Investment Strategies, Analysis & Intelligence for Seasoned Investors.

Can Two Senators End “Too Big to Fail?”

John Mauldin — Wed, 22 May 2013 04:53:00 GMT

I am often on a panel or at dinner with Barry Ritholtz (The Big Picture), and he will remark, "I am going to have to rethink my position – I agree with John, and that can't be right." While I don't share that bias, I do agree with Barry about his recent take on legislation – which might actually pass – that would deal with too-big-to-fail banks in the US. Barry's latest take on that issue is this week's Outside the Box.

I have not written all that much on the topic lately, other than to say that Dodd-Frank was designed by big banks for big banks – the best legislation they could buy, I have been very critical of allowing too-big-to-fail banks to put taxpayers at risk, and I don't think it should ever be allowed to happen again. Dodd-Frank did not deal with that.

There is bipartisan legislation making its way through Congress that is a huge step in the right direction. The Senate passed it 99-0. Barry explains it below. Both as a taxpayer and an investor, you should be paying attention. And as a voter, call or write your Representative and tell him or her to vote in favor. We will find out who is on the big banks' side on this one.

While I would go further in requiring even more capital for the larger regionals, this legislation will not only remove taxpayer risk but also give small banks a more even playing field, and they are the ones who fund small businesses, the engine of the economy. And I agree, it is a template for how bipartisan legislation can be passed without the usual rancor.

I am back from Tulsa, where my daughter Abbi's wedding came off beautifully. We were lucky in that the tornadoes that sadly have plagued Oklahoma this weekend avoided our area. My heart goes out to those whose lives were shattered by the violent weather.

I have been going to weddings for 40+ years, and they have become a good marker, at least for me, of how different the generations are, as weddings seem to do such a good job of reflecting the subculture in which they are conducted. It is not just the differences in dance styles – those change just to make sure they're different from what the previous generation did. That's what young people do: they try to put their own personal stamp on how they express their lives.

But one of the key differences I have begun to notice is how this 20-something generation communicates. I was sitting with Abbi and her bridesmaid prior to the wedding. She was in her gown and looking radiant, if a little anxious. But they were all on their cell phones, talking and sending pictures, texting and updating their Facebook accounts, checking to see who was coming to the wedding (as their friends updated their Facebook accounts) or sent texts. "[Someone] posted a picture of Abbi [insert expletives]." "Make sure that Stephen [the groom] does not check that Facebook account so he doesn't see the picture of Abbi [more expletives]. Don't they know he can see that account? They are 'friends' with each other!" In a world of constant online, they still adhered to the old standard of the groom not being allowed to see his bride on the day of the wedding – not even on Facebook!

In a sense, I can separate my children into pre- and post-cell-phone kids, and into a further grouping that grew up with smart phones. The youngest just does not understand a world where connection is not always possible (except when he conveniently doesn't want to talk to Dad). The older ones have quickly adapted. (And yes, I was one of the people taking pictures on my iPhone and iPad. I sometimes feel though as if I have willingly joined with the Borg.)

But communications has been affecting culture for centuries. Gutenberg, newspapers, radio, TV, the internet. They have all had a hand in shaping society. I wonder what a wedding will be like in 20 years, when Google Glass will be considered Stone Age technology by my grandchildren and their friends. How do we cope with a world in which it is possible to communicate with thousands of "friends" but our "wetware" (otherwise known as our brains) was evolved for nowhere close to that many relationships? I am sure the young will adapt, but their parents will be left to try and figure out how to update the latest version of whatever has replaced Facebook.

I want to mention that my friends at Casey Research are about to release a very important web event that will be of interest to anyone concerned about energy security in the US and Western world and the role that nuclear energy has to play. "The Myth of American Energy Independence" features guests with serious credentials: former US Energy Secretary Spencer Abraham, former SEC Commissioner and Chairman Emeritus of the UK Atomic Energy Authority Lady Barbara Judge, and former Canadian Minister of Natural Resources Herb Dhaliwal.

You'll also have the benefit of in-depth analysis of investment potential in the nuclear and uranium sector from Rick Rule, Founder of the Sprott Global Companies, and Amir Adnani, President and CEO of Uranium Energy Corp., a dynamic presence in US uranium production.

I just previewed this event, and I found it fascinating as well as compelling from an investment perspective. Marin Katusa, Casey's Chief Energy Investment Strategist and host of the event, has lined up the sort of comprehensive analysis of the uranium opportunity that will give you the confidence to make your move. To tune in, go here to register, free of charge. The event will be released on Tuesday, May 21, at 2 pm EST and will be available for viewing any time thereafter.

Your still trying to surf the latest communications wave analyst,

John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com

Can Two Senators End “Too Big to Fail?”

By Barry Ritholtz

Last month, an unlikely pair of senators – Sherrod Brown, an Ohio Democrat, and David Vitter, a Louisiana Republican – introduced a non-binding resolution calling for the end of the implicit subsidies that “too big to fail” (TBTF) banks enjoy.

The Senate voted 99-0 in support of the measure.

This month, they have pushed their ideas into actual legislation: They introduced a bill called the "Terminating Bailouts for Taxpayer Fairness (TBTF) Act of 2013." This bipartisan legislation would help eliminate the government subsidies that put taxpayers at risk and also give the largest US banks an advantage over their smaller competitors.

Just how much of a subsidy are the banks receiving? An International Montetary Fund Working Paper quantified it as creating an 80 percent basis point advantage to TBTF banks. A 2012 FDIC study found similar advantages. The implicit government guarantee that these banks would not be allowed to fail allowed them to obtain credit at a more advantageous rate. Bloomberg calculated that this amounted to a taxpayer subsidy of $83 billion a year to the 10 largest U.S. banks, ranked by assets – and $64 billion to the five largest. At the request of Brown and Vitter, the Government Accounting Office is trying to more precisely quantify the annual subsidy to megabanks from the U.S. government.

In this column, I want to look at two broad issues: First, what does the legislation (TBTF Act, S. 798) purport to do? How would it affect the competitive landscape for community and regional banks? Could it prevent future megabank bailouts?

Second, has this left-right duo crafted a bill that, if it were to pass, could serve as a formula for for getting things done in a divided Congress?

Let’s begin with the broader strokes of the TBTF act. The bill’s appeal is its simplicity. It does not require complex formulas. Enforcement is simple and easily executed. There is no need for new regulatory apparatus that might one day become "captured" by its charges. Rather, it uses basic formulas to mandate adequate capital reserves. The legislation eliminates most opportunities for banker shenanigans, such as hiding liabilities off the balance sheet or in "side pockets." It also treats all asset classes and liabilities equally – including derivatives.

The broad strokes of the TBFA Act:

●Mandates a flat 15 percent capital requirement for any institution with more than $500 billion in assets

●Does not rely on ratings agency grades

●Removes off-balance-sheet assets and liabilities as different classes — they are treated as if they are on the balance sheet

●Requires derivatives positions to be included in a bank’s consolidated assets

●Requires that the capital cushion a bank holds be liquid

(Note that these five elements are much stricter than Basel III regulatory requirements. Brown-Vitter renders it irrelevant to U.S. banks).

Who could be opposed to such a straightforward form of taxpayer protection and risk management? Start with the TBTF companies themselves. The largest U.S. banks – JPMorgan Chase, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America and Wells Fargo – meet the new TBTF criteria of $500 billion in assets. None of these companies is going to be happy about actually having to have real liquid reserves to hold against future losses.

Reduce their leverage and back out the government subsidies, and suddenly these banks look a whole lot less profitable. That won’t be good for the outsized bonuses that senior management has been paying themselves. Hence, it is no surprise that the American Bankers Association, the lobbying organization often associated with the largest banks, is also against this.

Then there are the rating agencies. The Brown Vitter TBTF act renders their ratings irrelevant, so far as the biggest banks are concerned. Note that rating agencies like Standard & Poor’s and Moody’s were the grand enablers of the credit crisis and financial collapse. Their ratings were a form of pay-for-play analyses, bought and paid for by Wall Street banks. Not surprisingly, Standard & Poor’s has already come out against the proposed legislation.

Brown Vitter has already gotten further than any other legislation that has sought to end TBTF. Why?

Simplicity: The most common complaint heard during the debate over Dodd-Frank was its complexity. Dodd-Frank mandated regulatory rulemaking from a patchwork of agencies requiring "10s of 1000s of pages" of new regulations.

The beauty of the TBTF Act is its simplicity – hard numbers for capital reserves. Banks must maintain a 15 percent capital reserve. For those people who complained that Dodd-Frank was too complex, let’s see how they like “the new simplicity.”

Broad ideological support: A diverse cross-section of parties has found that their interests align with this legislation.

Anyone who opposed the bank bailouts likes the ideas of adequate capital buffers. So, too, do those people who dislike broad regulatory complexity and the bureaucratic infrastructure it creates. Hence, support for the bill comes from a broad spectrum of political thought.

By removing competitive advantages megabanks have over smaller and regional community bankers, the bill is a straightforward support of industry competition. That appeals to libertarians and consumer advocates alike.

Splitting the bank lobby: Perhaps the most significant development has been among the banking lobby itself. Before Brown-Vitter TBTF, the industry responded to all proposed regulatory reform legislation in lockstep. The new proposal splits the industry cleanly in half, with the megabanks on one side and everyone else on the other.

Consider the Independent Community Bankers of America , which has more than 5,000 member banks with more than $2 trillion in deposits and assets. In a news release applauding the bill, the organization urged all community banks to join the association in advocating passage of the bil. Bill Loving, the ICBA’s president and chief executive of Pendleton Community Bank, added, "This legislation will reduce systemic risk, protect taxpayers and put our nation’s community banks on a competitively balanced playing field."

Cleaving the bank lobby in two may give the bill a fighting chance of passing where prior legislative proposal had no chance.

Federal Deposit Insurance Corp. support: Also of note is the fact that the FDIC’s vice-chairman Thomas Hoenig, a longtime critic of TBTF banks, is in favor the legislation. The FDIC guarantees deposits when banks fail, and anything that reduces the risk of bank collapse garners its support.

The idea that two senators from opposite sides of the ideological spectrum can find common ground to attack a problem with a simple solution is novel in the Senate these days. If Brown and Vitter manage to end the subsidies to banks deemed “too big to fail,” they will have accomplished more than “merely” preventing the next financial crisis. They will have helped to create a blueprint for how to get things done in an era of partisan strife.

That is a worthy goal all Americans should be grateful for.

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2013 Federal Budget Deficit Plunges – How, Why?

Gary D. Halbert — Tue, 21 May 2013 18:30:00 GMT

IN THIS ISSUE:

1. Congressional Budget Office Slashes 2013 Deficit Forecast

2. Smaller Deficits Short-term, but Larger Deficits Long-term

3. So-Called “Debt Held by the Public” is Very Misleading

4. US “Unfunded Liabilities” Top a Staggering $123 Trillion

5. Federal Tax Revenue to Hit a Record This Year, But Why?

6. YCG Investments WEBINAR is Now Available Online

Overview

It was so tempting to devote today’s E-Letter to a discussion about all of the scandals plaguing the Obama adminstration in recent weeks. In fact, some of my staff were very disappointed that I chose not to go there. My feeling was that the airwaves are so saturated with coverage of the Obama scandals, you might not want to see even more piling on from me, as much as I would like to. (There are some very good stories on the latest scandals in SPECIAL ARTICLES below.)

All that I will say about the Obama scandals is that it’s good to see even the mainstream media having to admit that their “Annointed One” and his close advisers are capable of making serious mistakes (if not criminal activities). And it appears that there are even more scandals coming. I suspect, however, that the news focus on these scandals will dissipate before long, unfortunately, and the media’s love affair with Obama will return.

Today, we’ll focus on the latest news that this year’s federal budget deficit will likely be significantly lower than previously estimated by the Congressional Budget Office, and the reasons why that is. But let us not be fooled into thinking that falling deficits are a permanent thing. No, in fact, the deficits and the national debt will continue a troubling increase over the next decade and even longer.

We’ll also discuss the subject of our nation’s “unfunded liabilities” which now stand at a staggering $123 trillion, which is rarely ever mentioned by the media. And there are several other interesting points I will touch on today, but I don’t want to give everything away in this introduction. So please read on.

Congressional Budget Office Slashes 2013 Deficit Forecast

The Congressional Budget Office announced last Tuesday that the federal deficit is expected to shrink to $642 billion in the 2013 fiscal year that ends on September 30. That’s down sharply from the CBO’s previous estimate of $845 billion three months ago, and sharply lower than last year’s deficit of $1.087 trillion.

The agency attributed the significant reduction to higher-than-expected individual and corporate tax payments, due in part to higher tax rates that kicked in at the beginning of the year, and large dividend payments that mortgage-finance companies Fannie Mae and Freddie Mac plan to make to the government this year.

After four straight years of $1 trillion deficits, the country’s fiscal picture is changing, or so the media would have us believe. A slowly recovering economy, cuts in government spending driven by periodic budget clashes and higher taxes have narrowed the gap between what the government brings in and what it spends.

Unfortunately, these developments have virtually halted deficit-reduction talks in Washington. Politicians suddenly find they have breathing room before the next debt ceiling deadline requiring negotiations between political parties that have been locked in disagreement over vastly different budget priorities.

For example, lawmakers now won’t face a decision over whether to raise the nation’s borrowing limit until October or November, the CBO said Tuesday, much later than the summer deadline that was projected several months ago.

The White House and Republicans have been locked in a budget fight since 2011, leading to a number of piecemeal deals that have reduced the deficit by both raising taxes and cutting spending. White House officials have said they want more tax increases while Republicans have called for structural changes to Medicare and Medicaid, the two sprawling government health-care programs, while saying they won’t back new tax increases.

Earlier this year, a bipartisan effort was under way to lock in more spending cuts, particularly later in the decade, but those talks have stalled in recent weeks, in part because of the shrinking deficit.

Smaller Deficits Short-term, but Larger Deficits Long-term

The CBO said the improving deficit picture would continue for a couple more years but would reverse course in 2016, when spending picks up as a share of the economy and revenue levels off. It said Medicare and Social Security would begin to consume an even larger share of the budget. By 2023, Social Security and government healthcare spending are expected to hit $3 trillion annually, or half the federal budget.

After running $1+ trillion budget deficits for the last four years, the CBO projects that the deficit will shrink to below $500 billion in 2015, 2016 and 2017. But after hitting its lowest point in 2015, the deficit is expected to trend higher at least through 2023, due in large part to the needs of our aging population.

While the deficit is projected to shrink over the next three fiscal years, the CBO said the federal debt – all the borrowing accumulated by the government over the years – is expected to climb to 70% of GDP by 2019. Over the past 40 years, debt as a share of GDP has averaged 39%. (See more on this just below.)

The CBO now estimates that the total gap between government spending and revenue from 2014 until 2023 would be $6.3 trillion, down $618 billion from what it projected in February. That means the national debt currently at $16.8 trillion will be at least $23 trillion by 2023.

In case any of my readers haven’t seen it, go to the USDebtClock at http://www.usdebtclock.org/ to see our national debt piling up in real time. There’s a ton of interesting numbers there.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

So-Called “Debt Held by the Public” is Very Misleading

The percentage numbers cited above on the debt-to-GDP ratio are wildly misleading. Why? Because they only represent the outstanding government debt that is “held by the public.” They do not include trillions of dollars of outstanding Treasury debt held by various government agencies.

Currently, the debt held by the public – primarily those US government securities that are owned by individuals, corporations, and other entities outside the federal government itself – is apprx. $11.6 trillion. An additional apprx. $5.2 trillion is held by government agencies and is generally referred to as “intra-governmental debt.”

Intra-governmental debt consists of the debts that the federal government owes to itself through more than 100 government trust funds, revolving accounts, and special accounts, such as the Social Security and Medicare Trust Funds (worth over $2.7 trillion and $344 billion respectively).

All of the Treasury securities held by the various government trust funds and other accounts will have to be redeemed at some point, just as if intra-governmental debt is debt held by the public. Thus, no matter how one treats intra-governmental debt, it must be repaid and should be included in any projection of future government spending.

The combination of debt held by the public and intra-governmental debt yields our current $16.8 trillion in total national debt. The Commerce Department estimates that our annual gross domestic product – the value of all goods and services produced – was $16.01 trillion as of the 1Q. Thus, our national debt is 105% of GDP, not the 70% figure as suggested by the CBO last week.

$16.8 trillion amounts to:

$53,249 in debt for every person living in the US
$138,788 in debt for every household in the US
105% of the current US gross domestic product
617% of annual federal revenues

*This does not include unfunded liabilities.

US “Unfunded Liabilities” Top a Staggering $123 Trillion

While most Americans are aware that our national debt is now north of $16 trillion, most do not have any idea that the US has unfunded liabilities of more than $123 trillion. Unfunded liabilities include future government obligations for Social Security, Medicare, and federal employees’ future retirement benefits.

Estimates of these future unfunded liabilities vary greatly, ranging from around $94 trillion to $140 trillion or even higher depending on which estimates and time-frames are used. The most common estimate is the $123 trillion figure displayed in the chart below.

United States National Debt	$16,834,069,969,939
United States National Debt Per Person	$53,232
United States National Debt Per Household	$137,870
Total US Unfunded Liabilities	$123,430,392,279,832
Social Security Unfunded Liability	$15,145,099,623,396
Medicare Unfunded Liability	$79,116,198,184,860
Prescription Drug Unfunded Liability	$19,960,713,903,175
National Healthcare Unfunded Liability	$9,208,380,568,399
Total US Unfunded Liabilities Per Person	$390,306
Total US Unfunded Liabilities Per Household	$1,010,894
United States Population	316,239,567

Source: USADebtClock.com (This site is different from USDebtClock.org referenced above.)

As you can see, at that level of unfunded liabilities, every person in the US would owe close to $400,000. Each household would owe just over $1 million.

Why haven’t Americans heard about these gigantic liabilities from these social programs? One reason: The actual figures do not appear in black and white on any balance sheet, but it is possible to discover them. Included in the annual Medicare Trustees’ report are separate actuarial estimates of the unfunded liability for Medicare Part A (the hospital portion), Part B (medical insurance) and Part D (prescription drug coverage).

Were American policy makers to have the benefit of transparent financial statements prepared the way public companies must report their pension liabilities, they would see clearly the magnitude of the future borrowing that these liabilities will require. Borrowing on this scale could eclipse the capacity of global capital markets – and bankrupt not only the programs themselves but the entire federal government.

These real-world impacts will be felt when current unfunded liabilities need to be paid. In theory, the Medicare and Social Security trust funds have at least some money to pay a portion of the bills that are coming due. In actuality, the cupboard is bare: 100% of the payroll taxes for these programs were spent in the same year they were collected.

In exchange for the payroll taxes that aren’t paid out in benefits to current retirees in any given year, the trust funds got non-marketable Treasury debt. Now, as the Baby Boomers’ promised benefits swamp the payroll-tax collections from today's workers, the government has to swap the trust funds’ non-marketable securities for marketable Treasury debt. The Treasury will then have to sell not only this debt, but far more, in order to pay the benefits as they come due.

When combined with funding the general budget deficits, these multi-trillion-dollar Treasury operations will dominate the capital markets in the years ahead, particularly given China’s de-emphasis of new investment in US Treasuries in favor of increasing foreign direct investment, and Japan’s and Europe’s own sovereign-debt challenges.

When the accrued expenses of the government’s entitlement programs are counted, it becomes clear that to collect enough tax revenue just to avoid going deeper into debt would require over $8 trillion in tax collections annually. That is the total of the average annual accrued liabilities of just the two largest entitlement programs, plus the annual budget deficit.

There is nothing like $8 trillion a year available for the IRS to target. According to 2011 tax data, all individuals filing tax returns in America and earning more than $66,193 per year have a total adjusted gross income of $5.1 trillion. In 2006, when corporate taxable income peaked before the recession, all corporations in the US had total income for tax purposes of $1.6 trillion. If the government were to tax 100% of adjusted gross income, that only comes to $6.7 trillion available to tax from these individuals and corporations.

In short, if the government confiscated the entire adjusted gross income of these American taxpayers, plus all of the corporate taxable income in the year before the recession, it wouldn't be nearly enough to fund the over $8 trillion per year in the growth of US liabilities.

Some public officials and pundits claim we can dig our way out through tax increases on upper-income earners, or even all taxpayers. In reality, that would amount to bailing out the Pacific Ocean with a teaspoon. Only by addressing these unsustainable spending commitments can the nation’s debt and deficit problems be solved – if they can still be solved at all.

Yet no one in Congress, and certainly not this president, is talking seriously about this crisis.

Federal Tax Revenue to Hit a Record This Year, But Why?

On Friday, May 10, the Treasury Department announced that individual income-tax receipts surged to $240 billion in April, taking the total for 2013 to $483 billion. This is far greater than the $393 billion in tax revenues the federal government collected for the first four months of 2012. The increase far surpassed the Congressional Budget Office projections in February.

Federal tax revenue is forecast to hit a record $2.7 trillion this year, according to the CBO. If $2.7 trillion in tax revenue materializes this year, it would surpass the prior peak of $2.6 trillion, set back in fiscal year 2007 before the recession began. But that doesn’t mean federal tax receipts are fully back to normal.

If $2.7 trillion in tax revenues is received in FY2013, it will total 16.9% of gross domestic product, the CBO predicts, compared with 18.5% of GDP in 2007. It looks as if it will take at least another year, until 2014, for tax revenue to get back to 18% of GDP, which has been the average level since 1973.

But the big question is, why have tax revenues suddenly surged so much since last year? It’s certainly not the struggling economy. It’s certainly not consumer confidence that plunged late last year and in January. It’s not because President Obama was re-elected. Or is it?

Much of the increase in 2013 receipts is due to final tax payments for 2012 deriving from a rush to realize long-term capital gains before the 15% “Bush” tax rate on such gains expired at the end of 2012 – and before Obama’s new 23.8% rate on long-term capital gains for higher-income taxpayers took effect on January 1.

Virtually the same tax shift occurred during the Reagan years, when the long-term capital gains tax rate jumped eight points, to 28% in 1987, when the Tax Reform Act took effect, from 20% in 1986. The pattern is repeating itself today. Late last year, fear of a virtually certain steep impending tax increase gave investors every incentive to realize all available gains in 2012.

But if 2012 resembles 1986 as a banner year for capital gains, then 2013 may look a lot like 1987, when there were hardly any to be had. Of course, the longer-term horizon depends on the performance of the stock market. It’s hitting new all-time highs just now, just as it was in 1987 before the famous crash.

The danger, as always, is that lawmakers and planners on federal and state levels will mistake the current tax revenue surge as a shift to a new, long-lasting plateau. It isn't.

Our Latest YCG Investment WEBINAR is Now Online

Last Thursday, we interviewed YCG Investments’ portfolio managers Brian Yacktman and Will Kruger about their value-style strategy and how they select stocks to own with the market at record highs. This was a very interesting discussion, especially for those who are still on the sidelines or are not fully invested. CLICK HERE to view our latest webinar with YCG Investments.

Welcome John Mauldin Subscribers

In my March 26 E-Letter, I wrote about how the Consumer Price Index actually understates the true rate of inflation in the US. On March 29, John Mauldin reprinted that article in his weekly “Outside The Box” e-letter. Since then, we have had many new subscribers to my weekly E-Letter. I welcome all of our new Mauldin readers.

John and I have been close friends for over 30 years. We were business partners in the 1990s. Back when John’s kids were young, the Mauldins made an annual summer pilgrimage to spend a few fun days at our guest house next to our home on beautiful Lake Travis just outside of Austin. Those are some fond memories.

Since the 1990s, John has gone on to become a best-selling author and highly sought-after speaker and hosts his own very successful investment conference each year. His weekly “Thoughts from the Frontline” e-letter is one of the most interesting out there. My congratulations to John for all his success!

All the best,

Gary D. Halbert

Gold Stocks: Its Time To Be BRAVE!

Chris Vermeulen — Tue, 21 May 2013 14:03:00 GMT

May 17th- 2013- Article by David Banister, Chief Strategist www.themarkettrendforecast.com

I used to half joke with some of my investing friends that the best time to buy stocks is during or right after a crash. Think 1987, 2000-2002, 2008-09, and now perhaps Gold Miners?? Well, before we get too far ahead of ourselves, lets examine evidence of a “Crash”: I like to use crowd behavioral, empirical, and technical evidence in combination.

