HOME OF "PICTURES OF A STOCK MARKET MANIA" August 31, 2011
Alan M. Newman's Stock Market CROSSCURRENTS
Alan M. Newman, Editor
Excerpts from our current issue
Rationales & Targets
In our last issue, we ended with the observation that, “There is a blatant ignorance of what is unfolding around the world. Perhaps recognition will take a little longer.” Well, recognition of the circumstances has clearly commenced. Roughly $1.3 trillion in “Quantitative Ease” has accomplished the following; a record 45.8 million Americans on food stamps. One in six Americans unemployed or underemployed. Initial weekly unemployment claims trading exactly where they were right before the economy imploded in August 2008. In his Jackson Hole speech, Fed Chairman Ben Bernanke scolded the federal government for not producing enough jobs, an accurate assessment of politicians who refuse to do the jobs for which they were elected. Until the focus is about getting Americans back to work with legislation intended to create jobs, discussions and arguments about taxes and partisan squabbles will remain counter productive and threaten to mortgage the future. The recent CPI and GDP releases are downright scary. We expect recognition to continue to expand—rapidly.
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YOUR COST IF YOU RENEW FOR A YEAR = ZERO! Note From The Editor
After multiple surgeries, a long recovery period and a major hurricane, we are back on board, albeit operating with the assistance of a generator. There are still a huge number of residences and establishments without power on Long Island. Hopefully, we will be fully restored by the weekend.
The Recovery Unmasked
One of the more amusing aspects of our forced sideline observation was listening to the growing chorus of bullish commentary on the U.S. economy, seemingly based on hopes and well wishes. We could easily extend our emphasis that this is not your Father’s stock market anymore to this is not your Father’s economy anymore. What we have witnessed since the mania initially busted are radical changes, most of which are for the most part ignored by market bulls.
Initial weekly unemployment claims are still far higher than they were when the economic expansion was coming to an inglorious conclusion. While claims are also far below their peak, bear in mind that benefits were extended to as much as 99 weeks and many of those who are no longer eligible for benefits are off the rolls. Thus, even a sideways trend for claims at these levels is extremely troubling. Add to this problematic view that one of every six Americans are still woefully underemployed (see U-6 rate; http://1.usa.gov/cyOH6i) and the conclusion is inescapable. The economy is in trouble.
No further evidence should be required than the chart at the center of this page. A record 45.8 million people are now relying on the government’s food stamp program, up 12% from a year ago and up an astonishing 34% in only the last two years (see http://nyti.ms/r8VGZ7). Add to the mix The view from Walmart CEO Mike Duke that his customers seem to be running out of money towards the end of every month (see http://cnnmon.ie/m0JOh3). We have been repeatedly told by the bulls that the recession bottomed along with stocks in March 2009. According to Duke, he is not seeing signs of a recovery yet.
Gold Tarnished? No way!
Volatility also soared in the gold market and there’s no way to reasonably close out this issue without commenting in some depth. The dramatic sell off from last week’s high was impressive by stock market standards but was clearly to be expected after such an incredible run up in the preceding weeks. History has taught us that commodity markets are more volatile than stocks although in recent history, the gap has certainly narrowed. While a 10% decline in two days might seem to indicate to some observers that gold is now done and possibly even a crash is in the works only ignores the fundamental fact that uncertainty now reigns as much as ever before.
As we completed our last issue, bullion finished Friday, July 1st at $1483 per ounce. At the Friday, August 26th close, it was up 23.3% to $1823.90. So, yes, there was a sell off. A price correction. Nothing more. Our chart at bottom right tells an important story. We have shown this chart repeatedly over the last few years, comparing recent prices with the 1980 peak and always adjusted for inflation. Bear in mind, this is monthly data. Based on daily data, the equivalent to the January 1980 peak would be well over $2100 per ounce and we have always maintained this peak would eventually give way to the super bull market still underway for bullion. We have also claimed on numerous occasions with this very same chart to expect moderate resistance to show up at our monthly adjusted peak above $1900, precisely what has just occurred (the peak was 1913.50). We have also maintained a “target” for the Dow/Gold ratio of somewhere between 5:1 to 6:1. At last week’s high, the ratio had fallen to as low as 5.84. At Friday’s close, the ratio is 6.17 and should eventually spend a protracted period below 6:1.
There is also now considerable speculation that given the possibility of a major top in bullion, gold shares should be dumped. Fine. Sell them to us, please. Gold shares have not even remotely hopped on board the same train bullion did and are still lagging far behind. Before the great bull market for gold comes to an end, we expect there will be a fantastic speculative phase in which gold shares go totally beserk, much like the April 1980 action in bullion (see http://bit.ly/bGqkxo) or at the very least, a run akin to the tech mania in late 1999 to early 2000. We’re not even close.
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ABOUT ALAN M. NEWMAN
Alan M. Newman has been the Editor of CROSSCURRENTS since the first issue was published in May of 1990. Mr. Newman is also a member of the Market Technician's Association and has been widely quoted for years by the financial press, media, and other newsletters and has written articles for BARRON'S.
The newsletter is published roughly every three weeks and focuses on economic and stock market commentary, often covering controversial subjects. Several proprietary technical indicators are usually featured in every issue accompanied by current interpretation. Broad samples of our work can be viewed at http://www.cross-currents.net/.
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