Agoracom

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” John Maynard Keynes

During the latter part of 2008, I spoke often about a weak counter-trend rally in the U.S. Dollar that shouldn’t get pass 85-90 on the U.S. Dollar Index. I went on BNN on October 24, 2008 and recommended shorting the U.S. Dollar. Since then the U.S. Dollar Index broke down and is merely correcting that sharp decline and filling a gap on the chart.

Since I started a model portfolio for the blog, I couldn’t go back and cherry pick my correct picks of the past. So earlier today, I posted a buy alert on three ETFs. They were:

• FXC-NYSE $82.89
• FXE-NYSE $136.24
• UDN-NYSE $2572

We now have our model portfolio up on the blog on the right side listed under sections- Grandich Model Portfolio

Believing we’ve seen the bottom in oil and knowing Canada is in a far better fiscal position then tired and beaten Uncle Sam, I see the Loonie back at parity in the next 12-24 months. I’m also looking for the Euro to go to new, all-time highs against the U.S. Dollar in the same time period. Obviously if one concludes the same, betting on the U.S. Dollar Index declining would also be quite useful.

After we get past the Obama honeymoon period and the world realizes the fiscal policy of the U.S. is totally out of control and is imploding, its currency has to be debased and will have a 2 or 3 for I sale (or up to 70% off sale) long before my sixteen year-old daughter celebrates her 30^th birthday (in an environment I regret she must face).

This video is a bit old but the message is more important than ever.

I would look to add to short U.S. Dollar and long Canadian and Euro positions if the U.S. Dollar Index moves back towards the 86-88 area. Today, it closed a gap and closed just below some key moving averages.

“There is no good in arguing with the inevitable. The only argument available with an east wind is to put on your overcoat” James Russell Lowell

Radio interview here

Please allow me to note a financial blog a very good friend of mine has.

Financial Post Article

2008 Year in Review and Outlook for 2009

I could’ve sung “It was a very good year for me in the markets if not for one big blunder - mining and exploration stocks. Foreseeing the economic and stock market crisis in October 2007 and urging reads to sell all stocks (except those related to precious metals) and actually shorting the stock market (and covering just under 8,000 on the Dow) proved to be an almost perfect year. Unfortunately, my black eye came from the annihilation of the junior resource stocks. Even knowing what I know now, I would still find it unfathomable that these stocks could nearly totally disintegrate. It does prove one thing - I put my pants on one leg at a time just like everybody else

Those of us who fool ourselves into thinking we can predict the future on a regular basis by looking into a crystal ball really end up learning only one thing: how to eat broken glass. With this in mind, I will attempt to look out into 2009 and beyond. Keep in mind that if I had any real degree of certainty, I would be writing this from my own island in the Pacific.

The Big Picture- When it comes to the good old U.S.A., I believe there’s one overwhelming view one must take despite all the political rhetoric and “I’m okay, your okay” from the “Don’t worry, be happy” crowd on Wall Street; America is trying to operate on a failed business model. While doing so, Americans have truly mortgaged their futures on a far worse situation than the sub-prime fiasco.

While there should be more bull markets to come (hopefully in our lifetime), I think one must understand that the crisis we’re currently in is going to be just a pimple to what our children and grandchildren are facing. This 30 minute video will go a long way in explaining the disaster facing us not too far down the road. I urge, no make that implore you, to send this video to everyone you know. I know in my heart it’s true and truly a prophetic message for the 21st century. If you can’t accept these findings, I don’t believe you should take any more time reading my comments.

Okay, I assume since you’re still reading, you’ve accepted the facts, figures and estimates given in the video. The $64,000 question (if our government handles it the question could likely be $6 trillion) is, “What should one do going forward?”

