The stock market has had a big rally over the last 10 weeks...conveniently allowing the banks to peddle their secondary stock offerings (as a way to raise the capital required by the government stress tests) to an unsuspecting public. One has to question if all of the "green shoots" talk was really an orchestrated marketing plan.

The Treasury knows that getting more money from Congress to bail out the banks is going to be tough.  Why not lure private money back into the market through a manipulated "sucker" rally? Is it possible? You be the judge.  Be forewarned, this trader sees DANGER AHEAD!

Stocks resembled a ride at a Six Flags theme park. A big rally followed by a big fall, back and forth all week long. Volatility is the name of the game. Bank stocks are still leading the charge with all the banks tripping over each other to raise targets on bank share prices. What a cozy relationship we see developing with Goldman Sachs raising price targets on other banks...and they, in turn, raising their targets on Goldman.  Convenient.

It is increasingly more difficult to engineer a rally with other supportive factors leaving. The $ collapsed this week. Treasuries collapsed this week and at one time on Thursday, all markets simultaneously were getting whacked. This was just a dress rehearsal. Get prepared now before the main attraction starts.
 
The US dollar ($) got smashed this week as Moody's downgraded the currency outlook for both the Japanese and the British this week. "Moody's Investors Service stripped the Japanese government of its last triple-A foreign currency credit rating on Monday in a move that could revive market speculation about the creditworthiness of other rich nations, especially the United States."¹

"The dollar kept falling Friday, notching fresh multi-month lows against the euro, pound and yen as a warning that Britain's debt level may result in its credit rating being cut ricocheted into worries about the massive US deficit."²

Foreigners have started to sell their holdings and getting out of US dollars. The long-term chart below gives the US $ a downside target of 40.00. That is a 50% decline from current prices. This means we will lose at least 1/2 of our purchasing power if this objective is met. Almost everything we buy today will double in price and in some instances go up a lot more than that.  

Don't wait until the $ has lost much of its purchasing power. Raise cash and buy gold, silver, farmland, or anything tangible. When the $ collapses, we may have food shortages and commodity shortages. Get a few months supply of food in storage now and be prepared. When the stores run out of food, social unrest may be unleashed. I don't mean to sound like an alarmist, but since we have been warning about the declining $, it has lost almost 10%.

Have you noticed that commodity prices are going up at the same time? A lower $ equals higher commodity prices. Eventually inflation will be rampant. It may be now or it may be in a year, but I want to be prepared NOW.  I would rather be six months early than one day late!
 
Gold and silver benefited this week from the drop in the $. Also, China is rumored to be buying gold so they can use it to back their currency. The Chinese have learned that you can't hold the value of a fiat currency together without it being backed by something tangible.  

 
The US dollar was backed by gold until 1971. Physical demand has been running high as anxiety over the $ continues to build all over the world. As the greenback loses value, the price of gold tends to rise. The key area to watch is $1000. If the market can close above that level on heavy volume, prices could really soar.³

 

 

 

 

 

 

 

 

 

 

 

 

 

The dollar dropped to a five-month low against a basket of currencies on Friday as fears over the US debt position grew in the wake of a downgrade to the outlook for the UK. "The dollar has continued to slide as investors conclude the US might be the next major economy to put on negative credit watch by rating agencies," said Hans Redeker at BNP Paribas.  "S&P criteria for putting the UK under negative watch, namely its projection that public debt will reach 100 percent of GDP in 2013, may also apply for the US."⁴

"Speculation has increased that the US could potentially face a credit rating downgrade and in doing so, lose its AAA rating," Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd., wrote in an e-mailed report today. Investors in US assets may face a "triple whammy of falling US equities, US government debt and the dollar," he said.⁵

China is growing more picky about which American debt it is willing to finance, and is changing laws to make it easier for Chinese companies to invest abroad the billions of dollars they take in each year by exporting to America. For its part, the United States is becoming relatively less dependent on Chinese financing.  New data shows that China is also trading long-term Treasuries for short-term notes, highlighting Beijing's concerns that inflation will erode the dollar's value in the long run as America amasses record debt.⁶

The trade-weighted dollar has fallen by 10 percent after it peaked at a three-year high in March, prompting Mr. Geithner to say this week that his "basic obligation" was to put in place policies that kept confidence "in our currency, that we sustain a strong dollar".

