I'm spending the post on unemployment, the dollar, and precious metal prices.
THE INFLATION TRADE IS ON: BERNANKE HAS BROKEN THE DOLLAR RALLY
It may not seem like much happened yesterday, but a very important event occurred. Yesterday the dollar index breached 78.65. The reason that is significant is because 78.65 marked the intraday low of the prior daily cycle. A penetration of that level indicates that the current daily cycle has now topped in a left translated manner and a new pattern of lower lows and lower highs has begun. Any time a daily cycle tops in a left translated manner it almost always indicates that the intermediate cycle has also topped.
In this case it would indicate that the intermediate dollar cycle topped on week two and should now move generally lower for the next 10-12 weeks, bottoming sometime in late June or early July, about the time Operation Twist ends.
Now that we have confirmation that Bernanke has broken the dollar rally I'm confident in calling April 4th an intermediate bottom (B-Wave bottom) in the gold market. Gold should now be entering the consolidation phase of the next C-Wave. I expect a test of the all-time highs sometime this summer as the dollar moves down into its intermediate bottom.
Sentiment in the mining index has reached the same levels of bearishness that were seen in the fall of 2008. That black pessimism drove a 300+ percent rally over the next two years. I have little doubt this time will be any different.
Now what we need to see is a change in character. We need the mining stocks to stop generating these sharp bear market rallies and transition into the wall of worry type rally that characterizes a bull market. So far that is exactly what is happening. The miners are rallying very hesitantly, and as long as this continues it will camouflage the move and keep sentiment depressed. That's exactly what we need to happen to drive a long sustained rally back up to the old highs.
The problem with the rocket launch type rallies we've seen over the last year and a half is that they swing sentiment very quickly to the bullish side and we run out of buyers.
As long as the bottoming process proceeds gradually I think there's a very good chance the HUI could break back above the 200 day moving average, and possibly test the 600 level by mid-July.
So far all of the pieces are starting to fall in place to initiate the very early stages of what I think will eventually become another huge momentum move similar to what happened in silver and gold last year. This scenario may well culminate in a parabolic blow-off top sometime in late 2014 as the dollar moves down into its next three year cycle low.
Now is the time to invest in this sector as it struggles to transition from a bear market back to the secular bull trend. The time to enter is at the very beginning when no one believes. This is when the really big money is made. If you wait till your emotions give you the all clear, half the move will be over.
Most traders are going to jump back into the general stock market, or tech stocks. You have to be smarter than that. The stock market, including tech, have already generated a massive move out of the October bottom. That kind of move usually leads to a multiweek, or month, consolidation. The odds of another 20 to 30% rally in the stock market are very slim.
The odds of a 20 to 30% rally as the mining stocks resume the secular bull trend are extremely high.
The combination of extreme downside momentum and irrational human nature has created the kind of oversold conditions and extreme undervaluation that generates an opportunity that only comes around once or twice a decade.
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Moneynews
Pimco's Gross: US at Risk of Another Credit Downgrade
Tuesday, May 1, 2012 04:31 PM
By: Forrest Jones
The U.S. could suffer another credit downgrade, similar to the Standard & Poor's decision to strip the country of its coveted AAA rating in 2011, says Bill Gross, founder of Pimco, manager of the world's largest bond fund.
The U.S. is running a structural deficit, a deficit a country would post even while running at full capacity, that is seriously jeopardizing the country's health. Until the government addresses massive liabilities, the country is headed for another downgrade.
Standard & Poor's currently rates the country at AA, while Moody's rates the country at AAA.
Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans
"Let's look to the liability structure of the United States. It's not just $15 trillion in terms of current debt, but it's probably three to four times that in terms of Medicare and Medicaid and Social Security," Gross tells CNBC.
"Unless the United States begins to make some inroads, that's called the structural deficit that the CBO and the IMF basically identified as, perhaps 6 percent to 7 percent to 8 percent greater than any other country other than Japan and the United Kingdom — until we address that structural deficit, yes, we're headed to that territory."
Adding to the country's more short-term woes is a fiscal cliff fast approaching.
At the end of this year, the Bush tax cuts are set to expire while automatic spending cuts are due to kick in, a combination that will immediately siphon hundreds of billions of dollars out of the economy and threaten to counter what little growth the economy is posting.