1. In a recent money managers poll, virtually nobody was bullish on Gold or Gold stocks, and over 80% of those polled were bullish on the SP 500 and US stocks.

2. The percentage of Dumb Money traders (non-reportable traders) in the futures markets with short positions on Gold is at all time highs, they tend to be very long at the highs and very short at the lows.

3. The insider buying ratio of Gold Mining stocks to sellers is running over 10 to 1, the highest since October 2008 when Gold bottomed out at $685 per ounce from $1030 highs. Quoting Ted Dixon, CEO of Ink Research, “such a high level of buying interest among officers and directors within their own businesses in the resource sector has correctly foreshadowed a recovery in share prices in the past: That high point of nearly five years ago came about six weeks before the Venture market bottomed on Dec. 5, 2008…While the excitement that surrounded mining stocks as recently as two years ago has waned, experienced value investors recognize that such periods of investor neglect often give rise to the best deals” Source: Theglobeandmail.com

4. The ratio of the HUI Gold Bugs Index to the SP 500 is at multi year lows and in near crash mode on the charts. The RSI Index (Relative strength) on the weekly charts is at 10 year lows at -13.71, which is off the charts low!!

5. Most trading message boards I view at Stocktwits and others are universally bearish on Gold and Gold stocks.

6. Gold is in a wave B or Wave 5 down re-testing the 1322 lows which we have discussed here for weeks as very likely if 1470 was not taken out on the upside… this is a normal sentiment pattern and re-test.

7. Gold has been in a 21 Fibonacci month correction pattern off a 34 Fibonacci month rally from 686-1923. In August of 2011 I penned articles from 1805 right up to 1900 warning of a massive wave 3 top forming. Everyone was bullish, now it’s the complete opposite.

8. Currency debasement continues around the world with negative real interest rates. This is bullish for Gold once this correction has run its course.

9. Hulbert Digest Gold Sentiment index is at an all time low (gold newsletters at -35 sentiment readings!!)

10. Gold -Silver put to call ratios are at all time highs

I could go on and on with headlines and such, but you get the idea. This is the same type of sentiment I wrote about on the stock market on Feb 25th 2009, here is that article... and nobody on the planet was bullish.

Below is a chart showing the Bullish % index for Gold Miners, as you can see the last time we were at 0% was late 2008 when Gold had bottomed out and insiders were also buying like crazy like now:

The GLD ETF chart also shows a likely re-test or slightly lower of the 1322 futures lows of April, when Insider buying hit 10 year record levels:

Obviously Gold could end up going a lot lower than we think, and the Gold Mining stocks could sink further yet. But for those with a 3-6 month horizon, we expect the 21-24 month Gold correction to complete by no later than October 2013. During the next several months the opportunities to buy some miners on the cheap will potentially make some investors a lot of money in the coming few years.

Join us at www.markettrendforecast.com for occasional free reports or sign up for our daily updates on the SP 500 and Precious Metals.

By David Banister & Chris Vermeulen

The Resurgence of the Nuclear Reactor

Doug Casey — Tue, 21 May 2013 08:52:00 GMT

By Casey Research

In August 1956, the Calder Hall Power Plant in Seascale, England began generating electricity and earned the distinction of being the world's first commercial nuclear power plant. It was a humble beginning for nuclear power; the plant only had a 50-megawatt (MW) output capacity, whereas the smallest US plant today has a 478 MW capacity. Nonetheless, Calder Hall represented the launch of a new era in energy that promised to bring electricity too cheap to meter.

But early on, the promising power source had its detractors. They objected to the high initial cost of constructing nuclear plants, the problems of radioactive waste disposal, and the risks of nuclear accidents and nuclear proliferation.

The detractors had an impact. The heavy regulation they pushed for and the litigation they initiated extended construction times and drove up construction costs. But despite their efforts, over 100 reactors had been placed in service in the United States by 1974.

Then came 1979 and a landmark event – the nuclear accident at Three Mile Island. In the aftermath, public opinion turned solidly in favor of the anti-nuclear movement, several construction projects were canceled, and no new US building permits for nuclear power plants were issued for the next 33 years.

Though the US abandoned nuclear expansion in the 1980s, other countries forged ahead. Worldwide startups peaked in 1984 and 1985, as over 30 plants were brought online in each of those years. However, escalating regulatory and litigation costs and pressure groups were not unique to the US. By the 1980s, it was becoming difficult to cost-justify new projects. On top of all that, the Chernobyl accident occurred in 1986, and the world had its own Three Mile Island moment.

In the 1990s, global startups fell to an annual average of less than six per year; in the first decade of the new century, average annual startups were just over three per year. In fact, since 1990 there have barely been enough startups to offset shutdowns.

The recent flurry of closures was caused to a great extent by yet another accident. After the earthquake and tsunami in Japan on March 11, 2011 and the ensuing catastrophe at the Fukushima Nuclear Power Plant, several countries began to rethink their nuclear energy policies. In May 2011, Germany announced that it would abandon nuclear energy entirely, shutting down all 17 of its plants by 2022. In June 2011, Italian citizens voted overwhelmingly in favor of a referendum to cancel plans for new reactors. The Japanese Cabinet, though unclear about a specific plan, has issued a white paper calling for less reliance on nuclear power.

So is nuclear on its last legs? It would appear so... but before we make the funeral arrangements, let's take a closer look.

A Nuclear Renaissance

In the wake of the Fukushima disaster, much of the attention in the Western world has been on the nuclear power debate, plant shutdowns, and project cancelations. Meanwhile, those in developing countries recognize the harsh reality that something has to be done to produce more power. Driven by population growth and increasing standards of living, future demand for energy in those countries will be strong, if not overwhelming.

The International Energy Agency forecasts that global demand for electricity will grow by a staggering 70% between 2012 and 2035. The increase will come predominantly from developing countries – over half is expected from China and India alone.

Serious pollution problems mean that those developing countries cannot produce all that electricity by burning coal. Amir Adnani, Uranium Energy Corporation's CEO, says, "The plans to develop nuclear power in China and other countries are very much driven by a set of realities that is very different and very acute. People are dying every year in China, literally choking to death, because of all the toxins that are being put into the environment by burning coal."

This explains why China, India, and the Russian Federation are quietly forging ahead with nuclear energy expansion while the West and Japan fret over it. As you can see in the table below, those developing countries are dominant leaders in the construction of nuclear facilities.

Country	Nuclear Plants in Operation	Nuclear Plants Under Construction
Argentina	2	1
Armenia	1	0
Belgium	7	0
Brazil	2	1
Bulgaria	2	0
Canada	19	0
China, Mainland	17	29
China, Taiwan	6	2
Czech Republic	6	0
Finland	4	1
France	58	1
Germany	9	0
Hungary	4	0
India	20	7
Iran	1	0
Japan	50	3
Korea	23	3
México	2	0
Netherlands	1	0
Pakistan	3	2
Romania	2	0
Russian Federation	33	11
Slovakian Federation	4	2
Slovenia	1	0
South Africa	2	0
Spain	8	0
Sweden	10	0
Switzerland	5	0
Ukraine	15	2
UAE	0	1
United Kingdom	16	0
United States	104	1
Total	437	67

Source: European Nuclear Society

It typically takes about six years to complete a plant once it is under construction, so the 67 facilities shown above should be producing electricity soon. In addition, over 100 reactors are at various stages of planning and permitting.

So it looks like the needs of developing countries will be more than enough to revitalize and sustain the nuclear-power industry. As for the developed countries, many still heavily rely on nuclear energy, and that won't change anytime soon. In fact, the reliance may only increase in the coming years.

Though many developed countries have been cool at best and hostile at worst toward nuclear energy expansion, a more conciliatory approach may be required in the future. That's because many of the same people who are concerned about the risks and costs of nuclear power are even more concerned about global warming. That means fossil fuels and the carbon dioxide they emit must be limited.

But what will be used other than fossil fuels? The hope was wind and solar, but the inefficiencies, high costs, and intermittent nature of these two energy sources make them unlikely candidates for widespread use. What's left is nuclear.

On February 9, 2012, the US Nuclear Regulatory Commission approved a license for two new nuclear reactors in Georgia, the first in over 30 years. This could be a sign of more approvals to come. But what could eventually really ignite a nuclear expansion are the promising technology advancements that are being developed.

Nuclear Technological Developments

Small Modular Reactors:

You've heard of the mini-brewery and the mini-steel mill; now meet the mini-nuclear reactor. Commonly known as "small modular reactors" or SMRs, these reactors are tiny compared to conventional ones. However, with capacities reaching up to 300 MW (power sufficient to supply 45,000 homes) they pack plenty of punch to have practical commercial application. Here are some advantages that SMRs offer:

They are cheaper to construct and operate than conventional reactors.
They can be standardized and factory built, a much more efficient process than on-site construction.
They can be set up in groups to provide however much power an area needs. Grouping would allow for a unit to be taken offline for repairs, maintenance, or replacement without an interruption of service. On the flip side, more units can be easily added if an area's power needs increase.
They can basically run themselves with little on-site supervision.
They can be stored underground, which enhances security.

Most important, because they are small and use less fuel, they are easier to cool, which greatly reduces the risk of a meltdown.

Small Modular Reactor

Some SMRs can even run on what was once considered nuclear waste. For example, a Bill Gates-backed company, TerraPower, is developing a reactor that burns depleted uranium. Depleted uranium burns very slowly, so TerraPower's reactor could theoretically run for decades without the need for a fill-up. This is an exciting development. Unfortunately, the TerraPower reactor only exists as a prototype on a PC. This means that it will take several years before it could possibly make its debut on the power grid.

In fact, most SMRs are still in the very early stages of development, with many challenges to be met and many questions to be answered. However, the concept has enough promise to induce the US government to invest in its pursuit. If it proves to be viable, this technology could really shake up the energy scene.

Thorium Reactors:

Imagine a cheap, plentiful atomic fuel that could provide safe, emissions-free power for hundreds of years without refueling and without any risk of nuclear proliferation. That fuel is thorium, and proponents claim it eludes many of the pitfalls of today's nuclear energy.

Robert Rapier, chief technology officer and executive vice president at Merica International, says:

"Longer term, commercialization of thorium reactors would dramatically reduce (although not totally eliminate) the risk of nuclear-weapon proliferation. Thorium is abundant relative to uranium, and thorium does not have to undergo the enrichment process that uranium requires. Further, thorium reactors have little risk of melting down because climbing temperatures will decrease the power output, eliminating the runaway reaction possibility present in a uranium-fueled reactor. Thus, these reactors would naturally tend toward the fail-safe state. The primary disadvantage is that thorium reactors are still mainly at the experimental stage, and therefore commercial viability has not yet been clearly demonstrated."

Pebble-Bed Reactors:

The pebble-bed reactor concept was first introduced way back in the 1940s. The US, Germany, and South Africa have experimented with the technology over the years, but it is the Chinese who have persisted in the experiment and plan to implement the technology in two reactors near the Yellow Sea.

Under the pebble-bed design, uranium fuel rods are replaced with tennis-ball-sized graphite spheres that contain tiny beads of uranium, and helium (instead of water) is used as a coolant. A New York Times piece provides a simple explanation of how the technology works:

"Rather than using conventional fuel rod assemblies…(pebble-bed reactors) use hundreds of thousands of billiard-ball-size fuel elements, each cloaked in its own protective layer of graphite.

"The coating moderates the pace of nuclear reactions and is meant to ensure that if the plant had to be shut down in an emergency, the reaction would slowly stop on its own and not lead to a meltdown.

"The reactors (are) cooled by non-explosive helium gas instead of depending on a steady source of water – a critical problem with the damaged reactors at Japan's Fukushima Daiichi power plant. And unlike those reactors, (pebble-bed) reactors are designed to gradually dissipate heat on their own, even if the coolant is lost."

Challenges remain for pebble-bed reactors, and some environmentalists oppose the technology. They point to the fact that the volume of radioactive waste increases under the pebble-bed design, but do concede that pebble-bed waste is far less radioactive per ton than spent uranium fuel rods.

These technological developments in the nuclear-reactor space are promising and certainly worth keeping an eye on... but it's unlikely that anything disruptive will hit the mainstream anytime soon.

So from an investment standpoint, this means that the best and most immediate way to play the nuclear trend is not the companies that make the reactors, but the companies that mine the fuel for the reactors.

The Coming Uranium Bull Market

There are a number of supply and demand circumstances that appear to be forming a perfect storm for bullish uranium prices. From the demand side, the 67 new reactors that we discussed earlier will be coming online in the near future.

On the supply side, there isn't enough uranium being mined to meet current reactor requirements, let alone new facility requirements. According to the World Nuclear Association, there was a 40-million-pound uranium production gap in 2011. It is unlikely that that gap will be closed at current prices; miners claim that their production costs average $85 per pound. With spot prices at about $40 per pound, miners have no incentive to bring new capacity online.

Another factor affecting the supply side is the coming end of the Megatons to Megawatts program. Under this arrangement, the US and Russia agreed to convert high-enriched uranium from Russia's dismantled weapons arsenal into low-enriched uranium for use in power plants. This secondary source provides about 15% of the US's annual supply of uranium. However, the program will expire later this year and when it does, the production gap will widen. Guess what will happen to uranium prices. That's right: they'll skyrocket.

Intrigued yet? Want some more specific investment advice? Help is on the way. Marin Katusa and the Casey Research Energy Team are on top of the emerging opportunity in uranium and have assembled a panel of world-renowned energy experts to discuss it in further depth in an upcoming webinar titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? The webinar premiers at 2:00 p.m. Eastern on Tuesday May 21, 2013 and is free of charge. In addition, all attendees will receive a free copy of our new Global Resource Intelligence Report on uranium (a $29 value). I urge you to reserve your seat today.

Both Consumer Confidence and Leading Indicators surprise on the upside.

Chuck Butler — Tue, 21 May 2013 05:47:21 GMT

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In This Issue.

* US data sends the dollar higher...

* Could the Fed begin the end of bond their bond buying???

* Chinese home prices rise.

* Gold continues to see selling .

And, Now, Today's Pfennig For Your Thoughts!

Both Consumer Confidence and Leading Indicators surprise on the upside.

Good day. Storms knocked the power out at my house last night, so I woke a bit later than I wanted to and had to scramble to get ready by the light of my phone (yes, I have finally caught up with the rest of my family and have become dependent on my phone for more than just phone calls). I saw a number of branches littering the roads on the drive in, so the wind must have been pretty strong. The weather man said we will be getting more storms this morning, I hope Chuck was able to sneak out of here down to Houston for his 'regularly scheduled maintenance' with his docs down there.

The dollar continued to power its way higher on Friday as both the confidence report and Leading Indicators showed the US economy will continue to improve. As both Mike and Chuck suggested last week, the markets have been all about the growth story here in the US and that has boosted the dollar. Friday's data supported the recent 'love fest' for the US$ as the U of Michigan Confidence reading came in at 83.7 compared to expectations of 77.9 and substantially higher than last month's reading of 76.4. This was the best reading since the summer of 2007 and shows the resiliency of Americans as they have faced down a combination of higher taxes and federal spending cuts. Many believe the increase in confidence is a direct result of the record levels of the US equity markets and the beginning of a housing recovery. I guess all the work the Fed has been doing in keeping the printing presses in overdrive is beginning to show up in the attitudes of US consumers. But I still worry about the labor market here in the US, and while confidence can certainly be pushed higher along with the stock market, you can't 'spend' confidence at the store, so we continue to need to see more improvement in the labor markets.

The leading indicators were also released on Friday and painted a fairly rosy picture for the near term future of the US economy. The Conference Board's gauge of the economic outlook for the next 3 to 6 months climbed .6% in April, a big turn-around from a .2% drop in March. Economists had predicted the leading indicators to come in at a .2% increase so the markets were surprised by the strength of Friday's data. This strong reading supports the thought that the US economy will start to pick up steam in the second half of this year which could mean an early end to the quantitative easing efforts of our Federal Reserve.

This thought is what has been rallying the dollar over the past few weeks, as more Fed heads have been talking about beginning an exit from the $85 billion monthly bond buying program which began in September of last year. Fed Bank of San Francisco President John Williams made the speaking circuit rounds at the end of last week suggesting the central bank may begin to taper the bond buying sooner rather than later. This is a big change for Williams who is generally seen as a dove when it comes to monetary policy. Williams joins three other Federal Reserve regional bank presidents who have been calling for phasing out the month purchase of mortgage backed securities. Dallas President Richard Fisher, Philadelphia President Charles Plosser, and Richmond President Jeffery Lacker have all been calling for an end to the bond buying. "It's not good for the bank to be holding lots of mortgage paper" Plosser said on Friday. Fisher warned that if the bond buying continues at the current levels, the Fed could eventually be buying up to 100 percent of the MBS issuance which is "not only excessive, but also potentially disruptive to the proper functioning of the MBS market." The FOMC will release minutes of its April 30th meeting on Wednesday, and traders and economists will be looking for indications that an end of QE is starting to come into focus.

We won't have any big data releases here in the US today, nor any tomorrow so the markets will have to look overseas for any news on the global economy. Fed Chairman Ben Bernanke will testify before the Joint Economic Committee this Wednesday which could produce some good 'Pfennig pfodder' as our congressional leaders push him for more information on when he plans on ending QE. Chuck should have plenty to write about as the end of the week will be chock-full-o data. We get the existing homes data on Wednesday followed by the weekly jobs claims and some more housing data on Thursday. These housing numbers have taken on an even greater importance with the positive data we saw on Friday. If the housing data comes in strong, it would support the thought that the US economy will be able to withstand the reduction of federal spending which will accompany the end of QE. And Friday we will close out the week with April's reading of durable goods orders which are predicted to show a positive 1.5% increase after a fairly large drop in March.

In Europe, car sales rose in April for the first time since September of 2011 adding to signs that the latest recession in Europe may be short-lived. Another report showed consumer confidence in Europe increased in April to the highest level since July of last year. Last weeks trade data showed European exports expanded 3.4% from a month earlier as the EU trade surplus widened to 8.1 billion euros from just 1.6 billion euros in February. German auto sales finally showed an increase, jumping 3.8% in April ending five consecutive months of falling sales. The largest increases were in the UK where registrations increased 15% and in Spain where they were up over 11%. Both France and Italy showed drops in the number of cars sold. Interest rate reductions by the ECB were given some credit in turning around the auto data, and ECB President Mario Draghi said he is still considering further cuts if the economic outlook deteriorates. But with rates near zero, any additional cuts could move rates some rates below zero, and the overall impact of negative interest rates is still largely unknown for an economy the size of Europe.

The Japanese yen finally strengthened a bit after Japan's economic minister Akira Amari warned that further losses in the currency could negatively affect Japanese citizens. Amari suggested that the dramatic drop in the value of the Japanese yen has already corrected a lot of the imbalances in the Japanese economy. This was the first indication from a Japanese leader to suggest the Japanese yen is getting close to where they would like to see it. I guess the 20% move of the yen over the past six months is just about what the Japanese leaders were wanting, and they apparently would like to see the yen take a breather while the markets digest this huge move.

Staying in Asia, China's housing inflation accelerated to its fastest pace in two years. Average new home prices rose almost 5% from a year ago after a 3.6% increase last month. The rising prices add complexity to the job of Chinese leaders who would like to be able to spur a stronger overall economic recovery. These leaders have been trying to cool the housing market with measures aimed directly at this sector, but many thought these moves weren't broad enough to have a meaningful impact. Home prices continue to move higher in the large Chinese cities, with prices in Beijing rising 10.3% and Shanghai prices up 8.5% both of which were the fastest YOY gains since January of 2011. With property inflation edging higher, Chinese leaders will have less room to enact measures to try and stimulate their economy.

Closer to home, Mexico's peso fell again on Friday heading for its worst week since last June after data showed GDP rose at the slowest pace since 2009. GDP rose just .8% in the first quarter from a year earlier, much slower than Mexico's leaders would like to see. The data may force Mexico's central bank to cut rates which would definitely be a negative for the Mexican peso. Holders of the peso have enjoyed a nice 12% increase in the currency over the past year, partially due to the higher rates available to investors. A cut in rates, which could be seen to be necessary to stimulate the Mexican economy, would definitely be a negative for the Mexican peso.

And the Canadian dollar continued to get beat up on Friday as inflation data bolstered recent calls for relaxing monetary policy. Consumer prices in Canada rose just .4% in April down from a 1% increase the month before. This was the slowest pace of price increases in Canada since October of 2009. As Chuck suggested on Friday, the new Prime Minister Stephen Poloz has supported trade policies in the past which would seem to indicate he may reverse outgoing BOC Governor Mark Carney's bias toward higher interest rates. While most investors felt the BOC's next move would be higher, the change in leadership along with softer inflation data has many thinking rates could be headed lower.

Commodity currencies were softer across the board, as the Australian dollar, New Zealand dollar, and South African rand all followed the Canadian dollar down over the weekend. The slower global inflation is what seemed to be weighing on all of these currencies. A consumer confidence measure in New Zealand helped put a floor under the kiwi, showing confidence 'down under' climbed to a three year high. And another report showed producer prices in New Zealand rose .8% in the first quarter, the most since June of 2011.

Gold had another off day, dropping nearly $30 on Friday and another $10 over the weekend. With the dollar rising to nearly a 3 year high (according to the dollar index) there continues to be increased selling pressure on the precious metals, which have had an inverse relationship with the greenback. Talk of an exit from QE programs here in the US has added to the selling in gold, as inflation expectations seem to be softening. I still think these levels represent a great place to add or better yet start the accumulation of a position in the precious metals.

To recap. Data released on Friday sent the dollar higher as both the consumer confidence and leading indicators surprised on the upside. Fed heads are starting to discuss the exit from QE, and some believe we could now see a reduction in bond buying in the next few months. No data here in the US today or tomorrow, but the end of the week will bring Chuck plenty to write about. European car sales increased, perhaps the recession will be short lived? Chinese home prices shot higher, but Chinese leaders still want to stimulate their economy. And the commodity currencies all fell over the weekend as global inflation expectations caused a sell-off in precious metals and raw materials.

Currencies today 5/20/13. American Style: A$ $.97746, kiwi .8140, C$ .9723, euro 1.2859, sterling 1.5192, Swiss $1.0327. European Style: rand 9.4649, krone 5.8355, SEK 6.6724, forint 225.95, zloty 3.2522, koruna 20.3023, RUB 31.2895, yen 102.56, sing 1.2554, HKD 7.7622, INR 55.1062, China 6.1998, pesos 12.3216, BRL 2.0352, Dollar Index 84.042, Oil $95.53, 10-year 1.95%, Silver $21.685, Gold. $1,354.16, and Platinum $1,445.55.

That's it for today. Congratulations to all of the new graduates! I attended the high school graduation of my niece (and goddaughter) Meaghan yesterday evening. The event was held outdoors under the massive oak trees in front of her high school, and the weather cooperated to make it a wonderful event. Unfortunately the weather prediction isn't so good for the second phase of her graduation, the beautiful 'Maypole' dance which all of the senior girls are scheduled to perform this evening. They have been practicing for months now, and there is no 'indoor option' so I really hope the storms move through quickly and leave them a window of opportunity this evening. Meaghan graduated with honors, and is now on her way to Rhodes College where she will play field hockey and study psychology and art. Next week her twin brother will graduate and then head off to Georgetown University. I am extremely proud of both of them, as they have worked hard in high school and have set themselves up to be a success in life. Time really flies, it seems like I was holding the twins in my arms just a few years ago! I'll get this out the door now, and call home to check and see if the power is back on. Thanks for reading the Pfennig, and I hope everyone has a Marvelous Monday!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Name That Black Swan

Hard Assets — Tue, 21 May 2013 05:12:42 GMT

By Jeff Clark, Editor of BIG GOLD

Is there a potential event that could negatively impact your world so much that it's imperative you insure against it?

Of course. That's why you carry fire insurance on your home, for example. The odds of your house burning to the ground are very low – but the outcome would be so financially devastating that you need to have insurance to protect against the loss. The same could be said of life insurance, auto insurance, etc.

What about an economic or monetary event that, in spite of you being prudent with your money, could damage your financial status?

Those exist too, and they're called "black swans." It's this type of event that is the basis of our third installment in the core reasons we must continue to own gold. In spite of gold's recent waterfall decline, we'll show that the need to own gold has actually grown.

