The VRTrader.com VR Silver Newsletter - Monday 9/24/2007
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Bernanke Bashing Continues But He Has My Vote
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Economic Data and other events scheduled for September 24-28:
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MONDAY, September 24:
Treasury announces 2 & 5-year note auctions (11 am ET)
Treasury auctions 3 & 6-month bills (1 pm ET)
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TUESDAY, September 25:
Weekly Chain Store Sales (8:55 am ET)
Consumer Confidence Index for September (10 am ET)
Existing Home Sales for August (10 am ET)
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WEDNESDAY, September 26:
Durable Goods Orders for August (8:30 am ET)
EIA Petroleum Status Report (10:30 am ET)
Treasury auctions 2-year notes (1 pm ET)
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THURSDAY, September 27:
Corporate Profits for Q2 (8:30 am ET)
Gross Domestic Product (GDP) for Q2 (8:30 am ET)
Weekly Initial Jobless Claims (8:30 am ET)
New Home Sales for August (10 am ET)
Help Wanted Index for August (10 am ET)
Treasury auctions 5-year notes (1 pm ET)
Weekly Money Supply (4:30 pm ET)
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FRIDAY, September 28:
Personal Income & Consumer Spending for August (8:30 am ET)
Chicago PMI for September (9:45 am ET)
Construction Spending for August (10 am ET)
U. of Michigan Consumer Sentiment Index for Sep (10 am ET)
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Critics of Bernanke's interest rate cuts continue to be vocal citing both the resultingdamage to the dollar and the negative reaction by the bond market which sold off drivinglong-term rates higher! The latter, of course, affects mortgage financing due to thetie-in with the 10 Year Note. Bonds are essentially telling that due to Bernanke's moveinflation will become a bigger problem going forward. And, the gold market agreed as itcontinued to post gains touching $739.00 an ounce on Thursday. Critics also continue toargue that Bernanke was simply trying to help 'Wall Street' not 'Main Street'.
Well, I guess I have to get on the Nightly Business Report (my next appearance is nowscheduled for November 9) and just 'break the news' to the world that their is a 'PlungeProtection Team' out there and the government is clearly in the business of supporting thestock market and has been since Ronald Reagan ordered the establishment of that groupfollowing the crash in 1987! Also, I wonder if the Bernanke 'bashers' have any grasp onthe relationship between the Federal Reserve and Henry Paulson's Treasury Department - adefacto arm of Goldman Sachs! Oh, how about the strong ties between our TreasuryDepartment and the Bank of Japan with regard to encouraging a low (.50%) interest rate tohelp support the Yen 'carry trade'?
Back to the FOMC, critics are blinded by the fact that the FOMC was clearly behind thecurve with regard to interest rates. This is clear in view of the obvious evidence thatthe economy was slowing, primarily impacted by a credit crunch and financial woesfollowing a collapse in the subprime mortgage market which has infected the biggestbrokers on Wall Street, bond mutual funds, and the world's largest banks -its latestvictim is Northern Rock NRK.L, the UK's fifth largest mortgage lender.
Already, there are glaring signs that the US economy might be headed for a recession.We are clearly already in a housing recession - no question about that. Whether therecession expands to the broad economy is yet to be seen. For now, all we can say is thatthe economy is dragging a bit. Pending sales of previously owned US homes fell by asurprising 12.2% in July, while the supply of unsold homes reached 9.6 months, a 16-yearhigh. And the US economy unexpectedly lost jobs in August for the first time in fouryears. Alan Greenspan, said on Sept 16th, he expects "as a minimum, largesingle-digit percentage declines in US house prices from peak to trough, and would not besurprised if the drop was in double digits," he warned.
Harvard University economist Martin Feldstein, advised the former Princeton economistBen Bernanke to come to the rescue of sub-prime borrowers, with the same old magic formula- printing more money, devaluing the dollar, and lowering the fed funds rate. "Thereis a significant risk of a recession. Downturns in housing construction have almost alwaysbeen followed by a downturn in the economy, by a recession. My judgment is there is enoughof a risk that the Federal Reserve should be responding by cutting interest rates,"Feldstein said on August 31st.
