,540.60

today's volume 14,975,502

3mo avg. daily volume 16,637,880

Unfortunately, no apologies to offer as I've had a nice week off from writing.  Was out of town over the weekend and although it wasn't my intent, I've just been remiss for no reason except a little breathing room.  Over the last 5 trading days we've moved up just over 160 points, 193 just on Tuesday, and the first increase in volume I've seen in a long time.  Comparing the rises in the dow to the decreases in the dollar is interesting, see charts below.

When the Dow is up 10% but the dollar is down about 7 1/2, then what is your effective net return?  It took the fed roughly $10 Billion a week for the past two months to get us here.  Do I call this a recovery?  What do you think?

Inflationary upward pressure does not speak recovery.  Unemployment, GDP and housing figures speak louder than stock markets do, and those do not whisper recovery either.  The Fed will increase inflation rates and both quantity and velocity of monetization, they will eventually increase interest rates, and because of this prices will inevitably rise... your income however, will not. 

Bernanke spoke out yesterday.  CLICK HERE  It's fun to watch someone bury themselves from the feet up in their own rhetoric.  At least he's enough of an academician to understand that proving your hypothesis wrong is just as valid as proving it right.  Kudos to my old friend Alex, the physicist, who always explained to me that within the field of science, and hopefully all academic ventures, being wrong and being correct are equally important, as being wrong brings you a step closer.  Unfortunately however, where my friend Alex is exploring the properties of bucky balls, Bernanke is playing at the wallets, families, futures and heart strings of real people trying to make real ends meet.  What is unfortunate is that Bernanke will admit that what they have tried hasn't worked, but still believes it hasn't worked because they haven't done enough.  Enough?  When I was in elementary school, which is only back in the late 80's, we didn't know what came after the word "million."  We used to throw around the word zillion as a joke.  It wasn't until 2008 that people used the word "trillion" in monetary conversation.  They literally invented a new kind of money, which is thousands of multiples of what originally existed to prove their point... and that apparently isn't enough.  

This devotion is held in the hearts of the Fed Board of Directors with the same fervor as the debate of science versus religion, or democrat versus republican, neither side with any intention of listening to the other, let alone conceding any ground, and inevitably handicapping both arguments and ultimately human progress.  I'm not saying that Keynesians are intrinsically wrong and Austrian's are intrinsically right (although I do believe John Maynard Keynes is not someone I would have shared a sense of morality with) ... or better yet, I should use the word "practically" instead of "intrinsically" since there is no practical perfection that we humans can attain (ie. "the utopian society" argument... it just doesn't exist, or matter).  But I am saying that the battle rages, and like most battles there are hero's and villains on both sides.  

With that said I stand an Austrian.  It may not be able to fix every problem, but it also wont ever make them far, far worse.  And I believe that the "in a utopian society" Keynesian economic models, like most humanitarian ventures which are done with the best of intentions, are often left in the hands of tyrants.  And the Federal Reserve Bank's job is to sell US Dollars, not stabilize the US Economy.  I don't care how many ways you slice the pie... they own the pie.

DJIA

open 10,809.17

close 10,858.14 up 46.10

day high 10,886.21

day low 10,728.64

today's volume 167,112,601

3mo avg. daily volume 191,533,394

DJTA

open 4,511.16

close 4,531.19 up 22.48

day high 4,538.64

day low 4,460.94

today's volume 19,681,334

3mo avg. daily volume 17,247,576

 

Options expiration yesterday on metals.  That's not something I care enough about to keep forefront on my mind, but admittedly I was wondering why it finally decided to bounce above $1,300 today, and it makes since that some expirations occurred yesterday.  No one wants to be the guy who blows through that "double aught" number.  However, 24 little hours later and we're thirteen-aught-nine and rising aftermarket.  Doesn't hurt that Consumer Confidence was down.  Treasury rises with gold, and surprisingly so do the equities.  This market makes no sense from a practical standpoint, and all the sense in the world when viewed through monetary-policy-colored glasses.  I'd park a high for gold at $1,325 or in that range, per-chance $1,350 as a top end, but the drop wont be significant, so it's irrelevant.  I still side with Sinclair, as he's often correct, and consider a $1,650 high with a legitimate 50 - 60% retrenchment to follow, perhaps bringing us back to the high $1,300 to low $1,400 range.  Anything under $1,300 today is a good buy, but I'm always a buyer so it doesn't matter what prices are to me.  