First, what exactly is a black swan?

Like a black swan bird – something that occurs rarely in nature – a black swan event is a high-profile but rare occurrence that is beyond the realm of normal expectations. The term was introduced by Nassim Taleb in his 2004 book, Fooled by Randomness. It's a metaphor that, according to Taleb, has three characteristics:

The event is a surprise
It has a major effect
After the event, it is rationalized by hindsight, as if it could have been expected. In other words, the data were available to foresee it, but risk mitigation programs didn't account for it.

What I found interesting in reviewing Taleb's thesis is that he stated in 2004, "Banks and trading firms are especially vulnerable to hazardous black swan events and are exposed to losses beyond those predicted by their defective models." In other words, his black swan theory essentially predicted the financial crisis that hit four years later.

You might argue that a black swan event could occur at any time. That's true. But our current fiscal, monetary, and economic circumstances are so tenuous that the possibility of a black swan event hitting our economy is greater than usual. Indeed, the number of anomalous events that could take place is large enough that collectively they represent a high probability. And since we all live and work within an economic system and use money every day, the impact to us as individuals could be severe.

So the question is this: what data are available now that show where we are most vulnerable to experiencing a black swan event?

Social breakdown: Many European countries still have 50% unemployment in the under-24-year-old crowd, with little prospect of improvement. The triggers are in place for a breakdown of public order in the EU. Particularly concerning would be if the disorder spread to other countries and continents.

War: While Kim Jong-un of North Korea captures all the current headlines, US General James Mattis reports that sanctions and diplomatic efforts to stop Iran from gaining nuclear capabilities are not working. He said Iran is at the point of "enriching uranium beyond any plausible peaceful purpose" and called 2013 the "year of reckoning."

Financial system collapse: The world economy is worth about $80 trillion. Banks hold derivative positions worth about $1.6 quadrillion (1,600 trillion). If a portion of those bets came crashing down, the financial system may not have the capability to cover the losses. Even if they did, the markets would be roiled.

A major bank raid: The Ottawa federal budget last month revealed that politicians are contemplating the possibility of a Canadian bank failure. One potential solution is similar to the one just imposed in Cyprus: for the first time ever, officials did not include a guarantee in the budget language that expressly prohibits the possibility of a raid on the bank accounts of ordinary Canadians.

China dumps Treasuries: As of January, China holds over $1.2 trillion in US Treasury securities, more than any other country. They've expressed concern for years about the diluting value of those securities due to money printing. If China were to sell Treasuries in any significant quantity, interest rates would jump and the dollar would crater.

Sudden, runaway inflation: This would be particularly devastating for the simple reason that hardly anyone is expecting it. We outlined in our February issue that history shows inflation can occur suddenly and rise sharply. Since it hasn't occurred, many think it won't... a dangerous assumption, given the ongoing massive dilution of many G7 currencies.

What about a black swan within the gold sector?

Comex delivery failure: In the first three months of the year, stocks of gold held at Comex warehouses plunged by the largest figure ever on record during a single quarter. While the reason behind the move is unclear, nearly two million ounces of gold being withdrawn from the Comex and moved to undisclosed locations does not paint a picture of confidence in the exchange. And it wouldn't take an outright failure; an announcement of a delivery delay would send a very unsettling message.

There are undoubtedly numerous possible black swans, and I'm sure you can think of others. The point is, given our current set of circumstances – runaway debt levels, ongoing global easing programs, and little political will to do what is necessary to steer away from the crisis instead of deeper into it – how do we protect ourselves against some of these possible outcomes?

According to Wikipedia, "the main idea in Taleb's book is not to attempt to predict black swan events, but to build robustness against negative ones and be able to exploit positive ones."

Gold won't solve all our problems, but when it comes to building robustness against possible monetary fallout, its 3,000-year track record says there is no substitute. Since many black swans swimming in our waters relate to our monetary or fiscal standing, the risk for gold is more to the upside than the downside. So in spite of gold's recent waterfall decline, the need to protect against a black-swan event has actually grown. Only those who have purchased gold before a black swan event will be protected and benefit from rising prices.

Here are three concrete ways we think investors should consider "building robustness" with their gold holdings…

Favor physical metal over paper forms. In today's environment, the pinnacle of risk is solely holding paper assets. Be sure that your gold holdings are denominated more in Eagles and Maple Leafs than in ETFs and certificates. This includes fractional programs where they don't offer delivery, even if the metal you own a portion of is fully allocated.

Use non-bank storage. Private vaulting facilities are not subject to bankers' hours, the sudden declaration of a bank "holiday," or systemic risks within the financial sector.

Store a meaningful portion internationally. By storing some physical holdings outside your political jurisdiction, you reduce four primary risks: confiscation, capital controls, asset seizure by a government agency, and increased lack of personal control. We can never eliminate risk; the goal is to diversify so that any one event doesn't impact our entire portfolio.

While it's healthy to have an optimistic outlook, it's dangerous to not be prepared financially in light of the current fiscal and monetary predicament that has trapped many countries. The data available now should compel us to make those preparations.

The New Cold War: The “Putinization” of Uranium

Doug Casey — Sat, 18 May 2013 10:01:00 GMT

By Casey Research

By the Casey Research Energy Team

Like the United States, the European Union relies heavily on Russia and the Commonwealth of Independent States (CIS) for its uranium, as shown in the chart below:

Russia is projected to produce 64 million pounds per year by 2020. The majority – 40 million pounds – will come from Russia itself, and the remainder from its foreign projects in Kazakhstan, Ukraine, Uzbekistan, and Mongolia.

But there's an often forgotten subsector of uranium production: the processes necessary to convert U₃O₈ into something that power plants can use.

For that purpose, yellowcake is first converted into uranium hexafluoride (UF₆) at a conversion facility, then enriched, or concentrated, at an enrichment plant. Russia's main conversion facility is at Angarsk, with a capacity of 42 million pounds of uranium per year. A small facility near Moscow, rated at 1.54 million pounds per year, primarily converts recycled uranium.

Russia can claim about one-third of the uranium-conversion capacity worldwide. Rosatom, the regulatory body of the Russian nuclear program, is also looking to set up an additional conversion plant by 2015, with the planned capacity currently unknown.

The United States normally owns 20% of the world's conversion capacity; however, its plant, Metropolis, is currently shut down for maintenance and upgrades. Though the plant is scheduled to reopen in June 2013, the current shutdown just adds to the growing scarcity of UF₆.

You may have noticed that the United States isn't listed in the chart above. As of January 2013, the US has no conversion capacity and isn't expected to be back online till mid– to late 2013.

Almost half of the world's capacity to enrich uranium will lie in Russia once the country completes the planned expansion of its current enrichment facilities. Accordingly, the life source of reactors and power generation is not obtaining the uranium but having access to facilities that turn them into nuclear fuel.

Russian President Vladimir Putin is attempting to corner the uranium sector and the UF₆ and enrichment markets alike. Russia's squeeze will be felt around the world – not only in regard to uranium supply but to enrichment as well.

It's difficult to say how Putin's squeeze on uranium will play out, but it's pretty certain to contribute to what is shaping up to be a spectacular bull run in this energy subsector. Investors who choose the right companies and get in early could see life-changing gains. To help with that process, the Casey Research Energy Team has put together an informative webinar with several nuclear-power and speculative investing experts. The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? is free, and will premier on May 21 at 2 p.m. EDT. Get more information and sign up today.

Why Investors Are Still Their Own Worst Enemies

Gary D. Halbert — Tue, 14 May 2013 22:54:08 GMT

IN THIS ISSUE:

1. About the Dalbar Investor Behavior Studies

2. Dalbar’s Latest Investor Behavior Study

3. The Overriding Lesson to be Learned Here

4. How to Avoid Becoming a “Dalbar Statistic”

5. The Birth of Our AdvisorLink® Program

6. Hard to Admit We’re Not Experts at This

7. Conclusions – What to Do Now

Overview

They say that the definition of insanity is doing the same thing over and over but expecting different results. Today, I’m going to talk about something pretty close to that. Specifically, we’ll discuss a series of long-term studies that consistently show how investors do not get market-rate returns because of emotional trading. Yet the recommended solution is always the same. It’s time to challenge Wall Street’s conventional wisdom and learn how to stop making emotional investment decisions.

Dalbar, Inc., a leading market research firm, studies investor behavior each year and calculates the performance of average investors versus the returns of the major market indexes. Over the 20 years ended 2012, the S&P 500 Index delivered an annualized return of 8.21%, whereas the average investor in stock mutual funds earned only 4.25% annualized over the same period. You read that right. Due largely to jumping in and out of the market at bad times, the average mutual fund investor made only about half of what the market delivered. For bond mutual fund investors, the results are even worse over the last 20 years.

Today we’ll look at the latest Dalbar study which was released in April and shows us – once again – that most investors are still their own worst enemies. Dalbar argues that stock and bond investors should stick to a strict “buy-and-hold” strategy and should never get out. We, on the other hand, have long argued that most investors don’t have the temperament to hang on during bear markets and are very likely to bail out at the worst times.

I write about the Dalbar studies every couple of years, and the results are always the same. Average investors in mutual funds significantly under-perform the major market indexes. As we go along today, you’ll see the reasons why the study’s results are so consistent and why Dalbar’s recommended solution hasn’t changed investor behavior in over 20 years. Let’s get started.

About the Dalbar Investor Behavior Studies

Boston-based Dalbar, Inc. has been studying investor behavior (among other things) since the late 1970s. One of their early missions was to measure how average investor returns compare to the performance of the major market indexes such as the S&P 500, the Barclay’s Aggregate Bond, etc. Dalbar is the leading research firm in this area.

Dalbar calculates average investors’ returns in mutual funds by analyzing Investment Company Institute (ICI) data showing weekly and monthly inflows and outflows of money from domestic stock and bond mutual funds.

I first ran across the Dalbar studies in 1994. At the time, we were exclusively in the commodity futures fund business. That first Dalbar study I read showed that the average investor in stock mutual funds had made less than half of what the average stock fund had delivered. Dalbar noted that the poor investor performance was largely due to getting in and out of the market at bad times and frequent switching among funds, often buying high and selling low.

I remember thinking at the time, “How silly is this?” My clientele at the time consisted of a couple of thousand high net worth individuals that had invested in my futures funds. Surely, I thought, my clients aren’t making these kinds of mistakes. In any event, I wrote about the Dalbar studies in my newsletter.

We received hundreds of responses from my clients, and the message was the same: “That Dalbar study is about ME!” It was clear that many of my clients were making the same mistakes as the average investor in the Dalbar studies with regard to their mutual fund investments. My immediate thought was, I need to help these folks get better returns.

Dalbar’s Latest Investor Behavior Study

Dalbar’s annual report is called the “Quantitative Analysis of Investor Behavior.” The latest QAIB report was released in April, and the results are once again consistent with prior reports. Here are the results for the 20 years ended in 2012:

S&P 500 Index Annualized Return	Average Equity Fund Investor Annualized Return
8.21%	4.25%

As you can see, the average equity mutual fund investor earned about half of what the S&P 500 delivered over the last 20 years. This was due to frequent switching among funds (buying high and selling low) and being in and out of the market at the wrong times.

I mentioned earlier that the results for bond mutual funds are even worse than those for stock funds. Remember that bonds have been in a spectacular bull market for the last 30 years. How could average investors not have cleaned up in this environment? Here are the numbers:

Barclay’s Aggregate Bond Index Annualized Return	Average Bond Fund Investor Annualized Return
6.34%	0.98%

Bonds have been in arguably the most powerful and long-lasting bull market in history since the early 1980s when interest rates were at record high levels. Today, rates are at or near the lowest levels in history. Bond fund investors should be sitting on record profits. Yet on average, they have not even kept up with inflation – not anywhere close!

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

The Overriding Lesson to be Learned Here

Dalbar’s mission over the years has always been consistent: to help investors achieve returns that are more in-line with what the major market indexes deliver. The question has always been, how do you do that? Dalbar’s advice has always been the same: Pick good mutual funds and basically never sell them. Ride them through thick and thin.

However, the more things change, the more they stay the same. This year's Dalbar report shows that investors are suffering the same fate as when we first wrote about them back in the mid-1990s. That’s because investors let their emotions run away with them when losses occur, as well as when they think of getting out of or back into the market. And they are always chasing the latest “hot” funds to switch into.

Dalbar’s facts are correct as always, but we believe their ideas on how to fix the problem are unrealistic because of the effect of investor emotions. Dalbar recommends that investors “just say no” to their emotional desire to jump from one investment to another. Why is their advice impractical? Well, just look at the fact that the Dalbar studies have shown very similar results since the mid-1990s when I first found them. If it’s so easy to override your emotions, shouldn't investors have learned this by now?

The truth is that we can’t just turn off the switch to our emotions, which is why most mutual fund investors continue to trail the stock and bond indexes. From the start, we didn’t agree that buying and holding was the optimum solution. That requires investors to totally ignore their emotions during losing periods.

However, timing the market on your own isn’t a solution either, since Dalbar's findings show that most investors are lousy market timers. So what’s the solution?

How to Avoid Becoming a “Dalbar Statistic”

Our conclusions after seeing the Dalbar studies were entirely different. While we agreed with Dalbar that frequent switching among funds was not a good idea, and that average investors are usually terrible at market timing, we disagreed about the solution to this problem.

While Dalbar maintains that a buy-and-hold approach is the only solution, we have long argued that most investors do not have the patience and willpower to hang on during big bear markets. And because they don’t have that willpower, they are likely to bail out at the worst possible times (ie – near the bottom).

Thus, we approached the problem of frequent switching from the standpoint of how to take emotions out of the equation. We believe the best way to do that is to hire professional money managers who have: 1) a non-emotional, proven investment strategy; and 2) an actual track record showing the ability to actively manage a portfolio to minimize the effects of major corrections and bear markets.

Some people call such strategies “market timing” while others call them “active” or “tactical” management. It doesn't matter what you call it; the important part is that using professionals to manage the risks in your portfolio allows you to remove your emotions from the investment decision-making process and get on with other things you’d like to do in your life.

Likewise, we believe that most investors are ill-prepared to know when to switch from one investment to another. We know that investors are likely to make an emotional decision to switch from a fund that they feel is under-performing into the latest “hot” fund with the best short-term performance, but then that fund can often go cold. I call it the Mutual Fund Merry Go-Round.

This is precisely why we made it our business to find professional money managers with proven systems to determine when one should be in or out of the market, and where to invest when it’s time to be in the market. We do not believe that most investors have the willpower to endure buy-and-hold and its periodic large bear market losses.

The Birth of Our AdvisorLink® Program

Once we landed on a strategy to eliminate emotional trading, I explained to my clientele that we could help them find professional money managers who have successful records of managing the risks of being in the market. This type of active management strategy has the potential to pick the right investments to be in, but also determine when to be in the market and when to move to the sidelines (money market) during bear markets. The response from our clients was incredible!

However, we also knew that finding successful money managers was not easy. Most active managers, we learned, were not successful and others had only “hypothetical” track records, not real historical trading. Yet, if you’re willing to spend enough money and do enough searching, there are indeed some successful active managers out there, fortunately.

In 1995, we formed ProFutures Capital Management, Inc. (later re-named Halbert Wealth Management, Inc.) and registered with the SEC as an Investment Advisor. We also developed and registered the AdvisorLink® name for our new service. Ever since then we have continuously searched for successful active managers to recommend to our clients.

Over the years, we have enhanced the AdvisorLink® Program in a number of ways. First, we have broadened the mix of investments used from exclusively mutual funds to include exchange-traded funds (ETFs), as well as individual stocks and bonds. We have money managers whose strategies that range from conservative to moderate to aggressive, in some cases.

And we’ve continuously followed the yearly Dalbar studies, which have shown very consistent results ever since then.

Hard to Admit We’re Not Experts at This

We all want to be investment experts. We all want to be the captain of our own ship and make all of our own decisions about how and where to invest our hard-earned money. But the fact is that most of us aren’t wired that way. Like it or not, most of us can’t keep our emotions out of investing, especially in bear markets.

I know this first-hand. In the early 1980s, I designed a managed futures trading system and it had a great record based on “back-testing.” A lot of clients subscribed. In the first two years, it performed extremely well. New clients kept subscribing. But in the third year, it lost 30%. I was devastated! I couldn’t stop thinking about those clients who had only been in that third year.

It was a career crossroad for me. On the one hand, if I averaged all three years, the overall record was still pretty darned attractive. Maybe I should continue. But what I could not get out of my mind was the fact that some clients had only come in for that third year when my system lost 30%. I could not get that thought out of my mind.

That’s when I decided to see if there were professional commodity trading advisors out there with better track records than my own. It didn’t take too much work to find out that there were other managers that had done better than I had. That was the moment for me.

The decision for me came fairly easily. After some thought, I decided to put my ego away and focus on finding professional managers with proven track records to recommend to my clients. I’ve been doing just that for almost 30 years now.

Individual stock and bond investors face the same dilemma. Do they keep managing their own investments, even though their results have been less than acceptable? Or do they reach the decision to hand it over to professionals with proven records like those in our AdvisorLink® Program?

I think it comes down to ego. In my own case, it was a no-brainer. As soon as I realized that there were professionals that had delivered results better than my own, my ego went in the trash can. I was done. And I have never looked back since.

Conclusions – What to Do Now

If the Dalbar studies are accurate, and we think they are, there are probably millions of investors who are seeing the new “record” stock market prices as being a siren call to enter the market. Maybe you are among them. My advice is that, if you enter the market, do so carefully.

Why? Because it is well known that some of the largest flows of money into the stock market occurred in the first quarter of 2000, just before the bottom fell out. After witnessing years of double-digit returns in the stock market, many investors decided to go ahead and jump into stocks back then, just as the bear market began. It’s likely that many of these same investors are still under water. And the stock market looks just as tempting today.

The Dalbar studies have consistently shown that average investors earn about half of what the markets have delivered for the last 20+ years, in the stock markets, and even less in the bond markets. If we look at the Dalbar studies honestly, this should not come as a big surprise to most of us.

The primary reason for this under-performance is the fact that we can’t separate our own emotions from the investment decision process. We are constantly searching for the latest “hot” funds, even though we know we shouldn’t. We can’t ride out severe bear markets, even though Dalbar and others say that’s exactly what we should do.

We don’t build most of our net worth from our investment prowess. No, most of us have built our net worth from success in our careers over many years. So why would we assume that we can be successful investors on a part-time basis? That’s a big mistake, in my opinion.

It remains my strong opinion that we are better served to rely on finding professional money managers to oversee most of our investments and get our own emotions out of the decisions.

Is it a perfect solution? No. Money managers come and go. You have to make changes from time to time, but not often.

The point is, we as investors don’t have the determination or discipline to ride out 30%, 40% or 50% losses in our investment portfolios, as Dalbar suggests we do. That’s just a fact. If we rely on our emotions, we are doomed to under-performance. Dalbar is right-on in that respect.

So what do we do? Some of both. You should have a certain portion of your portfolio in buy-and-hold strategies. But more importantly, you should have a portion of your portfolio with professional money managers that have a proven system to get you out of the market – or hedge long positions – during bear markets and significant downward corrections.

At Halbert Wealth Management, we are dedicated to finding and evaluating professional money managers – that’s all we do. We have successful money managers who use actively managed buy-and-hold strategies, as well as managers who use sophisticated tactical strategies. We also manage clients’ entire portfolios, including tax-qualified plans such as IRAs.

If you agree that you need to enhance your portfolio with actively managed strategies, I invite you to give one of our Investment Consultants a call at 800-348-3601 to discuss all of the options available to you.

Our Investment Consultants are on salary (not commission), and they will be happy to give you an objective evaluation and make recommendations if needed. There is no cost or obligation and never any pressure. Whether you need advice on a single investment or your entire portfolio, our experienced Investment Consultants will help you select professional money managers who can take the emotions out of your investment decisions. Don’t be a Dalbar statistic any longer. We can help.

WEBINAR Reminder – May 16, 2:00 Eastern Time

With the stock market at record highs, is now a good time to invest? If so, where? Learn the answers to these questions and more in our next webinar featuring YCG Investments. YCG’s Portfolio Managers – Brian Yacktman and Will Kruger – will discuss their investment philosophy as well as their bottom-up, fundamental approach to active money management. There will also be plenty of time for live questions after the presentation.

The webinar will be this Thursday, May16 at 2:00 PM Eastern Time (11:00 AM Pacific). Click HERE to register for this live event. If you’re even thinking about getting back into the market, you need to see this webinar first. We will record the webinar and you can watch it at your convenience on our website if you cannot make it on Thursday.

Personal Note: Our First College Graduate

Our son graduated from college on Saturday. It was such a treat for Debi and me, his Grandmother and a host of relatives and friends! He graduated summa cum laude with a degree in Engineering. He has been accepted to graduate school on a full-ride scholarship where he will pursue a Master’s Degree starting in the fall. We are so proud of him!

All the best,

Gary D. Halbert

Hard Assets Alliance on Korelin Economics Report

Hard Assets — Tue, 14 May 2013 22:49:00 GMT

GM Ed D'Agostino discusses precious metals on nationally syndicated radio show.

By Hard Assets Alliance Team

The Hard Assets Alliance is gaining traction with national media. General Manager Ed D'Agostino recently sat down with Al Korelin of the Korelin Economics Report - a syndicated radio show available to more than 2.7 million radio listeners each week and thousands more on the internet. The two discuss rising premiums in silver, and how the Hard Assets Alliance is able to control those premiums to offer customers the best prices.

Click here to listen to the Korelin Economics Report feature on the Hard Assets Alliance.

Disclaimer

The Hard Assets Alliance website and the SmartMetals Investor are published by Hard Assets Alliance, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated, and there is no obligation to update any such information.

Any Hard Assets Alliance publication or website and its content and images, as well as all copyright, trademark, and other rights therein, are owned by Hard Assets Alliance, LLC. No portion of any Hard Assets Alliance publication or website may be extracted or reproduced without permission of Hard Assets Alliance, LLC. Nothing contained herein shall be construed as conferring any license or right under any copyright, trademark, or other right of Hard Assets Alliance, LLC. Unauthorized use, reproduction, or rebroadcast of any content of any Hard Assets Alliance publication or website is prohibited and shall be considered an infringement and/or misappropriation of the proprietary rights of Hard Assets Alliance, LLC.

Hard Assets Alliance, LLC reserves the right to cancel any subscription at any time. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Hard Assets Alliance publication or website, any infringement or misappropriation of Hard Assets Alliance, LLC's proprietary rights, or any other reason determined in the sole discretion of Hard Assets Alliance, LLC.

Affiliate Notice: Hard Assets Alliance has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Hard Assets Alliance affiliate program, please contact us. Likewise, from time to time Hard Assets Alliance may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.

How to Spot & Time Stock Market Tops

Chris Vermeulen — Mon, 13 May 2013 23:53:00 GMT

Since the middle of April everyone and including their grandmother seems to have been building a short position in the equities market and we know picking tops or bottoms fighting the major underlying trend is risky business but most individuals cannot resist.

The rush one gets trying to pick a major top or bottom is flat out exciting and that is what makes it so darn addicting and irresistible. If you have ever nailed a market top or bottom then you know just how much money can be made. That one big win naturally draws you back to keep doing it much like how a casino works. The chemicals released in the brain during these extremely exciting times are strong enough that even the most focused traders fall victim to breaking rules and trying these type of bets/trades.

So if are going to try to pick a top you better be sure the charts and odds are leaning in your favor as much as possible before starting to build a position.

Below are a few charts with my analysis and thoughts overlaid showing you some of the things I look at when thinking about a counter trend trade like picking a top within a bull market.

Utility Stocks vs SP500 Index Daily Performance Chart:

The SPY and XLU performance chart below clearly shows how the majority of traders move out of the slow moving defensive stocks (utilities – XLU) and starts to put their money into more risky stocks. This helps boost the broad market. I see the same thing in bonds and gold this month which is a sign that a market top is nearing.

That being said when a market tops it is generally a process which takes time. Most traders think tops area one day event but most of the times it takes weeks to unfold as the upward momentum slows and the big smart money players slowly hand off their long positions to the greedy emotion drove traders.

Look at the chart below and notice the first red box during September and October. As you can see it took nearly 6 weeks for that top to form before actually falling off. That same thing could easily happen again this time, though I do feel it will be more violent this time around.