Since the credit market crisis unfolded in early August, the Bernanke Fed has pumped$292 billion of morphine (repos) into the banking system, the most since the September 11,2001's terror attacks on the United States. Not all the morphine has been withdrawnhowever, and as a consequence, the growth rate of the M3 money supply expanded to 14% inAugust, and gold has jumped to $725 /oz.
Some Fed officials deny the linkage between the explosive growth of the M3 moneysupply, which the Fed is trying to hide from the public, and inflation. On Sept 11th, Fedgovernor Frederic Mishkin said he "did not find gold to be a particularly usefulindicator of inflation." But surprisingly, it is former Fed chief "Easy" AlGreenspan, would pegged the US fed funds rate below the inflation rate for three years,who is ringing the alarm bells about a resurgent gold market.
Hey, folks! I'm not telling you Wall Street is innocent in this regard. Remember, the'Long-Term Capital' bailout in 1998 following the Russian Financial Crises in August andSeptember when the Russian Government defaulted on their government bonds? Panickedinvestors sold Japanese and European bonds to buy U.S. treasury bonds. The profits in thefund that were supposed to occur as the value of these bonds converged became huge lossesas the value of the bonds diverged. By the end of August, the fund had lost $1.85 billionin capital. Returns which were up almost 40% but a Flight-to-Liquidity ensued and in thefirst three weeks of September, LTCM's equity tumbled from $2.3 billion to $600 millionwithout shrinking the portfolio, leading to a significant elevation of the already highleverage. Goldman Sachs, AIG and Berkshire Hathaway offered then to buy out the fund'spartners for $250 million, to inject $4 billion and to operate LTCM within Goldman Sachs'sown trading. The offer was rejected and the same day the Federal Reserve Bank of New Yorkorganized a bail-out of $3.625 billion by the major creditors to avoid a wider collapse inthe financial markets. The story goes on and on.
A collapse of the US Stock Market has to be avoided at all costs. Critics are just tooshort-sighted and naive if they don't get it! The implications would be far more damagingthan mortgage rates ticking higher or the dollar declining. The result could ultimately be'blood in the streets'! Yes, civil unrest could be the ultimate result if the economytailspined as jobs are cut, investments by companies are curtailed and a greater negativetone hits the economy.
As I wrote, 'the government manipulates interest rates, currency and stocks. It is assimple as that'. If we don't want the government to do this, elect representatives in bothHouses of Congress that will outlaw it!
Meanwhile, Bernanke's actions jumpstarted markets around the world. He is determined toavoid a stock market crash and the resulting risk of an onslaught of another GreatDepression which was in part caused by the Federal Reserve itself when it acted improperlyin the late 1920s. Bernanke is also keenly aware (though he won't say it publicly, I;msure) of the error on the part of Alan Greenspan back in 1987 when he tightened interestrates as the Dollar was declining with the result of helping precipitate the Crash at thattime - the worst since 1929. Bernanke may not be successful in avoiding a US recessionwhich may is likely already underway, but his actions are are laudatory in my book.
Now, it doesn't matter how I feel or you feel about a weak Dollar. The bottom line isthat the markets like it and have since 2003. That's all that counts in my book, unlessyou prefer a bear market! My suggestion is simply put your savings into dollar demoninatedforeign currency accounts and reap the benefits of rising foreign currencies. For example,on ETF, the FXI which represents the Euro is inversely related to the Dollar and is oneway to capitalize on further weakness.
NOW, STRICTLY LOOKING AT MY TECHNICAL, CYCLICAL STUDIES, I took money off the tableWednesday morning due to the possibility of a high on or about September 20, markets wereoverbought, Yom Kippur (the day of atonement) loomed ahead and the Autumnal Equinoxapproached - all the former potential market direction changing factors! I was likelyearly in my decision and followers of my work know this frequently occurs, but a PROFIT ISA PROFIT!
Keep looking over your shoulder, folks. A market correction could still lie ahead, buttriggered from the Mideast:
Details of Israel's attack into Syrian airspace two-weeks ago were reported on Sept15th in the UK's Sunday Times. According to the Times, an Israeli commando team directedlaser beams at a Syrian facility, for attacking Israeli F-15I's and F-16's warplanes. TheIsraeli commandos arrived a day earlier, taking up position near a large undergrounddepot. Soon after, the Syrian installations were in flames. According to unnamed Israelisources, preparations for the attack began last spring, when Meir Dagan, the head ofMossad, presented Israeli PM Olmert with evidence that Syria was seeking to buy a nucleardevice from North Korea. Dagan feared such a device could later be mounted onNorth-Korean-made Scud-C missiles. The Israeli satellite Ofek 7, launched in June, wasdiverted from Iran to Syria. It sent out high-quality images of a northeastern area everyhour and a half, making it easy for the Israeli air force to spot the facility, the Timesreported. "This was supposed to be a devastating Syrian surprise for Israel," anIsraeli source told to the Times.
