The VRTrader.com VR Silver Newsletter - Monday 3/17/2008
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Redistribution in any form is strictly prohibited.
LEIBOVIT FILES | by Mark Leibovit
Monday, March 17, 2008
Trying to Avoid Blood in the Streets
Economic Events and Market Reports March 17-21
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MONDAY March 17:
NY Empire State Index for March (8:30 am ET)
Treasury Int'l Capital for January (9 am ET)
Industrial Production & Capacity Util. for Feb (9:15 am ET)
Treasury auctions 3 & 6-month bills (1 pm ET)
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TUESDAY, March 18:
Housing Starts & Building Permits for February (8:30 am ET)
Producer Price Index (PPI) for February (8:30 am ET)
Weekly Chain Store Sales (8:55 am ET)
FOMC Meeting - policy statement (2:15 pm ET)
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WEDNESDAY, March 19:
EIA Petroleum Status Report (10:30 am ET)
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THURSDAY, March 20:
Weekly Initial Jobless Claims (8:30 am ET)
Leading Indicators for February (10 am ET)
Philadelphia Fed Index for March (10 am ET)
Quadruple Witching - options & futures expiration
SIFMA recommends early market close (2 pm ET)
Weekly Money Supply (4:30 pm ET)
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FRIDAY, March 21:
Good Friday - All Markets Closed
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The Bear Stearns collapse is the talk of the Street and most of you are aware of both the tangible and psychological risks surrounding such a failure.
Followers of my Annual Forecast Model (AFM) were warned in mid-January that a treacherous cyclical period lay ahead which is why I was anxious to pull the trigger and get back on a TIMER DIGEST 'Sell' signal when it became clear the market wasn't going to complete an expected short-term rally phase first. However, there is light at the end of the tunnel.
When I called for a potential bottom on March 10, I told you that we could recover into options expiration. Options expiration is this coming Thursday, not Friday, due the Good Friday holiday. So far, we've held the March 10 lows. Aggressive traders can buy dips aginst those lows, recognizing that there is NO clear confirmation that the bear is dead. Alternatively, if we penetrate those lows, greater selling will be triggered and aggressive traders should act accordingly, but the end result may still be a rally. Paulson and Bernanke have to 'save face' and may 'pull out all the stops' to accomplish this. Overall, I remain on my TIMER DIGEST 'Sell' signal. However, if we nosedive to 10,600 in the Dow Industrials, I would likely change my mind.
Fear both real and imagine hangs heavy over Wall Street this coming week, but, remember, Henry Paulson at the US Treasury and defacto head of President Reagan's 'Plunge Protection Team' along with Ben 'Helicopter' Bernanke are working day and night to keep the cogs and wheels of Wall Street moving along. And, remember, they do have the POWER of the US Treasury to support, defend and rally the US equity markets, so long as they control the printing presses.
I like taking a contrarian view. Obviously, the mainstream view today is that the entire financial market is at risk. I believe that the financial market is always at risk, with the crooks in Washington, inflationists at the Fed, and manipulators at the PPT. But the chance of meltdown any particular day is low. Chances are that the Bear Stearns collapse will be contained and it will be a mere blip in the long run. In fact, I would still be more worried about sub-prime and muni bond defaults than a Bear Stearns crisis. If Bear Stearns goes under, Goldman Sachs or, more likely, JP Morgan, will simply pick up what remains and the game will continue. All that said, obviously stocks should be worth less now than before the Bear crisis. But the death of the financial market has been greatly exaggerated, again.
The flight to safety was in full force Friday. T-bill rate are down to 1.10%, matching the low rate set a week ago. And that's the lowest rate since 2003-04. And bond rates are not much above their lows either. The two year note, which most closely predicts Fed Funds rates, touched 1.37 percent, the lowest level since July 2003. The long bond is up 1 15/32.
The VIX has spiked above 30 and is currently at 31.22. A close at this level would be the highest since March 12, 2003. The last two times the VIX closed over 30, Nov 12, 2007 and Jan 22, 2008, the markets hit a bottom the very same day. Most likely, the market will bottom right here. But there is a chance that the market will crash and the VIX will rocket above 40.
