Happy Days are Here Again...or are They?!

"No matter how much money or love you've made or lost, you can still make more."

Mark Twain cautioned, "Keep away from people who try to belittle your ambitions. Small people always do that, but the really great people make you feel that you, too, can become great."

"There is no part of the administration of government that requires extensive information and a thorough knowledge of the principles of political economy so much as the business of taxation. The man who understands those principles best will be least likely to resort to oppressive expedients, or sacrifice any particular class of citizens to the procurement of revenue." --Alexander Hamilton, Federalist No. 35, 1788

"A constitution founded on these principles introduces knowledge among the people, and inspires them with a conscious dignity when becoming freemen; a general emulation takes place, which causes good humor, sociability, good manners, and good morals to be general. That elevation of sentiment inspired by such a government makes the common people brave and enterprising. That ambition which is inspired by it makes them sober, industrious, and frugal." --John Adams, Thoughts on Government, 1776

IT'S GOVERNMENT THAT NEEDS REPAIRING, NOT ITS PEOPLE

Scanning the headlines this morning, it looks as though nothing major has changed in the world of politics and economics. In the face of daily announcements, all the chin-wagging and "power lunches," the larger, more important trend is already underway...and it ain't changing course. That trend of ever increasing debt and nonsensical government interference in the slow, painful march toward correcting it, breaking it up, destroying it or at least making it manageable has not started yet.

ON THIN ICE

The last time I checked, the neither the Political and or financial world had still not come to grips with reality. The powers that be are still playing the BLAME GAME, hastening our demise. Some people never learn.

A deepening crisis of some kind is certain, especially because the US economy is still reeling from the credit crisis of 2008 and increased massive government meddling in the economy and business. Fearing a Double DIP, the FED has sprung into action, which pretty much guarantees a repeat of 2008 or probably much worse. With their launch of "Operation Twist, which is a new "ANACRONIM" "for Quantitative Easing, it is simply a new form of creating money out of thin air. One way or another, the Fed's balance sheet will explode over the next few months and is merely the next illogical step in the government's planned progression toward dollar devaluation.

The economy is in tatters, even after trillions of quantitatively eased dollars were pumped into the system. The Fed's own Public Statement noted "significant downside risks to the economic outlook, including strains in global financial markets." If these magic elixirs are so helpful and desperately needed for our economic health and vitality, then why the dismal outlook? Unfortunately, we already know that answer. There are no magic elixirs. No potions. No panaceas. No "free lunches."

Investors, for their part, appear to be finally catching on. Just as they "re-re-discovered" Europe, they also "re-re-learned" that the US Federal Reserve can do nothing to reverse God's Natural Laws of Economics. Worldwide, markets are crashing; London, France and Germany were all off by as much as 20%, as was Hong Kong's Hang Seng. Indonesia's Jakarta Composite Index fell by 9% in one day and even mighty China is now down 40% since November (don't say I didn't warn you) and no 5 or 6 or even 7 day rally off of a wildly oversold market will change that.

So much Fiat money... so much tinkering and fixing - all done in an attempt to avoid the inevitable. The Piper always must be paid. To delay the inevitable is to worsen the crisis that must eventually come due. Seems to me like an exercise in futility. Besides, we all need a little creative destruction from time to time to rebalance the economy so as to enable it to get back on track. Will they ever admit that they made a mistake and that we need some debt destruction instead of new Debt creation? Why not "give collapse a chance" and let the FREE MARKET fix the things that only free markets can fix?

In the end, it probably won't matter whether the Feds "allow" collapse or failure to happen. The best that they can do is to delay it. The world is heading for global DEPRESSION. God's Natural laws of Economics always wills out in the end.

SHOCKING NEW DATA ON UNEMPLOYMENT!

Fed Chairman Bernanke just told Congress that unemployment is in a "national crisis," as if we didn't know. The average person out of work in the U.S. now takes a stunning 40.5 weeks to find new work. That's now MORE than double what it was in the last Recession and the WORST in history! The only way to deal with this harsh, yet realistic outlook is to take matters into your own hands. Get yourself re-trained, examine your abilities and look outside your field. Just as an aside; empirical evidence from past recessions tells us that the longer and larger Un-Employment Insurance is extended, the longer it will take employment to get back to normal (Basic Laws of Economics).

THE OBVIOUS IS OBVIOUSLY WRONG

Do you think Bernanke will help bail out Europe? This is a very important question. The answer is yes, in the end when push comes to shove, he will. He's already shown an inclination to do so by engaging in currency swaps with Europe. Essentially that is loaning them Dollars in exchange for Euros to provide European banks with dollar liquidity. It is natural to want to sink together rather than sink alone. When Europe really begins to meltdown and its large banks start failing, I'm as sure as I can be that he will take it to the next level and print dollars to help bail out Europe thinking united we stand, divided we both fall.