Praying is a good start, really. As David Walker said in the video (Davis is America’s 21^st century financial prophet), we’re suffering from a fiscal cancer and the cure is nowhere to be found. I doubt the average American is not only unaware of this, but even if they now were, dealing with the current crisis has already been too overwhelming. I doubt very much they have the stomach to do anything about this cancer any time soon. This is only going to add to the problem in the future. Read

After you’re done praying, I think there are some cold hard facts we must make part of our future planning:

• America is a fallen empire. Its ability to be the world’s #1 economic power is gone. We’ve gone from the world’s biggest creditor nation to the world’s biggest debtor nation. When we add the tremendous debt of states, municipalities and consumers themselves, we see the American people drowning in a sea of red. This debt will greatly impair our government and our fellow Americans’ ability to operate and to live a lifestyle (Listen to video) that has become unsustainable.
• Uncle Sam is no longer the world’s favorite Uncle. In fact, to many in the world, they hope he never comes to visit again. The loss of political and economic clout may not be seen in our daily lives, but it will impair us nevertheless.
• No matter what any politician tells you, taxes can only go up. Medical costs will continue to rise sharply. Government services will either be curtailed or end. On the State and local government level, things are actually worse because they can’t print money.

Pandora’s Box is the 78 million baby boomers that have already started to qualify for Social Security and soon Medicare. As this video will show, they are going to be an economic tsunami to the Social Security and Medicare system. (Watch this video. It was made “before” the credit crisis). 60 minutes video

The financial playing field going forward is unlike anything ever faced by Americans. No matter what the financial services industry tries to portray (and the airwaves and print media is full of things can only get better predictions), the pieces that make up the playing board are mostly landmines that can wound or destroy players. Opportunities to profit will still exist but the methods used to capture them will be radically different.

2009 Outlook - What a difference a year makes. Last year at this time, the overwhelming majority of professionals and individual investors still had no real idea what was unfolding and before them. I find it ironic that the vast majority of so-called experts who are calling for a much better 2009, were the same folks who failed miserably in 2008. I guess one of these years they have to end up right.

Being the bearer of bad news is not profitable nor a way to win friends. In October 2007, when I suggested selling everything but precious metals and going short, the vast majority couldn’t phantom the coming carnage.  And, even if they thought it was possible, their advisors talked them out of it. The professional community touted “Buy and Hold” as the savior to all portfolios. “It always comes back,” was their spiel. You would think the world would beat a path to those few who had the foresight to see it beforehand. Unfortunately, most investors are like a herd of deer in the headlights and/or are hoping “it always comes back” happens one more time (then they can run to for the hills).

One of the major problems with so many people “stuck” is they will indeed be sellers if they’re fortunate to recapture some of their heavy losses. The problem there lies in how much more percentage-wise prices must rise versus what they fell in order to get whole again. Another related issue is time. It is one thing for a 30 or 40 year old person to wait it out, but so much of the nation’s wealth is held by seniors. These folks have not only seen their wealth cut in half or more but have seen decent fixed income rates fall tremendously. We also have so many people who have had financial plans that used an 8%, 10% or more rate of return target in order to reach their “dream” retirement. Those dreams are now nightmares that aren’t going to disappear overnight.

There’s going to be an ample supply of equities for sale if and when the stock market rises.

One thing is for sure, the book DOW 36,000 is now strictly a collector’s item.

U.S. Stock Market - There’s good news and bad news. The Good? I don’t see another 50%+ drop from here. If it did occur, life as we know it has gone from bad to worse. The bad? Despite an avalanche of “bottom is in, bottoming process underway, we’re going higher yada, yada, yada” forecasts, the “Don’t Worry, Be Happy” crowd is going to see membership continue to dwindle and it’s public mouthpiece, CNBC-TV, will be searching for new bulls as recycling of old ones no longer works.

On December 16, 2008, the Fed fired what history may show as their biggest silver bullet through a cannon but it did little to change the uphill battle. Yes, the positive spin will continue and be enhanced by the Obama “magic carpet ride” but the overwhelming bearish fundamentals should continue to pressure the market for the foreseeable future. A minimum retest of the lows around 7500 is likely in the first quarter and, depending on if it holds or not, will go a long way in deciding if I jump back in.

What’s lost among the sea of wounded bull cries is that in bear markets like this, not only do we see deleveraging but also shrinkage in multiples people are willing to pay. S&P 500 forecasts for 2009 range from about $65 to $80. I think the market can bare a 15x multiple at best and depending how bad things get, as low as 10x to 12X. That means the S&P 500 could see a low of 650 or a high of 960. It’s currently around 895. In this scenario, buying the dips and selling the rallies seems to be the only way to make money in equities as a whole. I do think oil equities are going to become attractive sooner rather than later. I also believe if and when equities in general are worthy, overweighting in foreign markets versus the U.S. will be the way to go (one reason for this is most countries are cutting taxes while the U.S. can only raise them. History has shown raising taxes are not good for the economy).

