The VRTrader.com VR Silver Newsletter - Monday3/17/2008
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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 thetangible and psychological risks surrounding such a failure.
Followers of my Annual Forecast Model (AFM) were warned in mid-January that atreacherous cyclical period lay ahead which is why I was anxious to pull the trigger andget back on a TIMER DIGEST 'Sell' signal when it became clear the market wasn't going tocomplete an expected short-term rally phase first. However, there is light at the end ofthe tunnel.
When I called for a potential bottom on March 10, I told you that we could recover intooptions expiration. Options expiration is this coming Thursday, not Friday, due the GoodFriday holiday. So far, we've held the March 10 lows. Aggressive traders can buy dipsaginst 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 andaggressive 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 accomplishthis. Overall, I remain on my TIMER DIGEST 'Sell' signal. However, if we nosedive to10,600 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 'PlungeProtection Team' along with Ben 'Helicopter' Bernanke are working day and night to keepthe cogs and wheels of Wall Street moving along. And, remember, they do have the POWER ofthe US Treasury to support, defend and rally the US equity markets, so long as theycontrol the printing presses.
I like taking a contrarian view. Obviously, the mainstream view today is that the entirefinancial market is at risk. I believe that the financial market is always at risk, withthe crooks in Washington, inflationists at the Fed, and manipulators at the PPT. But thechance of meltdown any particular day is low. Chances are that the Bear Stearns collapsewill be contained and it will be a mere blip in the long run. In fact, I would still bemore worried about sub-prime and muni bond defaults than a Bear Stearns crisis. If BearStearns goes under, Goldman Sachs or, more likely, JP Morgan, will simply pick up whatremains and the game will continue. All that said, obviously stocks should be worth lessnow than before the Bear crisis. But the death of the financial market has been greatlyexaggerated, again.
The flight to safety was in full force Friday. T-bill rate are down to 1.10%, matchingthe low rate set a week ago. And that's the lowest rate since 2003-04. And bond rates arenot much above their lows either. The two year note, which most closely predicts Fed Fundsrates, touched 1.37 percent, the lowest level since July 2003. The long bond is up 115/32.
The VIX has spiked above 30 and is currently at 31.22. A close at this level would bethe highest since March 12, 2003. The last two times the VIX closed over 30, Nov 12, 2007and Jan 22, 2008, the markets hit a bottom the very same day. Most likely, the market willbottom right here. But there is a chance that the market will crash and the VIX willrocket above 40.
Consumer prices in February shocked the markets on the downside with both the headlinenumber and core CPI coming in at unchanged. The consensus had expected a 0.3 percentincrease in the overall CPI and a 0.2 percent rise in the core rate. Helping to ease coreinflation were apparel, down 0.3 percent, and new & used motor vehicles, down 0.2percent. Also, medical care was very soft with a 0.1 percent rise. Also helping to flattenthe headline number was a 0.5 percent drop in energy costs, led by a 2.0 percent drop inmotor fuel and a 1.2 percent fall in heating oil. Year-on-year, the overall CPI eased toup 4.1 percent in February from up 4.4 percent in January. The core rate was slipped to up2.3 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 noinflation, why not 0%? But does anybody really believe there was no inflation in Februarywhen all the commodities are hitting record highs? Amazing how the government can rigthese numbers and people believe them.
U.S. consumer sentiment slipped in March, but not as much as expected, according tomedia reports Friday. The University of Michigan/Reuters consumer sentiment index droppedto 70.5 in March from 70.8 in February, above the 69.0 expected by economists. It's thelowest in 16 years. The current conditions index improved to 84.6 from 83.8. Theexpectations 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 bigconcern 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 moreaggressively.
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 beexceeded. There are plenty of technical reasons to be on guard against a potential rallyin the US Dollar Index. I cannot predict the moment it will come and could just as easilycome 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 theevent we get that rally, precious metals and Crude Oil will likely nosedive, but it willnot be a long-term affair. Meanwhile, I'm still projecting Silver to the $25.00 level andGold into the $1040-$1090 range. Big picture? Silver is going to $50, perhaps $100 andGold to $3000, possibly $5000. After Alan Greenspan told Jon Stewart in a recent broadcastinterview that we don't need the Federal Reserve if we were on a gold standard, vibrationsare now floating out there in the universe which may make this a self-fulfilling eventdown the road. For the US to go on the gold standard, gold might indeed have to trade inthe $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 besafer than gold?) and was up 5.70 to 999.50. Gold set a new record high of 1009 onFriday.. Silver was up 0.235 to 20.655. But, platinum was down 21.50 to 2076. Crude oil ismost susceptible to economic weakness and political machinations and was down 0.08 to110.25. 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 recommendationssince 2001. As stated, though I believe we're going a heck of lot higher, you've got to becareful in getting fully invested at current levels. Too much 'bad news' out there, toomany 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 aposition.