However, in the end, it is my guesstimate that it will not save Europe. It may stabilize the banks for a short while, but in the end, the Euro will fail, Greece will default and pull out of the European Union and so will the rest of the PIIGS or the Euro will disintegrate. None of this is good for the US or the world as the world slowly but surely sinks into DEPRESSION precipitated by the inevitable TRADE WARS. (Our Congress is now pushing trade sanctions against China and soon to be others.) For some reason, the world cannot seem to learn from its past mistakes. The Smooth Holly Tariffs precipitated the trade wars that led to the DEPRESSION of the 1930's.

HOPE SPRINGS ETERNAL

In the short run, what initially will looks like progress will precipitate that sharp rally into year end that I have been looking for? However, it will be due to the deeply OVER SOLD conditions of markets all over the world. Rest assured, it is impossible to solve a problem by doing more of the same as what got you into the TROUBLE in the first place.

So let's take advantage of the situation. We have probably started a tradable rally that could be up as much as 38% to 62 % of the selloff from May 1st. to October. So while we can make some decent money on the upside, prepare your to GO SHORT shopping list because the next major selloff will be a Wave 3 and as you know, Wave 3s are devastating. So Be Prepared and continue to accumulate Gold, Silver and their mining stocks on weakness.

GOLD

The truth comes out... gold owners have been scammed (but not really)

On the morning of Monday, September 26th, something very non-KOSHER happened. The price of Gold dropped a staggering $130 per ounce during Asian trading and before the U.S and European markets opened. Who in their right mind would try to sell a large position at the market when 90% of the markets, including the 3 biggest (the US, England and Switzerland) are closed? Their objective was certainly not to maximize their returns. If that happened either here or in England, there would certainly have been an investigation. But instead of complaining, let's look at the bright side: We are getting a Golden Opportunity to buy more Gold and Silver and especially their mining stocks at as much as 20% to 50% below what the real markets should be. But that is nothing new. The Government and their bankers have been manipulating the Gold and Silver markets for 40 years. But don't cry too much, they have already given back (lost) all of their 40 years worth of ill gotten gains and are now $100's of billions in the hole and will end up bankrupting themselves, if they have not already done so.

As a battle-hardened contrarian, forged by decades of trading and in general being ornery, I relish both extremely oversold and overbought markets, so I can go against the crowd. They spawn some of the best entry prices ever seen, the ideal time to buy low (a necessary pre-requisite to selling high later). The word "oversold" simply means a price has fallen too far, too fast so as to become unsustainable. It happens when traders' collective fear grow excessively, flaring up dramatically before rapidly burning itself out.

In 2006 and 2008 and now again, even the gold bugs turned bearish and claimed the sky was falling and everyone was terrified that the Gold Bubble had burst. So, we bought aggressively once again, seizing the incredible bargains that being over sold brings. In less than 6 months, most of our trades had more than tripled! While buying stocks when no one else wants them is very challenging psychologically, the huge rewards are well worth the perceived risk. But you must have the courage to stand alone and today is no different.

When it comes to Gold, my theory is that the rising price of Gold is not just an increase in the price of Gold. In reality, it is a reflection of the reduction in real purchasing power of the world's Fiat currencies as evidenced by the fact that Gold has been rising in price against all currencies and the pace of credit and money creation is actually accelerating the world over. We will shortly enter WAVE V or the fifth phase of the bull market in precious metals. When it comes to commodities, fifth phases always end up in a mania and like back in 1979-80, the last 128% of the entire move (from 1971-1980) took a little more than a week. But this time around, the bubble will be much larger than it was thirty years ago because at that time, although no longer Gold backed, the US DOLLAR was still king and there was not even a hint of downgrading America's $'s or it's Debt.

Today, the US is in a much worse fiscal situation than it was back then and ours as well as the rest of the world's economies were nowhere near as highly leveraged as they are today. We had a much smaller national debt relative to GDP, a trade surplus and favorable demographics.( Social Security was taking in a lot more money than it paid out) This time, we have the world's largest debt, a massive trade deficit, ever expanding Social Security and Medicaid deficits as well as additional factors exacerbating the situation. We have the world's biggest Ponzi scheme, our Treasuries are selling at prices that have nowhere else to go but down, Muni Bonds and our stock market are completely mispriced due to zero interest rates and our currency is shrinking in value. All of which will surely burst in the not too distant future. Can you believe that the only thing keeping us afloat is the fact that Europe is in even worse shape than we are and 100's of billions of scared money is running to US Treasuries? (The socialist chickens are all coming home to roost.)

Perhaps of even greater importance to the price of Gold, is the 100's of millions of newly wealthy Chinese, Indian and Asian investors, who all own Gold as part of their culture on top of their financial reasons for becoming big buyers of Gold. This time, the bubble will be truly global in nature. There are also millions of savers in the USA and Europe who are just beginning to realize that their wealth is being stolen by Inflation and they too will soon be rushing into precious metals. As Gold and Silver prices continue to levitate higher and millions of investors around the globe finally realize their wealth is being stolen by Fiat money, they will rush to protect what wealth they have left and buy Gold regardless of price.

I have long ago calculated that Gold and Silver will rise to my eventual price targets for Gold of $6,250 and Silver at $250 to $400 by 2017.

