Here's my take on Gold and Silver for the time being

The correction seems to have begin and can possibly last through the middle of March depending on how deep the correction will be. Charts below I put together over the weekend but just did not have time to post yet. Will make further comment later as I am still pressed for time.

Gold hit the first target today and it the correction continues through mid March we could certainly see 1250 gold.  Likely though is a hold up at the $1300 level for psychological reasons.  This bull trend in the PMs is not over by a long shot and a correction here is actually healthy for the metals IMO.  Shake a few out and resume the march.  key is to accumulate as the blood runs and sell into the rallies, but you all know that.

200 Countries, 200 Years in 4 minutes

Been busy with multiple projects so not much posting here of late.  This does not mean I'm through by any means.  This short video illustrates (at least to me) just how insignificant any life span can really be in the grand scheme of things.  The current crisis we are experiencing can take many directions and last who know how long. It took about 17 years for the great depression to play out and over 20 for Japan's crisis to complete rotation why should this one be any different?  The interesting thing about this data presentation is, I spent most of the last 40 years in and out of Asia.  I actually could see this happening albeit slowly (in my life's time frame) although it seemed that Asia was rising while we in the west declined.  My bad I guess, we did not necessarily decline as they really climbed up.  Do view the video it is a very good presentation.

2011 is here Now What?

As 2011 begins, I reflect on the past 3 or so years and wonder what will be the next shoe to drop.  With conditions unlike anything since the great depression there are many things that come to mind.  One thought is the municipal bond market and government bond in general.  I have always been told that during the depression the greatest amount of wealth was lost not in the initial crash of the stock market but in the midst of the depression and in the bond market.

Here I just take a look not at the federal or state level but all the way down to the heart of America the communities themselves and what possible effects we can see on the average household in the near future.  Most of this I have taken from an article by the CBO (Congressional Budget Office).  This is about the 3,000 counties, 36,000 municipalities, 37,400 special districts and 14,600 public school systems throughout America. 

Much like my brain works, all of this has been constructed on the fly and likely fragmented with plenty of random thoughts.  But hey, it’s not like I get paid for this so, take it for what it is. 

According to the CBO, nationally, house prices fell 27% from year ending June 2006 to the year ending 2010.  Property tax collections increased 31% over that same period.  A decline in house prices implies that collections will probably fall in the coming years as local governments gradually update property tax assessments to reflect lower market values.  On average, collections of property tax revenues lag behind changes in house prices by three years.  Even small declines in collections could cause fiscal stress when the cost of providing public services is growing.

Property tax makes up just over 25% of revenue to local governments.  State government provided 30% of local government in 2008.  State revenues have plummeted during this weak economic period.  States primarily get their revenue from income and sales tax both of which are down significantly.  States have and will continue to reduce spending in part by cutting amounts provided to local governments.  The fiscal stress to both State and Local government is occurring simultaneously cutting aid to local government when it is needed the most. 

Local funds allocated to education average 38% of the budgets, without question the largest cost to local government.  According to another survey, 40 states cut spending for K-12 education in fiscal year 2010 and 31 governors proposed to cut such funding in 2011. 

Concurrently, as States and local government face economic contraction, there is increased demand for a host of public services.  Unemployment, reduced work schedules, cause many to lose access to health insurance putting stress on public hospitals and clinics ; crime increases, placing more demand on police protection and the unemployed often opt for less-expensive modes of transportation like public transit.  As unemployment increases more demand is placed on all social services such as job training and welfare. 

Local governing bodies will find themselves frequently at odds with each other due to political dynamics dominated by different political parties.  Deficits may occur.  Making arrangements with public employee groups and unions will be a factor.  Bankruptcies will occur because of the inability to control labor cost.

Businesses will move to more favorable economic environments should cost increase to support local governments who fail to control labor cost.  Communities with high unemployment will see demographic shifts when moderate income households move from local jurisdictions due to relocation of businesses out of these cities.  As the businesses move out the local tax revenue drops further.  Over time the call for more public services increases and personal income falls leading to more unemployment. 