SPY ETF Trading Chart Shows Instability and Resistance:

Using simple trend line analysis we see the equities market is trading at resistance and sideways or lower prices are more likely in the next week or two.

Stocks Trading Above 150 Day Moving Average Chart:

This chart because it’s based on a very long term moving average (150sma) is a slow mover and does not work well for timing traded. But with that said it does clearly warn you when stocks are getting a little overpriced and sellers could start at any time.

General rule is not to invest money on the long side when this chart is above the 75% level. Rather wait for a pullback below it.

Stocks Trading Above 20 Day Moving Average Chart:

This chart is based on the 20 day moving average which moves quickly. Because it reacts quicker to recent price action it can be a great help in timing an entry point for a market top or bottom. It does not pin point the day/top it does give you a one or two week window of when price should start to correct.

How to Spot and Time Stock Market Tops Conclusion:

As we all know or will soon find out, trading is one of the toughest businesses or and one of the most expensive hobbies that one will try to master. Hence the 95-99% failure rate of individuals who try to understand how the market functions, position management, how to control their own emotions and to create/follow a winning strategy.

With over 8000 public traded stocks, exchange traded funds, options, bonds, commodities, futures, forex, currencies etc… to pick from its easy to get overwhelmed and just start doing more or less random trades without a proven, documented rule based strategy. This type of trading results in frustration, loss of money and the eventual closure of a trading account. During this process most individuals will also lose friends, family and in many cased self-confidence.

So the next time you think about betting against the trend to pick a top or a bottom you better make darn sure you have waited well beyond the first day you feel like the market is topping out. Stocks trading over the 150 and 20 day moving averages should be in the upper reversal zones and money should be flowing out of bonds and other safe haven/defensive stocks to fuel the last rally/surge higher in the broad market.

Also I would like to note that I do follow the index futures and volume very closely on both the intraday and daily charts. This is where the big money does a lot of trading. Knowing when futures contracts are being sold or bought with heavy volume is very important data in helping time tops and bottoms more accurately. And the more experience you have in trading also plays a large part in your success in trading tops and bottoms.

Download my FREE eBook on Controlling Your Trades, Money & Emotions: http://www.thegoldandoilguy.com/trade-money-emotions.php

Chris Vermeulen

America’s Addiction to Foreign Uranium

Doug Casey — Mon, 13 May 2013 20:13:00 GMT

By Casey Research,

What most Americans don't realize is that dependence on foreign oil isn't the main obstacle to US energy autonomy. If you think America's energy supply issues begin and end with the Middle East, think again. One of the most critical sources of foreign energy is due to dry up this year, and the results could mean spiking electricity prices across the country.

In 2011, the US used 4,128 billion kilowatt hours (kWh) of electricity. Nuclear power provided 790.2 billion kWh, or 19% of the total electrical output in the US. Few people know that one in five US households is powered by nuclear energy, and that the price of that nuclear power has been artificially stabilized. Unfortunately for us, the vast majority of the fuel used for powering our homes must be imported.

In the chart below, you see where most of our uranium comes from:

The overwhelming majority of that Russian uranium comes from a 20-year-old agreement called "Megatons to Megawatts" that allows weapons-grade, highly enriched uranium (HEU) to be converted to reactor-grade, low-enriched uranium (LEU).

By December 2012, "Megatons to Megawatts" had produced 13,603 metric tons of LEU for US consumption and provided the fuel for nearly half of the US electricity generated from nuclear power.

In December 2013, that agreement expires, and Russia will be free to put its uranium out on the open market and demand higher prices. With 17 nuclear reactors in China and 20 in India – not to mention Japan, France, Germany, and others all vying for nuclear fuel – competitive bids are poised to drive prices higher, and early investors stand to make spectacular gains.

If this information is news to you, you are not alone. While the mainstream media focus on the US's "Middle Eastern energy dependence," the real story remains unnoticed. That's why Casey Research invited the field's top experts – including former US Secretary of Energy Spencer Abraham and Chairman Emeritus of the UK Atomic Energy Authority Lady Barbara Judge – for a frank discussion of what we think is America's greatest energy challenge.

Join us on Tuesday, May 21 at 2 p.m. EDT for the premiere of The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment? to learn how the end of "Megatons to "Megawatts" will affect the US energy sector and how you can position yourself for outsized profits. Attendance is free – click here to register.

The dollar kept going and going...

Chuck Butler — Mon, 13 May 2013 16:46:33 GMT

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In This Issue...

* April surplus

* Dollar tops all

* Aussie falls below parity

* Will the yen remain weaker than 100

And, Now, Today's Pfennig For Your Thoughts!

The dollar kept going and going...

Good day...and welcome to Monday morning. I'll be taking you through the first half of the week while speaking engagements take both Chuck and Chris out of town. It was a busy weekend so it was a little tough to get the wheels spinning for me this morning, but what at first looked to be a washout actually turned into chamber of commerce type of weather. Well, there is plenty to talk about so let's jump right in.

The dollar buying that Chuck was talking about on Friday remained in place all day long and left no stone unturned. The stock market was just about the only thing to turn in a positive return as every major currency went into the weekend underwater. The more people that I speak with, the more I hear about how they are going all in on the equity market. I certainly understand the temptation since it has been doing well and its pretty much the only thing everyone is talking about on tv, but in my opinion, this type of scenario can be telling. I usually keep an attentive head when the one way street mentality begins to boil over.

Chuck sent me some words, so let's take a look. OK...I've been talking a lot recently about how it seems we just have this axe to grind to revisit the problems of the financial meltdown...So there I was on Friday, reading stuff, and I came across this story in the WSJ, titled: Investors Rediscovering Margin Debt...and it goes like this: "driven by a combination of rising stock values and rock bottom interest rates, margin debt is increasing." It goes on to say..."Small investors are borrowing against their portfolios at a rapid clip."

So...did I ever tell you about my time, many years ago, as the head of the margin dept at Stifel Nicolaus? Oh, I remember those days like they happened just a few years ago. I remember having to call people and tell them they either need to fund their account immediately, or have the account liquidated, which would have resulted in huge losses, and a negative balance on their account. Those same calls had to be made in 2007 & 2008, folks, as stock prices crashed...And when the house of cards that is the stock market right now, collapses, it will be déjà vu all over again...And these people can't look to the Gov't to bail them out...Oh, they'll be looking, but no bailout will follow...I'm reminded of a song by Jethro Tull...the lyrics go like this: We'll go walking out. While others shout of war's disaster. Oh, we won't give in, Let's go living in the past.

Now...back to Mike!

Thank again Chuck. This is where diversification and not keeping all or most of your eggs in one basket comes into play.

Moving on to US economic data, Friday brought us only one report with the April monthly budget statement. As expected, we saw the largest surplus since April 2008 as the tax payments came rolling in. As Chuck pointed out on Friday, this isn't going to be the start of a new trend so there's no need to spend much time on this. It is, however, going to be a busy one in the data department as our plate will be full for most of the week. While the sheer number of reports are limited today, we do have one that packs a punch with the April retail sales numbers.

If you recall, the March results were disappointing as they fell 0.4% and was the biggest drop in nine months. The April figures aren't expected to show much in the way of improvement as the headline figure is forecast to fall 0.4%. McDonalds drops angus burger from menu as customers favor dollar menu was a headline from Bloomberg that really caught my attention. While there are several other reasons for the decision, I thought it played well with the idea that consumers are still strapped even though stocks are flying high and home prices continue to rise.

As we progress through the week, we'll get a plethora of April data that includes inflation reports, regional manufacturing, and leading indicators. In taking a glance over the various reports, the experts are calling for them to be a non-event as most are expected to match previous results. The housing numbers are expected to be a mixed bag as starts should show a moderation and permits to be higher. If expectations are correct, we shouldn't see too much that would rock the boat.

As I mentioned earlier, it was another rough day for the currency market on Friday as every currency we follow, including the Chinese renminbi, finished the day in negative territory. The dollar buying came to a crescendo late in the morning and ended the day in the same neighborhood as what Chuck posted in the currency roundup. Commodities got pounded as well but silver actually made a last minute run and turned in a 14 cent increase as I headed home for the weekend. At one point, silver was down $0.50 and knocking on the door of the $22 handle, but it was nice to see it buck the trend.

The Norwegian krone was the best performing major currency with a 0.25% loss on the day as the higher inflation report poured water over those calling for an imminent interest rate cut. The New Zealand dollar finished at the bottom of the barrel by losing over 1% as the central bank's intervention efforts paid off, at least for now. The rest of the currencies finished the day with between 0.50% and 1% losses, so not exactly a good way to end the week. Unless we see retail sales disappoint by a significant margin, there isn't much today that would turn the positive market sentiment about the US economy.

The Mexican peso fell nearly 1% as March industrial production decreased 4.9% and marked the biggest decline since 2009. The disappointing report fueled the fire for those in the rate cut camp, so traders were getting anxious and bailed on the day. Mexico usually isn't a destination for core investment funds, so a strong yield differential is needed in order to attract that hot money. I thought the bigger story wasn't about yield, but instead, the destination of most Mexican exports. That's right, the US buys about 80% of Mexican output so to me, this is just another indication the US economy may not be hitting on as many cylinders that some claim. I know this is old data, but its consistent with the slower March numbers in the US.

The Australian dollar did end up falling below parity for the first time in more than 10 months, but was trading just over $1.00 when I was packing by stuff to go home on Friday. The rate cut last week didn't help matters, but the central bank's reduction of both the inflation and growth outlook for the remainder of the year was the main culprit. The RBA said the outlook for non-mining business investment remains relatively weak over the next few months.

They went on to say an approaching peak in resource investment, the high level of the Aussie, and ongoing fiscal consolidation are all likely to weigh on growth over the next year or so, while at the same time, the low level of interest rates are helping to support demand. Australia still has a two speed economy as the mining regions show continued expansion while the manufacturers remain hampered by a strong currency. The central bank will also need to keep an eye on the housing market since prices have been on the rise, so any additional rate cuts will need to be studied carefully in order to avoid unintended consequences.

The Canadian dollar finished on the lower end of the Friday losses as Canadian employment, as expected, increased by 12,500. The rise was marked by the largest rise in manufacturing over the past 11 months, but a look under the hood suggests that things are still a little soft. Private companies cut about 20k jobs while govt hiring increased by 13,200, so most economists had a muted response. The Canadian finance minister was interviewed last week and when he was asked about exporters concern of the loonie, he said that most anticipated the currency around par and have based their business plans around that.

I saw another headline on Bloomberg that actually made me laugh out loud. It was titled Kuroda says BOJ easing isn't aimed at manipulating rate of yen and it basically said this policy maker thinks the yen is weakening on the back of the US recovery story and not a direct result from the Bank of Japan's actions. That's like saying pushing your gas pedal to the floor won't make your car go 100 mph. Anyway, the yen did fall past the 101 handle for the first time since April 2009 and Deutsche Bank seems to think the currency will stay on this side of 100 going forward.

In looking at a couple more currencies, the Swiss franc and South African rand finished toward the bottom of the pile. There really wasn't anything new from the Swiss, so it was a direct result of a stronger dollar. A Swiss policy maker was interviewed last weekend and said the cap remains essential and a change of course in the short term was highly unlikely. The rand was not only impacted by the fall in commodity prices, but also from their ongoing labor issues. There was yet another group of miners threatening to strike so just another example of instability. Not only that, but rumors are circulating that the central bank could soon cut rates again.

As I came in this morning, the dollar has retained its strengthening bias with both gold and silver down over 1%. In fact, gold is having its worst yearly start since 1982 as investors continue bailing on exchange traded products. At the same time, I saw a report that citizens in India, which represents the world's largest consumer, are lining up to buy gold at cheaper levels. Gold imports are expected to rise 47% in the second quarter compared to last year as lower prices entice more buyers. Other than that, we're just waiting for retail sales to come out in just a bit.

Then there was this...The Bond King himself, Bill Gross, said the bull market for bonds has probably ended as yields have reached a low and prices peaked. He's quoted as saying that you need to look at an amalgamation of Treasuries, mortgages, as well as corporate and not just Treasuries. He went on to say measures on that basis, 4/29/2013 has been the price high and yield low up to this point. I thought he summed the overall picture nicely as he said current policies come with cost, even as they magically float asset prices higher. Negative real interest rates, inflation, currency devaluation, capital controls, and outright defaults are among the costs or haircuts from global central banks' unprecedented monetary stimulus.

To recap...The dollar buying bias remained intact all day long and the equity market was just about the only thing in positive territory on Friday. The April monthly budget came in at the largest surplus in 5 years as tax receipts were making their annual flight. There will be plenty of economic data to look at this week starting with retail sales this morning. There was not a single currency in positive territory on Friday and commodities got smacked around as well. The yen traded into the 101 handle and the Australian dollar fell below parity for the first time in 10 months.

Currencies today 5/13/13. American Style: A$ $.9976, kiwi .8291, C$ .9892, euro 1.2984, sterling 1.5372, Swiss $1.0466, European Style: rand 9.1106, krone 5.8041, SEK 6.5962, forint 226.27, zloty 3.1996, koruna 19.8735, RUB 31.31, yen 101.58, sing 1.2398, HKD 7.7614, INR 54.76, China 6.2072, pesos 12.1117, BRL 2.0204, Dollar Index 83.13, Oil $95.17, 10-year 1.89%, Silver $23.68, and Gold $1,431.82

That's it for today...Hopefully you were able to enjoy the weekend and wish that mother in your life a happy Mother's Day. The weekend was filled with work and running around so there wasn't much relaxing going on but I was able to see the Cards beat the Rockies on Friday night. Unfortunately, our St. Louis Blues got knocked out of the playoffs on Friday night as well, so my playoff beard is no more. I still can't believe Memorial Day is right around the corner since it seems like yesterday we were doing the countdown to 2013. It's shaping up to be a busy week as we have some visitors to the office and a short desk. So on that note, it's time to get Monday morning started. Until tomorrow, Have a Great Day!

Mike Meyer
Assistant Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Skills, Education, and Employment

John Mauldin — Sun, 12 May 2013 06:16:00 GMT

David Rosenberg: A Bond Bull Turns Bearish
Wage Inflation?
Skills Versus Education
Kyle Bass and Japan
Tulsa, Atlanta, Nashville, and Brussels

"The large shortfall of employment relative to its maximum level has imposed huge burdens on all too many American households and represents a substantial social cost. In addition, prolonged economic weakness could harm the economy's productive potential for years to come. The long-term unemployed can see their skills erode, making these workers less attractive to employers. If these jobless workers were to become less employable, the natural rate of unemployment might rise or, to the extent that they leave the labor force, we could see a persistently lower rate of labor force participation."

- Janet L. Yellen, Vice-Chair, US Federal Reserve, March 4, 2013

It is graduation time, and this morning finds me swimming in a sea of fresh young faces as a young friend graduates, along with a thousand classmates. But to what? I concluded my final formal education efforts in late 1974, in the midst of a stagflationary recession, so it was not the best of times to be looking for work. It turned out that I had a far different future ahead of me than I envisioned then. But I would trade places with any of those kids who graduated today, as my vision of the next 40 years is actually very optimistic. With all the advances in healthcare, technology, and communications that have come and will come, they will get to embrace a world full of opportunity; and yet, this generation is starting out with more than just a minor economic handicap.

This week's letter will explore changes in the work marketplace, changes that generated quite a lot of discussion at last week's Strategic Investment Conference. At the end of the letter I will also provide a link for qualified investors to listen in on a webinar conversation between Kyle Bass and me on another of the main topics last week: Japan. This is one you'll want to tune in to. (Warning: this letter will read fast but print long, as there are more than the usual number of charts and graphs, though the word count is actually shorter than usual.)

And a quick note up front on Japan. As of the last two weeks, Japanese investors are now net buyers of foreign bonds, and the yen has broken through 100 to the dollar. I think what is happening in Japan is going to be the nexus of a global flow of cash that will be unlike any we have ever seen. Attention MUST be paid. It is windshield time.

David Rosenberg: A Bond Bull Turns Bearish

How do we get to full employment and improved national education from the launching point of David Rosenberg's very recent call (at the conference and elsewhere) that we will soon see inflation and the onset of a bond bear market? I must say that he surprised a few of us with his conversion from bond bull to bond bear. But the reason why he converted surprised us even more. I am not going to be able to do justice to his impeccably reasoned, highly detailed presentation in this short space, but let me hit some highlights.

Specifically, Rosie thinks that the Fed is going to be surprised by wage-push inflation. How could we see inflation in wages in such a soft labor market? That was the first question in my mind, and the following charts give me some reasons for my question.

The present unemployment rate is still higher than at any time in the last 60 years, except after recessions. The Great Recession ended four years ago, and unemployment is still stubbornly high. Indeed, this is the slowest "jobs recovery" we have ever experienced. The current level of unemployment has never been seen four years after the end of a recession.

And those who lose their jobs are staying unemployed longer. The fact is that the mean duration of unemployment is still almost double what it has ever been. Average length of unemployment is 37 weeks. When the recession ended, it stood at 23 weeks. This is structural, not frictional, unemployment. Ninety million American adults now subsist outside the official labor force –It could be there's an underground economy that we need to capture. The pool of available labor for the business sector is shrinking 2% per year.

Worse yet, the unemployment rate is still stubbornly high in spite of an unprecedented rise in the number of people who are no longer counted as being in the labor force. These are people who are no longer looking for jobs.We are back to workforce participation levels not seen since the 1970s. A good 5% of US citizens who are able to work are no longer are looking for work. Part of this trend is due to alternatives to employment becoming easier to pursue. Millions have been added to the disability rolls – some 4 million since the beginning of this century and almost 2 million since the beginning of the Great Recession (and still rising at an alarming rate!). Others have gone back to school, borrowing money in the form of student loans, which have topped over $1 trillion and are the only form of consumer credit that has been on the increase.

As a quick aside, we are also seeing skyrocketing rates of late payments as student loans overwhelm the ability of borrowers to pay. This is a true crisis brewing, as student loans are the only type of debt that cannot be discharged in bankruptcy. Student loans can make you an indentured servant for a very long time.

Some would-be workers find that in some states they can collect more on government assistance than they can earn by working lower-wage jobs, and thus they have no economic incentive to look for jobs that would actually lower their income. As I wrote in a recent letter, this is why we are seeing a large rise in non-reported incomes and jobs. And finally, there are those who are just discouraged. Jobs seemingly do not exist for their skill sets and in places where they can access them.

With so many people not participating in the labor market, isn't it reasonable to assume that if jobs again ever become available, these people will rejoin the official workforce? And wouldn't that create a shadow supply of workers that would keep wages suppressed for a long time?

Wage Inflation?

Maybe yes and maybe no. Rosie makes the case that there are numerous jobs available and that the numbers are rising, and there is data that supports his argument. I will reproduce here a few of his charts (out of the 59 he showed!). Job openings are on the rise and are back to levels last seen in the middle of the previous decade.

And what about all the businesses that have jobs on offer but can't find people to fill them? The following chart is from Rosie's and my mutual friend William Dunkelberg, chief economist for the National Federation of Independent Businesses. While job openings are not at all-time highs, the trend is encouraging.

The next chart shows the ratio of job openings to new hires. It is at a six-year high. As Rosie stated (inexact quotes, from my notes):

Looking for labor? Labor demand is not weak – JOLTS survey shows job openings up 10%, employers can't find qualified applicants. Firings plunge, layoffs 10% lower than in 2007. Number of job quitters rises – people leaving jobs to go to new ones, the 'take this job and shove it index.' 7.5% unemployment is actually the new 4.4%.

What are companies doing? More overtime, longer work week. Combination of rising wages, productivity growth heading lower. We've taken a lot of inventory out of the labor market. Keep your eye on unit labor costs. Correlation with inflation – unit labor costs are on the rise.

Employees are increasingly willing to leave a job and go to another one, yet productivity has recently begun to fall.

Yet young people are having increasing difficulty landing jobs. People aged 20-24 are still unemployed at levels not seen unless a recession is involved (see chart below). And research keeps coming in that more than 50% of college graduates are stuck in jobs for which a degree is not needed.

Even though the headline unemployment rate is falling, a large part of that drop is due to the precipitous plunge in the participation rate, as well as a rise in low-paying jobs. Curiously, it now seems a disproportionately high level of temporary jobs is no longer a precursor to economic recovery but is a new structural fixture.

Part of the responsibility for that increase in temporary employment can readily be laid at the feet of the Affordable Healthcare Act (Obamacare). Employers do not have to pay health insurance for temporary employees; that burden falls on the employee.

Healthcare for lower-wage employees can be a huge percentage of overall labor costs. While you may argue that employers should cover workers at all levels, the data coming in says that is not happening – thus the rise in temporary workers. Even an established employer like UPS is hiring new temporary employees in low-skill jobs at low wages without health insurance for their first year and cutting back on employees with major seniority (who cost more than double what new employees do), not giving them enough hours to survive and forcing them into the temporary market to meet their basic living needs.

We see evidence of this happening system-wide in the data showing lower hourly wages and a reduced number of hours in the work week. And those trends seem to be stabilizing. We are seeing the creation of a two-tier market, an upper tier for those with skills in demand and a lower one for those whose skills just do not command a premium in today's marketplace.

Rosie makes the argument that there is a shortage of skilled labor and that the price for those workers is going to rise, surprising the Federal Reserve, which still looks at historical data from a world that no longer exists. And he says this segment of the labor market is going to be large enough to create wage-push inflation.

It is an interesting argument, and contradicting David Rosenberg is generally not a good idea, although he did not convince Lacy Hunt or Gary Shilling, at least not at the conference. But at any turn there is always someone who has to lead the way. His arguments are something we must pay attention to.

In the panel discussion later in the day, I agreed that there are two labor markets, but the divide is between workers with skills that are in demand and workers whose jobs require no special experience or education.

Skills Versus Education

I am writing part of this week's letter in the rafters of a huge auditorium as I watch 1100 liberal art graduates at a major university receive their degrees. (I long ago made a promise to be here.) This was an expensive education, and the graduates are smart; yet when you ask them what their plans are, all too often you hear that they have not been able to find jobs or are opting to continue with school, often borrowing yet more money to do so, as they see no other viable options.

Recent research suggests that the cost/benefit ratio for education is not as good as it once was. See for example this article by Jeff Selingo.

Education – at least in the conventional sense – is not always necessary for job success. All too often it is the enemy of success. Yet the fallacy persists among the unemployed that "going back to school" will somehow solve their problems.

In most cases, it will not. The unemployed do not need more school; what they need are more skills. Why? Because what employers need are abilities. Workers are essentially a delivery mechanism for the ability to do whatever the employer happens to need done. This is not to say that formal education is unimportant; it is critically important – but not for the reason most people expect.

Degrees and diplomas are credentials. They do not, in and of themselves, guarantee that the holder possesses the skill an employer wants. They serve as screening tools, used to reduce a long list of applicants to a smaller number for closer review.

Employers want workers with the necessary skills. Workers want an employer who values their particular skills. When a match is made, everyone wins. Skills are the key to every match.

Skills can be acquired in school, of course. Indeed, it is impossible to spend thousands of hours in classrooms during one's formative years, while the brain is in peak learning mode, without acquiring at least some kind of skill. Children and adolescents are highly tuned skill-acquisition machines.

If schools produced the right number of students with the right sets of skills, the economy would be much closer to full employment. Something is wrong somewhere.

Yet those with college degrees are clearly able to find jobs of some kind. The unemployment level for college graduates is about half that of high school grads and almost three times better than for those with no high school degree. Education does matter.

Michael Ellsberg gives us one reason for that seeming advantage a degree delivers:

True, people with college degrees tend to earn more. But that could be because most ambitious people tend to go to college; there is little evidence to suggest that the same ambitious people would earn less without college degrees (particularly if they mastered true business and networking grit).

And while most people who end up starting businesses likely have college degrees, those degree-bearers should be well aware (as they learned in their freshman statistics classes) that correlation does not equal causation. Assuming that college was responsible for their success gives higher education more credit than it deserves. (New York Times: Will Dropouts Save America?)

America, as Ellsberg describes it, has yet another way to divide today's job market into two pieces: formal and informal. The "formal" job market is the old-fashioned one in which employers advertise and workers send resumes. It was never as effective as people thought. Successful professionals and business owners have long preferred the second, informal market.

