Monday, November 10: Week in Review

The US stock markets were all off about 4% last week while gold and silver advanced almost 1%. Asian markets showed resilience, first stabilizing then advancing during the week. 

For the week end November 7th, gold opened the week at $728 an ounce and traded as high as $764 on Tuesday. In the aftermath of the Election, the gold market drifted lower, closing Friday at $734, up $6, or about 1% for the week. On the upside, expect resistance at $750 and again at $770. If gold trades past $770 this week, the next resistance point is $835. 

Silver opened the week at $9.88 per ounce, about where it ended the week before. It dropped to its low for the week on Monday ($9.70) then traded as high as $10.76 on Thursday. Silver settled on Friday at $9.97, up $.09, or 1%, for the week. Support for silver is now anticipated at $9.90, with resistance anticipated at $10.50, then $11.20.

Overseas holders of US debt --- to paraphrase Marlon Brando in the 1971 classic movie, The Godfather, ‘Keep your friends close but your major creditors even closer…!’ Overseas holdings of US Treasury Debt is currently $2.7 trillion…about 20% of the country’s GDP, and 27% of total national debt (about $10 trillion). While these are serious percentages, they are hardly burdensome proportions and they are certainly not large enough to unduly influence or compromise a new president.

The table below ranks overseas holders in descending order of magnitude. No surprises in the top five holders --- Japan, China, the UK, OPEC and Caribbean banking centers, mostly offshore branches of US banks, and totally legitimate. What’s interesting is an incremental analysis. Relative to one year ago, Japan actually REDUCED its holdings (still retaining the position of # 1 creditor); the UK ranked # 1 with new investment, increasing its holdings by more than $207 billion.

Source: Department of the Treasury/Federal Reserve Board,
October 16, 2008, http://www.treas.gov/tic/mfh.txt

MARKET HISTORY --- The election of 2008 is not only historic in its outcome, but it is emblematic of a similar financial crisis in the 1930s. It is only natural, therefore, to use the stock market during the transition from Hoover to FDR to get a gauge on what to expect today.

From the day FDR was elected until he was inaugurated, the Dow Jones Average fell 10.6%. Bear in mind that it was not in FDR’s interest to implement any changes until he was in office. The first full month after FDR’s inauguration, the Dow shot up 43%. It went up another 14% in the second month following inauguration, and another 11% in the third month.

Translating that to today, the Dow closed at 9625 on Election Day, 2008. A decline of 10.6% by Inauguration Day (January 20^th) equals 8605…and as of last Friday, we were about halfway there (8944). A projected 43% increase in the first month after inauguration yields a Dow forecast of 12300, a second month forecast of 14020, and a third month forecast at 15571 --- a market record high.

In the meantime, between now and January, this could be the ideal time to implement our Veteran’s Day investment strategy.

QUOTE OF THE WEEK, from Richard Russell, editor and publisher of Dow Theory Letters, in remarks posted on his website on November 5th:

Before inflation resumes, the US dollar is going to get the chills. The Fed has covered the world with a blanket of Federal Reserve Notes. These dollars are needed now, but in the period ahead these dollars will set off a wave of inflation. When there's too much of any item, that item loses value. When the supply of anything --- stocks, champagne, cars --- becomes excessive, the value of those items declines.

Yes, it can even happen to a currency. Too many dollars are now being created. Somewhere ahead, the dollar is going to lose its value against other currencies. Our overseas creditors won't accept a trillion more dollars, and that's what gold is now beginning to take into account. The intrinsic value of gold does not fluctuate in terms of dollars. The number of dollars required at any given time to purchase an ounce of gold fluctuates.

Comments

[directcommu...:]

We will have the standard santa clause rally and early 2009 will hit more lows.

2008 Nov 11 12:27 AM

[ussmls7:]

I think Ben & Paulson have took the US Tax Payers for a joy ride that will go down in history as the "Greatest Thief of All Times".! Inflation & Deflation will be on all the MSM Headlines for years! This morning I read where "Goldmans Urged Bets Against California Bonds it Sell"?! Talking about a Bunch of ScumBags at GS! Cal tax payers will get hit hard by this ,but just shows how sorry GS really is! Yesterday I also read a reply to a Cal Congressmans request about Manipulation by 2 Banks in both Gold & Silver Markets,CFTCs reply was a bullshit excuse to this Congressman,a common thing by the CFTC,always protecting the Big Banks that Started the waves of Toxic Paper Created by Pure Greed by Wall Street? JP Morgan is a Disgrace to this Nation,because of thier Involvement ,by doing the FEDS Dirty Work,while Tax Payers take the Brunt of Hurt,that the illumunia avoid.?
Who will give damn about Inflation or Deflation,if we are all broke by the Actions of the FED & King Paulson?The Price Surpression of Silver/Gold has left Miners out of Work,thier Mineing Stocks Worthless or close to it,Shortages of Physical PMs around the World because of paper price compared to physical.
As a Veteren,I see all the Freedoms We Bleed & Died for Going Away Faster than the Dollar can be Printed!!! This Congress & the Next one Have & will Continue to Gave Away Our Nation, to the Banking Cartels & their Familys! Obama has the Far Left & Unions Hounding Him to Repay them for his Election Sucess,which will bring more Pain to Mineing of any kind.Energy will be hit by the Radical Cap & Trade that Leftest Lobbyist are Writting for Congress right now! Inflation will be coming & there will be no stopping it. I hate to be a Gloom & Doom thinking person,but any one with a brain can see through the BullShit being Pushed out of DC & World Leaders!
I Wish all Veterens a Great DAY, Also Those Serving Here & Abroad And Don't Forget Thier Familys!

2008 Nov 11 10:20 AM

[Kunst:]

Some of the numbers seem odd:
• UK Treasury holdings tripled in one year? There must be more to this story.
• German stocks went down 11.8% last week, while France and England were down less than a percent? What accounts for such a large discrepancy?

2008 Nov 12 12:36 AM