Consumer prices in February shocked the markets on the downside with both the headline number and core CPI coming in at unchanged. The consensus had expected a 0.3 percent increase in the overall CPI and a 0.2 percent rise in the core rate. Helping to ease core inflation were apparel, down 0.3 percent, and new & used motor vehicles, down 0.2 percent. Also, medical care was very soft with a 0.1 percent rise. Also helping to flatten the headline number was a 0.5 percent drop in energy costs, led by a 2.0 percent drop in motor fuel and a 1.2 percent fall in heating oil. Year-on-year, the overall CPI eased to up 4.1 percent in February from up 4.4 percent in January. The core rate was slipped to up 2.3 percent from up 2.5 percent the prior month.
But with no inflation, the Fed is safe to lower rates as much as necessary. With no inflation, why not 0%? But does anybody really believe there was no inflation in February when all the commodities are hitting record highs? Amazing how the government can rig these numbers and people believe them.
U.S. consumer sentiment slipped in March, but not as much as expected, according to media reports Friday. The University of Michigan/Reuters consumer sentiment index dropped to 70.5 in March from 70.8 in February, above the 69.0 expected by economists. It's the lowest in 16 years. The current conditions index improved to 84.6 from 83.8. The expectations index fell to 61.4 from 62.4, also the lowest since early 1992.
Lost amid the negative is the better than expected CPI and Consumer Sentiment reports. The reports show that the economy is not as bad as thought and that inflation is not a big concern for the Fed. Regardless of how accurate, biased, or fictitious the CPI report is, which showed no inflation in February, it does allow the Fed to lower interest rates more aggressively.
The US Dollar Index continued its sinking feeling, hitting a new low of 71.578. My 'bigger picture' downside target of 68.00 looms closer and closer and indeed could be exceeded. There are plenty of technical reasons to be on guard against a potential rally in the US Dollar Index. I cannot predict the moment it will come and could just as easily come from lower levels simply because so many were expecting it and there is continued 'official' talk of 'defending the dollar' which has been utter nonsense for years. In the event we get that rally, precious metals and Crude Oil will likely nosedive, but it will not be a long-term affair. Meanwhile, I'm still projecting Silver to the $25.00 level and Gold into the $1040-$1090 range. Big picture? Silver is going to $50, perhaps $100 and Gold to $3000, possibly $5000. After Alan Greenspan told Jon Stewart in a recent broadcast interview that we don't need the Federal Reserve if we were on a gold standard, vibrations are now floating out there in the universe which may make this a self-fulfilling event down the road. For the US to go on the gold standard, gold might indeed have to trade in the $3,000 to $5,000 range just to cover the nation's mass indebtedness.
Commodities were mixed. Gold gets the benefit of the flight to safety (what can be safer than gold?) and was up 5.70 to 999.50. Gold set a new record high of 1009 on Friday.. Silver was up 0.235 to 20.655. But, platinum was down 21.50 to 2076. Crude oil is most susceptible to economic weakness and political machinations and was down 0.08 to 110.25. The all-time high was posted Thursday at 111.00.
If you're not in the gold and silver market at all, you've ignored my recommendations since 2001. As stated, though I believe we're going a heck of lot higher, you've got to be careful in getting fully invested at current levels. Too much 'bad news' out there, too many gold bugs and too great a risk of a rally in the US Dollar Index. If we could get a $100 correction in gold back to $900, that would afford a good starting place to build a position.
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Canadian, TSE and TSE Venture Commentary for our Canadian Clients updated for Monday, March 17:
TSE:
No one enjoys being whipsawed and both Thursday and Friday were days to stay out of the marketplace. Thursday witnessed a nasty sell-off early in the session, only followed by a sharp rally into the close where Friday witnessed early strength (a new recovery high of 13,495.63) ending up with a rout by the end of the day. They key remains holding Monday's low of 12,980.37. Friday's reversal puts ALL markets in jeopardy. A violation of that level breaks the previously mentiond 50% retracement level off the January 22 low (12,011). Under that support lies at 12,747, 12,600, 12,200 and 12,011. Resistance is 13,650, 13,891, 14,050, 14,300, 14,600, 14,900. Overall, the TREND is higher for commodities, but we're overdue for a correction. I wouldn't liquidate any long-term positions, but if you're trading keep a close eye on the US Dollar Index - rally therein could precipitate a slide. There are also too many commodity bulls out there.
TSE Venture:
A slightly higher high on Friday at 2686.69 resulted in the same 'reversal' to the downside breaking slighlty under first support of 2639 and closing at 2642. Overall, I remain positive on natural resources, but remember rallied just under 500 points since the January 22 low (2340.21). We're also in a bear market everywhere else, so caution is advised. Summarizing, support is 2639, 2580, 2530, 2480, and 2340. A break of 2340 opens up 2250 and possibly 1800 ahead. Resistance is 2809/2814, 2850 followed by the .618 fibonacci number of 2975 and 3372.00 the big high. Resistance is 2850 and then 3300.
