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June 6, 2010

Issue 99  -  Caution....Bridge Out Ahead

 
 
The market had a total washout on Friday.  Prices pretty much dropped all day.  There was 90% down volume which means 9 out of 10 stocks were down.  This usually signifies a bottom but the volume was relatively low.  You would normally want to see huge volume on a 90% down day to signal a bottom.  This didn't happen and I see stocks going much lower over the next 6 months as there just isn't enough good news.
 
The jobs report yesterday was not good at all.  The President was evidently impressed, but reality is often different from a politician's spin:  (from goldentruth.com)
  

WHOOPS! I Thought Obama Said To Expect A Strong Employment Report

Based on today's true picture of the economy and employment, what we can expect is a massive new stimulus Bill to make its way through Congress, to be followed by an even more massive Quantitative Easing (aka printing press/helicopter drop operation) to be announced by the Fed.  Obviously this will be hugely bullish for gold and silver and is probably why gold is currently up the day despite the bloodbath in the stock market.

Let's look at the facts and figures.  The headline number reported that U.S. payrolls rose by 431,000 in May.  BUT, 411,000 of that number was from the temporary employment of Census workers.  I know someone who took a Census job and his work is finished and he can't find a private sector job to save his life.

The Government is reporting that the private sector added 41,000 jobs.  Hmmm...By now everyone probably at least has heard about the nefarious Birth/Death model of jobs creation used by the BLS.  This fraudulent metric is used to calculate the number jobs they THINK has been created by new businesses formed during the month less businesses that closed during the month.  Interesting theory to say the least.  The Birth/Death model for the month of May estimates that 215,000 net new jobs were created by new business start-ups.  Anyone know of anyone who has started a new business and hired people?  I don't.

As I showed last week, the census workers have been really massaged into the jobs data in the most favorable light.  This is in contrast to reality.  Hiring someone for a couple weeks and then saying we "added" a job is really a joke.  This chart shows what we really have out there:
 
 
Looking here we can see the ugly unvarnished truth and we are approaching 5% of the working population being out of work for over 6 months.  That doesn't scream "improvement" to me.  To make matters worse, this line is shooting straight up.  The shorter durations on the chart have come down, which is good, but the longer term durations are off the charts per past experience.  This might also explain this chart:
 
 
The spike at the end is truly mind boggling and without precedent in the totality of this data which goes back to the 1940's.  That doesn't scream "improvement" to me either.  Then there is a "run" on the treasury bond window:  (from zerohedge.com)

Three days into the month, and the Treasury has already redeemed $169 billion in debt, of which $137 billion in Bills. Run-rated (for Bills alone) this is about $5.5 trillion annually, or basically 63% of all marketable US debt. And somehow the Treasury is lowering the amount of new bond issuance beginning next week. We wonder just where Tim Geithner will get the much needed cash to plug not only the increasing daily deficit spending (today alone the US burned $21 billion net of debt transfers, gross the number was even worse), as well as to fund daily rolls once rates start eventually increasing. This is financial suicide, although the Treasury knows that all too well. It is now stuck in a corner and has no way out than to hope for the best.

Total US debt today was $13.06 trillion. Total debt on March 6, 2009 was $10.95 trillion. The government has spent $2.1 trillion dollars to create a bear market rally which has now fizzled, and to fund a fiscal stimulus that is now dancing its death rattle. GDP will now gradually roll over, the unemployment rate will once again start increasing, diffusion indices, manufacturing and all other economic output will begin declining, but not before the bill is in. It cost Americans $2.1 trillion in debt to generate a 14 months sugar high (for which all will promptly receive a much higher tax bill). Luckily, we will never pay this debt off, so perhaps "the joke is on them" after all.

This is another mystery to most logical people, and one that will end in tears.  If people are redeeming their American debt, and our debt is increasing, who is buying the new debt?????  Things that make you go hmmmmm.   Adding debt at a breakneck speed while the economy balances on the abyss is not a plan for long term survival, especially when that new debt isn't being used for new capital investments.  All the while our government controls the markets and the only ones still blind to this are the talking heads on television: 

 

German Economics Minister Confirms Fed Manipulates The FX

Marketzero hedge

10-05-28 10:23 AM Tyler Durden Bank of England Ben Bernanke BOE Central Banks Federal Reserve Swiss National Bank
The German Economics Minister Rainer Bruederle has just confirmed precisely what many have known and said for years, namely that the US Federal Reserve is active in the secondary markets, in this particular case in FX. While not so much of a secret for some of the fringe players such as a the SNB, BOE and BOJ, the Fed has never had a formal statement on currency intervention, as, of course, it would have been seen as a sign of weakness (and allegedly could be considered an unconstitutional activity). And why would anybody dream of manipulating the world's strongest currency. Of course, if Bernanke manipulates currencies, as has now been confirmed, it is more than clear that he directly buys and sells stocks in the secondary market, and/or Treasuries in the primary. We wonder what other juicy disclosure Bernanke's trans-Atlantic CB colleagues will announce once they are cornered about their recent market manipulative conduct.