My speculating is less in gold (which is about accumulating, not speculation) and more in how much can I turn my back on the equities and housing markets before we see our black swan event.  Chips are stacked against the markets, volume down, incredibly high monetary creation and the claim that it's nothing, and global currency devaluation to continue the fist fight to be the worlds lowest bidder speaks only one language to me, hyperinflation.  When the average American wakes up and realizes that our major concerns are inflationary not deflationary, it will be too late for us, and then we will be playing catch up with the rest of the world.  Europe has inched that direction, Asia leads the way.  Don't believe me?  Then why has even good-ole' Switzerland increased it's exports to the bulk of their GDP?  How many US Dollars you have is becoming far less important these days, and the only think keeping them afloat is our consumption.  Until the rest of the world has bled us dry, "measured" inflationary concerns remain a political issue... in countries other than ours, the political issue is that of avoiding bloodshed and starvation, in this country, doesn't mean much more than a few sour grapes tossed around on the networks.

A single step backwards for us can equate to tens and hundreds of steps forward for almost everyone else, so no one will argue with us as we crush our currency.  China has no problem following suit.  Asians expect currencies to occasionally be destroyed, and it's happened in Europe enough that they prepare, no wonder demand for physical assets has skyrocketed in places like China.  Here, however, we have multiple generations nursed on the sweet milk of reserve currency status, a milk far harder to quit than heroine.  

My rant ends here, forgive me, but it's frustrating and exciting all in the same breath.  Very few people get the pleasure of witnessing in their lifetime what could equate to a complete shift of global domination.  From Africa to the Middle East, to Europe to Western and across the Pacific to the East.  The last 6,000 years or so, there have been a great number of battles won and lost over small plots of land, a few million acres here and there, but only a few times have entire ways of existence been destroyed.  It is both fascinating and terrifying.  Get to know your neighbors, at some point in this generation, you may be glad.

Apologies for missing numbers yesterday.  Despite a huge juicing of the fed, adding 11.059B for the week ending on Wednesday, we had a minor fall yesterday, almost 77 points on the INDU's.  Gold continues to rise, and the "when's it going to fall" question is the wrong one to be asking right now... especially since I'm watching MSNBC with a Wall Street trader talking about waiting for it to fall.  You could literally bet against everything they recommend, and probably be right 75% of the time.

Fascinating week, excited to see how my below rant turns out.  I actually started writing this yesterday and got sidetracked by that pesky job stuff... enjoy.

Broken Eggs
Being in a specific industry, it is unfortunate to watch any time regulators from Washington DC with no understanding whatsoever of how things operate decide to step in and tell those who have done it professionally for years and decades what to do.  It is always fortunate when it is not your company, but in a niche industry like tangible precious metals, many sit with bated breath.  There are emotional arguments on both sides and the outcomes should prove very telling of how the politicians that be truly feel regarding this small, but very prominent industry.  Having been following this story for a number of months personally and professionally, I feel that we are witnessing a regulation committee complaining about a company doing exactly what they claim to, which to me feels like a witch hunt; my opinion is understandably biased.  However, the witch hunt is not asking that the companies involved be burned at the stake, but simply provide understandable disclosure.  The Austrian in me argues that companies to a fine enough job putting themselves out of business when people realize there are better alternatives, but there's always a few broken eggs along the way, and in this country, the minority of broken eggs have established an impressively loud voice and are pandered to. 

At least as much as I've read thus far, H.R. 6149 does not request any information that shouldn't be part of the deal anyway, so we'll see what this animal could morph into, but I am less concerned than perhaps I should be.  But both parties involved have legitimate arguments and the defendants (so to speak, although this isn't a trial, it kind of feels like one) claim to already provide all the information the committee is requesting... which brings back my comment of witch hunt.

Ultimately, this is an issue of taking your beatings gracefully.  The stock market crashes so everyone wants to sue Wall Street.  Housing prices lose value so everyone blames the realtors.  The gold coins drop in value dramatically (or are priced way to high to begin with) so sue the dealers.  I've purchased vehicles before, should I sue the car dealer when I can't sell my car at a profit?  I wonder if that's coming?