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TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THE YEAR' for 2006 and was named the #2 Timer for 2007. Currently, #5 for 2008. Also, for 2007, he was named the #4 Gold Timer. As you know, Mark was named the #1 Intermediate Market Timer (stock market) for the 10 year period ending in 2006!
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Ux U3O8 Prices*
March 10, 2008
Spot: $74.00 /lb. +1.00. Bull market high in the cash market is $136.00.
The June Uranium Futures are trading at $80.00.
Big low was $58.00 posted intra-day on August 16. The big high from June 13 is 154.95. Confirmation of a bottom should be evident when the uranium shares begin to move higher. I would use present levels as a long term buying opportunity.
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ATTENTION SUBSCRIBERS:
Full Annual Forecast Model charts and commentary for 2008 are now posted for THOSE WHO HAVE SUBSCRIBED to the VR Forecaster Report. Please click on the VR Forecaster link on the left side of the Home Page and then click on 'Click to View 2008 Report'. You will then be prompted to enter your username and password. For the rest of you, don't miss the opportunity to subscribe to this special report and mid-year update that long ago vindicated OUR claim that it represents a 'blueprint to the future'. If you had been a subscriber, you would have known ahead of time that the market in 2007 would likely nosedive in February/March, rally to June, the nosedive into mid-August, then rally into early October and the sell-off into the third week of October - followed by a choppy November.
Remember, folks, there is no price too high for good information!
http://www.vrtrader.com/vr_forecaster/index.asp
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VR TRADER.COM WATCHLISTS:
Please note:
The VR Watchlist is currently now only available via the VRTrader.com website accessed via your assigned username and password. Please email mark@vrsurvey.com if you misplaced that information.
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DAILY VR LIST:
Editors note: As you may have noticed, we have been posting our daily VR list for both Silver and Platinum subscribers. Silver subscribers who find this useful should upgrade to Platinum where you can pull
down VR charts for many securities and watch the patterns unfold for yourself.
There is no technical service on the planet that posts Positive and Negative VR! Why? Because they are proprietary to VRTrader.com!
http://www.volumereversaltrader.com/vr_pla.../GetVRChart.asp
A Volume Reversal ™ is change from a Rally day to a Reaction day accompanied by an increase of volume or a change from a Reaction day to Rally day accompanied by an increase in volume. Volume Reversals
™ coming off intermediate lows or highs have greater significance in helping to define those lows or highs and important pivot points in the marketplace.
How do you use this list? VRs are buy and sell triggers and are particularly useful in defining lows or highs in stocks and stock
indexes. Traders find them particularly useful, especially coming off market extremes as an indication of a change of direction. Use the VRs in conjunction with your other technical indicators and you've
added a unique technical tool to your arsenal.
List of Volume Reversals 3/14/08 - Sectors
*** Sectors Positive Volume Reversals ***
Banking - Regional Northeast Banks
BPFH - Boston private Fincl Hld
FULT - Fulton Financial Corp
MTB - M&T Bank Corp
NPBC - National Penn Bancshares Inc
SLFI - Sterling Financial Cp PA
SUSQ - Susquehanna Bancshares
Banking - Savings & Loans
WFSL - Washington Federal Inc
WM - Washington Mutual
Drugs - Delivery
ALKS - Alkermes Inc
EMIS - Emisphere Technologies
Drugs - Generic
PRX - Par Pharmaceutical Co Inc
Leisure - Lodging
HMIN - Home Inns and Hotels Management
WYN - Wundham Worldwide Corp
Real Estate - REIT - Healthcare Facilities
HCP - HCP Inc
Real Estate - REIT - Hotel/Motel
BEE - Strategic Hotel & Resorts Inc
FCH - Felcor Lodging Trust Inc
LHO - Lasalle Hotel Properties
SHO - Sunshine Hotel Investors Inc
Real Estate - REIT - Residential
AIV - Apartment Invest & Mgt
UDR - UDR Inc
Retail - Electronics
GME - Gamestop Corp
*** Sectors Negative Volume Reversals ***
**** NONE ****
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From subscriber D.M.:
Mark,
You said many years ago that gold could go up to between $3 and $5, 000 an ounce, but at the time you added a little caveat, if you recall-- "But I don't want to see the state of the economy when it does". Is your prognostication coming true? Or will the Plunge Protection Team and Benny B, like Clark Kent, come flying in to pull a rabbit out of the hat and rescue us and our sinking economy? I certainly hope so, but as a we have all learned from reading your newsletter, "we'll only know in the fullness of time."