"We've known for a long time that Syria has deadly chemical warheads on its Scuds,but Israel can't live with a nuclear warhead." The Israeli warplanes were equippedwith Maverick heavy missiles and 500 pound bombs. The operation "can be seen as a dryrun, a raid using the same heavily modified long-range aircraft, procured specificallyfrom the US with Iran's nuclear sites in mind," the report said.
Equally important, the Pantsyr-S1E missiles, that Damascus purchased from Russia torepel attacking warplanes, failed to down the Israeli jets that swept across northernSyrian airspace from the Mediterranean the night before. The new Pantsyr missiles leaveSyrian and Iranian airspace vulnerable to hostile intrusion. Information on Russianmissile consignments to Syria or Iran is vital to any US calculation of whether to attackIran over its nuclear program.
If the end game with Tehran over its nuclear weapons program is finally around thecorner, how would Bernanke react if crude oil jumps to $100 per barrel? Would it precludethe Fed from lowering the fed funds rate due to spiraling inflationary pressures? Nobodyknows for sure, but on October 21, 2004, Mr Bernanke responded to such as question,"I would argue that the Fed's response to the inflationary effects of an increase inoil prices should depend to some extent on the economy's starting point." "Ifinflation has recently been on the low side of the desirable range, and the availableevidence suggests that inflation expectations are likewise low and firmly anchored, thenless urgency is required in responding to the inflation threat posed by higher oil prices.In this case, monetary policy need not tighten and could conceivably ease in the wake ofan oil-price shock," Bernanke said. So don't be surprised if he argues that a weak USeconomy and doctored inflation statistics, justify a further easing in Fed policy, pouringmore gasoline on the flames of inflation, in the event of a confrontation with Iran.
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Where do we stand on our portfolio?
I recommending exiting long index positions Wednesday for TRADERS, but remain on myoverall 'Buy' signal for the intermediate term. However, I may choose to flip to a 'Sell'signal if I see risks growing for a more meaningful correction. Such risks, of course,include those just discussed above. Meanwhile, we're a little overbought and housing datais due out Tuesday which presumably will be negative. At the same time we're running intoend of the month 'window dressing' time and new 401(k) fund investments on and afterOctober 1. Therefore, probabilities favor a minor retracement at this time perhaps no morethan 200 points in the Dow Industrials off the recent peak (13,877) before we once againrally. Could we continue rallying regardless? Of course, but that is always the risk of'ringing the register' and taking a trade.
Crude oil was mixed as the futures lost a bit with the the November contract was down.16 to 81.62 after touching a new record high of 84.10 Thursday. Investors should hold alllong gold and energy related positions!
Dollar Index closed a tad higher, up .015 to 78.597 after touching 78.398 another newlow intra-day Friday. We could, in theory, recovery back to well over the 79.00 level on atechnical rally and that could result in lower stock and gold prices. Otherwise, thedowntrend has shown no sign of bottoming.
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TIMER DIGEST has named Mark Leibovit of VRTrader.com 'TIMER OF THE YEAR' for 2006.TIMER DIGEST also ranks Mark as the #1 Intermediate Market Timer for the 10 year periodending in 2006! Currently in the #2 spot for 2007!
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The legendary VRTrader.com Annual Forecast Model is waiting for 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 would likely nosedive inFebruary/March and then rally to June.
Remember, folks, there is no price too high for good information!
---------------------------------------------VR TRADER.COM WATCHLISTS:
Please note: The VR Watchlist is currently now only available via the VRTrader.com websiteaccessed via your assigned username and password. Please email mark@vrsurvey.com if youmisplaced that information.
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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 patternsunfold for yourself.
