Markets Await “Stimulus”
Everything goes into idle as the markets await “stimulus”. Strange as it may seem, a bill that will do little to stimulate and more to drag down the economy is key as the markets await “stimulus”.
Currently, on this end of the market week Friday, the DOW is up 185 at 8,248, the NAS is up 30 at 1,576, the dollar is slightly down .341 at 85.734 and gold is down $2.00 at $857.34.
The gloom and doom news on earnings keeps on coming, unless your company is named Wal-Mart. There are too many reports, all bad, to recount here, so I’ll only mention the “big one”. Toyota posted it’s first loss in 59 years.
The job loss numbers came out with a bang, 598,000 non-farm jobs for January. Not since 1974 have such numbers been posted. Factory jobs, I didn’t think there were any factories left in the US, fell 206,000. That’s the most in 26 years. The 7.6% jobless rate beat the annalist’s expectations by one-tenth.
"Stimulus" Dollars
With all of these wonderful numbers it’s no wonder the DOW is off to the races. All kidding aside, the markets await “stimulus”. In short, nothing is going to change dramatically until the “stimulus” bill is passed. Until that time we will have to wait for direction. The Senate will cobble something together today, or at the latest, by Monday. After that, both houses will put their heads together and Frankenstein’s baby will be ready to draw it’s first breath. Passage is assured because the Democrats control both the House and the Senate. Once the bill is signed into law, and only then, will we see what appendages were bolted onto the “baby”.
Even before the “stimulus” bill passes, Citi and Bank of America, two of the three most important money market banks are technically insolvent, even though each has received $45 billion in TARP funds. Add on their derivative exposure, estimated at some $75 billion plus each and the picture starts to look pretty dark. Now add on their combined exposure to some $6 trillion of highly toxic Credit Default Swaps and you will begin to realize why they are insolvent. The worst part of this whole mess is that these figures represent only two banks! What happens when all the rest pile on their bad debt? The dollar is looking at the elevator shaft and the bottom is a long way down!
The sham that will be the “stimulus” bill will not stop this ball of string from unraveling. Use the opportunity that has presented itself to buy gold and silver now. At worst, if the idiots in Washington actually pass something that would help the economy, gold and gold stocks will rise dramatically over the next few years as the world comes to grips with draining all the liquidity they have and will be putting into the system. Let’s hope for the best, because the worst will be life altering.
Till next time, good luck and good trading!
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My elderly father’s portfolio is slowly eroding. He’s been burned by communication, high tech and bank stocks. I’m trying to convince him to diversify into gold and silver. Which stocks do you suggest that I tout to him.
Glide:
As usual, I will preface my remarks with the caution, that I own these stocks, I am not a professional trader and I urge you to do your own due diligence before purchasing or selling any stock. Call the management of the companies and talk to them. That being said, I will happily give you my three favorite gold stocks. They are Barrick (ABX), RoyalGold (RGLD) and GoldCorp (GG). Barrick will be the industry consolidator (they have the money to buy up all of the gold companies that got in trouble by forward hedging their assets) and dominate the business in the future. RoyalGold is unique in that it is a royalty company. They do not produce any gold nor do own any mines. With a staff of approximately 50 or so, they buy royalties in other mining companies. For that they get a portion on every ounce that the company mines. They have all the upside but no exposure to the every day obligations of running a mine. There is huge blue sky potential for RGLD going forward. I like GoldCorp because it has extremely good management and one of the lowest costs per ounce in the business.
Depending on your father’s time line for his investments, I would feel confident buying in the next time gold pulls back. Look for Barrick in the $35 to $36 range, RoyalGold at $40 to $41 and GoldCorp at $25 to $26 level. The only problem is that we may not see these levels again. If there is another spike up I would have no problem entering at current levels.
I wish your father all the best and thanks for inquiry.
Goldbug