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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 themarketplace. Thursday witnessed a nasty sell-off early in the session, only followed by asharp rally into the close where Friday witnessed early strength (a new recovery high of13,495.63) ending up with a rout by the end of the day. They key remains holding Monday'slow of 12,980.37. Friday's reversal puts ALL markets in jeopardy. A violation of thatlevel 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 is13,650, 13,891, 14,050, 14,300, 14,600, 14,900. Overall, the TREND is higher forcommodities, but we're overdue for a correction. I wouldn't liquidate any long-termpositions, but if you're trading keep a close eye on the US Dollar Index - rally thereincould 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 thedownside breaking slighlty under first support of 2639 and closing at 2642. Overall, Iremain positive on natural resources, but remember rallied just under 500 points since theJanuary 22 low (2340.21). We're also in a bear market everywhere else, so caution isadvised. Summarizing, support is 2639, 2580, 2530, 2480, and 2340. A break of 2340 opensup 2250 and possibly 1800 ahead. Resistance is 2809/2814, 2850 followed by the .618fibonacci 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 wasnamed the #2 Timer for 2007. Currently, #5 for 2008. Also, for 2007, he was named the #4Gold 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. Iwould 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 WHOHAVE SUBSCRIBED to the VR Forecaster Report. Please click on the VR Forecaster link on theleft side of the Home Page and then click on 'Click to View 2008 Report'. You will then beprompted to enter your username and password. For the rest of you, don't miss theopportunity to subscribe to this special report and mid-year update that long agovindicated OUR claim that it represents a 'blueprint to the future'. If you had been asubscriber, you would have known ahead of time that the market in 2007 would likelynosedive in February/March, rally to June, the nosedive into mid-August, then rally intoearly October and the sell-off into the third week of October - followed by a choppyNovember.
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 viayour assigned username and password. Please email mark@vrsurvey.com if you misplaced thatinformation.
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DAILY VR LIST:
Editors note: As you may have noticed, we have been posting our daily VR list for bothSilver and Platinum subscribers. Silver subscribers who find this useful should upgrade toPlatinum 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 anincrease of volume or a change from a Reaction day to Rally day accompanied by an increasein volume. Volume Reversals
™ coming off intermediate lows or highs have greater significance in helping to definethose 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 indefining lows or highs in stocks and stock
indexes. Traders find them particularly useful, especially coming off market extremes asan indication of a change of direction. Use the VRs in conjunction with your othertechnical 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, butat the time you added a little caveat, if you recall-- "But I don't want to see thestate of the economy when it does". Is your prognostication coming true? Or will thePlunge Protection Team and Benny B, like Clark Kent, come flying in to pull a rabbit outof the hat and rescue us and our sinking economy? I certainly hope so, but as a we haveall learned from reading your newsletter, "we'll only know in the fullness oftime."
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 ratesby a full percentage point, to 2%, gained traction among economists and traders Fridayafter a bailout of Bear Stearns Cos. revealed more fault lines in the U.S. financialsystem. Citigroup economists said they anticipate Fed policy-makers will lower the federalfunds rate by a point to 2% next week from the current 3%, "and more cannot be ruledout."
The Fed's apparent willingness to loosen the money supply, combined with nearly dailyblowups in the financial system, has pushed up the odds on futures that price in thelikelihood of rate changes. Traders in this market are now anticipating a 100-basis pointcut in March. The April contract Friday jumped to 97.88, which translates to 100% odds theFed will lower interest rates by 75 basis points, and more than 50% odds of an additional25 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 crisisthat has swept up banks and brokerages around the globe.
In backing up JPMorgan, the Fed dusted off a rarely used, Depression-era provision toprovide loans. It also said it was ready to step in to fight an erosion of confidence inthe nation's largest financial institutions.
Officials from the Fed and the Securities and Exchange Commission held conference callsthroughout 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 thesensitive nature of the discussions.
For Bear, the crisis started when market speculation grew that it might have to seizecollateral -- mostly mortgage-backed securities worth next to nothing -- from the privateequity firm Carlyle Group.
Carlyle runs a bond fund and has come under intense pressure during the past week fromcreditors demanding collateral to back their investments.
As speculation swelled in the market, investors, customers and lenders raced towithdraw their money or rescind their credit lines. By Thursday night, Bear Stearns ChiefExecutive Alan Schwartz said, the bank realized the withdrawals might outpace the bank'sresources -- so it reached out to JPMorgan for help.
JPMorgan, the nation's third-largest bank, has been hurt far less by the mortgage messthan 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 wehave the ability to fund ourselves every day, to do business as usual." No one hasdisclosed how large the financing offered to Bear Stearns is.
The CEO also confirmed -- as many on Wall Street had suspected -- that Bear Stearnscould 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 mayinclude an outright sale of Bear Stearns to JPMorgan, something top executives from bothbanks were discussing, according to a person familiar with the talks who was notauthorized to speak on the record.