Gold Investment Comparison Chart

Precious Metals - TOUT-TV (CNBC) and the like continue to spew out how gold failed to fire in 2008 given all the turmoil. Let me ask you something, if your house was in the middle of a big hurricane and after it was over, it was the only one still standing and sustained no real damage, would you care about anything else?  Of course not. If one bought gold on January 1, 2008, instead of any other investment, they would still have everything they had come January 1, 2009. How many people wish all they did was break even in 2008? Gold continues to offer not only that result, but gains of 20% or more in 2009, IMHO.

Silver is a base metal but still gets bundled up with precious metals. Like in 2008, I think it will mostly follow gold versus lead it.

Platinum appears to have seen its lows and while the upside may be limited in 2009, so appears the downside.

Base metals - I’ve been bearish on them for about two years. As we begin 2009, there isn’t anything to change that view other than further declines which could bring us to the point where accumulating them for 2010 and beyond could be worthy. Stay tuned.

I do think uranium has bottomed and can work its way back to triple digits in the next 24-36 months.

Oil - I threw my hat back into the bullish camp in the waning days of 2008.

U.S. Dollar Index - I’ve had a constant saying for the last few years that “the only party that doesn’t know the U.S. Dollar is dead is the U.S. Dollar. “If I was wrong and it was only sick, trust me the trillions of dollars being created and pumped into the system was its death warrant. Pity the poor souls on Tout-TV who say the Fed will be able to remove these trillions of thin-air created dollars from the system without causing inflation. If you believe that one, you should join those who believe Elvis is still alive and on an island somewhere with Jimmy Hoffa. Look for a test of the low 70s by years-end, if not sooner.

U.S. Treasuries - The one remaining bubble that should burst in 2009 (watch). While the 10-year can still get below 2% yield, the time has come to short treasuries. We may go down before going up, but by years-end I think this strategy can be a winner. Read

Mining and Exploration Shares - Can it get any worse? Since I didn’t think it could be this bad to start with, maybe I’m not the person to answer this. I do know gold is doing well, mine production is falling, new big discoveries are few and far between and someday juniors will be needed again to do the grunt work (hopefully in my lifetime).

I’m gathering updates from our client companies and hope to bring them to you ASAP.

Closing Comment - Most of us have made another set of resolutions for 2009. And most of us will sooner or later failed to keep them. Why? I believe it’s because we try to do it with our own strength, not God’s. Never in the history of mankind has the world seem on the wrong path. Many will suffer. I truly believe the only saving grace comes from the Creator of all that was and is good in the world.

They say you can’t guarantee anything but death and taxes. I’m going to guarantee you one more thing; Trust and love God with all your heart and do the same to others and life will become much easier and enjoyable no matter what.

“Put your hope in the LORD, for with the LORD is unfailing love and with him is full redemption.” Psalm 130:7

You can listen to interview here It begins around the 12:30 mark

Barring anything major in the markets, this should be my last update for 2008. Rest assured if something of significance does break, I will address it.

U.S. Stock Market - I noted in my December 16^th update that a 1,000 point move in the DJIA was possible after Bernanke threw his latest “Hail Mary” pass and the “Don’t Worry, Be Happy” crowd on Wall Street was hailing it as the “Second Coming” (even though it was the umpteen time they have said so). I noted that despite all the cheerleading and pom-poms by them and TOUT-TV (CNBC), the market had still not managed to get over 9,000.

In just five trading days, we’re already halfway to the 1,000 point move. This time around a sharp five day decline took place in a virtual silent-mode and is now lower than where it was when the Fed shot what may be their last silver bullet through a cannon.

8,000 is the next key support area so stay tuned.

Oil - I’m on the bullish side again at $36.50. Some momentum indicators of mine are suggesting the decline is losing steam and oil is deeply oversold. I continue to shy away from oil stocks until such time I enter the long side of equities in general and/or oil breaks to $30 or below.

Gold - Very thin market conditions so don’t make much of any pop or pull back until the New Year.

U.S. Dollar Index - The bear market rally has been crushed and sometime in 2009 we should be seeing the lows of earlier this year tested.

I continue to avoid base metals, but like silver and uranium.

