Thoughts on Markets

Thursday, December 04, 2008

Silver Lagging Gold - Not Exciting - Mining Stocks Holding

Gold is down some, but seems to be trying to climb higher. Silver is still lagging percentage wise behind gold. Yesterday, I added to my Ever Bank World Markets Metal Select gold and silver accounts. I am still trading in DROOY (currently 4.34), VGZ (0.96), and HMY (8.63). Of the three, I will likely buy more VGZ today as low as I can get it. This is what I am doing, but you must decide if it is correct for you. No one knows your risk tolerance better than you. Do not do anything that will keep you awake at nights with worry. Make your own decisions.

Gold is at 768.80 and silver at 9.43. Nice low prices.

From Bloomberg today:

Gold Falls in London as Dollar Gains Before Decisions on Rates
By Nicholas Larkin

Dec. 4 (Bloomberg) -- Gold fell for a second day in London as a stronger dollar and weaker oil prices reduced the metal’s appeal as an alternative investment.

The euro and the pound slipped against the dollar on speculation the European Central Bank and Bank of England will cut interest rates today as the economic slump deepens. Crude oil dropped to the lowest in almost four years after a report showed U.S. fuel demand extended declines.

Find the article HERE.

From The London Telegraph:

1930s beggar-thy-neighbour fears as China devalues
China has begun to devalue the yuan for the first time in over a decade, raising fears that it will set off a 1930s-style race to the bottom and tip the global economy into an even deeper slump.

The article is HERE.

Another scare from London:

Metal prices fall further than during Great Depression

The price of key industrial metals has fallen further over the last four months than occurred during the worst years of Great Depression between 1929 and 1933, according to research by Barclays Capital.

By Ambrose Evans-Pritchard
Last Updated: 7:29AM GMT 03 Dec 2008

Read the article HERE.

From Casey's Daily Resource Plus:

"In world news yesterday, I note in a Financial Times story out of London that "Financial markets are braced for large interest rate cuts across Europe (today) amid mounting evidence of a sharp slowdown in the leading global economies...traders priced in a 0.75% reduction by the European Central Bank to 2.5%...a move that would be bigger than any it has made in its near 10-year existence.""
Australia, New Zealand, and world wide, the central banks are in a bidding war to have the lowest interest rates. This is virtually crucifying the currencies. Who can reach Zero Interest first seems to be the goal. Just think of what that does to savings. The interest rate certainly does not cover the rate of price inflation nor does it cover the rate of depreciation of the currencies. Further, you have the additional advantage of paying income tax on the interest "earned." What a blessing these central banks are to the citizens.

The central banks were created with the reported purpose of stabilizing the currencies and providing full employment. They are accomplishing neither of these tasks. By the way, the tasks are incompatible. The central banks must play with currencies to provide for full employment. Thus, we find ourselves at the end of a long run of currency manipulation with the results which should have been expected from the git go.

The deleveraging that is going on in the world today is a sight to behold. Citizens, businesses, and all forms of institutions are selling assets to pay off debt. Under normal conditions, this should lead to a contraction of the paper money supply. Remember that in the fractional banking system each loan enables the banks to create more of the paper money out of nothing (inflation). Therefore, as loans are paid off, the paper money supply shrinks (deflation). However, this time it is different.

Central banks of the world, particularly our Federal Reserve, are throwing out paper currencies at every failing business and financial institution. This most certainly is adding to the supply of paper currencies throughout the world. The rush to lower interest rates is an example, as are all of the bail outs or rescue packages. The result is the same regardless of the label affixed to the schemes.

There is an underlying difference between the Americans and the most of the rest of the world. We, here in America, have given up the idea of saving, as we depended upon the ever increasing value of our homes and the security of our retirement plans (mostly invested in stocks). Citizens in most of the rest of the world, particularly in Asia, have a history of being frugal and devoted to saving. Thus, most of them are better equipped to weather a financial storm than we. Here at home we now are smack up against falling home prices and a devastated general stock market. Thus, our assets have dropped in value and provide little security for recession/depression.

The following is a cute commentary on the plight of our automobile industry: "Toyota and an American company (Ford Motors) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 7 people steering and 2 people rowing.

Feeling a deeper study was in order; American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team's management structure was totally reorganized to 4 steering supervisors, 2 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 2 people rowing the boat greater incentive to work harder. It was called the 'Rowing Team Quality First Program,' with meetings, dinners and free pens for the rowers. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The
pension program was trimmed to 'equal the competition' and some of the resultant savings were channeled into morale boosting programs and teamwork posters.

The next year the Japanese won by two miles.

Humiliated, the American management laid-off one rower, halted development of a new canoe, sold all the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses.

The next year, try as he might, the lone designated rower was unable to even finish the race (having no paddles,) so he was laid off for unacceptable performance, all canoe equipment was sold and the next year's racing team was out-sourced to India .

Sadly, the End.

Here's something else to think about: Ford has spent the last thirty years moving all its factories out of the US, claiming they can't make money paying American wages.

TOYOTA has spent the last thirty years building more than a dozen plants inside the US. The last quarter's results: TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.

Ford folks are still scratching their heads, and collecting bonuses...and now wants the Government to 'bail them out'.


That was fun! It could be, but there is more behind the failures of our automobile manufacturers in the form of excessive government regulation and taxation and the inordinate demands of labor unions.

We can always rest assured in the hands of our loving, caring God. He really takes care of His people. Be sure you are one of His. Remember that our task is to obey and enjoy Him forever. We can only be obedient as we so hire His word in our hearts that we will not sin against Him. King Jesus is the Sovereign over all whether the individual or government believes it or not. His word will not return to Him void, but will accomplish all that He sends it out to do.

Best to each, Doug


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