JPMorgan is considered to have one of the strongest balance sheets among Wall Streetbanks, and is not already involved in a rescue like Bank of America's purchase ofCountrywide Financial Corp., the nation's largest mortgage lender.
Bear Stearns, which has about 14,000 employees worldwide, has struggled since the twohedge funds under its control lost billions of dollars after investing heavily insecurities backed by pools of subprime mortgages.
"They were the dominant firm for repackaging mortgages," said AndrewWilkinson, senior market analyst at Interactive Brokers Group. "That's where allearnings came from. They had the least-diversified earnings stream of all of Wall Streetsecurities firms, and as a result, they're paying the price today."
As delinquencies and defaults swelled among subprime mortgages, investors shied awayfrom buying securities backed by the troubled loans.
Those fears expanded to encompass all but the safest bonds and securities, forcinginvestment banks to significantly reduce the value of their holdings and drying up moneythroughout the market.
Bear Stearns has racked up $2.75 billion in write-downs since last year, and releasesfirst-quarter results on Monday that could show more losses. The bank lost $859 millionduring the quarter that ended Nov. 30, a stark contrast to its $558 million profit duringthe same period just one year earlier -- before the credit crisis.
The broader financial services sector has racked up nearly $160 billion in write-downssince the middle of last year.
"My guess is by next week, there will be rumors of other large, familiarinstitutions" that could be in trouble, said Anil Kashyap, a professor at theGraduate 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, andrapidly tightening lending standards weren't enough to worry about, there's growingconcern about a potential new crisis: a much higher level of inflation than most of us canperceive - a return to double-digit inflation, the likes of which we haven't seen sincethe late 1970s and early 1980s and more than double the current rate. Stories aboutinflation and stagflation are a dime a dozen, but the idea here is that we could return tothe astronomical inflation level of 14.6%, which occurred in the first quarter of 1980after 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 theinflation argument, which he contends will create a lot more economic pain and send thefinancial markets skidding, bloodying the consumer. "An inflation crisis is notcoming; 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 inJupiter, Fla., predicts that the current inflation rate will more than double to the lowdouble-digit territory by 2010. In the interim, that surge, he predicts, will "givethe Dow about a 33% haircut," knocking it down to around 8,000 from yesterday's closeof 12,040.39.
The government's latest spin on the inflation - that it's not an economic threat - ishardly supported by its latest numbers. The Consumer Price Index rose 0.4% in January fora 12-month overall inflation rate of 4.4%, up from 4.1% reported in December. It was thethird month in a row that the annual inflation rate has topped 4%. Food prices have risen4.9% over the past year, the fastest pace in nearly two decades.
An economist at Morgan Stanley, Richard Berner, calculates that grains and otherfoodstuffs have jumped between 10% and 250% from a year ago. The supply-demand balance, hebelieves, favors further increases.
The skyrocketing price of oil, which recently topped $100 a barrel, has been the chiefinflation culprit. Energy prices are up 19.6% over the past 12 months and 43.6% in thelast three months.
What makes Mr. Sagami think inflation will go through the roof? China and India, hesays, which will require a growing abundance of those precious commodities to fund theirbreakneck growth plans.
Mr. Sagami dismisses what he describes as "those phony government inflationnumbers."
"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, heargues, can be determined by taking a hard look at the real inflation numbers as reflectedin 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," hesays. "The problem is, demand can't keep up with them."
To combat American inflation, Mr. Sagami strongly suggests investors eliminatedollar-denominated investments (both stocks and bonds) and "hide" in overseassecurities. 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, CNOOCLtd.; the world's largest gold producer, Barrick Gold, and a large Brazilian coppercompany, Companhia Vale do Rio Doce.
The president of the St. Louis Federal Reserve, William Poole, recently sounded anominous note, warning that further interest rate cuts may accelerate inflation to an evenmore 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 willput additional pressure on the consumer in a weakening economy. "It's another reasonto be wary of the market and build cash reserves," he says.
One unfortunate note for consumers, he observes, is that rising inflation this timewon'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 mehe can't believe what's happening to his food purchases, including some favorite fruitsand 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 andenergy; practically everything I look at, except maybe electronics, is going up inprice," 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 andeveryone of our subscribers. Our email is mark@vrsurvey.com.
DISCLAIMER
This newsletter is a publication dedicated to the education of stock traders. Thenewsletter is an information service only. The information provided herein is not to beconstrued as an offer to buy or sell securities of any kind. The newsletter picks are notto be considered a recommendation of any stock but an information resource to aid theinvestor in making an informed decision regarding trading in stocks. It is possible atthis or some subsequent date, the editors and staff of VRTrader.com may own, buy or sellsecurities presented. All investors should consult a qualified professional before tradingin any security. The information provided has been obtained from sources deemed reliablebut is not guaranteed as to accuracy or completeness. VRTrader.com staff makes everyeffort to provide timely information to its subscribers but cannot guarantee specificdelivery times due to factors beyond our control.
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