Friday, September 5, 2008

Will the real GDP please stand up?

I've been waiting and waiting for a good article to be written this week discussing the GDP numbers just released. I don't have an adjective to describe the absurdity of the propaganda put out to the masses. A 3.3% GROWTH in the second quarter? Really?

You turned on the television when the number was released and on every network you heard, "no recession," "the bottom is in," "king dollar!", oh no.

For a better understanding of this number comes commentary from an economist with some sense of reality:

Thursday, September 4, 2008

The Second Act Coming to a Neighborhood Near You

Two good articles today taking a look at the second round in the mortgage crisis; the option arm and interest only loans. (Subprime was round one) It's interesting to note that on the option arms many will adjust earlier than anticipated because they will be triggered early when they reach a certain loan to value. As prices continue to fall, loans will adjust sooner sending more keys to the bank for foreclosure, driving prices down, repeat.


Bill Gross

This article was the major contributor to the decline in the second half of the trading session today. It is Bill Gross' monthly newsletter. He runs the largest bond fund in the world. As I'm writing this the Asian and European markets are selling off based on what happened today on Wall Street. Hopefully the Daily Tuna will one day have the same market influence.

The Slow Motion Crash

Another monster day down in the American stock market today with the Dow down over 250 points as I'm writing. The jobs numbers came out terrible once again this morning, and it will be a very interesting jobs report released tomorrow morning. With money moving out of commodities and the stock market it is heading back into the bond market for safety.

This trend is ridiculous, continuing to fuel the last great bubble left to burst in the bond market. Imagine if someone offered you a return of 2% over a two year period with inflation running at over 4% on the CPI. The real inflation numbers are close to 10%, but even if you use the faulty numbers you are losing 2% a year investing in bonds. This is very similar to buying dot com stocks that have no earnings and condos in Miami that have no renters.

A major investment brokerage that manages over $1 Billion provides a regular weekly radio program that airs live every Wednesday night. I called in last night to speak with the host regarding silver, credit default swaps, and the current bond conundrum. If you are interested in another perspective I have the link below. It is the Sept. 3rd broadcast, and I am the 3rd caller about 40% of the way through the hour long broadcast.

Tuesday, September 2, 2008

Christmas in August

Since the start of the commodities bull market in 2000 every year the month of August has brought a sell off. This time of the year is very tough for speculators moving in and out of the market, but it's Christmas time for investors providing them an opportunity to pick up assets at a bargain. This August has been the biggest sell-off thus far providing the best Christmas present I've seen this entire bull market.

Oil, the biggest headline in the news has been absolutely killed. I felt that at it's high of $147 that it could fall down to $110, but it broke through that support this morning and is now trading around $108. The government, which was so vocal during oil's recent rise upward, has been a little slow to go after the speculators that are driving the price down. Oil is going to $200 and this sell off has provided an excellent opportunity to pick up oil stocks at a bargain.

Gold has been beaten down as well. The dollar's recent and surprising rise has been the main factor driving it's price downward. I felt that from around $985 in July that it could fall to $850 in the short term, but it has surprised to the downside and is currently trading in the high $700's. Gold mining shares have taken the worst pain from this correction and most have fallen over 30% in August alone! News was released in the past few weeks that the Central Banks put a plan in place to strengthen the dollar after the Bear Stearns collapse. We'll have to see if a similar plan was in place this year during this August Christmas. Before the gold bull market has completed it's run, I feel there will be a day when the price of gold rises $800 in a single day. To say it's current price is extremely undervalued is an understatement.

The DBA Agriculture ETF, while slowing significantly, actually showed a profit during the month of August. This shows the strength of the current bull market in agriculture. Jim Rogers continues to display to the world his market genius telling everyone that would listen the last few months that he is currently a major buyer of agriculture. This market will continue to perform well in the years ahead.

While all these commodity pull backs have provided amazing buying opportunities this (August)Christmas, there is one gift that is in a world all it's own. Last month alone the price of silver sold off by a remarkable 23%. It was priced at $19.50 mid July and this morning in the futures market it was trading at $12.50. Right now just about ever major dealer in the country is sold out of silver. Unless you get lucky, you are looking at a major delay on delivery and most cannot even tell you a date when you will receive the metal.

The obvious question is, if dealers are sold out and there is record net buying around the world, how can the price be falling? The reason is because there have been some major short positions taken in the paper market in the past 6 weeks. By major, I mean absolutely enormous. Of course, when you short a stock that means you ultimately have to buy. When that happens there will a very, very explosive move to the upside.

Robert Kiyosaki, author of the book Rich Dad Poor Dad, gave his perspective on the current market in a radio interview on Monday. The link is below. His track record for investment advice includes:

-1997: urged the purchase of income producing real estate (beginning of greatest bull market in history)
-1999: warned of extreme speculation in the stock market (market crashed in March 2000)
-August 2005: sent out warning letter on his website advising real estate investors to sell their non-producing real estate (that month ended up being the exact top of the market)
-September 2005: urged the purchase of silver, gold, and oil (their rise since that point have been 73%, 77%, and 103%.

Summary of his current thoughts:

-oil is very cheap at $150 and is cheap at $200. $300-$500 is a good price for where we will see oil and $25 a gallon for gas is possible
-feels that the oil problem will pale in comparison to the Fannie/Freddie and Social Security bail out that is coming, producing what will feel like hyperinflation
-Gold is a strong buy under $1200, and he sees a target of at least $2500-$5000
-Silver has the potential to equal the price of gold (above) based on supply/demand and it's industrial use. Silver is currently trading around $12.50.