Only Congress and the White House can change that, and not the more autonomous and decisive Federal Reserve. Many worry that nothing will get done during the election year.
Others say the problem is so dire that elected officials will check their egos and political interests at the door and solve the problem quickly.
"I think coming up to the edge of Niagara Falls in the rowboat might finally force Congress and the president to do something," says Keith Poole, a professor at the University of Georgia who has studied political polarization, according to the AFP newswire.
Standard & Poor's downgraded the U.S. in 2011, when the country waited to the last second to raise its debt ceiling and avoid default.
Editor's Note: You Deserve to Know What Obama and Bernanke Are Hiding From Americans
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The next couple things are from Krieger.
Martin Feldstein Suggests Spain Should Force Citizens and Companies to Buy Government Debt
Posted on May 2, 2012
My Take: Martin Feldstein’s article in the FT from a couple of days ago is so frightening I feel compelled to turn everyone’s attention to it if they have not read it yet. The focus of the piece is Spain and he spends much of it talking about how “confidence” is the key (one of the 10 Commandments of the Keynesian religion). While that is to be expected, he then goes on to state that the Spanish government should consider forcing its citizens and corporations to buy sovereign debt. Here are the key paragraphs:
An alternative emergency approach would be to mandate, on a temporary basis, bond purchases by Spanish households and businesses. Here is how such a plan might work.
The Spanish government could use the income tax system to levy a temporary “lending surcharge” on individual incomes. In exchange for those surcharge payments, the households would receive an interest-bearing government bond with a maturity of five to 10 years. A similar surcharge could be levied on businesses based on corporate profits or the businesses’ value added.
If that doesn’t scare you I don’t know what will. So let me get this straight. Banks and governments took on massive debt and leverage. Then they blow up the entire global financial system. Then the Central Banks bail them both out. Washington D.C. is now the wealthiest area in America yet they produce nothing and take everything. Now what is this genius’ solution to it all? Force the citizenry and companies “based on corporate profits” to fund the government, which of course is just another backdoor bankster bailout. This is plain and simple financial serfdom, brought to you by a Professor of Economics at Harvard (supposedly one of the best educations in America) and an adviser to Reagan (sounds more like he advised Stalin). Just remember your money is not your money according to these guys…
The full article is here although you may not be able to read it without a subscription. It’s titled “Time for householders to buy bonds and save Spain” from April 30, 2012 if you want to try to find it another way.
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I'm not sure how this continues to be ignored. It's even more disturbing that they use this chart to tell Americans that everything is ok. Don't worry US youth, you could have been born in Europe.
Spanish youth unemployment climbed to 51.1 percent in March, from 50.9 percent the previous month. This number was 6.2 percentage points higher than the 44.9 percent youth unemployment rate a year ago.
Compared with Spanish numbers and the euro area's 22.1 percent rate, America's 16.4 percent youth unemployment rate seems low. Germany, Austria, The Netherlands and Malta are the only countries in the EU27 that have youth unemployment rates lower than the U.S.
Here's a chart from Scott Barber and Thomson Reuters showing youth unemployment in the eurozone:
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Stansberry vs Katusa
At the latest Casey Research conference, respected investment analyst Porter Stansberry stood at the podium and predicted that the price of oil will fall below US$40 per barrel within the next 12 months. Part of his reasoning revolves around the impact that the shale gas revolution has had in the United States – he believes a similar thing will happen with oil.
Porter is a friend of mine and a very smart, successful individual… but I think not.
From my perspective, the pressures at play in the oil market are all pushing prices in the opposite direction: up. Global supplies are tightening, costs are rising, and demand is not falling. Prices are going to remain high, and then go higher. And there will not be a shale oil revolution anytime soon.
I'm the kind of guy who puts his money where his mouth is, so I challenge Porter to a bet. I bet Mr. Stansberry that the price of oil will stay above $40 a barrel over the next 12 months. The wager? 100 ounces of silver.
Porter has made a lot of good calls in his career. I highly recommend watching his video The End of America, an interesting and entertaining look at his prediction that the US will soon drown in its debts and cease to be a global economic powerhouse, a transition that will lead to riots across the country.
Porter and I agree on a lot of things, but on this one he's wrong. Below are my top ten reasons that high oil prices are here to stay.
Ten Reasons
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