A grateful subscriber
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Calls for 1-point rate reduction grow louder
Bear Stearns shocker triggers forecasts for whopper cut to 2%.
By Laura Mandaro, MarketWatch
SAN FRANCISCO (MarketWatch) -- Expectations that Federal Reserve next week will cut rates by a full percentage point, to 2%, gained traction among economists and traders Friday after a bailout of Bear Stearns Cos. revealed more fault lines in the U.S. financial system. Citigroup economists said they anticipate Fed policy-makers will lower the federal funds rate by a point to 2% next week from the current 3%, "and more cannot be ruled out."
The Fed's apparent willingness to loosen the money supply, combined with nearly daily blowups in the financial system, has pushed up the odds on futures that price in the likelihood of rate changes. Traders in this market are now anticipating a 100-basis point cut in March. The April contract Friday jumped to 97.88, which translates to 100% odds the Fed will lower interest rates by 75 basis points, and more than 50% odds of an additional 25 basis points -- which would bring short-term interest rates to 2%.
On Thursday, federal funds futures priced in 88% odds for just a 75 basis-point cut.
Two hedge funds managed by Bear Stearns failed last summer, setting off a credit crisis that has swept up banks and brokerages around the globe.
In backing up JPMorgan, the Fed dusted off a rarely used, Depression-era provision to provide loans. It also said it was ready to step in to fight an erosion of confidence in the nation's largest financial institutions.
Officials from the Fed and the Securities and Exchange Commission held conference calls throughout the day Thursday to assess the potential impact on the broader economy, according to a Treasury official, who spoke on condition of anonymity because of the sensitive nature of the discussions.
For Bear, the crisis started when market speculation grew that it might have to seize collateral -- mostly mortgage-backed securities worth next to nothing -- from the private equity firm Carlyle Group.
Carlyle runs a bond fund and has come under intense pressure during the past week from creditors demanding collateral to back their investments.
As speculation swelled in the market, investors, customers and lenders raced to withdraw their money or rescind their credit lines. By Thursday night, Bear Stearns Chief Executive Alan Schwartz said, the bank realized the withdrawals might outpace the bank's resources -- so it reached out to JPMorgan for help.
JPMorgan, the nation's third-largest bank, has been hurt far less by the mortgage mess than other financial institutions. It will provide secured loans to Bear for four weeks -- insured, in essence, by the Fed.
Schwartz said it would buy Bear time and allow it to convince customers "that we have the ability to fund ourselves every day, to do business as usual." No one has disclosed how large the financing offered to Bear Stearns is.
The CEO also confirmed -- as many on Wall Street had suspected -- that Bear Stearns could be up for sale. He told analysts on a conference call that the bailout is a "bridge to a more permanent solution."
Bear is working with investment bank Lazard Ltd. to explore its options. That may include an outright sale of Bear Stearns to JPMorgan, something top executives from both banks were discussing, according to a person familiar with the talks who was not authorized to speak on the record.
JPMorgan is considered to have one of the strongest balance sheets among Wall Street banks, and is not already involved in a rescue like Bank of America's purchase of Countrywide Financial Corp., the nation's largest mortgage lender.
Bear Stearns, which has about 14,000 employees worldwide, has struggled since the two hedge funds under its control lost billions of dollars after investing heavily in securities backed by pools of subprime mortgages.
"They were the dominant firm for repackaging mortgages," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group. "That's where all earnings came from. They had the least-diversified earnings stream of all of Wall Street securities firms, and as a result, they're paying the price today."
As delinquencies and defaults swelled among subprime mortgages, investors shied away from buying securities backed by the troubled loans.
Those fears expanded to encompass all but the safest bonds and securities, forcing investment banks to significantly reduce the value of their holdings and drying up money throughout the market.
Bear Stearns has racked up $2.75 billion in write-downs since last year, and releases first-quarter results on Monday that could show more losses. The bank lost $859 million during the quarter that ended Nov. 30, a stark contrast to its $558 million profit during the same period just one year earlier -- before the credit crisis.
The broader financial services sector has racked up nearly $160 billion in write-downs since the middle of last year.