Larger communities may see ever growing deficits and the financial markets will become reluctant to finance them. 

The locals and State officials will be at odds as the States will require the local governments to comply with budgetary controls and audits. 

It is likely the only option to local governments will be to decrease spending and increase taxes and fees.  We can all see this happening no matter what locality we live in.  There is nothing exempt or outside the reach of government as a source of income.  We can look for increases in almost fee or service provided locally, and not just a couple percent here and there but in almost everything. 

What does this all mean?  It means first of all local spending will be cut.  I would think that with education representing 38% of most local budgets that will be a starting point and a hot battle will erupt in communities all across the nation. 

The only other options I see available are sharp increases on property tax and unbelievable increases on all other fees, licenses and penalties under the localities’ jurisdiction.  Even this would not allow the communities to maintain the status quo and would further exasperate fiscal problems for individuals which, in turn will lead to further revenue loss as businesses and people often vote with their feet.

 So, one of the unpalatable options of fewer government employees at much reduced rates, and more efficient educators in lesser numbers along with reasonable increases in property tax and local service fees are likely what some will see. Many other jurisdictions will continue to remain in denial and in the process of trying to keep everyone happy the politicians will place their communities in default. 

This leads to my next scenario; municipal bond defaults.  Long considered the safe bet, these bonds could just be a ticking time bomb for investors not paying close attention. 

Or maybe I’m all wet here and the President and Congress will decree jobs for all and a chicken in every pot soon.  A declaration that all this is simply a bad dream and we will awaken soon is just as likely.  The noise coming out of  Washington is just that……. noise keeping all the factions at odds with one another while we all ride the FED’s printing press into hyper-inflation and lower standards of living. 

Make no mistake of it, we are witnessing history in the making.   Enjoy the ride.  

Sun and Energy

This is one powerful solar furnace.  With this much energy in 2 square meters of sunlight why haven't we gone all out to harness solar energy.

Obama's new tax on...Rainwater!?

You Can't just make this stuff up Ya Know!

"Would President Obama's Environmental Protection Agency really force Americans to pay a tax on "rainwater runoff" from homes and small businesses?

You bet they would.  In fact, the EPA, under radical environmentalist Lisa Jackson, is proposing regulations to do just that." 

Read more: http://www.americansforprosperity.org/040610-obamas-new-tax-onrainwater#ixzz17shTlYjj

Obama's new tax on...Rainwater!? | Americans for Prosperity

America, You Just Have to Believe in Yourself

The guy in this video simply HAS to be a strategist for some politician like Pelosi.

All you have to do is have a plan and believe in yourself.

Gold Musings

I keep seeing the proponents of gold using the "remember Gold has no counter-party risk so gold is money" 

They should be a little more clear as to what they mean by this.  I think many confuse this and think they can buy in the market these ETFs  and feel comfortable.   Not so, they should emphasize the PHYSICAL possession of gold carries no counter-party risk.  

Hell cocoa has no counter party risk if you have physical possession.  Nor soy beans.  Nor sugar.   So I don't get the hype of the lack of counter-party risk.  There is risk in ANYTHING in which there is no physical possession. 

I think we get confused greatly when looking at fiat currencies, what they represent and any relationship to gold or silver.  There is really no true connection except whatever the current price of the commodity is in relationship to the currency.  The fiat currencies (which is all currencies I am aware of today) are all faith based.  That is, we believe the value is what the governments says it is.  It is re-enforced, when you offer it for goods purchased and it is accepted ..... you get your goods and the seller takes the currency in exchange. 

Gold and silver are just commodities that do or produce nothing.  I know there are industrial and other uses for the metals but based on the amount used in production of some other thing or jewelry that use for now, is rather small.  So, just humor me in that these metals only have value based on their rarity and the fact that in the past they DID represent money.  Governments and central banks hold large reserves to in theory back their good faith but want to keep the price down or at least in some manageable "range" to keep some order and I would assume prevent wild speculation on the "thing" that in theory the currency "might" be based upon. 

