Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Honest Money Gold & Silver Report - Market Wrap W/E 26th July

Stock-Markets / Financial Markets 2009 Jun 28, 2009 - 01:33 PM GMT

By: Douglas_V._Gnazzo

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThe Economy - Some pretty good economic reports came out this week, at least on the face of it. The talking heads and spin masters were busy plying their trade. The art of deception lives on – unfortunately. Let’s dive beneath the surface(s).

First quarter GDP was revised up to an annualized 5.5 percent contraction. This is an improvement on the fourth quarters decline.


As the chart below shows, however, any way you slice it the result is the same – GDP was down 5.5% in the first quarter. Year-on-year growth is down -2.5 percent.

Personal income rose 1.4 percent in May. Now, this sounds good, however; wages and salaries, the largest component of personal income, fell 0.1 percent after increasing 0.1 percent in April.

The first chart below shows the “increase” in personal income and in personal spending, which was up 0.2 percent in May.

So, if the largest component of personal income fell (wages & salaries), what made total personal income rise 1.4%? According to the report it was the “other government spending” category. In total the government spent over $900 billion just in the month of May.

Now, where does the government get all that money from? Well, the government only gets money in one of two ways: they raise it via taxes; or they borrow it by selling Treasury bonds. The important point or difference between the two is that taxes do not generate an interest stream for the moneylenders – bonds do. That’s it – end of story; or the beginning – it all depends on one’s perspective.

Taxes are not providing the “new” money – it’s the monetization of T-bonds that is. It’s kind of absurd how our monetary system “works” or doesn’t “work”, once again, depending on one’s perspective.

Paper money or dollar bills, known as Federal Reserve Notes, are used by the Fed (and other entities) to purchase T-bonds with. In turn – or perhaps before, depending on one’s perspective, Treasury bonds “back” Federal Reserve Notes – a very interesting relationship to say the least. Symbiotic comes to mind.

Speaking of the Fed, the FOMC statement was released this week. It was quite interesting so we quote it in full:

Release Date: June 24, 2009

For immediate release

Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.

The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted [emphasis added].

As we have seen, the Fed is correct in saying that the pace of economic contraction is slowing – they should add, however, that it still continues to contract significantly.

Although personal income was up – wages and salaries were down. It is government spending (fiscal stimulus) that is trying to raise all boats. But remember, the government does not have any money of its own; it can only get money from the people: by taxes or borrowing via the Treasury.

The money comes from the Fed, as the Fed creates it out of thin air, by magic. How do they do this? – By extending credit. Credit when accepted by the borrower creates both money and debt: the money that is owed with interest (debt) that was just created by the extension of credit. Sound nonsensical? That’s because it is.

In a system of paper fiat debt-money – credit, debt, and money are one and the same. That’s why we have a financial crisis on our hands. Our money is losing purchasing power (wealth) due to the over issuance of credit that creates debt, thus debasing the value (purchasing power) of our money.

Notice the highlighted portion of the FOMC statement. It talks about the Fed buying various debt instruments. Where does the Fed get the money to buy these debt instruments with? That’s right – they simply create it out of nothing. All it takes is a couple of clicks of a computer. Instant money – created faster than a Big Mac.

But doesn’t someone actually have to “pay” for all this? Yes, someone does. That would be all of us – We the People. All this over issuance of money, credit, and debt simply makes the purchasing power of our money go down. This loss of purchasing power is the most insidious tax ever known to man.  Some call it inflation, some usury, others debasement of the currency; while some say it is the literal destruction of the currency – the death of paper money. Weimar Germany comes to mind.

I like to think of it as legal plunder. Think about it, long and hard – then vote accordingly. And remember: nationalism is socialism, which is corporate fascism – none of which are the same as a constitutional republic. The United States comes to mind.

In testimony on June 3 Bernanke told Congress that the Fed “will not monetize.” Perhaps we should watch what they are doing, rather than what they say. For example:

Reserve Bank credit declined for the week ending June 24, down $58.4 billion. The fall was led by a $53.8 billion decrease in term auction credit and a $28.7 billion decline in central bank liquidity swaps.

For the week, securities held outright advanced $30.8 billion. Treasuries gained $14.7 billion; mortgage-backed securities $11.8 billion; agency debt securities $4.3 billion; and primary credit $2.9 billion.

Some suggest that this may be a sign that the Fed is close to its limit on expanding its balance sheet. I’m not so sure of that. The nature of the beast is to inflate or die. I don’t think the beast wants to die. Though they stab it with their steely knives, they still can’t kill the beast.

Total assets on the central bank’s balance sheet have expanded by $1.17 trillion over the past year to $2.07 trillion, as the Fed loaned to banks, commercial paper issuers, financial institutions, all the while purchasing bonds to support the flow of credit; including toxic waste (debt) that no one else would dare touch (buy).

If the Fed stops monetizing debt, the system will implode. It already came quite close. This does not mean I agree with monetizing debt, as I don’t. Under the circumstances the only solution out of this mess is to return to the use of the only money mandated by the Constitution: gold and silver coin (and no bills of credit, i.e. paper money). The system cannot be fixed, it needs to be replaced – with the one the Constitution ordains. Anything less is accepting the unacceptable.