Here's a link to the Committee on Energy and Commerce website, read the "briefing memo" first, and as of this morning, Friday, you can read through the testimonies if interested.  CLICK HERE!!!

Dow/Gold and Your Financial Triangle

A topic of conversation which will soon hit a water cooler near you is that of the Dow/Gold Ratio and how it affects the growth and income portion of your portfolio.  Around here, we discuss mandates, not assets, and how those purposes and mandates play into the different aspects of a well diversified and organized portfolio.  There are only three things you can do with money; spend it, save it, or try to turn it into more money.  So traditionally there has been a basic understand that for part of your assets are held in cash (spend), part of your assets are held in things that hold long-term preservation in mind like gold or land (save) and the finally, part in the more exciting stuff where there's the issues of both risk and reward (growth).

Not surprisingly, by means of the traditional human spirit, we take the first and last of those three categories the most seriously, the first because it means we get to eat today, and the last because we want to drink champagne with our steak, not Bud Light with our burgers.  Although those people who focus on the Cinderella of the story, the mandate that encompasses insurance and long-term asset preservation, tend to have the greatest net-worth gains throughout the course of lifetimes and certainly generations.  The rest of us who are unfortunately not quite on the billionaire list, but hold true to our disillusion of grandeur to attain that status eventually, think those small handful of brilliant money managers who make those assets in only one short lifetime got "lucky," and we can get lucky too...

I digress from the point, but only to emphasize the importance of segregating those three mandates from each other and treating each with equal value.  The easy ones are cash and preservative assets.  At all times hold a position in both cash and long-term preservation assets like gold or dirt.  Those mandates never change and the assets that work best for them rarely change either (although every fiat currency inevitably fails, but that is a story for another day).  However, what to do about that pesky growth portion that gets the most interest and attention.  That does not mean that allocating within a certain asset class is proper planning, like buying a lot of different equities in different industries, but that is what the average Wall Street mogul needs to sell you, because it's an easy way to package and liquidate off the shares of certain items their firm wants to get rid of.  Instead, consider allocating your growth portion among different asset classes that serve different purposes at different times of your life. 

What the heck do I mean?  Since I disagree that holding a broad-based stock portfolio long enough will just naturally cause gains, I recommend viewing that benefits of different industries depending on important factors like Dow Theory, unemployment and inflation/deflation figures, and of course, the Dow to Gold Ratio.  Sure, the US Stock Market has made marginal corrections off of the tragedy that befell 401k and pension plans nationwide back in 2008/2009, but where's the growth?  The rule of 72 helps us ball-park the frequency of a doubling effect on our investments, but it's been 10 years and most people are only up the money they've put in.  All the while, our cost of living has more than doubled. Why not, instead of becoming addicted to any particular growth asset, you consider buying the right growth asset at the right time.  And most importantly, having a reasonable exit strategy.


The unfortunate reality is that this only works because not everyone does it.  We know what happens when everyone plays the game at the same time, the game gives up on them.  For examples, look at the "(insert financial term here)" - bubble.

And now here's the topic at hand, the great and magical Dow/Gold Ratio and how it has played out over the last hundred years or so.

When all that is said and done, how does it apply practically?  Look at the spreadsheet below.  Assuming an initial investment of $30,000.00 in precious metals in the year 2000 at a rounded $300.00 per ounce.  Or, 100 ounces of exposure to the gold market.

At that time you could have purchased 100 ounces of gold or 500 shares of General Electric Stock.  I use GE because they are the original big boy and only remaining one on the DJIA today.  The Dow/Gold Ratio was at 40:1 at the time.  Today, we are roughly 8:1.  By swapping that gold out you could now pick up over 8,000 shares of GE, and at roughly 0.48 cents per share annual dividend, you're now picking up $4,000.00 a year. But look how things compound from here if we move to a 3:1, 2:1, and maybe even a 1:1 ratio between gold and the DJIA.  A swap out of gold into GE at today's dividend yield, and in 10 short years you have leveraged your purchasing power into GE 116 fold, and are earning annually in dividends almost what your initial investment was, 58,100 shares netting $27,888 a year.

For more information, please click on the LINK at the top right of this blog, The McAlvany Weekly Recap and read the article for Sept. 17th, 2010.