When you need someone who can do X, you ask trusted friends and colleagues who they know. You will usually find a well-qualified candidate in short order. (And now you use LinkedIn and other social media.)

What role does your wall-decorating degree play in this process? A little – and a lot. If you can do what needs to be done, employers usually won't care where (or if) you went to college. But, since they turn to people they know when they search for candidates, and since our lifelong friendships are so often formed in college, being "in the circle" increases your odds of being known to the right people at the right time.

The old saying is then somewhat true: it isn't just what you know; it's who you know.

Further, if you advertise for a new employee today on one of the online job boards, you can get hundreds of resumes. Most are just people sending you a resume in hopes of attracting attention, but you can still get an overwhelming number of potential employees. How do you sort? One way is by education. That degree helps you sort, even when the job really does not require a degree.

But the skills advantage shows up in the next graph. Notice that the older you get, the lower your likelihood of being unemployed. As I have shown in previous letters, Boomers are not only working more than any other age cohort, they are taking market share from the 20-somethings. In fact, as of less than a year ago, 100% of the overall increase in jobs was going to those age 55 and up. Young people were actually losing ground in what was already a slow jobs recovery.

The reasons are trite but obvious. We Boomers have not saved enough to retire and must keep working. Given our fewer remaining work years, we'll work where we can and for what we can get. And then there are those of us who simply have no interest in anything that looks like traditional retirement. We are living longer and healthier lives than previous generations enjoyed, and there are simply more of us.

Even the youngest Boomer probably has 35-40 years of work experience and a lot of acquired skills. Young people may have more energy, but many jobs are not a function of simple energy and enthusiasm. Go into a Barnes and Noble or any number of other stores and notice the ages of those working. There are young people, sure, but I see my age peers as well. I didn't see that 20 years ago. And those "starter" jobs are where workers gain experience.

We have policies in place that encourage young people to load up on debt to get that degree. We need to create programs that match skills and jobs and that give employers incentives to hire and train those younger workers.

As Paul McCulley said at the conference last week,

Ages 22-27 are the years that really matter for your lifetime of financial security. We now have a job market that is the antithesis of what you and I graduated into.

That is a structural phenomenon, not cyclical. It will not heal itself with platitudes about more and better education. New businesses are being formed at the lowest rate in generations. Over the long term, the growth in the job market comes from new businesses. Want to create jobs? Stop increasing costs and regulations and making it harder for entrepreneurs to get started.

And get the SEC to issue the rules that Congress mandated they write over a year ago (the much-ballyhooed JOBS Act), which will make it possible for new ventures to publicly announce their need for capital on the internet without running afoul of the current regulations. The SEC is way behind the 90-day deadline specified in the act. The law as written by Congress is clear. Those groups lobbying for the status quo and standing in the way need to step aside. You are costing young people future jobs. Those are MY kids. And everyone else's.

(Just for the record, I am an equal opportunity employer. I have younger and older employees, all genders and races. Talent and a solid work ethic are the currency I look for.)

Kyle Bass and Japan

As you know, I am a firm believer that the state of the global economy is such that we as investors need to be diversified, flexible, and opportunistic. Consequently, I spend a great deal of time and effort looking into alternative investment strategies and managers. The Mauldin Circle program was created specifically to provide access to "best of breed" alternatives managers that I believe in. That's why I am particularly pleased to announce an upcoming Mauldin Circle webinar event featuring Kyle Bass of Hayman Capital Management, LP.

Many readers will recognize Kyle as one of the few investors who successfully predicted and profited from the subprime mortgage crisis in 2008, making significant gains for his investors. He has since continued to make well-defined predictions on the European sovereign-debt crisis and is a leading provocateur on the unsustainability of Japan's debt.

Please join my partners at Altegris Investments for this special webinar on May 29^th and learn more about how Kyle is globally positioned to leverage his investment thesis. This may be the most compelling discussion that you hear all year. I will be in Brussels talking with thought leaders and EU politicians, and Kyle will just be back from Asia and a deep dive into Japan, so we will be giving you the view from both sides.

If you are a qualified purchaser or a licensed investment adviser, qualified to make private placement recommendations, please join us for this exclusive Mauldin Circle webinar on Wednesday, May 29, at 12:00 EDT/9 PDT. Be sure to register here for this event – it will be one of the most interesting discussions of the year.

Upon qualification by my partners at Altegris, you will receive an email invitation. I apologize for limiting this discussion to qualified purchasers and investment advisors, but we must follow the rules and regulations. I look forward to having you at this exclusive Mauldin Circle event. (In this regard, I am president and a registered representative of Millenium Wave Securities, LLC, member FINRA.)

Tulsa, Atlanta, Nashville, and Brussels

The conference last week was powerful and inspiring. But before we got started, I took time to visit with some of the team at International Stem Cell. We spent a good deal of time going over the exciting research they are doing on stem cells and Parkinson's disease. Even though I have not written about biotech in a long time, I still follow the industry closely. There is just so much promise of real breakthroughs everywhere I look.

Yes, ISCO is the company that launched the Lifeline Skin Care product that I have written about. Almost a dozen people at the conference came up and thanked me for recommending they try it. The skin crème is a follow-on of research they were doing on growing skin for burn victims. It is not a miracle, but it has made a difference to many, and the product helps support their far more important research on diseases such as Parkinson's. You can learn about Lifeline at http://bit.ly/0504md.

I believe we will see cures for many of the conditions that afflict us and have so far eluded treatment. I will be writing on my latest biotech findings in future letters.

I leave for Tulsa next weekend to "give away" my daughter Abbi to her fiancé, Stephen. Just Abbi, Stephen, and 200 of their closest friends. "Dad, we just can't cut the list any more!"

The following Wednesday I head for Atlanta for a board meeting of Galectin Therapeutics (another biotech I follow) and then move on the next day to Nashville for a presentation for my partners at Altegris Investments. Then it's back home for a day or so before I fly for Brussels for a speech. I might stop over in London before heading back, but one way or another I'll be spending extensive time with Jonathan Tepper, my Endgame co-author.

It is time to hit the send button and race to the airport. Dallas has a newly built terminal to replace the old one at Love Field. It is very nice and a true upgrade, but there the same old TSA drill and long lines await me. I know there is better technology available than what we are forced to endure. We pay for all this, and those workers are not cheap. Where is the new technology to make airport security faster and more efficient? But kudos to the head of the FCC telling the FAA to allow us to use our iPads as we take off. The FAA is so behind in so many small ways that add up to a bad overall customer experience.

Have a great week. And figure out how to hire an able young person!

Your started to work at the tender age of 10 analyst,

John Mauldin

subscribers@mauldineconomics.com

Markets Turn Irrational With Dollar Buying.

Chuck Butler — Fri, 10 May 2013 16:37:00 GMT

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In This Issue.

* Jobless claims fall 3,000..

* Plosser remains hawkish.

* It's far easier to buy than sell - Warren Buffett.

* James Grant on a Friday!

And, Now, Today's Pfennig For Your Thoughts!

Markets Turn Irrational With Dollar Buying.

Good day. And a Happy Friday to one and all! The Currencies and metals took a shot to the mid-section yesterday, as the momentum seems to be gathering for a dollar buy bias. Japanese yen sailed past 100 to 101 and more overnight, and the euro and A$ are having a rough go of it even still this morning. Things have really swung in favor of the dollar this week, folks. I guess that's what happens when there is basically very little data to prove that to be a bad idea.

The one piece of data that printed yesterday, like it does nearly every Thursday, was the Weekly Initial Jobless Claims, and even though they remain well above 300,000 each and every week, the markets proved just how data starved they were, by going all gaga over a fall of 3,000 claims last week (327,000 VS 324,000) from the previous week. Geez Louise, somebody save me, this is madness I tell you, madness!

Everywhere I looked the drop in claims, just 3,000 let me remind you, was being claimed as the end-all to indicators that the U.S. economy is on its way to strong growth. And with that thought, U.S. dollars were bought by the bushel full. But they weren't buying Treasuries, as the yield in the 10-year Treasury has risen from 1.74% to start the week to 1.85% this morning. (remember in bonds, as the yield rises, the price of the bond goes down) No, like I told you yesterday, even the guy down the street that cuts the grass with his shirt off to show all the ladies in the neighborhood his (imagined) 6-pack, are lining up to buy equities right now. Wait! I didn't tell you that exact thing yesterday, but I said it a different way, just thought I would throw you a circle-changeup.

So. the euphoria that the A$ and New Zealand dollar / kiwi were feeling yesterday after both printing strong labor reports, disappeared quickly in the face of the headwinds coming from the U.S. dollar. One day, everything is hunky-dory, the next it's not. Look, someone once said that the markets may be irrational, but they can remain irrational longer than you can remain solvent. So. it's that time again, to either batten down the hatches on our diversification positions, and look to buy at cheaper levels, or just bail. Now, if you are a true diversification investor, then bailing never enters your mind. But if you just bought, currencies and metals because that neighbor that annoys you, and thinks he's better than everyone else was spouting off at the Christmas party that he owned currencies and metals, then you're probably going to be like the people that bailed on Gold a couple weeks ago. Not that there's anything wrong with bailing. If that's what you feel you should do, then go right ahead and bail. But, I would bet a dollar to a Krispy Kreme that you'll be back, when the markets discontinue to be irrational. In my opinion of course, which could be wrong!

The U.S. dollar also got some wind for its sails from Fed Head Plosser's comments. I told you earlier in the week that the "hawkish" Fed Heads were going to be speaking later this week, and Plosser was the first to hit the podium. Plosser is known as a "hawk" and really didn't say anything new or surprising to the markets, but the fact that he reiterated his position, was enough to give the dollar a boost.

Remember, the hawks on the Fed want to end the bond buying sooner than anticipated. But, as I've told you before, and the markets should know this too, but I guess refuse to believe it, that Big Ben Bernanke calls the shots in the Fed, so unless the "hawks" take Big Ben hostage, and put him in a closet where his voice can't be heard, their opinion doesn't carry much weight, and the bond buying will continue, as long as Big Ben says it should.

The U.S. Monthly Budget Statement for April is supposed to print today, but usually when it's a bad number on the print, they release it under the cover of darkness. The Budget Deficit for April, is expected to be $110 Billion surplus, which reflects the increased tax receipts by the Gov't, and reverses March $106 Billion deficit. And is much better than last year in April when, in spite of the Tax Returns, we printed a $82 Billion Deficit! Just shows to go you just how much in tax increases along with some better tax receipts from corporations, have made a difference. But I guess this will be the rogue print in this series, as I'm sure we'll go right back to a Budget Deficit come May's print.

Yesterday, I was carrying on about how no one knows where all this bond buying, stimulus, and ZIRP (zero interest rate policy) was going to take us, but I had an educated idea as to where.. Then I saw my friend, Bill Bonner's letter and he had a quote in there from Forbes from Warren Buffett that talks about this very thing. Let's listen in.

"Warren Buffett has a piece of advice for Ben Bernanke: It's easier to buy than it is to sell.

Buffett, speaking on Saturday at Berkshire Hathaway's annual meeting in Omaha, said he is worried about what will happen when the Federal Reserve tries to wind down its recent efforts to stimulate the economy. Via a program nicknamed "QE," short for "quantitative easing," the Fed in recent years has bought up over $2 trillion in bonds in order to lower interest rates and promote borrowing and investment.

Some have warned that when the Fed decides to sell its trove of bonds, or even just stops adding to it, stock markets could tank. Rising interest rates could cause banks to lose billions, perhaps igniting another financial crisis. Buffett says we don't know what will happen, but he is concerned.

"QE is like watching a good movie, because I don't know how it will end," says Buffett. "Anyone who owns stocks will reevaluate his hand when it happens, and that will happen very quickly"...

"People make different decisions when they can borrow for practically nothing... It's a huge experiment."

Charlie Munger, Buffett's long-term chief lieutenant, who was also talking at the meeting, says he worries about more than just inflation.

"What has happened in macroeconomics has surprised pretty much everyone," says Munger. "Given that history, economists should be more cautious when they print money in massive amounts."

OK. Chuck here. I just think that we should all ask whomever it is that you pray to, to help us, because I don't see how this works out on the night for us.

But the markets are throwing caution to the wind and buying dollars by the bushel full. So, don't stand in front of this bus. OK, I've got to quit talking about this stuff, and move along to the other droids we're looking for!

Well, the U.S. had their day last Friday, Australia, and New Zealand had their day on Wednesday, and Canada gets to have their day today. I'm talking about printing a jobs report. And if the results in the U.S. (even though cooked) Australia, and New Zealand carry over to Canada, we should expect to see a nice rebound in the April employment numbers today. I think the markets have let the Canadian dollar / loonie slide through this week, as the selling that the euro, A$ and kiwi have seen hasn't really carried over to the loonie. So, the loonie is outperforming the other non-U.S. dollar currencies this morning, and remains well above 99-cents.

Well, as I mentioned above the Japanese yen finally succumbed to 100 and went through that handle like Congress spends money they don't have, and didn't stop until it reached 101 and change. The fall was swift. I guess those Elliott Wave charts that called for yen to stop its weakness and rally to 91, will have to go back and chart some more, eh?

And In Norway this morning, the rate cut campers got sent home without their ball and bat. Norwegian inflation increased more than expected at an annual 1.5% in April from .9% in March, thus reducing the calls for a rate cut. And when the rate cut campers go home, that gives the currency a chance to rally. And while the krone's rally is being limited to VS the euro right now, and not the dollar, it's still important, for what have I been telling you for a couple of years now about the krone's inability to shake being tarred with the same brush as the euro? That one day, traders would do the V-8 forehead slap, and figure out that Norway is NOT the Eurozone, and that Norway's fundamentals are far superior that the Eurozone's, and thus the krone should be traded separately than the euro.

The krone's fiscal fundamentals are far superior than just about everyone else's. About 5 years ago, Forbes magazine called the krone the safest currency in the world. And I think the markets agree, given that the costs to insure against a Norwegian default are the cheapest of any country.

Gold reversed the previous day's $17 gain, and lost $15.90 yesterday. The shiny metal traded flat most of the morning, but by noon, the pressure to buy dollars and sell everything else was too much for Gold to fight off. All the stock buying got me thinking yesterday about "parabolic moves". Remember when Silver, according to the chartists, went parabolic a few years ago, and then went about losing a huge chunk that it has never been able to recover? Well, I wonder when stocks will go parabolic? I'm sure the chartists friends I have will let me know!

But, getting back to the metals. I came across this quote from Silver guru, Eric Sprott. "So we see all of these paper (trading) volumes going through that bear absolutely no relationship to what's going on in the physical markets. As you know I have always been a proponent of the fact that supply in the gold market was way less than demand, and by a very large factor. I think demand exceeds supply by at least 60%. The central banks are surreptitiously supplying that gold, and ultimately they will be running on fumes.

When we hear about the LBMA not willing to deliver gold, and JP Morgan's inventories at the COMEX have gone from 2.4 million (ounces) down to 160,000 ounces, it just makes you realize that all of this paper trading means nothing. It's the real physical market that you have to rely on."

Man. I'm on a writing roll this morning. I had a long time reader send me a note yesterday, saying that yesterday's Pfennig was "one of the all-time best" Pfennigs. WOW! I Hope today's is put up there right with yesterday's! So. with that in mind, let's go to the Big Finish!

Then There Was This. I was looking through one of the websites I always tell you is one of my faves to visit, Zerohedge.com, and came across an interview with James Grant. I've always been a fan of James / Jim Grant, reading his newsletter over the years has given me some great insight into the markets. Here's Jim Grant on Gold:

"Gold has been in a bull market for 12 years. Gold is this rare thing in which you can be bullish and yet contrary and also with the trend. There is I think a general fatigue animus towards gold. The gold prices are reciprocal of the world's view of the competence of central banks. The greater the world's confidence in the Ben Bernanke's of the world, the weaker the gold market. The less the world holds confidence in the institution of managed currencies, the stronger the gold market. And to me the confidence is utterly misplaced."

Jim Grant also discusses inflation, equities and more on the Fed. if you have some time, you can see the entire interview video by clicking here: http://www.zerohedge.com/news/2013-05-09/jim-grant-golds-recent-drop-confidence-bernanke-utterly-misplaced

Chuck again. Whew! I'm tired from the typing this morning! But. This is the stuff that I feel is important for you to know, and make informed decisions!

To recap. The currency rally failed again yesterday, as the bias to buy dollars became stronger and stronger as the day went on. First it was the Weekly Initial Jobless Claims, that fell by the huge amount (according to market sentiment) of 3,000 last week. note the sarcasm. And the rout was on, as Gold, and even the currencies that were so strong yesterday morning, the A$ and kiwi got sold, and lost plenty of ground to the U.S. dollar.

Currencies today 5/10/13. American Style: A$ $1.0010, kiwi .8310, C$ .9920, euro 1.3005, sterling 1.5390, Swiss $1.0445, . European Style: rand 9.0905, krone 5.7930, SEK 6.5825, forint 225.35, zloty 3.1865, koruna 19.8620, RUB 31.35, yen 101.65, sing 1.2375, HKD 7.7605, INR 54.79, China 6.2016, pesos 12.08, BRL 2.0125, Dollar Index 83.06, Oil $95.72, 10-year 1.85%, Silver $23.43, and Gold. $1,436.16

That's it for today. Rain go away, Chuck wants to go outside today! And tomorrow and of course on Sunday, which is Mother's Day! I would like to say Happy Mother's Day to all the Moms out there. Here on the desk, Jen and Christine are moms. Antione's wife is a new mom, and Mike Meyer's wife is a new mom to be! And there are more moms and I don't mean to leave any out! All the guys on the desk have moms that are still alive, except me. So, make sure to give your mom a hug! And keeping with tradition, I have a Mother's Day poem. So, let's go out there and have a Fantastico Friday! And DON'T FORGET TO HUG YOUR MOM!

A Mother.

When you're a child she walks before you, To set an example.

When you're a teenager she walks behind you To be there should you need her.

When you're an adult she walks beside you So that as two friends you can enjoy life together..

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

If Cyprus Is the Bellwether, then Canada Is the Red Flag

Doug Casey — Thu, 09 May 2013 20:16:00 GMT

By Jeff Thomas, International Man

An intriguing article titled "Canada Includes Depositor Haircut Bail-In Provision for Systemically Important Banks in 2013 Budget" was recently published in SD Bullion.

The somewhat lengthy title offers all the information necessary, but for those who – quite understandably – may not be able to accept that they have just watched Canada tumble down the Cypriot rabbit hole, here is a bit more detail from the approved budget itself:

"The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital."

Customer deposits could certainly fall under the label of "certain bank liabilities," and converting them into "regulatory capital" without permission is just a gentle way of describing confiscation. Though Canadian officials have denied that the term "certain bank liabilities" includes customer deposits, we must note that the government in Cyprus also promised that customer deposits would not be touched, only to renege on that promise at the onset of the crisis. Remember lesson #1 of the Cyprus debacle: "Do Not Trust Politicians."

As the recent events in Cyprus have been unfolding, each iteration has seemed to me to be not only logical, but almost predictable. As Jim Sinclair has recently been stating frequently, the EU has run out of options… The next step is confiscation.

There will, of course, be endless rhetoric and debate, followed by minor adjustments in method and percentage taken, but, ultimately, the powers-that-be have reached the confiscation stage. That is now carved in stone.

But at this point, if we are watching the horizon, we will spend less of our time mourning the fall of Cyprus and more of it anticipating which countries will be next in line.

Here, I confess, I have been surprised. There were quite a few countries that, logically speaking, might have been next. Canada was not even on my personal radar. This is not to say that it would not also be in the queue – only that I would have predicted its position in the queue to be quite a bit further back.

Those observing recent developments may have understandably been saying to themselves, "I realize that we live in difficult times and that, if I am to look after my family's future, I need to face up to the fact that we may be seeing dramatic change. But there are some things I can't accept, and one of those is the possibility that my savings could be confiscated by my bank. My government would never allow it!"

For those who very understandably may find this latest realization to simply be beyond the pale, it would be well to take a moment out to rise above the clouds for a bit of an overview at this juncture.

In most countries of what we grew up calling the "Free World," there has been a steady deterioration, particularly with regard to corporatism (the merger of state and corporate powers). One facet of that deterioration has been increasing legislation that allowed financial institutions to create Ponzi schemes with regard to lending, in which the bank goes broke in the end but the cost for the failure is passed to the taxpayer in the form of a bailout.

Put more simply, this means that after the fox has raided the henhouse, the government advises the public that the only way to save the situation is for the government to confiscate more hens from the farmers and give them to the foxes.

The public, desperate to return to "normal," will accept whatever the government says at this point, in the hope that it will all somehow turn out all right. Only a tiny percentage will be prepared to say, "We've been systematically raped and robbed by both our government and our banks, in full complicity with each other. It's high time I put what I have left in a sack and find a way to protect it on my own."

Those few who do so will turn to safe havens for wealth (however much or little that wealth may be). They may invest in overseas properties that cannot be confiscated by their own governments, buy precious metals and store them privately, and so on.

The objective will be simply to make it as difficult as possible for their governments to confiscate their wealth.

While there may be no guarantee that they will succeed, they would know that at the very least, they will not be the low-hanging fruit when their government enters the orchard to begin the picking.

However, as history shows, the great majority of the people of all countries will fail to act. They will watch in confusion as events unfold, as the banks continue to come up with schemes to further bilk the public of their wealth, while the governments assure the public that, "It's an emergency situation. We have to be willing to sacrifice a bit more to save the system, or we'll really be sorry." In the end, the majority of people will comply.

Cyprus is a bellwether of what is next for the world in general. A term has even already been coined for what is coming – a "bail-in." An event in which the public must accept that, in order to save the banks from collapse (which they have been told since 2008 is the absolute worst possible outcome), they must accept that they must make their "contribution" – confiscation of their deposits by the banks. First, it will be, say, 5%, then it will be announced that 5% didn't solve the problem and another transfusion will be needed. Then another.

Some people will figure out along the way that they are being robbed by both their government and the banks, working in concert, but most will regard that reality as impossible, as it has never happened before and surely can't happen now.

If Cyprus is the bellwether, then Canada is the red flag, showing that Cyprus is not an isolated situation. The damage wreaked by monumental debt is systemic, and it has taken place throughout the First World and beyond.

This latter statement will very likely be the most difficult to accept as reality. If so, here is something to consider: Canada has approved its bail-in on a national level just one week after a final decision was made in Cyprus. As we all know, the wheels of governments worldwide move slowly. The reader might ask himself whether he believes that the Canadian government has, in short order, approved its own bail-in, in reaction to the events in Cyprus. If this possibility is simply too far-fetched, he must accept that the plan for Cyprus has been known to the Canadian government for some time and that a similar bail-in for Canada has been in the works for a while. It was simply agreed that Cyprus would go first – to act as the litmus test.

If the reader finds himself agreeing that it is likely that the Canadian government had foreknowledge of the events in Cyprus, his next logical conclusion would be that other nations had the same foreknowledge and have very likely been getting their own ducks in a row.

Most countries in the First World have gone down the same road of monumental debt and have found that that road has led to a precipice. At this point, they have no other option left in their bag of tricks. They are all in the same boat and will play their last option – confiscation of wealth.

While many First World citizens think that events like those unfolding in Cyprus could never happen in their home country, the truth is precisely the opposite – and actions like the Canadian government's send a strong signal that the time to protect your wealth from governmental grabs is running out.

There are a number of diverse steps you can take to protect yourself and your wealth from being milked by your home government. Whether you're looking to stash some cash or precious metals in another country, interested in setting up an offshore LLC, or wanting to go completely international with your life and your assets, the comprehensive information in Going Global 2013 will provide you with sound strategies and trusted options for securing your financial future. Learn more and get started protecting your wealth today.

Top 3 Trading Indicators for Profitable & Simple Trading

Chris Vermeulen — Thu, 09 May 2013 17:23:00 GMT

Many investors and traders make the same mistakes assuming that one needs a complex trading system to consistently profit from the stock market. On the contrary, some of the top performing strategies are the ones with the least amount of moving parts and are simple. Because their simplicity they can be easily and consistently followed.

The methodologies we use for timing the market, picking stocks and option trades are very simple because we focus mainly on price, volume and momentum. These three indicators are the key to success. When these are used together you are able time your entries and exits during key turning points, clearly define risk and reward levels while maintaining a clear unbiased state of mind which allows one to trade almost emotionless.

