Curried Wealth Building
Finding an Edge

If you want help with your finances, give me a call at 703-791-3243.
May 1, 2011
Issue 145  -  Inflation is Strangling the
Lower and Middle Class
 
 
Let's start with a headline:
 
Gas Prices Continue to Climb

Most area averages are hovering between $4.20 and $4.25.

By Paige Austin and Meredith Skrzypczak

 
Sponsored By  
Local gas prices continued to climb this week as oil companies experienced record profits.

While domestic demand for gas has been weak because of the recession, global demand is strong, and U.S. drivers are competing in a global market that has changed drastically in the last few years.

When gas prices reached record highs in 2008, Americans were driving more and driving gas-guzzlers, and intense American demand for oil was driving the global market, with vast quantities of oil being imported.

But the recession caused U.S. demand to plummet while South American nations, China and India have been continuously increasing their demand for gas. Now refineries in United States are producing less oil for the domestic market and exporting more to foreign nations, which drives up costs to consumers and profits for the oil companies.
 
 
Gas is soaring.  This is having a major effect on the middle and lower class.  The higher income earners are minimumly affected by this as they have excess income.  The lower classes don't have this luxury.  As gas rises it eats into their bottom line severely.  This will also feed into the prices of other products as gas is used to manufacture/transport almost all items.  We are reaching an inflection point for gas.  The point where it starts to affect consumers:
 
Wal-Mart: Our shoppers are ‘running out of money’ CIGA Eric
 
Welcome to the liquidity-driven, debt-laden economic recovery. The demographic of workforce/population reads as follows: (1) the select few prosper, (2) a lot simply try to hang in as long as possible, and (3) the vast majority are squeezed to the bone by the consequences of policies enacted to combat the largest debt crisis in recorded history.
 
Wal-Mart’s core shoppers are running out of money much faster than a year ago due to rising gasoline prices, and the retail giant is worried, CEO Mike Duke said Wednesday.
 
"We’re seeing core consumers under a lot of pressure," Duke said at an event in New York. "There’s no doubt that rising fuel prices are having an impact."
 
Wal-Mart shoppers, many of whom live paycheck to paycheck, typically shop in bulk at the beginning of the month when their paychecks come in.
 
Source: money.cnn.com
 
So this economy is going to recover how?  If Walmart is having troubles, this doesn't bode well for the other retailers.  To show you the utter desperation of main street America here's an entry from Zerohedge.com:
 

McDonalds Hires 62,000, Turns Away Over 938,000 Applicants For Minimum Wage, Part-Time Jobs

 
Submitted by Tyler Durden

This is what the US economy has been reduced to: McDonalds reports that as part of its employment event to hire 50,000 minimum wage, part-time (mostly) workers, subsequently raised to 62,000 it received a whopping 1 million applications, or a Tim Geithner jealousy inducing 6.2% hit rate (h/t X. Kurt. OSis). Alas, the US economy is now so pathetic that the bulk of the population will settle for anything. Literally anything. And the saddest part: over 938,000 applicants were turned away. Here's hoping to Burger King needs a few million janitors in the immediate future too. And yes, aside from reality, things in America are really recovering quite nicely.

From Bloomberg:

McDonald’s and its franchisees hired 62,000 people in the U.S. after receiving more than one million applications, the Oak Brook, Illinois-based company said today in an e-mailed statement. Previously, it said it planned to hire 50,000.

The April 19 national hiring day was the company’s first, said Danya Proud, a McDonald’s spokeswoman. She declined to disclose how many of the jobs were full- versus part-time. McDonald’s employed 400,000 workers worldwide at company-owned stores at the end of 2010, according to a company filing.

Earlier this month, McDonald’s said sales at stores open at least 13 months climbed 2.9 percent in the U.S. after it attracted more diners with items such as beverages and the Chipotle BBQ Bacon Angus burger. The fast-food chain has about 14,000 stores in the U.S. and more than 18,000 abroad. About 80 percent of all McDonald’s stores are franchised.

 
This is a sad, sad side of what is REALLY happening.  This is opposed to the story painted by the President or Congress.  While we have had an uptick in the employment, a lot of these "new" jobs are much lower paying then the jobs that were lost as employment dropped.  Therefore, there is no way the economy will ever reach back to the previous levels with our current track.  We must bring back better paying, higher skilled jobs to truly start growing the economy.  A job at McDonald's is a far cry from a manufacturing job. (even though the Department of Labor classifies it as such)   Does it make sense that only 1 in 15 applicants were hired to work for McDonald's if things are getting better?  Of course not.  Things aren't better and they aren't going to get better for some time.  Any perceived or announced improvement will be from manipulation of data and market intervention. 
 
The stock market is only up because of manipulation and massive money printing.  Ben Bernanke has said that the stock market rising is proof the economy is getting better.  President Obama has said the same thing.  This is NOT true.  Was the stock market rising in 1999 to all-time highs, proof that things were getting better?  If so, why did things collapse in 2000?
 
