'Government is the great fiction through which everybody endeavors to be at the expense of everybody else.'
Frederic Bastiat (1801-1850)
The President B.H. ODrama led US debt spectacle has culminated into an Aug 2nd
$US2+ trillion standoff pitting the political priorities of 2 self serving poll watching party hopefuls and a pitiful threat of 'non payment' to retired social security holders. Part of the 'non' strategy included BHO 'walking out' on critical discussions and negotiations in an 'enough is enough' hissy fit! Potus Obama followed that act with the incredulous proclamation that 80% of US citizens crave paying the Federal government more taxes for an enhanced spending recovery. Presumably 100% of that 80% want the remaining 20% to be the ones that actually pay more. Next week the US House plans to vote on a measure that would raise the government's debt by $US2.4 trillion along with spending cuts, a cap on government expenditures, a proposal on a balanced-budget constitutional amendment, and a partridge in a pear tree.
At least all the critical details for the Presidents extravagant August 4th. $US35,000/couple 50th birthday bash are firmly in place ensuring a successful champagne and chardonnay swilling glittering soiree.
Mr. 'Gold is Not Money' B Bernake continues to shrug his shoulders with a frightening casual indifference. Former house speaker N Pelosi (Dem) flippantly suggested that a 500+ point DJIA might be necessary to get the attention of the stubborn Republicans. What an incredibly dangerous 'game' is being 'played' by incompetent and unworthy leadership!
Rating experts Moody's have watched patiently for decades as US Federal indebtedness rose from $US2 trillion to the current mind boggling $US14+ trillion. They now figure it is now prime time to make a move on the coveted 'AAA' rating. An ill timed move that should have been made many years and trillions of
dollars ago. As European banks fail stress tests both US political parties dither over corporate jets and delusional 'adjustments' in the tax payer's balance sheet.
The (inevitable) loss of the critical US AAA bond rating, soaring interest rates, and a potential brutal long term global financial crisis hangs in the delicate balance. China's Foreign Ministry recent one line plea: 'We hope that the US government adopts responsible policies and measures to guarantee the interests of investors,' looks to be the lone voice of reason and sanity in an otherwise disgraceful political process.
As the political sabers rattle critical consumer confidence plunges, gold breaks through $US1,600/oz, and European economic heavy weight Italy becomes the sovereign whipping country of the month. Goldman Sachs has moved quickly to reduce expectations for US economic growth based on this current gloomy and negative atmosphere. The real tragedy in this never ending spending/budget saga will be if the decades of combined fearless political leadership has cooked the 'golden goose!'
In the US, the DJIA, S&P, and Nasdaq fell 1.68%, 2.38, and 2.84% respectively over the week. Fed Chief B Bernake suggested that more 'stimulus' is available if needed. Fed officials are divided on the need of further stimulus. Bernake said he has no plans for bond purchases anytime soon. Jobless claims declined more than forecasted and industrial factory production rose .2%. US consumer prices fell slightly as a result of lower fuel costs. Slower expansion suggests that the Fed is unlikely to tighten credit until June 2012 - the longest static period since the government forced the central bank to buy Treasuries during the 1940's. Corporate America continues to fire on all cylinders led by blow out numbers from Google on Thursday of a mind boggling $US9b of revenue for the quarter. The US earnings season is off to a good start with many positive surprises in earnings and sales for a majority of the S&P constituents reported. So far less than 5% of companies have reported with EPS up over 23% with 8.9% positive surprises. Key earnings next week include IBM, Apple, Goldman, Bank America, Wells Fargo, Chipotle, Intel, GE, Caterpillar, Microsoft, Ford, McDonalds, and Yahoo. To this point the US Treasury market has acquitted itself very well under difficult circumstances but conditions can change very dramatically in today's world credit markets.
In commodities the faithful Gold bulls/bugs have been vindicated and rewarded with all time highs of $US1,600+/oz prices. Despite Bernake's interesting thoughts, Gold sure is looking like money to me and the ultimate currency in this volatile and fearful environment. Gold measures to the mid $1,650/oz level in the short term. Support levels are $US1,525/oz (50 dma), $US1,425/oz (200 dma), $US1,050/oz (2010 low and India's 200 tonne purchase), and finally $US680/oz the 2008 low (very unlikely to be visited any time soon). Gold has now made new all time highs in Euro, Pounds, and US Dollars based primarily on the threat of systematic currency and credit risk, A quick run to $US1,700/oz would be short term over bot and overextended. More than likely commercial gold producers will be inclined to rebuild short positions at these very profitable levels locking in handsome profits.
Silver looks to have consolidated it's recent severe CME margin increases and has doubled bottomed at the $US34/oz level. A move to the mid $US40 level has been expected with a run and retest back into recent psychological resistance. The gold/silver ratio remains at a neutral 40x's reading. Senior silver equities look like they have finally bottomed and have accelerated out of recent low levels this week.
The price of Crude Oil continues to thrash in the mid $US90/bbl level but is vulnerable to a significantly softening world wide economy. Natural Gas remains range bound between $4.25-4.75/mcf.
Copper demand remains robust above $US4/lb and looks to retest the recent high territory of almost $US4.75/lb. Supply threats dominate current price levels.
The Agra/grain markets has responded to weather and currency concerns with a sharp rally back into recent high territory. The potential exists for 'life of the contract' highs before the end of the summer.
All eyes will be fixed on the Canadian Dollar as it approaches the $US1.05 and the potential of a significant breakout to significantly higher levels. My target is $US1.10 for the Canuck Buck by September.
The bullish potential of the commodity market may be best explained by fully invested financial guru Jim Rogers : 'If the world economy gets better I'm going to make a lot of money in commodities because of shortages, and if the world economy doesn't get better I'm going to make a lot of money in commodities because governments are going to print a lot more money.'
In Canada, the RIM annual meeting proceeded without any significant pink slip blood letting. Rim stock is struggling to double bottom in the low $US25 level. Sharply higher Apple's earnings next week might be another nail in the RIM growth story. Tuesday's Bank of Canada interest rate looks to remain unchanged despite fairly strong relative economic conditions. The TSX remains locked in a 4 month downtrend primarily as a result of recent weakness in the heavily weighted financial sector. I am watching the TSX 13,500 level as an entry level - a key moving average and downtrend area. I expect further takeover and consolidation momentum to continue in the junior resource sector with significant premiums paid for many significantly undervalued assets.
In closing, it appears to me that equity markets are being restrained by the threats and intimidation of dysfunctional governmental meddling and mismanagement. The fear and loathing which is currently circulating throughout the financial media has paralyzed indexes into a near term trading range consolidation.
I believe that many of these concerns have been discounted in deeply discounted equities in many of the major sub-sectors. The possibility for new recovery highs in North American equity markets exists should spending, tax, and debt issues resolve themselves quicker than expected combined with the prospect of continuing accelerated earnings.
Perhaps we would all be better off if we headed the prophetic words of constitutional father Thomas Jefferson who stated: 'To compel a man to furnish a contribution of money for the propagation of opinions which he disbelieves and abhors is sinful and tyrannical.'
A very nice call!
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