A strong dollar is certainly in the US interest if it wants to enjoy what France's Valéry Giscard d'Estaing once dubbed its "exorbitant privilege". Yet the funding advantage of issuing copious IOUs in the global reserve currency now faces its biggest test as the US budget deficit hits 13 percent of gross domestic product and unfunded liabilities reach four times GDP. Bill Gross, the bond fund manager, has mused it will not be long before the US loses its triple A credit rating. Some even refer to the "American peso".¹⁶

Federal Reserve Bank of Philadelphia President Charles Plosser said prices may rise 2.5 percent in 2011, a rate well above central bankers' preferred range, and cautioned against complacency on inflation.

"The economy may be at greater risk of inflation than the conventional wisdom indicates," Plosser said in a speech yesterday in New York. "While inflation expectations appear to remain anchored, we should not become sanguine about our credibility. It can be easily lost."⁷

There are many others who predict a much higher level of inflation in the future...possibly even hyperinflation.  We are already seeing gasoline prices start their increase as well as some food prices.  Rising prices is inflation...pay attention.

Gold prices consolidated on Friday above $950 an ounce, a two-month peak, supported by the weakness of the US dollar and worries that other big economies could follow the UK and see their sovereign debt top-notch ratings' under review.  John Reade, a precious metal strategist at UBS in London, said bullion's recent strength appeared to have been triggered by a combination of factors.

The leading factor is the dollar and the threat to the UK's triple-A rating, but he also mentioned "rising market inflation expectations and signs of concern about US assets across the spectrum."  Other commodities markets were also moving higher, with crude oil trading above $61 a barrel and several agricultural and soft commodities hitting fresh peaks.⁸

California's unemployment rate dipped to 11 percent last month, fifth-highest in the country. Michigan's jobless rate was the highest at 12.9 percent, followed by Oregon at 12 percent, South Carolina at 11.5 percent and Rhode Island at 11.1 percent.⁹

To see the most recent unemployment statistics for each state, click here.

 

Israeli defense officials say the country's air force has completed a large-scale exercise simulating war on several fronts with enemies that include Iran.  They say this week's exercise included Israel's entire air arm and was meant to prepare for an all-out war, including missile attacks aimed at Israeli cities.¹⁰

Israeli Prime Minister Benjamin Netanyahu insisted Thursday that all of Jerusalem will always remain under Israeli sovereignty, despite Palestinian demands for control over part of the city.  Netanyahu was speaking at a ceremony marking 42 years since Israel captured east Jerusalem in the 1967 Mideast war. He did not refer to Palestinian claims to east Jerusalem as the capital of the state they want to establish.

The Israeli prime minister has refused to endorse the creation of a Palestinian state despite US pressure.  "United Jerusalem is Israel's capital," said Netanyahu. "Jerusalem was always ours and will always be ours. It will never again be partitioned and divided."¹¹

President Obama invoked an end-of-the-year timeline for diplomacy with Iran to work. This would seem to give Iran a green light to pursue its nuclear bomb for the next seven months. At the end of December when we in the West learn that Iran has been stringing us along and using diplomacy as a delaying tactic, what then? Will it be Israel that bombs the nuclear sites, or will it be one or more of those Arab nations supposedly of one mind in opposition to a nuclear Iran?¹²

The Israelis want to limit the diplomatic time frame out of fear that Iran will use open-ended talks as a cover for expanding its nuclear infrastructure. After all, even the Bush Administration had, in its final years, backed away from demanding that Iran suspend uranium enrichment as a precondition for talks, and President Obama is unlikely to resuscitate a position to which the Iranians have shown no intention to concede. Instead, he seeks to create the most favorable conditions for diplomacy to work, because the alternatives are so unpalatable.