As my Trading System Mastery coach (Brian McAboy) taught me, if you do not have a detailed trading plan which a five year old could trade, then you do not have a solid strategy and will have unnecessary losses and emotional stress.

So here are a couple tips to keep things simple and emotionless:

Our recent trade in Infoblox Inc. (BLOX):
This stock was flashing several signals (price, volume and momentum) that a bounce or rally was likely going to happen within a few weeks. This is a good example of a swing trade based purely on our main indicators.

Our Broad Market Outlook:

Current stock market prices are starting to warn us that a market correction is near. You can read more about this in detail in our last report “Stocks Preparing for a Pullback, Buy Bas News, Sell the Good”.

We all know the market works with the saying:
“If the market doesn’t shake you out, it will wait you out”.

How does this work? Simple really, during down trends and just before a market bottom we tend to see capitulation spikes in selling. These scare the last of the long positions out of the market and suck in the greedy shorts after the move has already been made.

During an uptrend which is what we are in now the market makes spike highs designed to scare out the shorts and get greedy long traders to buy more. Once again after the move has already been made and likely near the market top.

If you are the type of trader who always tries to pick tops and bottoms against the current trend then you may like to know this little tip… The largest percent moves typically happen during the last 75% of the trend. What does this mean? It means when you take your position against the trend trying to pick the dead top or bottom you are most likely going to get be caught on the wrong side of the market in a big way.

Most traders I know based on recent emails have been short the market for 1-3 weeks and many keep emailing me that they are adding more shorts each day because they feel the market is going to top. So me being a contrarian by nature in terms of what the masses are doing, if everyone is still holding on to their shorts we likely have not seen the top just yet. Another 1-2% jump from here should be enough to shake them out though…

If you like this article join my free newsletter to receive more timely trading insight at: www.TheGoldAndOilGuy.com

Chris Vermeulen

Is Abenomics Going to Put Japan Back on the Map?

John Mauldin — Thu, 09 May 2013 15:33:00 GMT

In a special Outside the Box today, Keith Fitz-Gerald, Chief Investment Strategist for Money Morning, dissects "Abenomics," the radical, not to say outlandish, fiscal moves that the newly installed government of Japan is making. And Keith has a ringside seat: he spends much of each year in Japan.

In an attempt to cut the Japanese a little slack, Keith comes up with four things that will have to happen for Abenomics to work – but when all is said and done, he says, Abenomics is a recipe for disaster. That does not mean, however, that there is not plenty of opportunity here for short-term profit, and Keith offers a play that is a potential money maker in this volatile Japanese environment.

For a limited time, Outside the Box readers can receive a 60% discount when they subscribe to Keith's Money Map Report. You can check it out here.

Our Strategic Investment Conference last week was over the top. It will take me several weeks to think through the presentations, and I will likely spend a few weeks writing about what I learned. But Japan was definitely a big topic, as was Europe. The focus on central banks is appropriate, if frustrating.

The consensus is that massive global QE will end in tears, but the final act may take quite some time to arrive in the US. Today, many central bankers are looking at the currency wars of the 1930s, and the lessons they are drawing from the Great Depression are clear. In a speech to the Economic Club of New York in early 2013, Fed Chairman Bernanke boasted, “In fact, the simultaneous use by several countries of accommodative policy can be mutually reinforcing to the benefit of all.” Bernanke argued that rather than call unconventional policies and devaluations “beggar-thy-neighbor” policies, they should be called “enrich-thy-neighbor” policies. That’s taking the lessons from the 1930s a step too far, but when it comes to unconventional policies and devaluations, Chairman Bernanke believes the more the merrier. And so do his fellow central bankers, apparently.

By the way, a theme is percolating in my mind, which I will develop at a later point. Briefly, the problems with “austerity” in Europe are not so much due to governments cutting back as they are to membership in the euro itself. In essence, the euro is a gold standard. In the '30s, when governments on a gold standard devalued they saw a boost to their economies. But since Eurozone members cannot devalue, they are left with deflation and depression. Then they blame others for not lending to them and forcing “austerity” upon them, when the primary culprit is their own inability to deal with their trade flows and labor costs. If the market cannot adjust currency values, the only choice left is a reduction in labor costs, which in the real world translates into higher unemployment.

But since the euro is a political and not an economic currency, you can’t address your national problem without leaving the euro, and that is not politically feasible. It is a conundrum.

I am really thinking about going to Cyprus in late June, and if any readers have suggestions for people to meet, I am interested.

I am learning more about marble and flooring than I ever thought I would know. We are getting closer to actually beginning construction, but I am ready to finish already, for a variety of reasons. Hotel internet is not always the best, and where I am here in Dallas it can really get slow. The weather here in Dallas is perfect, and I think I will walk to my next meeting. In a few short months, stepping outside will be like walking into an oven, but right now it couldn't be nicer out.

Have a great week.

Your up to my eyeballs in information analyst,

John Mauldin, Editor
Outside the Box
subscribers@mauldineconomics.com

Is Abenomics Going to Put Japan Back on the Map?

By Keith Fitz-Gerald

On the surface, Abenomics – the radical unlimited stimulus plan put in place by newly elected Japanese PM Shinzo Abe – appears to be working.

The Nikkei is up 68% since July, 2012, the yen has weakened by 26% over the same time frame, and Japanese consumer confidence is up sharply to the highest levels in six years.

The theory behind Abenomics is that the rising stock market will create capital, and the falling yen will make Japan’s export-based economy more competitive in global markets, while newly profitable companies will hire more workers.

Don’t hold your breath.

As I noted during a recent interview on NHK, Japan’s national public broadcasting network, the beleaguered island nation faces significant challenges:

Japanese debt is already nearly 500% of GDP when you add up public, private, and corporate obligations. That’s the highest on the planet and makes Europe’s spending look positively miserly. Mimicking Bernanke’s helicopter hijinks won’t help on anything more than a short-term basis.
More money does not equal greater innovation. Many Japanese companies are struggling to remain competitive in industries they once dominated. Examples include Sony, Matsushita, and Fujitsu.
Japanese utilities literally can’t produce enough power to fuel a Japanese recovery . Only three out of 54 nuclear reactors are running, and the national LNG import bill hit ¥621 billion in March. That’s more than double pre-quake limits, according to the Ministry of Finance. These costs will continue to rise as the yen weakens further. I doubt very seriously that any increase in export sales will be enough to offset rising energy costs, because margins are going to get pinched.
Formerly deep trade surpluses are now deficits.
Prices in Japan are rising faster than income at the same time that taxes are being raised. That’s a lethal combination that is serioiusly pinching consumers.
Japanese corporations, once keen to return profits home, are now expanding overseas and keeping money outside Japan.
Japan’s population is aging so fast that, effectively, there are no new workers, a problem that is compounded by the near complete lack of a workable immigration policy.

The bottom line?

Japan is making the same mistakes we’re making … or we’re making the same mistakes they’ve already made – it’s hard to tell.

Either way, the bottom line is pretty simple: You give me a trillion yen and I’ll give you a good time, too.

In order for Abenomics to work, four things have to happen:

Japanese banks cannot hoard money the way big banks have in the US. They have simply got to keep it moving right through to Japanese citizens and small local businesses.
Japanese bond market participants have to be willing to maintain bidding as the Bank of Japan conducts “market operations,” which is Fed-speak for interfering with normal pricing dynamics in an effort to maintain stability. If bidders walk away, the bond market will fail and the government will have to contend with offshore derivatives traders who are already lining up to play the same games they did in Italy, Spain, Greece, and the balance of the EU.
Japanese consumers have to engage. If wages fail to increase, living standards will decline and Abe will be up a creek without a paddle – and yes, I mean THAT creek.
The international banking community has to allow Japan to debase its currency without punitive repercussions. So far the G20 has acquiesced, but their tacit approval doesn’t really mean much. They have no choice but to go along with Japan's moves. Kuroda, who is Bernanke’s equivalent at the Bank of Japan and Abe’s sidekick, has made it clear he is fully committed to the program, no matter what the West thinks.

Longer-term, Abenomics is a recipe for disaster – have no illusions about that. Japan, as John Mauldin likes to say, is a bug in search of a windshield. No nation in the history of mankind has ever bailed itself out on anything more than a short-term basis by pursuing a course like Japan’s.

But short-term … that’s another matter entirely, and therein lies opportunity.

Historically, every 10% drop in the yen versus the dollar has translated to a 0.3% rise in Japanese GDP the following year, noted Kiichi Murashima, chief economist at Citi in an FT interview.

You cannot say the same thing about Japanese stocks.

Since the Japanese market’s initially collapse in 1991, the world has watched with bated breath as the Nikkei has risen … and plunged with alarming regularity.

If you’re going to buy and sell like a trader and you’re nimble, you can ride the Japanese equity bull – pun absolutely intended. Most investors aren’t so equipped, though, -and so the “buy and hope” approach they favor is far more likely to leave them disappointed than profitable.

Japanese bonds are probably of dubious value, too. So far they’ve been stable, because Japan has been able to issue mountains of debt to its own dutiful citizens. The cost of debt service has been negligible, because nearly all of it was held domestically.

Now, however, Japan has got a very different situation on its hands. Any rise in long-term rates, let alone a significant one like Kuroda is planning, is going to dramatically hike the cost of debt service to unsustainable levels. Factor in Japan’s rapidly aging population and dwindling workforce, and you’re looking at a far smaller pool of bond buyers.

My expectation is that Japan will be forced into international bond markets no later than 2015, which will effectively double their capital costs. Without meaningful social security reform and spending cuts, that’s going to really impact things.

That’s why I’d rather short the Japanese yen.

Stocks are fickle. Abe doesn’t care whether they go up or down. Bonds are a part of Kuroda’s repurchasing agenda, so those are covered, too. But the yen stands on its own.

In that sense, it’s the key to the proverbial castle.

In order to conduct any sort of serious financial reform, Abe is going to have to move the yen’s needle. Everything in corporate Japan depends on it.

Since I first brought this trade to everybody’s attention in Money Morning in February, 2012, the yen has dropped by 30%, and the investment vehicle I recommended, the ProShares UltraShort Yen Fund, is up more than 60% as it flirts with the psychologically important ¥100/$1USD level.

Now, having come close enough to that target for government work, I think the next stop is ¥125 to the dollar, which means that even if you missed the first part of this trade, it’s not too late to get on board.

And if you’re already holding Japanese equities?

Don’t look a gift horse in the mouth.

Hedge the snot out of them or sell into strength – equity markets are not as directly connected to central banking stimulus efforts. But they are absolutely linked to traders' expectations, which can and do change all too frequently on nothing more than a whim or an errant “tweet,” as we have recently seen.

You don’t want to be left holding the bag.

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About the Author: Keith Fitz-Gerald is a seasoned analyst, expert media contributor, and futurist with decades of experience in global markets. In his capacity as Chief Investment Strategist for Money Morning and Chairman of the Fitz-Gerald Group, he appears regularly on financial television programs around the world on the Fox Business Network, CNBC Asia, NHK, BNN, and more. He’s been called on for his extraordinary ability to see future trends in such publications as Wired UK and the Wall Street Journal. Forbes.com labeled him a “Business Visionary.” Even Mensa has called him to their stage. Mr. Fitz-Gerald splits his time between homes in Oregon and Japan, with his wife and two boys. He travels the world extensively in search of investment opportunities others don’t yet see or recognize.

Renminbi Rises To Highest Level Since Peg Was Dropped.

Chuck Butler — Thu, 09 May 2013 15:24:34 GMT

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In This Issue.

* New Zealand 1st QTR Employment soars!..

* Aussie April Employment rises.

* Is China ready to widen trading band?.

* All the heavy lifting is done.. NOT!

And, Now, Today's Pfennig For Your Thoughts!

Renminbi Rises To Highest Level Since Peg Was Dropped.

Good day. And a Tub Thumpin' Thursday to you! Uh-Oh, our Blues are in deep dookie folks, as they lost on home ice last night! UGH! The Defending Stanley Cup Champion L.A. Kings are proving to be very difficult to beat, and now lead the Blues 3-2 in their best of 7 Series, that now heads back to L.A.. This is BIG news here in St. Louis, folks, so sorry if you couldn't care less about hockey!

Well, yesterday's currency rally that we talked about in the early morning, remained in place throughout the day, and for the most part, has carried on in the overnight markets. The euro, which once again got within sniffing range of 1.32 yesterday before backing off, is flat this morning. It's been a pretty exhausting week for the euro, given the strong economic reports out of Germany t, and all the euphoria going on in the U.S. with the stock market. It's a case of: let's buy euros, no let's not buy euros.

I mentioned the U.S. stock market above. Isn't the stock market something? Never mind that it's all about smoke and mirrors, stimulus and ZIRP. When the train leaves the station, and builds up steam, you certainly don't want to be standing idle on the tracks in front of that train, and therein lies what's going on with moms and pops that feel this is wrong, but don't want to be standing idly on the tracks. And who can blame them? They can't get any gas, groceries or giggles out of their deposits in the bank or credit union. And besides, the Gov't, the Fed, and all the brokerage houses are all telling us that everything is hunky dory and not to worry about all the bond buying, stimulus, ZIRP, and deficit spending. I saw someone said it like this: "The thinking seems to be: things are okay for now, not great, but okay. We will worry about the other stuff later and cross that bridge when we get to it. But for now, it's equity buying time."

I hope you read the sarcasm in that statement. For we don't know where all this stuff I just mentioned is going to take us. I have a very educated idea as to where It takes us, but we just don't know. And that's uncertainty folks. Which is why, in my opinion, Gold should be soaring right now. But it's not, because not only are there "outside forces" suppressing the price of Gold, but there are also the Goldman Sachs, and Soc. Gens. Telling their clients to sell Gold, that all's right on the night in the world. HUH? Well, that's what they said, folks.

Speaking of Gold, it's flat to down a bit this morning, but that can turn on a dime as we all know too well. You know, there are a lot of people out there making the forecasts for a soaring Gold price, and I try to filter them down to the people I respect and believe their track record is good. Like the other day, when I featured analysis, author, James Rickards.

OK. The teeter totter that kiwi is riding shifted back to kiwi strength last night, after a night of seeing it get sold like funnel cakes at a state fair on the news that Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, was selling the currency. Last night, New Zealand saw the color of their latest employment report, and with the unemployment rate falling from 6.9% to 6.2% in the first Quarter, and Employment rose by 1.7% in the quarter VS the previous quarter. WOW! Now that's a strong labor report!

But don't get too excited about the gains in kiwi overnight. I can see RBNZ Gov. Wheeler licking his chops that he gets to sell kiwi again, at profits! Remember, Wheeler made it perfectly clear on Tuesday night, that he had no problem going back to the selling window to sell more kiwi. I would simply steer clear here, for Wheeler and the markets are going to play this game of tug-o-war. and no reason to get caught in the middle of their game.

The Aussie dollar (A$) also printed their employment data but for Australia it was just a monthly report covering April. Employment rose at a faster clip than forecast in April, with the consensus at 11,000 and the actual printing at 50,100, and the Unemployment rate ticking down to 5.5% from 5.6% in March. This data has also pushed the A$ higher this morning, and now the rate cut on Monday night seems to have gone out of the rear view mirror.

And in China, the People's Bank of China (PBOC) raised the fixing level for the renminbi / yuan to the highest level since dropping the peg to the dollar in July of 2005. Remember, when I told you a couple of weeks ago, that China had mentioned that the trading band for the currency needed to be widened? Well, it looks like the currency is now bumping up against the top end of the band, so a widening should be coming soon. And with inflation rising again in China (latest print was +2.4% up from the previous print of +2.1%) a stronger currency is needed to combat that inflation.

OK. Madness.. and not the 80's rock group (sorry Rick!) Madness is what's going on these days in my opinion. I've got a real doozy for you in the Then There Was This section of the letter today. And that has Madness written all over it, and so does this which I came across yesterday. It was a story in the Washington Post, and the headline reads: "As Red Ink Recedes, Pressure Fades For Budget Deal". OK. if you're like me, and I'm sorry for that, but you're probably scratching your head right now, and saying, "What kind of stupidity does that sentence reek of?"

The premise of the article is that after 4 years of trillion dollar deficits, Federal Revenue is up and spending is down, so now the lawmakers that held trump cards in a summer deal on the budget, have lost their bargaining chips. What? You're telling me, that just because tax increases went into place, and the automatic budget cuts are beginning to hit, that now we don't have to do the heavy lifting any longer with the budget? Madness I tell you, simply Madness!

Why. and this is just little old me thinking out loud here, but why wouldn't we take this as an opportunity to really make a difference for the future? Not just sit back and say, "hey, we've done enough, no need to keep working".

That's the kind of stuff that drives me crazy, folks. And I appreciate the ability to vent right here in the Pfennig. Hopefully, the venting, brings things to you, that you don't normally hear about, and should be thinking about. Let's call our representatives and tell them that now is not the time to sit back and think they've done enough!

Speaking of Madness. I haven't talked about Japan lately. And there's always madness of some kind going on there! And today is no different! The Elliott Wave people are thinking that the yen has gone as weak as it's going to go, for now, and that a rally back to 91 (currently near 99) is in the charts. I found this on the Bloomie this morning, and thought. See, this is where I just don't agree with chartists. Throw the fundamentals out the window, and even with the bond buying going on, and Kuroda demanding a weaker yen, the charts show that yen is going to rally. Oh well, I guess we'll have to see, but if you're an Elliott Wave person, this is your shot.

I saw a great cartoon yesterday, that was titled: Currency Wars: Who's Winning? And it has the U.S. on one side of the fence with piles of dollars, and China on the other side of the fence with piles of Gold. Well, I know who I would proclaim as the winner! And speaking of the "Big Paper Sale" last month. The more I think about that, the more I think that maybe, just maybe, the players that put on that Big Paper Sale, shot themselves in the foot with the size of the sale. They truly unleashed a flood of physical metal buying that has been something to behold.

Remember, for the past couple of years, I've told you repeatedly, that the only way we can stop this price manipulation is to buy physical metals. For, we know all too well, that the Regulators and the people that are supposed to be OUR watchdog, is turning away from this. What? Was it 5 years ago now that the CFTC decided to "look into manipulation"? 5 years?

OK. Let's go to the Big Finish, for my blood pressure is rising to dangerous levels!

Then There Was This. Here we come again, ooh, ooh, ooh, catch us if you can, ooh, ooh, ooh Time to get a move on ooh, ooh, we can run with all of our might.

Catch us if you can.. Catch us if you can.

I read the following story on CNBC's website yesterday, and then I couldn't get that great Dave Clark 5 song out of my head! I think you'll see why, here: "Hard-pressed company bosses across much of the world are under so much pressure to deliver on growth that many have resorted to cooking the books, Ernst & Young said in a survey Tuesday.

One in five of almost 3,500 staff quizzed in 36 countries in Europe, the Middle East, Africa and India said they had seen financial manipulation in their companies in the last 12 months, the accounting and consultancy firm said.

In addition 42 percent of board directors and top managers questioned in the fraud survey said they were aware of "some type of irregular financial reporting.

And despite scandals and regulatory failures in the wake of the credit crunch, almost a quarter of top financial services staff surveyed said they were aware of manipulation, and almost 10 percent of all staff said their companies had understated costs, overstated revenues or used unprincipled sales tactics."

Chuck again. Now do you see what I'm talking about? Oh, and you noticed that the story didn't mention the U.S. and you think that stuff isn't going on here? Think again, my friend. And Didn't we experience all these Corporate Scandals at the turn of the century? Are we going there again? Sure looks that way to me!

And add to this another story I found in the WSJ that plays well here. "Former Enron President Jeffrey Skilling and the Justice Department reached an agreement that would cut his federal prison sentence to as few as 14 years from 24 years."

For those of you that have forgotten about the Enron Corp Scandal, I suggest you Google it, and refresh your memory, cooking the books was the rate 13 years ago. And it'll be coming to a company near you, soon!

It's not as if, these companies don't have a mentor to learn from. The U.S. Gov't has been cooking books since the mid 90's.

To recap. The currency rally from yesterday morning held throughout the day, and carried on in the overnight markets. The Aussie and kiwi dollars are the high flying currencies this morning, after both countries posted very strong Employment data, for April in Australia, and for the 1st QTR in New Zealand. The euro is flat to down a bit this morning, but did get good results from a Spanish bond auction this morning. China's renminbi / yuan reached a high VS the dollar since the renminbi was removed from the peg to the dollar in July 2005. And we've done enough so there's no reason to work any harder at reducing the budget deficit.. NOT!

Currencies today 5/9/13. American Style: A$ $1.0230, kiwi .8460, C$ .9965, euro 1.3140, sterling 1.5560, Swiss $1.0685, . European Style: rand 8.9805, krone 5.7450, SEK 6.4980, forint 223.05, zloty 3.1390, koruna 19.6310, RUB 31.11, yen 98.80, sing 1.2285, HKD 7.76 INR 54.24, China 6.1925, pesos 11.98, BRL 2.0050, Dollar Index 81.95, Oil $96.27, 10-year 1.78%, Silver $24.06, and Gold. $1,469.56

That's it for today. Do you have any friends that you keep in touch with that you went to kindergarten with? I do. and I'm going to meet up my oldest, in terms of years known, friend today. Robin and I were best friends during our high school years, he played quarterback, and I was the only receiver he trusted to throw the ball to. I'm looking forward to catching up with him, as it's been about 3 or 4 years since we last saw each other. My beloved Cardinals come home from a successful road trip, hopefully the weather will turn warmer for this home stand. And I got to go see Delaney Grace's pre-school spring program last night. Those little kids are so cute, waving to their parents and grandparents. Delaney was a duck, that got to shake he tail feather, so cute! Hey! Early notice to you. Sunday is Mother's Day. Make sure you take care of your mother! Whew! I almost got emotional thinking about my mom, who I lost 15 years ago. OK. so, I'll have more on that tomorrow. now, go out and have a Tub Thumpin' Thursday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Porter Stansberry vs. Marin Katusa: Who Won the Bet?

Doug Casey — Wed, 08 May 2013 19:48:00 GMT

By Marin Katusa, Chief Energy Investment Strategist

On May 1, 2012, Porter Stansberry and I made a bet. Porter predicted that oil would go below US$40 per barrel within 12 months. I stated that there was no chance that this would happen (my reasons are presented at the link above).

Putting our money where our mouths are, we both agreed to bet 100 ounces of silver on the matter.

I have a lot of respect for Porter, who is a very smart man. When he talks, I listen. But when he discussed the reasons why he thought oil was going below US$40 per barrel, I knew I had him – this was going to be one of the easiest bets I have ever made.

One of Porter's main arguments was that a global shale-oil revolution would push volume way up and prices way down. It is definitely a sensible argument, yet it was missing something very critical: timing.

The shale gas boom that happened in the United States did not occur in a vacuum. Rather, it was built upon decades of experience in new technologies such as hydraulic fracturing and horizontal drilling. This was then based off of more than 150 years in conventional oil and gas exploration. Today in North America, there are thousands of rigs and hundreds of thousands of skilled oil and gas workers to work on the projects.

This simply does not exist in the rest of the world.

For a new shale discovery – however large it may be – it would take years just to prove up its commercial viability, another few years to get the infrastructure running, and even more years before it produces enough to matter.

This means there are tremendous opportunities to profit – for those who are in the know – while we wait for the rest of the world to catch up.

A similar situation is shaping up in the nuclear sector. Many countries rely on nuclear power and are planning to expand its use – the US among them – yet companies involved in the mining and refinement of uranium remain in a slump. We at Casey Research have created a webinar discussing these issues; it's titled The Myth of American Energy Independence: Is Nuclear the Ultimate Contrarian Investment?, and it will premier May 21 at 2 p.m. EDT.

Featured participants include Chairman Emeritus of the UK Atomic Energy Authority Barbara Thomas Judge, former US Energy Secretary Spencer Abraham, and former Canadian Minister of Natural Resources Herb Dhaliwal. We will provide an expert, insider's perspective on the global nuclear power scene, showing you how to leverage its rising importance in your portfolio for potentially life-changing gains. Learn more about the free webinar and reserve your place today.

A New Recruit For The Currency Wars.

Chuck Butler — Wed, 08 May 2013 16:20:00 GMT

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In This Issue.

* Wheeler sells kiwi and promises to sell more!..

