"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, February 21, 2012

Greece is Fixed so Let's Buy Everything

Greece managed to secure itself a bailout which takes the problem off the radar screen of hedge fund managers for the time being so it was back to "RISK ON" in a big way in today's trading session. Between China's 50 basis point lowering of its Reserve Ratio Requirements for its banks yesterday and today's money printing to throw at the Greek debt problem, it was "Happy Days are Here Again" as the equity market perma bulls wasted no time in bidding the price of stocks higher while the inflation camp decided to buy nearly anything that moved on the commodity exchanges with the grains being the notable exception to the party.

This buying resulted in copper and silver both EXPLODING higher while gold managed to finally take out both the $1740 level and the $1750 level in one fell swoop. Resistance - forgettaboutit! It evaporated with this rush of hot money into the markets again. This is money that has been sitting on the sideline waiting to see how the European sovereign debt situation was going to unfold. Once that particular stumbling block was removed out of the way, the path of least resistance in this pitifully low yield interest rate environment was higher for risk assets.

Notice on the chart that gold has finally managed that CLOSE over $1750 which it needed to set up a run towards $1780. The trick for the yellow metal will be to see if it can HOLD TWO CONSECUTIVE CLOSES over this important technical resistance level. If we see additional follow through buying in tomorrow's session, gold will go on to test the upper boundary of the zone noted on the chart as "Heavy Resistance Zone". That upper boundary is $1780 where the price capping bullion banks will be ready to attempt to stem the advance. If they fail there, we are going to see a handle of "18" in front of the gold price relatively quickly.

Downside chart support is initially near $1740 followed by $1720.

Let's also look at silver which finally managed to CLOSE ABOVE $34. This is the first signal that the consolidation pattern of the last few weeks is close to resolving itself. If silver can take out the initial resistance level noted on the chart, it will very  likely embark on a visit of significant resistance centered between $35.00 - $35.35. I would like to see a close above this level, preferably above $35.50 to indicate that silver is headed to $40.

Downside chart support is at the bottom of the recent consolidation pattern near $33 which is where buyers have been busy accumulating the metal for the last three weeks.

Here is a picture of the fallout coming from this nearly unlimited money printing that seems to be the order of the day (issuing new debt to pay off old debt) - look at what is happening to longer term interest rates. While still low by historical standards, the yield on the 10 year note is now above 2% and moving towards 2.10, the upper boundary of the recent trading range. If interest rates were to break out strongly to the upside, the multiplier effect on the gargantuan amount of US debt would begin having a keen impact on the US fiscal condition. The US monetary authorities want to have their cake and eat it too - by that I mean that they want to be able to artificially keep short term interest rates at ridiculously low levels to encourage consumer borrowing as well as keeping the cost of servicing the US debt load low.

However, if the Central Banks, particularly of the West, are going to keep this insane game of kicking the can down the road by basically adulterating their currencies, then those who lend their respective governments the money are going to demand higher rates of interest to compensate them for the fallout of all this, namely increasing risks of inflation originating from the debauchment of their currencies.

Crude oil has firmly broken out to the upside and is trading well above the key $105 level. Gasoline is going beserk to the upside. It looks like we are going to see $4.50 gasoline in most cities across the nation by Memorial Day and possibly $5.00 at the rate which it is soaring.

Gasoline is at a key crossroads on the long term montly chart. If it pushes through this level near $3.08 - $3.10, odds will then favor it running to $3.40 which will the last level of chart resistance before it revisits its all time high. The American consumer is now reaping the combination of Obama's stupidly inept energy policies along with the fallout from the Federal Reserve's near zero interest rate policy with a wild card kicker of Iranian tensions. What has me extremely concerned is that we are NO WHERE NEAR the PEAK DEMAND period here in the US which kicks in as we near summer and the driving season.

At some point, even the Johnnie one-note equity bulls are going to have to consider the fact that their beloved liquidity dumps are poisoning the well from which they are drinking. Energy prices that soar are a TAX on the entire economy and work to depress growth and confidence and no amount of spin from the
"BUY STOCKS ALL THE TIME" financial analysts that infect our financial media is going to be able to prevent that.