"My guess is by next week, there will be rumors of other large, familiar institutions" that could be in trouble, said Anil Kashyap, a professor at the Graduate School of Business at the University of Chicago.
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Double-Digit Inflation Crisis Looms
By DAN DORFMAN
March 7, 2008
As if a sagging economy, the subprime fiasco, a deepening housing recession, and rapidly tightening lending standards weren't enough to worry about, there's growing concern about a potential new crisis: a much higher level of inflation than most of us can perceive - a return to double-digit inflation, the likes of which we haven't seen since the late 1970s and early 1980s and more than double the current rate. Stories about inflation and stagflation are a dime a dozen, but the idea here is that we could return to the astronomical inflation level of 14.6%, which occurred in the first quarter of 1980 after a round of oil price increases and thus signal a new round of economic chaos.
One astute global market analyst, Tony Sagami, offers a frightening dimension to the inflation argument, which he contends will create a lot more economic pain and send the financial markets skidding, bloodying the consumer. "An inflation crisis is not coming; It's already here, and it's going to get a lot worse," he says.
Mr. Sagami, who tracks the international investment arena for Weiss Research in Jupiter, Fla., predicts that the current inflation rate will more than double to the low double-digit territory by 2010. In the interim, that surge, he predicts, will "give the Dow about a 33% haircut," knocking it down to around 8,000 from yesterday's close of 12,040.39.
The government's latest spin on the inflation - that it's not an economic threat - is hardly supported by its latest numbers. The Consumer Price Index rose 0.4% in January for a 12-month overall inflation rate of 4.4%, up from 4.1% reported in December. It was the third month in a row that the annual inflation rate has topped 4%. Food prices have risen 4.9% over the past year, the fastest pace in nearly two decades.
An economist at Morgan Stanley, Richard Berner, calculates that grains and other foodstuffs have jumped between 10% and 250% from a year ago. The supply-demand balance, he believes, favors further increases.
The skyrocketing price of oil, which recently topped $100 a barrel, has been the chief inflation culprit. Energy prices are up 19.6% over the past 12 months and 43.6% in the last three months.
What makes Mr. Sagami think inflation will go through the roof? China and India, he says, which will require a growing abundance of those precious commodities to fund their breakneck growth plans.
Mr. Sagami dismisses what he describes as "those phony government inflation numbers."
"That 4.4% inflation number we got in January is pure horse manure," he says. "It's really much higher if you factor in the real world." True inflation, he argues, can be determined by taking a hard look at the real inflation numbers as reflected in the "housewife index," such as bread, cheese, gas, drugs, and tuition.
Nobody is waiting in long lines to buy something; we've got the supplies," he says. "The problem is, demand can't keep up with them."
To combat American inflation, Mr. Sagami strongly suggests investors eliminate dollar-denominated investments (both stocks and bonds) and "hide" in overseas securities. His anti-inflation strategy: Own energy and metals, such as copper, aluminum, steel, and gold. His best bets in these areas: China's largest natural gas company, CNOOC Ltd.; the world's largest gold producer, Barrick Gold, and a large Brazilian copper company, Companhia Vale do Rio Doce.
The president of the St. Louis Federal Reserve, William Poole, recently sounded an ominous note, warning that further interest rate cuts may accelerate inflation to an even more unacceptable level.
A San Francisco money manager, Gary Wollin, also hoists the warning flag, telling me, "The next crisis the market faces is an inflation crisis," which he figures will put additional pressure on the consumer in a weakening economy. "It's another reason to be wary of the market and build cash reserves," he says.
One unfortunate note for consumers, he observes, is that rising inflation this time won't push their home prices higher because of the current housing recession. Mr. Wollin, who manages nearly $100 million of assets under the banner Gary Wollin & Co., tells me he can't believe what's happening to his food purchases, including some favorite fruits and vegetables, such as cucumbers, bell peppers, bananas, and oranges.
While the government tends to downplay inflation as a serious economic threat, Mr. Wollin thinks Washington is blindsided. "Inflation is crazy, especially food and energy; practically everything I look at, except maybe electronics, is going up in price," he says. He notes, for example, that the supermarket chain at which he shops, Safeway, recently initiated a $0.78 gas surcharge tax. "That $0.78 is no big deal, but if gas goes up more, that tax will also go up more."
Suggestions? Comments? on the newsletter service. We would like to hear from each and everyone of our subscribers. Our email is mark@vrsurvey.com.
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