* Sweden's FM doesn't like strong krona.

* China posts a Trade Surplus.

* When will the corn get planted?..

And, Now, Today's Pfennig For Your Thoughts!

A New Recruit For The Currency Wars.

Good day. And Wonderful Wednesday to you! We finally saw the sun again yesterday, YAHOO! Not that I want to play weatherman, but it appears that the rain will return this week just in time for the start of the weekend. UGH! I have a side story that's related to the soggy conditions here in the Midwest, a little later in the letter today. The RBNZ is selling kiwi, the Norges bank is meeting while I write, and Germany sees another strong economic report this morning. These stories and more right after this commercial break!

OK. Well, we have a new soldier in the currency war, and one that's contemplating joining the fight against strong currencies. The new soldier is the New Zealand dollar / kiwi. Last night Reserve Bank of New Zealand (RBNZ) Gov. Wheeler, confirmed that he sold kiwi to protect economic growth, and said that "he can do so again." The RBNZ had already issued a report earlier in the session that repeated the RBNZ's concern with the housing situation in the country, and actually said that they thought it "threatened financial stability for New Zealand". Needless to say, this news deep sixed kiwi, and it doesn't appear that it's going to recover quickly, for the words of Wheeler are still echoing throughout the markets, that he was ready and willing to intervene again.

The other country that's contemplating joining the war on strong currencies, is one of my faves. Sweden. Yesterday, Sweden's Finance Minister, Anders Borg, said that the krona's strength, "warranted Central Bank consideration." That's Finance Minister parlance for, " The Riksbank had better deal with the strong krona." I find this curious, given the statement earlier this year, by the Riksbank that they would not interfere with the exchange rate. So, maybe this is a rogue voice that was speaking out of class. I would hope so.

So. with all this selling and wishful selling to weaken currencies, I'll tell you about a currency that cares nothing for the currency wars. The Chinese renminbi / yuan saw the Gov't allow a huge appreciation last night. I think the Chinese Gov't was giddy about the news that China posted a Trade Surplus (in dollar terms) of $18.16 Billion in April, after seeing a Trade Deficit in March of $884 Million. (not much in terms of comparison with the overall size of trade in China, but a deficit nonetheless). The overnight fixing in renminbi marks the biggest two-day gain in 15 months. The day before saw China post a 14.7% increase in overseas sales.

The Norges Bank, Norway's Central Bank, is meeting while I talk, and will announce their decision on rates around 7 (my time), so after I've sent the letter to the legal beagles for review, but if it's a surprise like a rate cut, then I'll pull the letter back and put a blurb on the cut at the end of the letter. If the Norges Bank keeps rates unchanged, as I suspect they will, then I'll not set up the roadblock for the letter. As I said, though, I don't expect the Norges Bank of move rates at this meeting. However, if the economic reports continue to show a soft side like they have recently, then the June Norges Bank meeting could be very different.

OK. I was in a meeting yesterday, talking currencies, and someone wondered if we should be considering the New Zealand dollar for its recent gains had been impressive. I responded, "yes, kiwi has been on a roll, not only against the U.S. dollar, but also against the Aussie dollar (A$), and normally when we see the spread between kiwi and the A$ narrow like this, that we see the narrowing fizzle out, and the A$ responds favorably, as the kiwi trades are unwound, so I would be very careful with kiwi, New Zealand's debt levels are just too high for my liking."

And guess what happened overnight? Wheeler sold kiwi, and the currency lost ground against the U.S. dollar and the A$, and the A$ rallied as the selling in reaction to the rate cut was overdone, thus widening the spread with kiwi once again.

OK. Yesterday, I told you about the strong printing of Factory Orders in Germany. (up 2.2%), well, today we saw the color of the German March Industrial Output, and once again it beat the estimates for a drop, but posting a 1.2% increase! And the Feb .5% increase was revised upward! So. maybe the dark clouds are getting pushed out in Germany, which is the Eurozone's largest economy, and plays well with what happens to the euro.

As I said on Monday, the data cupboard here in the U.S. is void of any market moving data this week. So that means I had to go on a search to find something that would / could be meaningful with data. And all this rain and snow this spring got me thinking about times in the past when this would happen in the weather patterns. So. While going through the Dennis Gartman letter yesterday, I came across a chart on Corn Planting Progress. In percentage terms of corn planted. In 2012, at this time, we had 80% of the corn crops already planted. The 5-year avg is around 45%... And the total so far this year is.. Drum roll please. 12%... Aye, Aye, Aye. I do believe that to be within the window of when corn needs to be planted, we are within 2 weeks of when we are normally about finished with the planting!

So, all my complaining about the rain, has deeper roots, so to speak. it has prevented the farmers from getting into their fields to plant. If that continues, then we could see corn prices, and all things associated with corn also see their prices go higher. That's not something we as a recovering economy can handle right now.

Think you've heard of all the "adjustments" the Gov't has instituted over the years to inflation calculations, GDP calculations, labor calculations, etc. etc. right? Well, remember a couple of weeks ago when I told you about how the Gov't is going to "adjust" GDP calculations going forward by adding in "stuff"? That announcement got a lot of flak from people, but this one takes the cake! Here's the skinny:

The Gov't, which now, adds in the amount of money that Corporations put into pensions as wages, to GDP calcs, will now add in the amount that Corporations promise they are going to pay, whether they actually ever make the payment or not! How can that be? Count the "promised payment" as GDP now. and in a few years find out the Corporation went belly up, and the payments to pensions were never made? Oh brother! This is surely a case of "if you can't succeed, try again". The Gov't will keep trying to find ways to bump up GDP, or else die trying!

See what happens when there isn't real data to review? Chuck goes searching for "stuff". But can you believe these latest shenanigans by the Gov't? It's as if the Gov't is saying: "If it takes us making up numbers, we'll get GDP higher come hell or high water". You just have to shake your head in disgust, for there's not much else we can do, other than not be fooled when the Gov't starts printing +4 & 5% GDP numbers.

Well, Gold got smacked good yesterday. The $5 loss I talked about in the early morning, turned into a $22 loss by the time I left for the day, and ending up down $17 on the day. It's all about the sentiment in the market right now, that the U.S. economy has turned the corner and is about to take off for the moon. I'm not buying that thought or sentiment, but understand that it's there, and it will dominate trading until proven wrong. I guess the markets have had enough of the "bad sentiment" and have moved on to the "good sentiment".

What will it take to prove the sentiment wrong? I guess more than the real facts that the labor report last week was not good, and that 65% of the data prints since Feb have missed the consensus forecasts to the bad side. See, that's me being the realist again, sorry. I don't mean to be the bottleneck for the good sentiment. Just making certain that nobody gets hurt when everyone realizes that the economy doesn't have legs without stimulus.

Then There Was This. Speaking of me being a realist, and seeing the writing on the wall before the markets. One of my fave economists, David Rosenberg, of Gluskin Sheff, gave an intense presentation at the John Mauldin conference last week on the "real data". I wish I had been there to see it, as it was titled: "Bernanke: The Wizard Of Potemkin" and apparently gave a sobering look at the anemic U.S. economy, labor market mess, and the Fed's plans to get this all under control.

For those of you who don't know: "Potemkin villages were fake and built to make people think things weren't as bad as they really were". I truly like reading what David Rosenberg has to say, even if I don't agree with it, which I rarely do. Ed Steer's letter this morning has a link to the actual presentation that David Rosenberg gave. But, it certainly can't be the same without David speaking to you in reference to the slide. But. if you want to go through it, here's the link to Ed's letter, and then follow along. http://www.caseyresearch.com/gsd

Chuck again. actually, I guess I never left! But, I did have to stop for a minute and sing along with the Cyrkle's great song: Red Rubber Ball..

To recap. The RBNZ's Gov. Wheeler threw a cat among the pigeons last night by announcing that he was selling kiwi and will continue to do so to protect the economy in New Zealand. So, another soldier joins the currency wars against strong currencies. German Industrial Production in March increased 1.2% VS the forecast for a drop, and add to the previous report of a 2.2% increase in Factory Orders, we could be seeing the dark clouds move away from Germany, the Eurozone's largest economy.

Currencies today 5/8/13. American Style: A$ $1.02, kiwi .84, C$ .9955, euro 1.3130, sterling 1.5515, Swiss $1.0645, . European Style: rand 9.0725, krone 5.8370, SEK 6.5115, forint 223.70, zloty 3.1550, koruna 19.6655, RUB 31.10, yen 99.05, sing 1.2285, HKD 7.7605, INR 54.12, China 6.1980, pesos 12.02, BRL 2.0072, Dollar Index 82.08, Oil $95.39, 10-year 1.78%, Silver $23.91, and Gold. $1,459.93

That's it for today. Another lefty handcuffs the Cardinals' bats last night. This has gone on for over 40 years now. Throw a lefty out there, get him off the scrapheap, he'll still turn the Cardinals' bats into starter wood. UGH! Yesterday, I mentioned Mike Meyer, and his dislike for my 60's music. Mike is growing a hockey playoff beard. I always wished I could grow a beard, but instead just have enough of a beard that I have to shave everyday! UGH! Besides when I used to go camping I would go without shaving, and the last time I did that, everything that came in was grey! UGH! Oh well. Heard some very sad news yesterday, a long time friend of mine, and colleague here at EverBank is leaving to move home to Michigan, where she came from many years ago. (I won't say how many, for that would give away her age!). Kathy's last day will be June 11. sadness for sure. Ok. until then, let's be happy, and have a Wonderful Wednesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

6.7 Million “Missing Workers” – Where Did They Go?

Gary D. Halbert — Tue, 07 May 2013 21:52:00 GMT

IN THIS ISSUE:

1. April Unemployment Report – Good & Bad News

2. 6.7 Million “Missing Workers” – Where Did They Go?

3. How Americans Really Feel About the Economy

4. Investors’ Long Love Affair With Bonds Continues

5. IMF Lowers Global Growth Forecast For 2013

Overview

Today we will touch several bases. We begin with last Friday’s unemployment report which was hailed by the mainstream media, but had a lot of bad news to go with the good. From there we look at the estimated 6.7 million “missing workers” in this economy and ponder if they’re permanently gone from the employment rolls.

Next we look at the latest Gallup poll showing how many Americans rate the economy as excellent, good, only fair or poor. You may be surprised at the results, which aren’t immediately clear in the chart. Following that, we look at some interesting data on mutual fund money flows which show that the love affair with bonds continues, and investor demand for stocks is waning.

Finally, the International Monetary Fund downgraded its global economic forecast recently, including its forecast for the US and most of Europe. I have included the IMF’s graphic that lets you look at each country’s forecast for 2013 and 2014.

By the way, we have a lot of charts and graphs today, so the letter will print longer than usual.

April Unemployment Report – Good & Bad News

Friday’s unemployment report for April was a little better than forecasters had predicted. Here’s the good news. The official unemployment rate fell from 7.6% to 7.5%. Total non-farm payroll employment rose by 165,000 new jobs in April, a little better than expected. The new jobs numbers for February and March were revised upward by 114,000 additional new jobs combined for the two months.

Another good sign was the fact that the unemployment rate managed to fall despite the fact that 210,000 people joined the labor force to look for work in April. In several previous months, unemployment had fallen simply because workers had dropped out of the labor force, either due to retirement or despair, and were not counted as unemployed.

The labor-force participation rate – the percentage of working-age Americans either working or looking for work – held steady in April at 63.3%. The good news is that it didn’t decline last month. However, that compares with the rate of about 66% that prevailed for many years before the latest recession. I will have more to say about the labor force participation rate mystery below.

Now for the bad news. The number of unemployed persons remained at 11.7 million in April. The number of persons employed part-time for economic reasons (involuntary part-time workers) increased by 278,000 to 7.9 million in April, largely offsetting a decrease in March. These individuals were working part-time because their hours had been cut back or because they were unable to find a full-time job.

The U-6 unemployment rate, which includes the jobless and people who are working part-time because they can’t find anything better, rose to 13.9%. The African-American unemployment rate was 13.2%. And the unemployment rate for people with less than a high-school diploma was 11.6%. About 4.4 million people have been out of work 27 weeks or more.

In April, 2.3 million persons were marginally attached to the labor force, essentially unchanged from a year earlier. These individuals were not in the labor force, but wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the four weeks preceding the April survey.

Among the marginally attached, there were 835,000 discouraged workers in April, down by 133,000 from a year earlier. Discouraged workers are not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million persons marginally attached to the labor force in April had not searched for work in the four weeks preceding the latest survey.

Though the economy has added about 6 million jobs since the labor market bottomed in February 2010, the total number of non-farm payroll jobs in the US is still nearly 3 million lower than at its peak in January 2008. That makes this easily the worst job-market recovery since the end of World War II.

Yet the media just could not heap enough praise on last Friday’s better than expected jobs report, and suggested that the economic recovery has shifted into a new gear. What else is new?

6.7 Million “Missing Workers” – Where Did They Go?

As noted above, the labor force participation rate of 63.3% was unchanged in April. That is the lowest participation rate since 1979. The labor force participation rate in the US has been in a steady decline since the late 1990s as you can see in the chart below. The decline in the participation rate has accelerated since 2007. In the period from late 2007 to April of this year, apprx. 6.7 million people have simply stopped looking for work. The reasons why are not entirely clear.

As the labor force participation rate continues to fall, it is becoming an increasing topic of discussion. Economists speculate as to whether the decline is the result of the weak jobs market or because increasing numbers of Baby Boomers are retiring? Actually, it’s both.

Demographics and retirements certainly played some role, though economists cannot agree on the extent. About 6.7 million people have simply stopped looking for work since late 2007. Mind you, these are not people who collect unemployment insurance and send out resumes in search of their next job. These are people who – at least, temporarily – have exited the workforce altogether. While some of the missing workers have simply retired, as you would expect, most have simply given up looking for work. What they do to sustain themselves is not clear.

So, who are these “missing workers?” Unfortunately, no one knows exactly who they are, why they left, and if they’ll ever return. What we do know is that this loss of 6.7 million workers represents a huge loss of potential productivity in the economy. While economists have not concluded exactly how much this lost productivity hurts the economy, it is widely agreed that it is a hit to GDP.

The growing number of missing workers creates deep political and policy implications over the next decade for the economic and budget outlook. Missing workers translate to a decrease in tax revenue, coupled with an increase in the use of government benefits, such as food stamps and disability insurance. The number of Americans collecting food stamps and those collecting disability insurance both hit new record highs in 2012 (a subject for an upcoming E-Letter).

The answers to the missing-worker problem may not become clear until the unemployment rate returns to a normal level of roughly 5%. The Congressional Budget Office estimates that won’t happen until 2017, when the rate is expected to fall to 5.5 percent.

Only then can economists gauge if people have left the workforce because of a shortage of jobs, or if they’ve left forever because the economy fundamentally changed. If that’s the case, the US officially will become a place where the labor market has little use for millions of Americans.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

How Americans Really Feel About the Economy

While you probably heard a lot of positive response to last Friday’s unemployment report, especially in the mainstream media, let’s take a new look at how most Americans are feeling about the economy.

Each day, Gallup tracks the percentage of Americans who rate economic conditions in the country today as “excellent,” “good,” “only fair” and “poor.” The results shown below represent a three-day rolling average. Daily results are based on telephone interviews with apprx. 1,500 national adults, with a margin of error of ±3 percentage points.

There are several takeaways from this Gallup chart. The most obvious is the fact that the percentage of people who feel the economic outlook is “poor” has fallen significantly from above 60% in late 2008/early 2009 to 31% as of the latest survey. The percentage of people feeling “excellent/good” has risen only modestly, but at least it’s rising.

What the chart above does not show is even more interesting. Each day Gallup asks Americans to rate economic conditions as “excellent,” “good,” “only fair” and “poor.” What is not shown above is that 45% responded “only fair.” That means that 76% rate the economy as only fair to poor. I don’t know why Gallup decided not to illustrate the 45% who responded only fair, but that would give a whole different perspective to this chart!

Investors’ Long Love Affair With Bonds Continues

In the second half of last year, as stocks rose higher and higher, many pundits forecasted a “great rotation” of investor money from bond mutual funds to stock mutual funds. The thinking was that with interest rates at historic lows and stocks trending higher, many investors would dump their bonds and herd into stocks.

While money flows into stock funds did increase somewhat last year and earlier this year, it certainly did not qualify as a “great rotation.” In fact, money flows into bond funds, especially taxable bond funds (including Treasury bond funds), continue to be very strong. And most recently, money flows into domestic stock funds are starting to dry up.

Here’s a look at the latest mutual fund money flow data from the Investment Company Institute (ICI):

In the second line of the chart, we see that money flows into domestic stock funds has slowed to a crawl, even though the major stocks indexes soared to new record highs this year. In two of the five weeks shown, domestic stock funds saw net redemptions. Why might this be?

Millions of investors were drawn into stocks and stock funds in 2007 and 2008, only to see their portfolios decimated in the bear market which saw the S&P 500 Index plunge over 50%. Many investors vowed at the time: If I ever get back to what I started with, I’m getting out for good. They got that chance over the last month, and the data suggests they took it and bailed!

Now let’s look at bonds. Specifically, look at the third line from the bottom which is “Taxable” bonds, including Treasury bond funds. Money flows there continue to be very strong despite the weakness in bond prices in January, February and early March.

Notice that in the week ended 4/3/2013, taxable bond funds took in a whopping $6.36 billion and in the week ended 4/24/2013 another $5.53 billion. Interestingly, these two weeks are the same weeks where we saw net redemptions from stock mutual funds.

So, the love affair with bonds continues! I still don’t think it will end pretty over the long-run, but for now bonds are still very popular. I’ll have more to say about how you can protect yourself from rising interest rates and falling bond prices in upcoming letters.

IMF Lowers Global Growth Forecast For 2013

On April 16, the International Monetary Fund released its latest global economic projections for 2013 and 2014. In its WORLD ECONOMIC OUTLOOK report, the IMF forecasts world economic growth of 3.3% in 2013 and 4.0% in 2014. That is a downward revision for 2013.

For the United States, the IMF forecasts GDP growth of only 1.9%, down from 2.2% in 2012. The IMF predicts the US economy will improve to 3.0% growth in 2014. Both IMF estimates for 2013 and 2014 were slightly lower than their January forecast. This surprised many analysts.

In particular, take a look at the numbers for the Euro Area. The economies of Italy and Spain contracted by -2.4% and -1.4%, respectively, in 2012. Both countries are officially in recessions, and growth for this year is projected to remain negative at -1.5% and -1.6%, respectively. France is also very close to falling into a recession.

And look at the falling numbers for Germany. In 2011, Germany saw growth of 3.1%, whereas in 2012 the rate fell sharply to 0.9%. For 2013, the IMF forecasts growth of only 0.6% for Germany. Looks like the weak euro economy will be with us for some time to come, which is bad news for US exports.

The strongest areas of growth are concentrated in “Emerging and Developing Economies” which include China, India and ‘Developing Asia.’ Yet these strong numbers were not enough to prevent the IMF’s latest global forecast from nudging downward in the April report.

Interestingly, the CBO still forecasts US GDP growth of 3.1% for this year as opposed to the IMF’s latest estimate of only 1.9%. The CBO also estimates 2014 GDP growth of 3.8%. Keep in mind that the CBO predicted 4.2% growth for 2012 when in reality it was only 2.2%. So don’t be surprised to see the CBO revise its numbers lower before long.

And Finally, A Word on SPECIAL ARTICLES

We have no way to know exactly how many of you read the columns I select for SPECIAL ARTICLES each week. Sometimes, most of the links pertain to the topics I cover in the E-Letters, but often they have little or nothing to do with the topic(s) I write about. Such is the case today.

What I try to do is select articles that I think are interesting but don’t have space to address them in the E-Letter. If I do say so myself, we’ve got some real doozies today.

All the best,

Gary D. Halbert

How to Buy Annuities (and When Not To)

Doug Casey — Tue, 07 May 2013 21:17:00 GMT

By Dennis Miller

Annuities are more complicated than toy assembly instructions on Christmas Eve. How do we really know if we are getting a good deal? And are they ever a good investment?

An honest salesman would say, “That depends on when you die.” If you outlive your actuarial mortality rate, the answer is probably yes. The only way you can know is when you die, and at that point you won't care.

When shopping for an annuity, start with basic insurance. It is called a “single premium, immediate, lifetime annuity with death benefit.” Phew, that's a long name.

I received a quote for a 65-year-old man for a $100,000 premium, immediate, lifetime benefit policy with a death benefit. The policy provides monthly payments of $491.66 — or $5,900 every year. What about the death benefit? If the total monthly payments you received before death were less than $100,000, your beneficiaries receive the difference.

That sounds nice, so where's our risk? If you live for 10 years, you would have received $59,000 in benefits and your beneficiary would receive the remaining $41,000. So what's the problem? If you die before your expected mortality, you loaned the insurance company your money interest-free over that time period. If you live longer and receive more in benefits than the premium you paid, good for you.

Annuity salesmen point out that the $5,900 annual benefit is the same as 5.9% interest, with some additional tax benefits—not bad in today's low-interest-rate environment. But ultimately, your longevity will determine if it's a bad investment. Of course, it may still be a good idea.

Things get more complicated when an insurance company tailors a product to your needs. Ask for the quote I mentioned above, and then for others with only one rider at a time.

The most common concern about an annuity is inflation. I was quoted on the same policy with a guaranteed 3% inflation adjustment built in. By adding the inflation rider, the monthly benefit dropped over 27%, to $355.23 a month, or $4,262.76 annually. I asked the agent how long it would take for the lower monthly benefit to catch up in total benefits with the first policy; the answer is somewhere in the 22nd year.

So which would you prefer to protect you against inflation: A higher monthly benefit that works in your favor for 22 years, or a policy paying you a lower amount? I would opt for the larger amount and put some of the difference away every month in a high-yield investment.

Some folks opt for the inflation rider if they have a family history of longevity or a spouse without a lot of financial knowledge. OK, that makes sense.

Continue to get quotes, one option at a time. Always run the numbers yourself to understand the financial ramifications of each option.

Many companies now advertise bonuses and guaranteed rates of return. Generally, this is for an annuity that builds up equity before you draw benefits. Here is how you price compare: Ask your agent what the “five-year accumulation” will be. For example, if you paid a $100,000 premium and had a 5% guarantee, your total accumulation would be $125,000. Then ask how much your monthly check would be.

Now, compare that to another quote: Say you want a $125,000, single premium, immediate, lifetime annuity with death benefit, how much would you draw monthly? If that monthly benefit is more than the amount in the previous paragraph, this is the better option. You may get a 5% buildup with the former, but when you buy your insurance, you pay too much.

For those in the insurance industry who may be poised to send me hate mail, I offer this caveat: I am not licensed nor qualified to sell annuities. That is between a trusted annuity adviser and his or her client. Show the client your commission schedule on the products you are quoting. Then run the numbers and prove it is a good investment. Offer the best price for the insurance portion and a good return on the investment portion, and the client will likely buy. My goal is simply to help our readers shop wisely.

Before you start asking for quotes on annuity products, you’ll want to do some homework. To help you get started we’ve put together an easy-to-read report called Annuities De-Mystified. You’ll find our 8-point checklist to find out if an annuity is even right for you, our 9-point plan showing you what to look for when buying an annuity, and an important overview of the risks associated with annuities all within the pages of this timely, must-read report. Click here for your free copy today.

Watching for the Canary in the Coal Mine

Hard Assets — Tue, 07 May 2013 18:40:00 GMT

Like most investors, the experience of the financial crisis left an indelible mark on me as an evaluator of risk.

By Hard Assets Alliance Team

By Joe Yasinski, for the Hard Assets Alliance

Like most investors, the experience of the financial crisis left an indelible mark on me as an evaluator of risk. Like most of you, I spent countless late-night hours reading, consuming the details of the crisis in real time as events unfolded. As I more intimately acquainted myself with vaguely understood terms like "credit default swap" and "collateralized debt obligation," I vigorously directed my energies toward grasping the true scope of what was unfolding, and more important, what the official reaction would be.

Unbeknownst to me was that experience would lead me to a completely new philosophy of counterparty risk, money, savings, wealth, and diversification. And after the immediate volatility had subsided, I did an autopsy on all my mistakes before and during the crisis, big and small. The biggest question I had to personally answer to myself is why I didn't see it coming. At what point during that period were the warning signs so glaring that I should have been better prepared for what was approaching?