I’m hoping for all our client companies to bring us up to date by early January. I will then update you.

Some interesting reading

Please Note: Our offices will be closed from December 24^th to January 5^th but I will continue to post on the blog from time to time.

U.S. Stock Market - Did this guy steal the “Santa Claus” rally or was it all compacted into last Tuesday’s hoorah on the Fed’s announcement?

Far be it for me to ruin the holiday spirit but I can’t help but to point out that the market fell three straight days after the “Hail Mary” pass by the Fed last Tuesday. Before we break out the eggnog and hang the mistletoe, it’s also worth noting that the market failed again to get above 9,000 and is now close to the last low of 8480 made after the previous test of 9000. A close below 8480 could suggest we’re going to need to re-test the lows around 7500. If this is to occur, I think it would be in January as the market environment is going to be very thin until January 5^th.

I find it disturbing the Treasury has used up the first TARP allocation already and is back asking for the second part. We still have no real idea who has received it. If we do start to head back to the lows, the Fed’s announcement this past Tuesday should look more and more like another failed strategy to right the sinking ship. Stay tuned.

Gold - Has consolidated its sharp recent gains as expected and it too will go into thin market conditions until the New Year. Here are a couple of videos about gold and mining shares.

Oil - Read this from yesterday.

U.S. Dollar - It too corrected its sell-off as anticipated. Yes, thin markets to New Year’s as well

Some of us have speculated that a key reason why banks are not lending is they know another big shoe is only now just starting to fall hard - commercial real estate. Listen to this video

Keep an eye on the 10-yr. Treasury Note. I think if it can break below a 2% yield, an opportunity to short it could prove to be a winner a year or so from now. There’s ETFs to use so stay tuned.

I will be on “Market Call Tonight” on Dec 30^th www.bnn.ca

This perma-bear has decided to jump back into oil. The risk-reward has moved back to the reward side. Back a year or so ago, I stated that “Peak Oil” was real but its impact won’t be truly felt until the next economic cycle. While that cycle appears a long way off given all the problems worldwide, the price of oil in my eyes has come down far enough to begin accumulation of oil-related investments. It’s critical to realize we can go down before up so unless you’re extremely aggressive and a true speculator (we all are until we’re losing money), the best route may be to stagnate your purchases over a certain period of time or price levels. I think one should at least place one-third to one-half of their capital allocated to this sector right now. I don’t think anyone should use more than 5%-15% of their total investment capital into this sector (depending on many factors including your total wealth, age, risk tolerance and how much you would want to kill me if I end up wrong).

 
There’s an old song entitled, “What a Difference a Day Makes.” Just six months or so ago, oil was nearly $150 a barrel and the so-called experts said $200 was only a question of “when”. Now we hear calls for $25 or even lower. Have the fundamentals changed that much from just this past summer? For the short to intermediate term, yes. The tremendous economic contraction worldwide and especially in the U.S. (25% of the world’s daily oil consumption is in the U.S.) has and will continue to pressure oil prices. But make no mistake about it; the world will eventually recover to the point where Peak Oil does indeed become a living and lasting reality.

So, how should one play this? There’s no single answer, as many individual factors that each reader has will make “one size fits all” impossible. Only you know your circumstances. However, I can point to some ways I personally like and you can decide if their suitable for you.

Ideas:

• I’m still quite leery of equities in general but having direct exposure to the oil price itself is warranted. For me, I like DXO-NYSE for leverage. For unleveraged OIL-NYSE.
• For the many Canadian readers who wish to purchase Canadian ETFs, HOU-TSX offers double leverage to the crude price.
• As noted, I’m refraining from pulling the level on oil-related equities but if you so desire, look at IYE-NYSE and XLE-NYSE. For Canadian investors, look at HEU-TSX.

Worthy Read on Peak Oil

Breaking below a multi-year low is not usually a good time to buy anything, but I appear to have ants in my pants for oil. I haven’t heard one bullish comment on oil in weeks (just like I didn’t hear one bearish one near the top). Again, I must emphasize that in all likelihood this is not the bottom. We could go several dollars lower. But, if we do and you allocate as suggested, I think 1 to 3 years from now we should be looking at profits. Because I’m still very bearish on equities in general and the belief oil can still go lower, I’m going to refrain from oil-related equities at this time.