The U.S. Federal Reserve is also active in currency markets, German Economics Minister Rainer Bruederle said Friday. on the brink.

It still amazes me that people will argue that the government is involved in manipulation of the gold and silver markets.  They are
involved in ALL markets.  This is the norm.  Accept it and try and take advantage.
 
Hi LOW Silver Away 
 
With the market tanking things took a different turn, gold actually went up.  I expect this to continue as time goes forward and to accelerate.  I've been asked by a few people why silver is going down.  This is one of the risks of silver that I have written about before.  It might be treated as an industrial metal.  Silver is the only metal that can be treated as both precious and industrial. 
 
The thing to remember here is that it will ALWAYS be a precious metal, even if people are not treating it as such.  This is a good time to take advantage of the situation as eventually silver will take off.  The circumstances for silver and gold to rise continue to gain momentum:
 

South African gold output falls hard

Allan Seccombe | Wed, 02 Jun 2010 11:27
[miningmx.com] -- IN an all too familiar announcement in recent years, the South African Chamber of Mines reported the country's first quarter gold production fell 15% quarter-on-quarter, extending the downward slide in output. South Africa has fallen quickly from the top of the perch as the world's largest gold producer. It is now behind China, the United States and Australia. Its mines are becoming deeper and more expensive to mine and grades, which is the measurement of the amount of gold in each tonne of ore hauled to the surface for treatment, is dropping. The latest gold output data shows no signs of arresting the fall in production. South Africa produced 43,927.8kg of gold in the first three months of 2010, which is 15% less than the December quarter and 12.4% down on the same period a year ago. "Gold mining companies lost an average of about 18 days of production during the quarter as the impact of the latter part of the Christmas holidays affected production," the chamber said in a statement.

 
This used to be the leading producer of gold and now they are 4th.  World output is falling.  This has to lead to higher prices.  But silver must be rising in supply as the price falls, right?...not so much:
 

Production of United States Mint American Eagle Silver Proof and Uncirculated Coins has been temporarily suspended because of unprecedented demand for American Eagle Silver Bullion Coins. Currently, all available silver bullion blanks are being allocated to the American Eagle Silver Bullion Coin Program, as the United States Mint is required by Public Law 99-61 to produce these coins "in quantities sufficient to meet public demand . . . ."

The United States Mint will resume the American Eagle Silver Proof and Uncirculated Coin Programs once sufficient inventories of silver bullion blanks can be acquired to meet market demand for all three American Eagle Silver Coin products.

Update: Due to the continued, sustained demand for American Eagle Silver Bullion Coins, 2009-dated American Eagle Silver Proof Coins will not be produced.

This is the 2nd or 3rd time this has happened.  If silver is so plentiful, which the falling price would suggest, how is there a shortage of silver blanks?  It doesn't add up.  Take advantage, please.
 
Oil Spill Update
 
This past week, although starting out hopeful, ended in no real improvement.  The cap which was put on the rig has proved to be less effective than hoped.  They are still trying to tweak it, but this will NEVER collect all the oil.  I listened to several interviews with experts in the field and the general consensus is that the only thing that will REALLY help is the relief wells.  These are still a good 6-8 weeks out. 
 
As far as a nuclear bomb blast being used to close it, one man claimed that they had ruled that out as the depth of the well had computer simulations failing to close the well.  There is also a possibility that the manifold is not connected to the main pipe which means that the top kill was doomed to fail.  This would also mean that oil is leaking in several more places we are not seeing.  This is truly a nightmare scenario.  Here is a video showing the potential spread of oil if there is no capping:  (thanks to Jim)
 
 
If that doesn't make you feel sick, than nothing will.  This has the opportunity to be a global event which has never been seen in history and will have an impact for decades.  Pray that things go right.
 
I'll close this week with a video that I found years ago.  Believe it or not, they actually have a world championship in drawing circles...yes circles.  Have a great week!