And here I thought we were looking at a moderate $10 billion a month... perhaps closer to 3 times that amount seems more prudent.  Below, information shared courtesy of Bill King and the King Report, posted from the New York Fed website, link can be found here. Tentative Outright Treasury Operation Schedule

Across all operations in the schedule listed below, the Desk plans to purchase approximately $27 billion. This is the amount of principal payments from agency debt and agency MBS expected to be received between mid-September and mid-October.

	Operation Date1	Settlement Date	Operation Type2	Maturity Range
	September 15, 2010	September 16, 2010	Outright Treasury Coupon Purchase	9/30/2014 – 8/31/2016
	September 16, 2010	September 17, 2010	Outright Treasury Coupon Purchase	3/15/2012 – 2/28/2013
	September 20, 2010	September 21, 2010	Outright Treasury Coupon Purchase	9/30/2016 – 8/15/2020
	September 22, 2010	September 23, 2010	Outright Treasury Coupon Purchase	3/15/2013 – 8/31/2014
	September 24, 2010	September 27, 2010	Outright Treasury Coupon Purchase	9/30/2014 – 8/31/2016
	September 28, 2010	September 29, 2010	Outright TIPS Purchase	1/15/2011 – 2/15/2040
	September 30, 2010	October 1, 2010	Outright Treasury Coupon Purchase	2/15/2021 – 8/15/2040
	October 5, 2010	October 6, 2010	Outright Treasury Coupon Purchase	9/30/2016 – 8/15/2020
	October 6, 2010	October 7, 2010	Outright Treasury Coupon Purchase	3/15/2013 – 8/31/2014

The next release of the approximate purchase amount and tentative outright Treasury operation schedule will be at 2 p.m. on October 13, 2010. ______________________________
¹Operations are tentatively scheduled to begin around 10:15 AM and close at 11:00 AM.
²Nominal coupon operations are specified as “Outright Treasury Coupon Purchase” and TIPS operations are specified as “Outright TIPS Purchase.”


In the mean time, short treasuries are up, the markets will close marginally up, and all precious metals are up pretty substantially today... Looking forward to numbers here in a short bit.


 

 DJIA

open10,458

close 10,544.13 up 81.63

day high 10,567.59

day low10,458.60

today's volume 190,715,523

3mo avg. daily volume 197,317,916

DJTA

open 4,401.01

close 4,447.44 up 46.26

day high 4,471.77

day low 4,401.01

today's volume 12,633,634

3mo avg. daily volume 17,958,165

Another day, another solid open and a sell off throughout the day.  Today saw average volume, which is a rarity now-a-days, but I recall a month ago average volume was about 10% higher, so still nothing to write home about.

Freeze, Fight or Flight

Everyone says the "fight or flight" mentality naturally kicks in when something's life is at risk.  I live in Colorado, where deer and elk encounters are very commonplace; especially on the highways, and primarily when you're traveling at 60 mph and there is otherwise nothing that could possibly be done about the situation.  If you have never experienced the phrase, "deer in the headlights" than you can't know how true it is.  Most times you are able to swerve out of the way... unfortunately sometimes you are not.  I've never been involved in a deer collision, but my parents have, and most everyone I know has, so I say a quiet prayer every time I get behind the wheel, especially during winter when they have retreated from the high country in search of food, and most importantly, at night.  I mention this fact of life we must deal with out here for one reason... the deer does not know it's life is in danger.  In fact, it does not know that unless it does something, it's life is over.  It's a guarantee.  A deer can do quite a number on the front end of a car, but the car always wins.  

I think of the bond markets and real estate markets right now.  There is a crisis looming, and there are unfortunately few of the "traditional" options.  Wall Street tells us that if not stocks, then bonds, and the flood into debt instruments has been impressive.  What is interesting is at the "moderate" inflation rates we have today (as per last FOMC meeting minutes, a paltry $10 billion monetized a month is all we'll have for the indefinite future), people are still running for "guarantee's."  I was at one time a licensed annuity broker.  I never fully understood the concept of sacrificing any semblance of liquidity for "a guaranteed rate of return."  Where they really get you is when you actually do annuitize and then it's not even your money any more.  The only way to win is to live longer than their stated payout dates... but what people don't understand is that insurance companies are in the business of making money, like everyone else is.  So whatever they say about doing what's best for "you," even when that's true, they're certainly not doing it at there own expense. 