Is there any “proof” that the Fed’s machinations are all smoke and mirrors? Let’s look beneath the hood and see. Another stellar number was reported this week: personal savings.

Personal saving as a percent of disposable income rose to 6.9 percent in May. That is a good thing, as savings helps create true wealth. The chart below shows the recent rise in savings. Also, note the higher levels from which it has fallen over the past few decades.

Untitled

If wealth is destroyed faster than savings rise, there is still a negative net result. This is where the loss of purchasing power (wealth) by the debasement of the currency comes into play.

Inflated asset prices do not represent real wealth. They are an illusion, which can quickly be shattered, along with the credit extended based on the false valuations thereof. A promise for a promise is still a promise.

In 2009 savings increased about $2.7 trillion dollars. Not inconsequentially, as reported in the June 12th market wrap, as was the 23% surge is government spending, household wealth fell $1.3 trillion in the first quarter of 2009 to $50 trillion.

In 2007 household wealth was well over $60 trillion. Since then, savings has increased about $6 trillion, while household wealth decreased by almost $14 trillion.  This is loss of wealth – plain and simple.  The standard of living is decreasing – not increasing.

Watch what is happening, not what is said about what is happening. The two are not always the same. Also, the money supply (M1) has made a new high, so the Fed is obviously hard at it. The chart below tells the story:

Moving along with the final economic report out this week, durable goods orders increased 1.8 percent in May.

Once again, this sounds good, however, year-on-year, new durable goods orders have increased ever so slightly; and from extreme negative levels: down 23.3 percent in May from minus 24.5 percent the month before.

But an increase is better than a decrease – just realize the size of the hill to be climbed.

Gold

sc?s=$GOLD&p=D&yr=0&mn=6&dy=0&i=p61302856185&a=162172969&r=3311Gold had a pretty good week, gaining $5.40 to close at $939.90 (continuous contract). The daily chart below looks promising. Lower trend line support (diagonal black line) held on the recent correction.

RSI and STO have turned up, with STO making a positive crossover up and through the 20 level. It also made a higher low in the process (double bottom). This is in keeping with the last two corrections on the gold chart.

The golden cross (50/200 dma) still dominates the chart; and note that both the 50 and the 200 ma’s are rising – we do not see this in any of the other markets that have made or look like they are about to make a 50/200 cross. All other markets have a falling 200 day moving average. Gold’s 200 ma is rising. This is a significant difference and is one of the reasons why gold is in a bull market. Up next is the weekly gold chart going back to 2005. The developing head and shoulders formation remains intact. Notice that the left shoulder is forming around the 850 level and that the 50 ma is just above at 874.

Both MACD and STO have turned down and made negative crossovers, which suggest lower prices are likely. This could be the head fake I have been concerned about. Prices could fall yet again and as long as the 850 level holds, the head & shoulders would still obtain, while shaking out a lot of players. The dollar factors in heavily.

Silver

Silver was down just under 1% for the week, closing at $14.08 (continuous contract). The daily chart shows silver is still under the dominant chart feature of the 50/200 dma golden cross it made back in March. Notice that as with gold, silver’s 200 dma is rising, although ever so slightly.

Silver has corrected down from the June high near $16 and is testing both horizontal support (black line) and its 50 dma at $14.02. This is an important test of support. MACD appears to be flattening out, while histograms are slowly receding back towards zero.  

Gold Stocks

PM stocks, as represented by the GDX index, moved up 2% for the week, closing at 39.20. The daily chart shows horizontal support near 39 is being tested. This level is important, as it was just recently broken above, which means resistance has turned to support. Now support needs to hold. STO has put in a positive crossover and is headed up. However, MACD has yet to do the same, although the histograms are quickly receding towards zero. I will feel more bullish if and when an MACD cross occurs.

GDX made a golden cross (50/200 dma) back in mid-March. This is a longer term bullish sign. Notice the 200 dma is leveling out and looks like it may turn up, which would be very bullish and would give the cross more credence/power. Below, the chart shows the gold miners bullish percent reaching overbought levels and now breaking down below support. This warrants watching.

Invitation

The latest full-length version of this week’s market wrap is available only on the Honest Money Gold & Silver Report website. All major markets are covered with the emphasis on the precious metals. Stop by and check out our comments on gold’s potential profits and a list of the gold stocks that have outperformed the GDX by wide margins. The charts of gold denominated in three different currencies tell an interesting story.

We are so bullish on gold we are offering a money back guarantee if gold does not make a new high during 2009. A free trial subscription is also available. A copy of the new book: Honest Moneyis FREE with every new subscription.

Good luck. Good trading. Good health, and that’s a wrap.

 

 

Come visit our website: Honest Money Gold & Silver Report

New Book Now Available - Honest Money

 

Douglas V. Gnazzo
Honest Money Gold & Silver Report

About the author: Douglas V. Gnazzo writes for numerous websites and his work appears both here and abroad. Mr. Gnazzo is a listed scholar for the Foundation for the Advancement of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

Douglas V. Gnazzo © 2009 All Rights Reserved


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014