The current but temporary flight back into dollars and US bonds is a misguided flight to safety (panic is always misguided), but that will turn out to be just a short-term emotional move based primarily on FEAR and the fact that they think that only US Treasuries are a big enough market to absorb all the flight money so quickly. Slowly but surely that money will flow out of Treasuries into Gold and Silver. It will become a matter of self preservation as the PM markets resume their upward trek at $50 to $150 plus per day moves.

Ben Bernanke's unbelievable and unnecessary emergency monetary policy steps have increased the money supply by over 350% just since 2008. If there wasn't continued and ongoing deflation of bubbles (real estate, construction etc.) in the US economy, inflation would be raging out of control by now, but nonetheless it is still occurring. Inflation is already at an understated 3.6%. However, all of the excess money printing and incurring of massive amounts of new government debt will eventually leave the banks and show up in the economy and rapidly escalating inflation, not only here, but in Europe as well as throughout the rest of the world, which will result in the Gold and Silver Moon Shot.

SILVER

China has become the top consumer of Silver in the world. China has now become the third largest producer of mined Silver in the world, and its net imports of Silver increased by 400% in 2010 to 3,500 tons. China used to be a Silver exporter, now it has become the largest importer of Silver. About 70% of China's Silver demand comes primarily from the industrial sectors. However, Silver's use in jewelry and for investment is rapidly increasing as more and more people become rapidly wealthier, which will add further pressure on prices and may cause me to raise my long term target prices. Two of my favorite Silver miners are SVM, China's largest Silver producer, and EXK whose mines are all in miner friendly Mexico.

CHINA and JAPAN

I have been warning you all for years that God's Natural Laws of Economics are universal. Throughout the 80's and 90's, we kept copying the exact same policies as Japan was doing and as I pointed out time and time again that we would end up following Japan into a period of stagnation and the carry trade would shift from the YEN to the US Dollar. Over a year ago, I began warning that China must live by the same economic laws as the rest of us. Printing money and unleashing massive amounts of credit would create an even bigger Real Estate Bubble than we did. (They now have whole cities just lying empty.) So, as soon as they started raising interest rates, their Stock Market, Real Estate and Economy would go into Recession no matter how many of our trillions of dollars they hold in reserves. Even though they are in a much stronger financial condition than we are, they too must live by the Natural Laws of Economics. China, contrary to prevailing accepted beliefs (HOPE), will not be pulling the world out of Recession. How could it? Their economy is only slightly larger than 25% of the US Economy and could not possibly replace the US and Europe as the buyer of last resort.

HOW NOW DOW

Hope isn't a viable investment strategy. But it's so thick in both Wall Street and in Le Hague right now, you could cut it with a knife.

Hope is when the European politicians meet 10 days from now they will finally get things right on this, their umpteenth bailout attempt.

Hope is that the U.S. economy is not slipping back into Recession, despite overwhelming evidence to the contrary.

Hope is that 3rd quarter corporate earnings won't be as bad as many fear ... and that Congress' "Super Committee" can somehow figure out how to cut the deficit without starting another budget war.

But in the real world, I see new signs of imminent conflict-both in Europe as well as here in the US:

This last 1100 point rally is the fastest corrective rally that I can remember, correcting 50% of the past five months' decline in just 6 trading days. That is an unsustainable pace. It also means that if Wave 2-up continues moving this fast, Wave 3-down will be coming before year end. And Wave 3-down should be at least 1,600 pts down. In spite of the indicators, I lean toward believing the past 6 days' rally is part of corrective Wave sideways correction - I could be wrong and I'm not interested in ignoring the indicators. If we are in a flat triangle corrective pattern for Wave iv, then the next wave up of a flat is known to be fast and furious. So the price pattern fits the wave iv scenario far better than anything else at the moment. In either case, a sell-off is due to start over the next few days. If so, we have a less than ideal situation in the markets at this time for short-term predictability. As long as the S&P 500 remains below 1,260, this Wave v-down scenario remains probable. The Daily Full Stochastics are extremely overbought, which makes for a perfect set-up condition for sharp declines, so if I get new sell signals soon, watch out below. But for the time being, I am waiting and watching closely and will come out with a special bulletin as soon as I can see straight. But being an ornery contrarian, I foolishly decided to nibble on a few short positions into today's (Friday) close.

GOOD LUCK AND GOD BLESS

All of my long term readers were not surprised by the shenanigans of the last few weeks. There are rarely any major surprises once you learn how to analyze political speech with an open mind and without pre-conceived ideological positions. My most frequent mistakes are usually ones of timing. I seem to continually underestimate the stupidity and ignorance of our Media, Keynesian Economists and Politicians who don't seem to know how to tell the truth. In most cases, "The Obvious Is Obviously Wrong" is the one thought that will keep you on the right side; that and COMMON SENSE.

We are coming into the most trying times in our nation's history. We can either succumb to our Government's folly or personally prosper. As always the choice is yours.

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UNCOMMON COMMON SENSE
Aubie Baltin CFA, CTA, CFP, PhD.
2078 Bonisle Circle
Palm Beach Gardens FL. 33418
[email protected]
561-840-9767