After a few years of reflection, I am convinced that I should have seen it all coming, after the failure of the auction rate preferred market. The moment when these supposedly riskless investments – often used by investors to hold short-term cash – became completely illiquid, I should have known something big was coming. What one day was considered one of the safest instruments around was the next a completely bid-free, frozen market. To this very day – over five years later – 100 billion of those dollars are still tied up in auction rates. This blatant miss has driven me to follow current financial events, searching for that proverbial canary in the coal mine in today's market environment.

Mr. Market is Unfazed

Sadly, countless events are unfolding every day that in normal times would shock the markets to their very foundations, and yet today they elicit nary a yawn.

Whether it's Japan embarking on the largest monetary stimulus in this history of civilization or Cypriots waking up one day and finding out that the bulk of their life savings is in all likelihood gone, the warning signs seem to flash brighter and brighter every day that something is wrong. The rules seem to change as quickly as the headlines. It seems risk management has become a part-time job for proactive investors around the world.

In this vein, the recent announcement regarding Dutch Bank ABN Amro's decision that clients with gold deposits at the bank will no longer be able to take delivery of their property set off my alarm bells. Instead, all exchanges will be for cash. Refusing delivery is the ultimate form of betrayal to a gold investor. People purchase physical precious metals for many reasons; one paramount to almost all of them is the ability to use gold as a hedge against unpleasant economic outcomes... a hedge that protects value when the value of everything – including money itself – comes into question. Integral to the function of that hedge is the ability to take possession of your property at any time. What's the point of being forced to settle in currency when diversification out of currencies is one of the main reasons you bought gold in the first place? We already have a readily accessible method of buying gold that only settles in cash; it's called an exchange-traded fund.

Sophisticated investors buy the actual yellow metal because in its physical form gold cannot default and cannot be downgraded.

At the Hard Assets Alliance, we spend a lot of time helping clients make informed, educated decisions on how to buy their precious metals and where and how to store them. Our clients spend a great deal of time and effort evaluating counterparty risk, and we take the responsibility of helping manage that risk very seriously. That's why at the Hard Assets Alliance we store our metals outside the banking system, where a quick change in the rules isn't going to leave our clients flat-footed as in Cyprus or apparently for some ABN Amro customers. Providing our clients with timely delivery of their property on demand is at the very foundation of our business and our service.

I can't help but imagine how painful it would be for a physical precious-metals investor to be in the shoes of having a counterparty default on their commitment to them. To spend the countless hours of effort and energy of market analysis to come to the conclusion that gold should be a cornerstone of your portfolio, only for a counterparty to default on that obligation – likely at the worst possible time – is one of the worst imaginable outcomes.

Nothing is worse than having the correct investment thesis but the wrong vehicle of exposure. If nothing else, this should be a warning to precious-metals investors. Whom you choose to buy and store your property with is just as important a decision as how much to buy.

At the Hard Assets Alliance, we will continue to work diligently to earn your confidence in that regard. And in addition to offering real-time buying and selling of all products – all through competitive bidding on our SmartMetals ™ platform – all of our clients' assets are 100% allocated in the location they choose. Plus we always facilitate delivery immediately upon request.

For an in-depth look at your many options for buying, selling, and storing precious metals – including answers to all of your questions about the Hard Assets Alliance, download your free copy of the SmartMetals Action Kit now .

Disclaimer

RBA Cuts Rate To Record Low.

Chuck Butler — Tue, 07 May 2013 15:43:00 GMT

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In This Issue.

* RBA proves Chuck wrong..

* China announces a plan.

* Sweden catches everyone else's eye.

* Canadian loonie defies IMM positions..

And, Now, Today's Pfennig For Your Thoughts!

RBA Cuts Rate To Record Low.

Good day. And a Tom Terrific Tuesday to you! Well, the RBA decided to prove me wrong last night. It's not the first time they've done that! I guess they decided to join the crowd and cut rates and debase their currency. I can hear them saying. "Hey, all the other Central Banks are doing it". To which I would say what I used to tell my kids when they would tell me that all the other kids were doing "x". "But, don't you want to be better than all the other kids?" That would stop them in their tracks! So. RBA. don't you want to be better than the other Central Banks? Apparently NOT!

OK. I guess you get the Front and Center story this morning, eh? The Reserve Bank of Australia (RBA) surprised me, and quite a few others I must say, and cut rates 25 basis points (1/4%) to an internal rate of 2.75%, a record low rate for Australia. And following the rate cut announcement, the RBA didn't give us any indication of whether this was the last of their rate cuts, remember the RBA cut 125 basis points last year, or that there were more to come. I don't know why I would even offer an opinion on that, given how the RBA proved me wrong on the rate cut call, but for those of you that still think I might have an clue to what's on the RBA's mind. I would think it's the former of the two. But then, maybe wishful thinking is clouding my thoughts right now.

And I was also proven wrong when the Aussie dollar (A$) fell further on the rate cut announcement. Recall that I had thought that the rate cut was probably priced in before the actual rate cut was announced. But NOOOOOOOOO! The A$ fell further and is now trading as if the markets believe that 2.75% is not the trough for this rate cut cycle that began last year. For those of you who still believe in the A$ as a viable diversification tool, then you might want to use this downward move in the A$ as an opportunity to buy at cheaper levels.

There was good news from Australia overnight though. And get this. the exporters in Australia were clamoring for a rate cut to help them with their exports. But. and this is an important piece here. In the face of a strong A$, Australia posted their first TRADE SURPLUS since 12/11, in March. What? You mean that even with a strong A$, Australia was able to post a TRADE SURPLUS? Hmmm. I wonder if the RBA would have still cut rates and debased the currency if they had known this before they went off and did their best impression of the Fed Reserve.

OK. There is other stuff to talk about today, other than the Aussie rate cut and the A$... For instance, how about the news from China overnight? Did you hear the stuff about China pledging to come up with a plan for convertibility of the renminbi / yuan by year-end? Oh yes. they did! Here's the skinny. Chinese Premier, Li, pledged to come up with a plan by year end, that would allow investment capital to move more freely in and out of China, which would require the loosening of the shackles that hold the renminbi and yuan back.

You may recall, but since I write every workday, sometimes what I said is forgotten, but you may recall that a few months ago, I told you about how the new Chinese Premier, Li, was going to change things in China and bring about free markets, etc. However, I didn't expect him to move this quickly with the currency. But then, it's important to point out that he said he would develop a "plan". Not implement the plan. That will be the next shoe to fall for the U.S. dollar folks. And remember, I said long ago, that I thought by the end of this decade that the renminbi would be free floating and have achieved a wider distribution, thus making it eligible to take the reins of reserve currency away from the dollar.

I also ran across a story on the Bloomberg yesterday regarding how the markets now give more credibility to the Big Ben Bernanke led Fed, than they did the Big Al Greenspan led Fed. Hmmm. Obviously, they didn't ask me, for I would have told them that I haven't an ounce of faith in either of them, to do anything other than ruin our economy, and dollar. I guess the old saying of "no news is good news" is holding a grip on the markets right now, as they have no idea what's going to happen with the Fed's $3 Trillion balance sheet, or Monetary Base that has pushed the limits to the ozone. I think I know, but that's nothing in concrete, for we are all in unchartered waters. So, for the markets to have faith in unchartered waters is pretty questionable to me. how about you?

In Germany this morning, the euro is rallying on a report that showed German factory orders unexpectedly jumped in March. Yes, a good economic report from the month of March, which seems to be far and few in between for the countries of the world this year. But there it is. German factory orders rose 2.2% from February. The consensus forecast was for a -.5% drop. the euro has gained back the 1.31 handle on the news, and continues to make people scratch their heads, questioning how, with all the negativity in the Eurozone for the past two years, can the euro maintain its strength VS the dollar. I ask people all the time, when they pose this question to me, and I say, "What does that tell you about the dollar?"

The Canadian dollar / loonie has pushed higher again overnight. Commodities are stronger in price, and that's helping the loonie gather strength ahead of their Jobs Jamboree that will be held this Friday. A strong jobs report for April could be the wind the loonie needs in its sails to get back to parity. The IMM futures positions report for last week, didn't help the loonie as we started the week with the long positions in loonies being cut last week by 1.8%... I think that was all in reaction to the appointment of the new Bank of Canada (BOC) Gov. Stephen Poloz. I still think that his appointment will not be good for the loonie in the long run, but for now, he hasn't even said anything, so no damage yet.

Yesterday, I came across a story on the Bloomberg regarding the Sweden, and how the country dealt with their banking crisis back in 1991 through 1993, and was prepared to deal with the global banking crisis of 2008 / 2009. A very good story, that you can read here by clicking this link: http://www.bloomberg.com/news/2013-05-05/sweden-a-crisis-casualty-no-more-shows-how-haven-appeal-is-won.html

But as I was reading this story, I was reminded that in October of 2008, I wrote an article for the now defunct, Currency Capitalist, that went through the same things. Mind you this was back in 2008! So, I've had my eye on Sweden and Norway's banking prowess for some time now, which was gravy to their fiscal fundamentals that we had pointed out to readers 5 years before that!

Not that I'm patting myself on the back here (don't want my bursitis to flare up!) but the point I guess I'm making is that I see these things years ahead of when other people see them. No I'm not clairvoyant. I'm not even your last choice as a soothsayer. but, if you do the reading that I do, and the research, you would see these things too. Now. anyone still think I'm crazier than a loon about China's plans to remove the dollar as the reserve currency of the world?

OK. So yesterday, I was a real Donnie Downer on the Jobs data from Friday. Well, today, I'm not going to be singing with the Up, Up With People group either! A friend of mine (Thanks Bob) sent me some thoughts on the loss of full time employees (remember I mentioned the hours worked had dropped, and that's due to employers figuring out how to skirt by the HealthCare tax). Someone ran some numbers on the loss of .2 hours and came up with this: The loss of work-week hours of just .2 is the SAME ECONOMIC IMPACT as firing 700,000 people!

So, given the thought by me here, that this hours worked will continue to drop as more employers figure out the 40 hour bogey, we as a country will have to post up to +700,000 in job creation to offset each .2 hours of work that's reduced.

The guy that did all this math, and believe me it wasn't me!, came to the 700,000 number like this: "if we look at the "employed" figure of 143,724,000 people, a drop of .2 hours is a full-time equivalent decrease of ½%. Applied to the employed population this amounts to an imputed economic decrease of 718,620 jobs.

OK. now all of you who like to run numbers, and figure things like this out, please. the point isn't really the numbers. It's the idea that employers are figuring out that they need to get their employees below 40 hours a week. We are going to become a nation of part-timers.

Gold is being spent this morning by $7. The shiny metal gave up the $5 gain it held yesterday morning and ended the day pretty much flat from Friday's close, at $1,470. I'm not sure there was anything fishy about yesterday's price action as there was a tiny number of contracts traded during the day. I think that Gold has settled into a trading range of $1,450 to $1,480. Every time, recently, that Gold has tried to move up to $1,500, it gets knocked back down. I think I'll ask Jen to read that last sentence to me, for we all love it when she says the word Knock. HA!

Nevertheless, I still believe in Gold's ability to move higher, but probably not now. We've seen the manipulated fall in price, and the recovery of ½ of that loss all within two weeks, Gold seems to be worn out right now.

And before I head to the Big Finish. Have you ever heard of a guy named Bill Buckler? He's the author of a newsletter called, "The Privateer". It was a paid for newsletter, and I have a Pfennig reader that would come to our booth at the Money Shows and give me the latest letter. This has gone on for years, and I must say that I ALWAYS enjoyed reading the letter. Well, I guess Mr. Buckler decided to retire, for his letter will be like Jackie Paper and come no more.

Then There Was This. I saw this on Reuters. "The U.S. Senate voted 69-27 to pass a bill authorizing states to collect sales tax on online transactions, even if the seller has no physical presence in the state. House Speaker John Boehner plans to refer the measure to the House Judiciary Committee. A spokeswoman for committee Chairman Bob Goodlatte said he has reservations about the measure's potential effect on small businesses and its complexity."

Chuck again. We were discussing this new tax on the trade desk last week, and of course I was full of opinion on it. My wife would say that I was just full of something! HA! But, the Chairman was right to have reservations about the measure's potential effect on small businesses. BECAUSE IT WILL! I mean, come on. who was this tax passed for? Internet sales by companies that had bricks and mortar shops were already taxed. That means only the small businesses will get sacked by this tax on their goods sold. And there's a loophole here. I read this last week, that a small business would just have to have its business in Canada, and their sales wouldn't be taxed. I'm not sure if that's right, but I do believe I read that.

To recap. The RBA went out to prove Chuck wrong last night, and cut their OCR 25 basis points to a record internal low rate of 2.75%... The A$ got smoked on the news given the RBA didn't give any indication of whether this was the last of the rate cuts or there were more on the way. With this lack of information the markets took this as the latter, and pushed the A$ down. China made big news overnight with a pledge to come up with a plan by year end that would deal with the convertibility of the renminbi / yuan.

Currencies today 5/7/13. American Style: A$ $1.0175, kiwi .8460, C$ .9950, euro 1.3120, sterling 1.5540, Swiss $1.0650, . European Style: rand 9.0335, krone 5.8245, SEK 6.50, forint 225.50, zloty 3.1640, koruna 19.6250, RUB 30.98, yen 99.15, sing 1.2320, HKD 7.7615, INR 54.14, China 6.2083, pesos 12.11, BRL 2.0080, Dollar Index 82.09, Oil $95.58, 10-year 1.76%, Silver $23.82, and Gold. $1,464.15

That's it for today. Our Blues come home tied in their best of 7 Series with the L.A. Kings tied 2-2, with each home team winning. A tough series, but nobody said it would be easy! Not a good day for me yesterday, as my stomach was revolting. Seems better this morning, so I've got that going for me! The IPod was just playing, So Happy Together, by the Turtles. Now that's a happy, foot tapping song! Good thing Mike wasn't here yet. He's not a fan of my 60's music that I play randomly. If you remember 60's radio, you would hear rock, pop, R&B, Soul, any mix of music that teenagers wanted to hear. There was no "album rock" stations yet. So, when I started adding music to my IPod I wanted it to sound like 60's radio. much to Mike's chagrin! OK. let's get this out the door! I hope you have a Tom Terrific Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Looking Under The Hood.

Chuck Butler — Mon, 06 May 2013 19:03:44 GMT

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In This Issue.

* Jobs Survey beats the estimates..

* Aussie March Retail Sales disappoint.

* RBA meets tonight to discuss rates.

* Norges Bank to meet this week..

And, Now, Today's Pfennig For Your Thoughts!

Looking Under The Hood.

Good day. And a Marvelous Monday to you! Another wet, soggy, and colder than normal weekend here in the Midwest. UGH! The only thing that brightened it up was the 4-game sweep of the Brewers by my beloved Cardinals! The Jobs Jamboree on Friday was a surprise, but not when you look under the hood, and RBA meets tonight. Plenty to talk about on this first Monday of May, so let's not hang around here too long!

Front and Center this morning, London is closed today, and Japan was closed last night, thus taking out the overnight markets, and leaving the trading to some small centers around the world, which really didn't have the gumption to move things in one direction to fiercely. So, the currencies haven't really moved much, except for the Aussie dollar (A$), which is getting taken to the woodshed for a weak March Retail Sales report, that saw a -.4% drop in nominal retail sales for the month.

Is this report enough to get the Reserve Bank of Australia (RBA) to cut rates tonight? Good question. But in my opinion, which could be wrong, I don't think so. Remember, January and February's Retail Sales reports were stronger than expected, and therefore Retail Sales for the 1st Quarter will add .4% to GDP. I don't see how this report for March could be the straw that stirs the rate cut. But then, that's just me looking at things as a whole, and not through a peep-hole like the markets seem to do all the time.

And this time is no different. the A$ was taken to the woodshed after the Retail Sales report, and is down about 2/3-rds of a cent this morning. At this point, I would think the risk this evening and tomorrow morning for the A$ is that the RBA doesn't cut rates, and all the short sales that were put on in hopes of a rate cut, would have to be unwound, thus giving life to the A$... And, if the RBA does go ahead and foolishly cuts rates (in my opinion), one would have to think that by now the rate cut has been priced in to the A$... I guess we'll have to wait-n-see, eh?

There's another Central Bank meeting this week and it comes on Wednesday from the Norges Bank in Norway. This rate level has been a real tug-of-war for the Norges Bank. The rest of Europe has cut their rates to the bone, and Norwegian exporters have become Doug & Wendy Whiner about the strength of the krone. But on the other side of the rope, is a housing bubble going on in Norway, and a rate cut would be just like throwing gas on the fire for the housing bubble. So. I would think and hope that the Norges Bank held rates steady Eddie this week. And if the economic data continues to slow here, come back and cut rates in June.

Well, I found it all to be very interesting on Friday. Remember, that I write this letter very early in the morning. And in Friday's letter I wrote about how I didn't care for the Bank of Canada's (BOC) new Gov. for I saw him doing everything he could to make exporters happy, which wasn't going to be a good outcome for the Canadian dollar / loonie. And then later that day, I look up and the Bloomberg TV channel was running a story on how the new BOC Gov. had caused the loonie to weaken. WOW! You know, whenever I pull a story from the Bloomberg, I give them credit for the story. Do you think. Nah. that would never happen! Don't even go there Chuck!

Well, the loonie is back above 99-cents this morning, as commodities are pushing higher. The price of Oil is above $96 for the first time since the beginning of April, so the Loonie, and the other Petrol Currencies like: Norway, Brazil, Russia, and Mexico are also seeing some love this morning on the higher Oil price.

Well, we saw the color of the BLS's latest survey on job creation AKA the Jobs Jamboree last Friday. On the outside, it looked good.not pretty good. not great. But good. According to the BLS the U.S. created a net of 165,000 jobs in April. And the unemployment rate sunk to 7.5% from 7.6%... Now, you may remember, that I said on Friday morning, pre-Jobs Jamboree, that I thought the number would be disappointing, before the "adjustment" that the BLS makes each month. Well, I was bang on that! You see the "adjustment" was adding 193,000 jobs to the survey. Otherwise the job creation in April would have been negative, and we put those negative readings behind us a few years ago, we certainly can't revisit that now! Especially after 3 rounds of Currency debasement (QE)! But there it is. right there before our eyes a negative number, BEFORE the BLS adjustment.

Many, many years ago, I told you that I would rather not talk about the number of jobs created or otherwise, because it doesn't tell us what kind of jobs were created.. Could be all minimum wage jobs, and while that would be better than no job at all to the worker, it's not going to drive the economy to a stronger parking lot. But, the markets follow the numbers, and so I must report on them. But, I always attempt to give you the "other side" so at least you can see what the numbers really are.

I've long said that I prefer to follow the Avg. Hourly Earnings, and the Avg Hours worked. This is where we'll see wage inflation, or problems in the labor markets. The Avg Hourly Earnings year-on-year were up only 1.9%, so no wage inflation, but. the Avg Weekly Hours worked fell, and this rarely ever falls. And. the total amount of money earned by workers declined from the previous month. Uh-Oh. Employers have figured out to get around the healthcare tax on employers that have over 40 hours-a-week employees. Again, this is NOT going to bode well for the economy going forward, for less hours, means less disposable income that can be spent on gas, groceries and giggles!

And. don't forget what I told you on Friday. the 6 month trend in job creation was 196,000. so even with the games the BLS played with the survey. 165,000 is below the 6 month trend. Again, keeping with my call and pointing out that since March, economic data in the U.S. has shown a marked slowdown. And believe me, I not falling into the problem of just long into the economic peephole for the U.S.. I'm keeping a score sheet of the data, and if it turns around, I'll stop with my "since March the economic data in the U.S. has shown a marked slowdown" talk.

The price of Gold is up $5 this morning. The price of Gold reached $1,490 last Friday, before the price manipulators took it down $20 or so. The Jobs Jamboree saw a lot of moves associated with it on Friday, and Gold was no exception. At first glance, the Jobs data pushed the dollar higher, but then it turned on a dime, and the currencies rallied VS the dollar. But not Gold, once again, I sat there with that puzzled look that my wife says I have all the time, (HA!) and wondered out loud, why the dollar was getting sold, but Gold was not rallying.

The paper trades shorting Gold continue to be prevalent in the market, but on the other hand, so is the physical demand to buy Gold. I read a report this past weekend about how the Chinese, particularly the Chinese women, is reported to have amounted to more than 10% of annual global mined Gold output in just 2 weeks of buying. WOW! That's crazy buying, eh? Just an example of the demand for physical Gold, now that the price has dropped. Did you participate in the May Day Gold Buying? I did.

I also saw a chart that Ed Steer had in his weekend letter, that showed the number of days that it would take to in World Production to cover Short Contracts, and broke it down further by the 4 largest traders and the 8 largest trader. Gold would take nearly 60 days of production to cover the short positions of the 8 largest traders. But Silver would take 110 days of production to cover the short positions of the 8 largest traders! Doesn't this smell fishy to you?

The U.S. data cupboard is void of any market moving data this week, as it will yield only 2nd and 3rd tier data prints. In place of market moving data, the Fed Heads will hit the streets starting Wednesday and go through the end of the week. The Fed Heads will be here all week, try the veal!

Then There Was This. Any time I see an interview with former Treasury Official Paul Craig Roberts, I stop to read it. And Saturday was no exception. Ed Steer had this interview posted on his letter Saturday from King World, and it's Dr. Roberts talking about the Jobs Jamboree last Friday. After reading this, you say, "And I thought that Chuck was crazy, with his claims that the Gov't is trying to deceive us into believing everything is OK." Here's a snippet of the interview with Dr. Roberts on the Jobs report.

"Well, it's not believable. They claim 185,000 new private service jobs. They are showing jobs in retail trade. Of course the statistics show that retail sales are falling, so why are they having more employment?

They show a tremendous number of jobs in professional and business services, 73,000 (new jobs). This is not believable either. They also have 38,000 jobs in waitresses and bartenders. Now, for an economy that's not going anywhere, you won't have people hiring in retail trade and general merchandise stores where a lot of that employment is alleged to be.

My thoughts are they are desperate, and they are trying to continue this image of an economic recovery that was declared to have happened in June of 2009. But of course we've not seen any recovery.

So I think it's part of the hype that everything is fine and we are moving ahead. It's just part of the deception. The country is increasingly deceived by disinformation. That's what is going on ... There are millions fewer in the labor force today than there were many years ago. It's not believable, but the (mainstream) financial press will go along."

Chuck Again. Yes. That's about all I can say. is Yes! It's about time someone besides little old me (HA!) was beating the drum and bringing the deception to you!

To recap. The Jobs Jamboree on Friday caused some wild swings in the currencies, with the dollar being bought at first glance of the report, and then with calmer heads prevailing, the dollar was sold the rest of the day. With London and Japan closed overnight, the overnight markets were void of volume, but that didn't stop the A$ from getting sold after a weaker than expected Retail Sales report for March printed. The RBA meets tonight, Chuck still believes they will not cut rates at this time, but the RBA has proved him wrong before!

Currencies today 5/6/13. American Style: A$ $1.0250, kiwi .8525, C$ .9915, euro 1.3105, sterling 1.5560, Swiss $1.0670, . European Style: rand 8.98, krone 5.8170, SEK 6.5255, forint 225.90, zloty 3.1665, koruna 19.5570, RUB 31.08, yen 99.25, sing 1.2315, HKD 7.7595, INR 54.18, China 6.2114, pesos 12.07, BRL 2.0085, Dollar Index 82.20, Oil $96.18, 10-year 1.74%, Silver $24.23, and Gold. $1,475.10

That's it for today. Well, did you have a fun Cinco de Mayo? We celebrated by going out to breakfast with birthday girl, Toni. It's one and one for the Water Polo team in the state playoffs. UGH! Like I said above, a great weekend for my beloved Cardinals. So far so good for them, but it's a long season. Next week is the Las Vegas Money Show, where I'll be speaking twice. They love me so much they have me speak twice! Ahem. Chuck, EverBank pays for those speaking times. Oh! And I thought it was because they loved me so much! HA! Then the following week I'll be in Houston to start the week. Hopefully spring has sprung in Las Vegas and Houston! Not that I get to spend time outside, it's just a psychological thing with me! Sunny and warm puts me in a much better mood! And with that, I hope you have a Marvelous Monday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837