So, what's the deal?  The lack or abundance of the metal AND the demand for the metal.  Because the known stores and the known production numbers are generally available for anyone to see how much exists we know that they are basically fairly rare.  So why has the price not continuously gone through the roof making it unobtainable for all but the very wealthy?  I remember when platinum was all the rage 30-40 years ago. If rare is the order of the day why is not platinum $300,000 an ounce?  That number is off the top of my head but compare the price ratios and scarcity.

How is the demand being driven?  There is lots of hype and secrecy being bounced around on the internet, times are uncertain and that always bumps gold a bit but we are talking about gold being at the highest price EVER.  And,  EVER is a long time.  So I just don't get it and frankly smell a rat somewhere. 

If you bought a pile of gold back a $350 or so then good on you.  I would be selling some of it but, that's just me.  Can it go to $5,000 an ounce?  You bet it can but it will be because those dollars are worth LESS,  not that gold has changed in the least.   Look at the stock markets;  They are doing the same thing.   There is no more value in all these companies on the exchange than before.  The dollar just sucks. 

So here's my thing, if you hold gold in any ETF or any of these stock type issues you face risk that the gold even exists physically.  The rules for taking physical possession seem shady to me so, these are no different risk wise than any other stock or investment vehicle. 

Now, if you have been buying the physical, in order to claim the gains you will have to sell it somewhere and at some point in time.  With prices being at all time highs and rising seemingly rapidly, at some point no matter what anyone says it's just gonna run out of steam.  It will reach it's implied value and/or exceed it.  (Personally, I think it is near that point now) when it does it will stop.  Then some will sell.  Then some more, especially those who bought near the top, will get out and mental sell stops will be hit.  Remember we are talking about the physical holdings.  You can NOT sell this metal unless you personally find a physical buyer.  When the dealers who might buy smell blood, the price is going to drop, and drop some more which will add to the panic because some have really stuck their neck out and are going to have to unload large quantities fast in order to not lose their shirt. 

Hey these are just ramblings but they are honest ramblings and I still smell a rat ... sorry. 

Euphoria, irrational delusion and hype are all earmarks of a bubble to me and that's just the way I feel about the gold/silver thing at these levels.  Everybody needs to have a little "get out of town" money and that's fine.  I use to say "The only time you can have too much fuel in your airplane is when you are on fire".   What happens if the gold market burns down?  It is a market you know. 

Day ends Rather flat despite Cheerleading

In spite of the talking heads cheerleading the markets the ES and the rest close either basically flat or down a bit today.  The notes on the screen shot taken just after the cash close show the gap up on the overnight and the almost dead nuts hit on the 61.8 Fib retracement taken on the top in 07 to the bottom in march 09.  That's the semi-big Picture.

 The chart  is a 10 minute.  The big red and green horizontal lines are the day's Opening Range aka the OR.  The OR center or mean is the pale white dashed line. When we hit that 61.8 it just dropped out and snagged a bounce off the 20 and started back up..... Then the President speaks.   I guess the traders didn't like what they were hearing this is usually reserved for Bernanke.  Matters not they slammed it back down as soon as Obama opened his mouth.  It's really too funny.  While I was typing this it blew through the 150 SMA (dashed blue line) in after market so, we will see what the over night and London open does. I will stick my neck out here and say that tomorrow will likely be a down day on the ES.  I would point out that while the market shows and open and close only about .25 apart this puppy "traveled" about
23 total points or "handles" today.  a decent trader might have captured at least half of that and a half-assed one should have got out with 5 points.   That's not a bad living if done right.

Click on chart to enlarge

Just a bit of trivia here ..... I have a study of over 500 gaps such at today's gap up of 12 points.  The chance of the gap filling on any Tuesday is 77% and a gap of 12 points was 60% chance of filling, now 66% so maybe it does pay to keep track of these things and allow some bias in accordance with the knowledge.