So people today are absolutely flooding into "guaranteed" rates of return in bond portfolio's or fixed rate annuities, which are also usually invested in some form of note or bond portfolio, expecting things to be fine... and they will be, assuming that interest rates do not increase during the duration you own the asset.  

So, do I believe interest rates could increase at some point within the next 7 years... well, how would you answer that question?

So we are frozen.  What will be impressive is a wave of flight capital seeking true safe haven's should there be a looming crisis.  To the few of you arrogant enough to fight these markets, more power to you, and if the rest of us are wrong you're set to make a large fortune... ...if the rest of us are wrong... of course.

DJIA

open 10,270.08

close 10,320.10 up 50.63

day high 10,320.37

day low10,253.96

today's volume 149,931,903

3mo avg. daily volume 203,768,523

DJTA

open 4,284.86

close 4,342.03 up 58.62

day high 4,343.71

day low 4,283.83

today's volume 13,515,359

3mo avg. daily volume 18,960,379
 
Click to see this Reuters article  for more information.  A few thoughts on Obama's Rose Garden discussion this week.  Quotes and comments below...

"Obama cited possible steps such as extending tax cuts for the middle class that are set to expire this year, increasing government support for clean energy development, and rebuilding more U.S. infrastructure."  I hate to use a bad quote from a bad movie, but "show me the money."  Bernanke already confirmed moderate to no inflationary growth for an extended period of time, keeping interest rates low.  But our President clearly has no concept of fiscal policy.  Wait, how about another bad quote, "have your cake and eat it too."  You cannot have something that costs something for nothing.  So if the funds are not coming from taxes and not coming from the fed, how does he expect to pay for this?  Now to quote something that actually does make sense, Hitchhikers Guide to the Galaxy, "Presidents don't have power, their purpose is to draw attention away from it."  Pay no attention to the man behind the curtain, and as long as the American public has no clue what's going on, they'll gladly swallow the cough syrup... it's all placebo, but hopefully to the White House, that doesn't matter.
 
"He also said he was considering "further tax cuts to encourage businesses to put their capital to work creating jobs here in the United States." How many mom and pop shops outsource their labor?  And for those that do, how much?  See this ADP Employment Report where is mentions that large businesses, defined as those with 500 or more workers, saw employment remain essentially flat while employment among medium-size businesses, defined as those with between 50 and 499 workers decreased by 5,000. Employment among small-size businesses, defined as those with fewer than 50 workers, decreased by 6,000.

I have about had enough... and for those of you out there who think changing parties mid stream will ultimately do ANY good, you're wrong.  The best thing that could happen to the Dem's is to lose seats for the next two years, that way the looming catastrophe falls on Rep's shoulders... remember, we silly little Americans have no attention span and even less ability to rationalize, reason, and create realistic opinions about things... perhaps we deserve socialism, free market capitalism is for a less dependent group of people than most of us tend to be.

Life is not about trying to make the world into the Utopia you hope it will become, life is about understanding what type of boat will ride best on top of grime that pours out of the Capitol Hill sewers.

DJIA

open 10,270.98

close 10,213.62 down 57.59

day high 10,270.98

day low 10,147.24

today's volume 251,147,169

3mo avg. daily volume 213,138,578

DJTA

open 4,216.26

close 4,209.28 down 7.54

day high 4,216.26

day low 4,137.80

today's volume 15,628,274

3mo avg. daily volume 20,185,952

 

 Increasing volume on down days, decreasing volume on up days (at least as far as the INDU's are concerned).  The TRAN's still refuse to cooperate with a bear consensus... of course they wouldn't agree with the bull either.  Will Mr. Dow be right, that the Rails (now the Transportations) MUST ALWAYS confirm?  Or is this one of those outliers... or perhaps if we just shut our mouths and wait it out, it'll all be clear... unfortunately the final suggested there is always true, it's just not always lucrative to try to invest in an event that has already happened.

The Average P/E on the TRAN's is 23.1 and the INDU's are slightly better at 15.5.  I don't care if Dow proves right or not this particular time, those are not enticing.