Why do I believe in manipulation?  I want to show you a couple of charts to show you just how rigged this game is.  The two charts are ratio charts.  They both show a silver stock price divided by the price of silver.  If the two are moving in perfect tandem, the graph will be flat.  If the stock is outperforming, the chart will tilt up (this is the norm in a bull market) and if the price of silver is outperforming, the graph will slope down.  Have a look at Silver Wheaton versus silver:
 
 
Now the same chart for Silvercorp:
 
 
Notice the right side of both charts has the price of silver dominating the stock price.  There is no logical reason that the stock should underperform the metal to this extent.  At the very worst there may be a slight downward slope.  Historically, the silver stocks OUTperform the metal.  For these two high quality stocks to underperform this badly, there has to be an outside force.  Both charts are now starting to turn up and I expect them to explode upwards as this manipulation fails. (as all manipulations ultimately do)  If the manipulators can somehow engineer a large silver sell-off, the recovery would be muted.  Both of these companies are printing money at silver $45-49.
 
Interestingly enough, as I'm finishing off this blog, an engineered silver sell-off is evident.  Here's the chart at about 6:30 PM on May 1st:
 
 
 
This is not something that just normally happens.  Does it make sense that silver dropped almost $6 in minutes?  What happened?  Did a giant block of silver wash up on the Jersey Shore?  This is a calculated effort to shake out the longs.  Will this work? Maybe in the short run, but not in the long run.  These guys are running scared and they will eventually have to take their lumps for being on the wrong side of the silver market.  They have to cover eventually. 
 
The thing that is against them is the inflation which CAN'T stop.  If the inflation stops, the whole thing collapses.  Therefore it will continue.  Another chart:
 
 
 
 
Here you see the price of gasoline adjusted for inflation.  As you can clearly see we are headed for all-time highs.  They will come too.  The reason is simple, it must.  The money will continue to be printed and guess what?  The Federal Reserve reports what they're doing.  As luck would have it, they just updated the money base chart:
 
 
Does that chart look like prices are going to go down anytime soon?  Does that chart look like the Federal Reserve is finding religion in regards to fiscal policy?  No way.  This shows just the opposite.  Inflation is now on a fast track.  Prepare yourself, make sure you have gold and silver.  If the price stays down on silver, it would be a great time to get in to make sure inflation doesn't strangle you.  
 
Positions
 
GORO  (closed $30.15, up $.47, average price paid $6)
 
Another outstanding week for GORO.  Before I go into the newest announcement I want to try and "learn ya sumthin."  Here is a chart to look at:
 
 
In technical analysis, which is a studying of the charts and price movements, there are support and resistance levels.  If you look at the chart, you will see that the price rose to the $29 level on three separate occasions, only to fall back again.  This is interpreted to mean that there are sellers at this level who feel $29 is the "right" price. 
 
The fourth time the price got to this level it went through it and right over $30.  This is known as a breakout.  If the breakout can hold for awhile, the old "resistance" level then becomes a "support" level.  Looking at the chart you will actually see that the price dropped back down to the $29 level and then went back up.  This is really bullish.  As, instead of sellers at the level, there are now buyers.  This is a very good thing.  Why do I feel this happened?  Read on...
 

Gold Resource Corporation Declares and Increases Tenth Special Cash Dividend

Press Release Source: Gold Resource Corporation On Thursday April 28, 2011, 12:20 pm EDT

DENVER, April 28, 2011 /PRNewswire/ -- Gold Resource Corporation (GORO) (NYSE Amex: GORO) is pleased to announce it has declared its April Special Cash Dividend and increased it to $0.04 per common share to its shareholders of record May 13, payable May 20, 2011.  Gold Resource Corporation is a low-cost gold producer with operations in southern Mexico.

Gold Resource Corporation commenced Commercial Production July 1, 2010 from its El Aguila Project's operations in the southern state of Oaxaca, Mexico.  Using cash flow generated from operations, the Board of Directors declared its tenth dividend in as many months of commercial production.  This tenth Special Cash Dividend is the fourth dividend per common share declared in 2011 and increases the total dividends declared since Commercial Production to $0.31 per share.

Gold Resource Corporation's President, Mr. Jason Reid, stated, "We remain focused on cash flow, dividends and returning as much money back to the owners of the Company, its shareholders.  We are pleased with the progress of processing our Arista underground ore."

This is fantastic news.  To raise the dividend at this time (right after a freak flood of their tunnel) shows just how rich the underground ore.  One of the worst things a company can do to destroy investor confidence is to reduce a dividend.  If the management had any worries of this happening there is no way they would have raised the payout.  In fact, I believe this shows increased confidence.  I think we will see the dividend raised again in the next 6 months.  Their stated goal is $1 a share which translates to about 8 cents a month.  If we aren't there in the next 12 months I'll be surprised.
 
Recall that the gold stocks are typically priced at 1% yield rates.  This translates to multiplying the dividend by 100.  If GORO gets the dividend to $1, we will see a much higher share price.  We probably won't be totally credited with this rate until the dividend is made permanent instead of being "special."
 
Mexus Gold  (closed $.21, down $0.01, average price paid, $.22)
 
The word on the bulletin boards was a launch of the boat on May 2nd.  We'll be able to watch that on the ship tracking web sites.  If the past is any guide, this will probably be delayed a couple weeks.  Once on the way, it should take several days to get up there and then a couple weeks to fill the barge.  If this happens, I believe we will see rapid increase in the share price.
 
Stocks    (Current status, out, sold on March 18)
 
Physical Gold  (Closed $1,566,  up $58,  average price paid $395)
 
Physical Silver  (Closed $47.94,  up $1.26,  average price paid $5.31)
 
This week's video is going to make you long for the days when you didn't have a care in the world and playing with your yo-yo had no time limit.  Have a great week!