Thoughts on Markets

Thursday, September 04, 2008

Precious Metals are Oversold and Due for Fall Rally

This GLD graph from www.stockcharts.com shows that gold is attempting to form a bottom. The double bottom (Middle of August and first of September) is a positive technical graph formation. A negative is that the 50 day and 200 day moving averages are reversed from the normal - the 50 day should be above the 200 day). Gold is without a doubt over sold and should be in for upward move as we move into the fall and winter season of the year. Typically, the precious metals move upward at this time of year. The recent "correction" was way overdone. We will be watching to see how this plays out.


Both silver and gold moved higher in the Asian trading. Both are down some at present, but hopefully will regain some strength as the dollar weakens today. The DJI are down over 223 at present and that is having a dampening effect upon the mining stocks. Currently, the mining stocks are mixed. Earlier, they were mostly up, but many have moved into negative territory. Gold is at 801 and silver is at 12.79. Thus, both are still under pressure. Gold must climb above 845 before it can really get underway again.

From Monday Morning Report (www.mondaymorning.com)

"Gloomy Beige Book Report; Weak August for Autos; Layoffs at GMAC; Fraud Charges for Former Credit Suisse Brokers; Factory Orders Rise; Staples Profit Squeezed; United Technologies Lands $80m Jet Deal; Liberty Spins Off DirectTV

  • The U.S. Federal Reserve released its Beige Book report yesterday (Wednesday), which looks at the economic conditions in the 12 Fed regions. "The pace of economic activity has been slow in most districts," the report said, Bloomberg News reported. "Wage pressures were characterized as moderate by most districts amid a general pullback in hiring."
  • August was another weak month for auto sales as most major carmakers reported declines. Ford Motor Co. (F) reported 26.6% decline, while General Motors Corp. (GM) sales fell 20.4%. Toyota Motor Corp. (ADR: TM) fared better with a 9.4% decline, but Japanese rival Nissan Motor Co. Ltd. (ADR: NSANY) had a surprising 13.6% increase, Reuters reported.
  • GMAC Financial Services (GMA) announced yesterday that it would close all 200 GMAC Mortgage retail offices and reduce and its Residential Capital LLC unit in an effort to cut costs and streamline operations, The Wall Street Journal reported. Approximately 5,000 employees, 60% of Residential Capital staff, will be let go.
  • U.S. government officials charged two former Credit Suisse Group AG (ADR: CS) brokers with fraud and conspiracy yesterday (Wednesday) concerning sales of subprime-related debt, the International Herald Tribune reported. The two brokers gave clients the impression the debt was secured by federally guaranteed loans. "In September 2007, these former employees resigned after we detected their prohibited activity and promptly suspended them," the bank said. "Credit Suisse immediately informed our regulators."
  • Orders to U.S. factories rose by a larger-than-expected amount in July, the Commerce Department said yesterday (Wednesday). New orders increased by 1.3%t in July, much stronger than the 0.8% increase economists expected. The July advance follows a 2.1% increase in June and represents the fifth straight rise in orders, The Associated Press reported.
  • Staples Inc. (SPLS) the world's largest office supply company, reported profit of $150.2 million, or 21 cents per share, for the quarter ended Aug. 2. Down from $178.8 million, or 25 cents per share, a year ago. Sales climbed 18% from $4.29 billion to $5.07 billion.
  • A division of United Technologies Corp. (UTX) received a $78.1 million contract from the U.S. Navy for parts and materials to build propulsion systems for a variant of the Joint Strike Fighter, The Associated Press reported yesterday (Wednesday). United Technologies' Pratt & Whitney will also build 10 propulsion systems for the U.S. Air Force, two of the same for the Royal Netherlands Air Force and three for the United Kingdom's Royal Navy.
  • Liberty Media Corp. (LMDIA) will spin off its stake in DirecTV Group Inc. (DTV) and other assets into a publicly traded company called Liberty Entertainment Group SA, according to Reuters. Liberty's 50% stake in DirecTV will be the dominant asset in Liberty Entertainment, accounting for more than 80% of its value."
A quote for the day taken from Casey's Daily Resource Plus: "Once a government is committed to the principle of silencing the voice of opposition, it has only one way to go, and that is down the path of increasingly repressive measures, until it becomes a source of terror to all its citizens and creates a country where everyone lives in fear. - Harry S. Truman, 33rd US President (1884-1972)"

It does not seem that we have arrived at that place yet. However, there are moves toward it and without the people speaking out against such moves, we will arrive.

While our economy continues to be under a great deal of negative pressure, it is amazing that the precious metals have not gone through the roof and that the dollar is able to be propped up from time to time. There seems to be no end to the power of those who intervene in our markets.

The world financial systems are based upon Keynesian Economics, but the classical or Austrian Economics point the way of truth in how markets react. This remains true even in the managed Keynesian markets of today. However, at some time in the future (Maybe even the immediate future.) the books will be balanced and truth will once again rule.

Knowing this gives great comfort to the people of the faith of Abraham. Those of us, not fleshly descendants, but descendants of his faith, rest in the assurance of truth that God always balances the books. He is our Father and Sovereign and He cannot lie. We are thankful for His covenantal promises which He always has and always will honor. It is a joy to be of the faith of Abraham and I pray that each of you are.

Best, Doug

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