P.P.I.P. To The Rescue!

Treasury Secretary Geithner’s P.P.I.P. proposal is boosting the markets and laying the foundation for buying gold.  This is not the silver bullet that will fix the financial crisis but it will, as it unfolds, bolster the case for buying gold.

The DOW is off on a tear on the news of Treasury Secretary Geithner’s “Public Private Investment Program”, or P.P.I.P.  The DOW is up 296 at $7,574, the NAS is up 51 at 1,508, the dollar is up .14 (.18%) at 83.85 and gold is hovering around, and trying to hold the $950 mark, down $2.80 at $949.80.

All the hubbub is about Geithner’s  P.P.I. P.  plan which is the next in a line of anachronisms (T.A.R.P. & T.A.L F.) to come to the rescue of the economy.  Let’s cut to the chase and institute the final program which embodies them all, C. R. A. P.!

Little Timmy Listens to "The Community Organizer In Chief"

In essence, the Treasury’s program will use $75 billion from T.A.R.P. and add to it capital from private investors.  Why in the world would private investors want to buy this garbage, you might ask?  Ah, the answer is simple my friend.  The government is going to provide a guarantee for debt financing through the FDIC.  Now I can go purchase worthless paper knowing that the government is going to pick up the tab if the worthless debt turns out to be worthless debt.   I am confused, is this not a very similar story to how we got into this position  in the first place? According to a Tresury Dept. news release,

“The goal of this program is to restart the market for legacy securities, allowing banks and other financial institutions to free up capital and stimulate the extension of new credit.”

A couple of items have popped up on the radar which indicate that possibly, just possibly mind you, the people may be waking up to what is happening to their country in the name of a  catch all campaign slogan, “change”. This first piece is from Martina Stewart of CNN, a network that is not noted for it’s lack of bias when it comes to “change”, out of Washington.

Even though he was almost a member of the new Obama administration, New Hampshire Republican Judd Gregg Sunday slammed President Obama’s approach to handling the country’s fiscal outlook.

“The practical implications of this is bankruptcy for the United States, Gregg said of the Obama’s administration’s recently released budget blueprint.  There’s no other way around it. If we maintain the proposals that are in this budget over the ten-year period that this budget covers, this country will go bankrupt. People will not buy our debt, our dollar will become devalued. It is a very severe situation.

Gregg, known as one of the keenest fiscal minds on Capitol Hill, also told CNN Chief National Correspondent John King that he thought it was almost unconscionable for the White House to continue with its planned course on fiscal matters with unprecedented actual and projected budget deficits in the coming years.

It is as if you were flying an airplane and the gas light came on and it said you have 15 minutes of gas left and the pilot said we’re not going to worry about that, we’re going to fly for another two hours. Well, the plane crashes and our country will crash and we’ll pass on to our kids a country that’s not affordable.

It is kind of refreshing to hear the situation described in real terms rather than with all of the political double speak that has been trotted out recently. If we, as a nation, are ever going to get a handle on the current financial crisis, we are going to have to start by dealing with reality and not by trying to take advantage of the situation in order to advance some “ideological utopia”.

What’s Next For Gold?

If you have visited my site in the past, you are aware that I have taken issue with those that purport that the lagging jewelery sales around the world point to a coming decline in the price of gold.  I have stated, on many occasions, that gold is beginning it’s transition into money and that increased purchases of bullion and coins will offset the slow down in the jewelry sales.  This next piece from March 20th’s Globe and Mail by David Parkinson speaks to that very issue.

In 1897, at the height of a major U.S. recession and banking crisis, a gold discovery on the Klondike River in Yukon Territory triggered one of the biggest gold rushes ever seen. Now, more than a century later, history is  sort of  repeating itself.

No, the world’s downtrodden aren’t beating a frenzied path to a harsh, remote swath of the Canadian north this time around. But the 2009 recession and banking crisis has set off a rush to invest in gold and other precious metals at unprecedented levels,  a move that has tightened the global supply/demand picture and helped push prices to record highs. And increasingly, they are opting for the tangible comfort of physical gold, actual gold bars and coins that they can cling to in troubled times.

When the banking crisis hit [last fall], we saw an avalanche of demand,  said James DiGeorgia, a Florida-based coin and precious metals dealer and editor of the Gold & Energy Advisor newsletter. People are scared to death that all this debt [being taken on by governments] is going to debase the [U.S.] dollar and other currencies around the world.

Data from the World Gold Council show that while demand for gold for industrial, dental and jewelery purposes fell 10 per cent in 2008, net purchases of physical gold for investment purposes jumped 64 per cent to 1,091 tonnes. In the fourth quarter as the U.S. banking crisis reached new depths net gold investment volumes surged 182 per cent from a year earlier. As a result of the boom in investment demand, overall gold demand rose 4 per cent last year, further widening the annual supply shortfall in the gold market.

These dramatic retail investment inflows reflect the extreme uncertainty that surrounds the global economy and financial system, the World Gold Council said. In an environment where investors are more concerned about the loss of capital than they are about the return on capital, the absence of default risk or counter party risk has been a key attraction for gold.

I added the bold type to the report to prove my point.  Gold is real money and it is the safe haven of last resort.  Now is the time to buy gold and gold stocks on any pullbacks.  Don’t be swayed by the media reports that the housing market may have put in a bottom, or that the Treasury Secretary, Timothy Geithner’s (Tax Cheat in Chief) new plan will halt the financial crisis.  The derivative time bomb is exploding in slow-motion and we have yet to see the true harm that they will do to the financial system and the dollar.

Bullish Reverse Head and Shoulders Pattern!

Gold has put in a reverse head and shoulder pattern that is very bullish for the precious metal.  This chart is pointing towards a new high in the $1,200 to $1,300 range.  We should see this move shortly, so be prepared.

Till next time, good luck and good trading!

More Gold Market Analysis:

• S&P Downgrades Dollar
• Time To Buy Gold!
• Take It To The Bank, Gold Is Going To Run!
• For Gold, The Stories Are Beginning To Add Up
• Nationalize The Banking Industry?