Have a nice weekend.  Oh, and Gold wont fall yet either... silly stubborn metal... I love that now people say it's too expensive.  It will be much more expensive than it is now when those people decide it's cheap.  Funny how emotional markets can be, perhaps that's why investing it really can be easier than most people make it out to be.

Debunk Group-Think

Keynesian thinking at it's best.  The following article "CLICK HERE"  appeared on msnbc.com yesterday.  Although I wouldn't usually waste your time, I do check in with Bloomberg, CNBC, MSNBC, etc from time to time, and MSNBC does a great comparison between previous quarter and current FOMC announcements... the above attachment is NOT that article.  Instead, this is something I stumbled across and is what the media is feeding the masses today.  Written by John Schoen, it's amazing how little someone actually has to know about economic theory today to get to have an opinion that both paid for and wide-spread, and for anyone who understands the two arguments today representing economic theory, it's worth taking a look at.  I guess I bring this article up because it frustrates me.  Although I am neither a scientist nor a theologian, this reminds me of the creation vs. evolution debate.  Churches tell you "that's just the way it is" and school tells you "that's just the way it is."  

 I won't take too much time run through the whole article and point out his regurgitation's of concepts he probably is incapable of defining.  I must first point out at least one point he conflicts himself on ... he points out that economic growth has slowed, yet he says that companies are having a hard time getting loans "despite healthy profits..."  In this article, Schoen tells you that the reason we are having so many problems right now and the economy has faded in it's recovery is because banks and people are "saving" when they should be spending or lending.  Therefore the only solution is for the Fed to dump more money into the system.  No mention what-so-ever about why the savings today are taking place... the average person and certainly the average bank (I know the numbers, I get through Weiss' ratings service, every quarter now run by theStreet.com) is not increasing liquid net worth, they are trying to replace lost net worth.  See a chart of the DJIA over the past 10 years and tell me we have had any semblance of actual "growth."  Tell me there's someone out there why has had the "buy and hold" mentality over the past 15 years and is happy about the value of their 401(k). 

My favorite paragraph in the article is the last one, although it is stupid, it gives you the understanding of what the author has been told is the ultimate authority... the policy makers... Keynesian economic theory at it's best.  "Two things happen when you get into a deflationary trap.  One is policy becomes totally inneffective.  Second, the politics of deflation are really hard.  No one agrees on what to do, because there is no optimal policy solution."  Frankly, that sounds like two benefits to me, not too negatives... neither of these things are what the true dangers of a deflationary depression are, but that would take an understanding of what deflation actually is, which the author clearly does not have, but instead is just regurgitating what he has been told is bad.  I'll bet you the author considers running for politics some day, as he's clearly pandering to what he reveres. 
 

I urge you to debunk the group-think.  Do your research, make your OWN decisions, ask lots of questions, and trust the Financial Advisors and Consultants who build portfolios that are flexible in asset class and grow with you over time, regardless of which market is the right market to be in, as opposed to the brokers who peddle the same asset regardless of the world around them.

DJIA

open 10,668.55

close 10,653.56 down 21.42

day high 10,668.70

day low 10,515.37

today's volume 154,872,023

3mo avg. daily volume 223,617,192

DJTA

open 4,489.29

close 4,457.26 down 34.37

day high 4,489.29

day low 4,398.39

today's volume 13,302,798

3mo avg. daily volume 22,126,238

Premises, Laws, Rules...

... call them what you will... but how do the basic tenants of Dow Theory stack up today... Thanks to Rhea and Russell, here are the 10 principles of Dow Theory and my comments attached.  These were taken from Russell's book, "The Dow Theory Today" and although there is some of my own writing in here, for the sake of respect, assume all the following is direct copies.

Novice Politicking

Below is an article emailed to me through our research department at our company today... Bold and red emphasis is mine.  For some reason bureaucracy trumps free markets.  Who gets to decide what type of company "threatens" the economy, and whose definition of what economy is will be used?  This is right up there with the new reporting requirements for purchases made over $600.00 which was part of the Health Care Bill... what does me buying $601 worth of lumber at Home Depot have to do with Health Care, and why exactly will I be having to give my social security number to do so?  See the next article I'm posting today, a link to Jim Sinclair's website, JSMineSet.