I've extended posting this information on a complimentary basis to Silver subscribersfor the time being. There is no technical service on the planet that posts Positive andNegative VR! Why? Because they are proprietary to VRTrader.com! And, Platinum subscriberscan pull up VR Charts on just about any stock from the home page of my website.
http://www.volumereversaltrader.com/vr_platinum/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 greatersignificance in helping to define those lows or highs and important pivot points in themarketplace.
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 as an indication of a change of direction. Use theVRs in conjunction with your other technical indicators and you've added a uniquetechnical tool to your arsenal.
List of Volume Reversals 9/21/07 - Sectors
*** Sectors Positive Volume Reversals ***
Automotive - Manufacturers - Major
GM - General Motors Corp
Chemicals - Major Diversified
APD - Air products & Chemicals
Financial Services - Diversified Investments
CHC - Centerline Holding Company
EDR - Education Realty Trust
SEA - Star Maritime Acquisition Corp
SHA - Shanghai Century Acquisition Corp
SJT - San Juan Basi Roy Tr
SOC - Stoneleigh Partners Acq Corp
Leisure - Restaurants
CMG - Chipotle Mexican Grill
DENN - Denny's Corp
LUB - Luby's Inc
PZZA - Papa Johns International Inc
Manufacturing - Diversified Machinery
GGG - Graco Inc
GRC - Gorman-Rupp Co
ITT - ITT Corp
NDSN - Nordson Corp
PLL - Pall Corp
TNC - Tennant Co
Manufacturing - Farm & Construction Machinery
CAT - Caterpillar Inc
CMCO - Columbus McKinnon Corp
DE - Deere & Co
JOYG - Joy Global Inc
LNN - Lindsay manufacturing Co
Manufacturing - Pollution & Treatment Controls
CECE - Ceco Environmental Corp
FTEK - Fuel Tech Inc
*** Sectors Negative Volume Reversals ***
Wholesale - Drugs
MCK - McKesson Corp
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As you know, I have repeatedly over recent years discussed the subject of abolishing theFederal Reserve altogether. As preposterous as that notion sounds, mark my words, thesubject will be slowly be raised in the press going forward. Whether it ultimately occursor not, we will soon begin to see a challenge to this institution and future Congressionalinvestigation and soul searching. To this end I always keep my eyes and ears open forrelated stories and just one such story appeared on the John Birch Society website below:
Jon Stewart to Alan Greenspan: Why Do We Need the Fed?
By Dennis Behreandt
Published: 2007-09-20
For most of the last many years that he served as Chairman of the Federal Reserve, thepublic heard very little from Alan Greenspan. His public utterances were usually short anddevoid of content that might cause unintended consequences in the financial markets.Clearly, freed from the his role at the Fed as one of the most powerful men in the world,Greenspan no longer feels the same inhibitions. With the release of his new book, theformer Fed Chair is even making the rounds on a publicity campaign. In one recentappearance he sat down with the Jon Stewart, host of Comedy Central's spoof newsbroadcast, The Daily Show.
The irreverent Stewart suffers none of the nervous ticks that prevent the cowardlycadre of so-called real "journalists" that staff America's news rooms fromasking important questions during interviews. For instance, while talking with Greenspan,Stewart brought up the idea that America, supposedly, has a free market economy. "So,why do we have a Fed?" Stewart asked. "Wouldn't the market take care of interestrates and all that? Why would we have someone adjusting the rates if we are a free marketsociety?"
Greenspan's answer: "You didn't need a central bank when you were on a goldstandard."
Bingo! Somebody give that man a cookie!
It's worth watching the rest of Stewart's interview with Greenspan, but this is reallythe most important admission a central banker has ever made. A truly free market would bebased on a standard of value that can not easily be manipulated for political or otherpurposes.
Since the move away from the gold standard and the creation of the Fed, that is exactlywhat has happened with the dollar. As Greenspan admits in the interview, we no longer havea free market where the currency is concerned, we have regulation.
We also have severe inflation through the "miracle" of fractional reservebanking and the inflationary monetary policies that the Fed has followed ever since it'screation. For more on that, see economist Murray Rothbard's The Mystery of Banking (pdfdownload) or get a copy of The Creature from Jekyll Island.
Or, just wait around for a few days or weeks here at the beginning of the 21st century.The consequences of the massively inflationary policies the Fed has followed for the lastfew years are sure to come home to roost sooner or later.
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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