Military strikes against Iran's nuclear facilities are deemed by the US military to be likely to cause more problems than they'll solve - at best, they'd simply set back the Iranian program by a few years, at the price of potentially triggering a regional war that could imperil the interests of the US and its allies, including Israel, for years to come. Winning Chinese and Russian support for harsher sanctions remains unlikely absent Iran taking actual steps towards nuclear weaponization, while an economic blockade could prompt a confrontation.¹³

The consequences of Iran acquiring a nuclear weapon would be "calamitous" and major powers must act together to prevent it, the top US military officer said on Thursday.  Admiral Mike Mullen's remarks came the day after Iran's president announced the country had tested a missile that analysts said could hit Israel and US bases in the Gulf, a major source of crude oil for the United States.

"I'm one who believes that Iran getting a nuclear weapon is calamitous for the region and for the world," Mullen, chairman of the US Joint Chiefs of Staff, told the US Senate Foreign Relations Committee.  "It then, in my view, generates neighbors who feel exposed, deficient and then develop or buy the capability themselves," he said, suggesting Iran's acquisition of a nuclear weapon likely would trigger a nuclear arms race in the Middle East.

"The downside, potentially, is absolutely disastrous."¹⁴

A fascinating new poll by McLaughlin & Associates finds Americans are deeply and overwhelming concerned about the rising Iranian nuclear threat both to the US and to Israel, and deeply concerned about the potential for Radical Islamic terrorists to acquire nuclear weapons from Iran.¹⁵

Excerpts:

We live in very volatile times.  The economy is in shambles...we continue to live with the threat of terrorism...the Middle East is a tinderbox looking for a match...and a host of other geo-political events loom on the horizon.

As a country, we face some big challenges ahead of us.  Wisdom would dictate that every family, church, and business should take proper precautions as we move forward.  

I'm not advocating a "bunker mentality" or that we all become survivalists.  Rather, I want everyone to consider the possible challenges that we may face and then take steps now to get prepared.  Being prepared is not a defensive move...it's strategic planning for your next offensive move.  You need to be prepared to act, not react...there's a world of difference.

Steve Meyers and I discussed the ramifications of the collapse of the dollar many months ago in our Global Perspectives class.  If you need a refresher on what the collapse of the dollar will look like, watch the abbreviated version here.

 

2 http://www.breitbart.com/article.php?id=D98BCFJO0&show_article=1
3 Market commentary provided by Mr. Steve Meyer of Grainbelt Commodities, Marco Island, FL
4 http://www.ft.com/cms/s/0/cdecffaa-46b0-11de-923e-00144feabdc0.html
5 http://www.bloomberg.com/apps/news?pid=20601087&sid=ag9KThGvuq0Q&refer=worldwide
6 http://www.nytimes.com/2009/05/21/business/global/21reserves.html?_r=1&ref=business
7 http://www.bloomberg.com/apps/news?pid=washingtonstory&sid=aKsf3mmmoaCg
8 http://www.ft.com/cms/s/0/c2890d20-46ba-11de-923e-00144feabdc0.html
9 http://news.ino.com/headlines/?newsid=689866668676791
10 http://www.foxnews.com/story/0,2933,521177,00.html?test=latestnews
11 http://www.newsmax.com/international/ml_israel_palestinians/2009/05/21/216883.html?utm_medium=RSS
12 http://www.sltrib.com/opinion/ci_12422567
13 http://www.time.com/time/world/article/0,8599,1900387,00.html
14 http://www.newsmax.com/newsfront/mullen_iran_nuclear/2009/05/21/216988.html
15 http://flashtrafficblog.wordpress.com/
16 http://www.ft.com/cms/s/1/b827dd5e-46a9-11de-923e-00144feabdc0.html?ftcamp=rss