You know you’re in a serious bear market when you correctly foresaw a particular price movement and a place where you would look to buy if it gets there, only to have that price objective reached and you’re too scared to pull the trigger. That sums up my position on oil. $40 has been a price level I’ve pointed out as a multi-year support level (see chart below) and a point where I could turn bullish again.

A couple of weeks ago, I spoke about $50 being a support zone but felt it wouldn’t hold and to look for the $40 area. It got down to $40.50 but because I was (and still am) extremely bearish on the economy, I passed on stepping in at that time. Oil could only manage to rally back to previous support of $50 and has come back down to a lower low just above $40. What’s troublesome about this is it did so despite the announcement from OPEC today. One has to ask themselves what news in the coming days could drive it higher? And if we break much below $40, how much technical selling can that trigger? So you think this crystal ball game is easy?

As mentioned previously, the remaining days of December will see much thinner markets which in the case of oil, could exaggerated its movement.

I’m so comfortable in my bear den. Gold is doing well and the worse appears over for the mining stocks. Sit back, enjoy the holidays and wait to the New Year for any new position is the easy (and maybe smart) road to take. But why should I start making my financial life easy? Haven’t I shown to make some dumb moves?

Okay, you got me. Instead of throwing a log on the fire, roll up in a blanket and wait to see what Santa brings me; I’m going to remain on high alert when it comes to possibly entering the oil market. Let’s just hope I don’t end putting coal in yours and mine Christmas stockings.

U.S. Dollar - Major breakdown but some profit-taking is warranted and healthy.

Gold - Not a peep in the regular press - thank you. Here too, some profit-taking is in order and healthy.

Northern Dynasty Minerals - A nice pop brings many emails asking what’s up? The share price didn’t seem to be the right answer. One could argue our friend from the Far East is buying. I can’t imagine they just wanted to go from 9% to 10%. Consolidation in the gold price should bring some profit-taking into NDM but the stock is starting to look good on the charts.

I couldn’t choose between a “Hail Mary” pass or shooting dice to describe the Federal Reserve’s move today. Make no mistake about it, this is a sink or swim move. Knowing all previous moves have not done the trick (despite Wall Street hailing all of them as just the right medicine), the Fed has effectively decided to shoot their last silver bullet through a cannon. For those who believe this was the ammunition needed to get the U.S. out of a very deep funk, I suggest you look at the history of the BOJ (Bank of Japan) and see all the silver bullets they fired but never hit their target. I believe the Japanese not only make better cars then us, but also bullets.

The rest of the week is shaping up to be the most critical in weeks, if not months. The seasonally favorable period I’ve spoken about, plus the full court press of the “Don’t Worry, Be Happy” crowd on Wall Street (and Tout-TV) hailing this as a “watershed” event (where have we heard that before?), gives the bulls an opportunity to exploit this crap shoot to the upside. We’re either going to rise or fall a 1,000 points in fairly short order.

I believe the FED is in panic mode. They see that all their previous moves has done little and believe one big “shock and awe” shot across the bow of the “Good Bear Ship Lollipop” could sink or greatly remove these pirates who have controlled the waterways at Wall & Broad.

If the DJIA can’t get above 9,000 and stay there, we could see a sharp selloff back to the lows. A close above 9100 could bring on a test of 10,000. Yours truly is going to sit this one out in the cheap seats.

Oil - Tomorrow is a critical day as well. Not only to we get the weekly supply figures for oil but also are expecting word from OPEC. Stay tuned.

U.S. Dollar - Bye-bye!

Gold - Quietly (and hopefully it will stay that way), gold has put in a major bottom at $700 and has the foundation to challenge the old highs just above $1,000. We should consider selling if Tout-TV gives it a positive spin combined with Dennis Gartman and Jon Nadler (only kidding). Interesting video

Important Note - I messed up on Northern Dynasty Minerals news. Mitsubishi bought one million shares in the open market and went from 9% to 10% ownership. Very bullish.

I’ve said it before and I’ll say it again, “The only party that doesn’t know the U.S. dollar is dead is the U.S. dollar.” We’re short again from above 85 on the U.S. Dollar Index and I believe we we’ll see new lows in that index within 12-18 months.

I agree with what Jim Rogers says in this Bloomberg interview ( on CNBC-TV the anchor people actually try arguing with this great money manager).