Monday, November 24: Week in Review

You know we’re in a market of continuing adjustment when a typical business day includes Hearings before Congressional Committees, Government testimony and daily announcements from either the Fed Chairman or the US Treasury Secretary.

The Markets

Gold opened the week at $737 an ounce, trading as low as $731 on Monday, and as high as $801 (Friday). It closed at $798 for the week, up $61 or 8.3%. The next resistance point for Gold is at $836, then $877 --- though a move past $900 seems possible in the days ahead. Downside support: $778.

Silver opened the week at $9.28, trading as low as $9.13 on Tuesday, and as high as $9.85 on Wednesday, before closing at $9.55 for the week, up $0.27 or 2.9%. If silver can break through a $9.65 resistance level, silver stands poised to close over $10 an ounce this week. Downside support: $9.45. In support of a silver price north of $10 an ounce in the weeks ahead, consider this excerpt from GFMS, as reported in the Business Standard, November 21st:

”A growing 'surplus' between supply from mine production and scrap and fabrication demand means that more metal will have to be absorbed by investors. GFMS' view is that this will take place and that this demand will also tend to drive prices up from prevailing $9-$10 levels.

There are several reasons for expecting such an outcome: (i) inventories have now been cleared out; (ii) the dollar rally will be partly unwound; (iii) 'de-leveraging' will come to an end, and economic and financial problems will get worse. Silver - likely to be seen as 'cheap' on a ratio basis - will be helped higher by gold. In light of this, GFMS' current base case price forecast for 2009 is for silver to average close to the $13 mark.”

Comment: the reason de-leveraging coming to an end enters the macro-equation as a negative is that there is little left to liquidate and / or re-collateralize. This also means that selling pressures in worldwide stock markets may abate, but more likely, the rates of decline in equity values will lessen.

In support of this Precious Metals perspective, here is a short video clip of Peter Schiff, who manages the Euro Pacific Fund. Also here is his fund’s web site: http://www.europac.net

Basically, what Peter is saying is that the trillions of dollars the USA has borrowed since 1985 has been spent on consumption, and now, these dollars have to be repaid. He sees gold moving to $2,000 an ounce in 2009…which means silver at $24 an ounce, using today’s ratio of Gold-to-Silver, or $34 an ounce using the ratio established for the preceding decade.

What is particularly remarkable about this video is the undisguised disdain for precious metals investing shown by the CNBC panelists interviewing Mr. Schiff. Gold has been the best performing asset this year, and here are some prominent money managers (some of whom may be investing your money…!) practically ridiculing that notion.

That’s precisely the kind of closed-mind, herd mentality thinking that got the country into this financial crisis, and as long as it continues to get media time, it will prevent the stock market and real estate market from finding a bottom. What worked in the past is not working now…and some investment professionals, like these CNBC panelists, just don’t get it. Time for GE (which owns CNBC) to install some fresh faces, if not fresh minds, as panelists.

Nothing more clearly demonstrates the market’s callous disregard towards this flurry of self-serving government cheerleading than a review of last week’s price action in Citigroup (C). Its stock began the week at $8.89 per share – meaning a market value of $48 billion -- and finished the week at $3.77 per share, a market value of $20 billion, or a loss in shareholder value of 58% for the week.

Since the beginning of the year, Citigroup has lost 87% of its value, and since Bush was inaugurated President in January 2001, 91% of its value --- meaning its loss in value has pretty much taken place this year. The same performance, or more accurately, the lack of it, can be said for other market leaders…General Electric, for example: Current market value at $140 billion is down 63% from a $370 billion value when Bush was first inaugurated. We are at the end-stage of de-leveraging…selling or collateralizing whatever assets an investor can, and tightening up on any new investment outlays.

Comments

[Michael Fit...:]

the CNBC hosts and commentators you speak of have a very precise agenda: concentrate wealth amongst the most well connected, and gut the American middle class. as you mentioned, GE (which owns CNBC) has seen a huge decline in stock market value under george bush, yet joe kernen and larry "goldilocks" kudlow still gush their support for bush and hourly discredit democrats and clinton (under which GE, the middle class, and the markets thrived). also, since GE builds the turbines for pickens' plan, why did GE initially refuse to run pickens' ad about cars in oil exporter countries such as brazil and iran being converted to run on natural gas? i can't even watch CNBC any more. along with bush, CNBC, FOX, and the WSJ must share in the responsibility for moving the US from a democratic capitalistic country to out-and-out fascism. it's disgraceful, but media is power, and the very few are using this power to concentrate wealth into their own hands at the expense of hard working american taxpayers. in itself, this is not very surprising. what is surprising is the American electorate's refusal to understand what is happening, rebel, and take action to prevent it. obama is a step in the right direction..i can only hope we don't experience JFK part 2. yes, i am a cynic...how can any thinking person watch what has happened to the US over the past 8 years not be?

2008 Nov 24 03:12 PM

[too old:]

People that praise Clinton seem to forget that it was the Republican congress headed by Newt Gingrich that forced Clinton to sign bills that democrats didn't like. Clinton rates as an above average President and much of that high rating is directly due to Newt. Clinton claims as his greatest achievement the signing of the "Welfare to Work" bill that he vetoed 2 or 3 times before he finally signed it.

2008 Nov 25 10:24 AM

[User 30121:]

Fitzman has it right. I watch CNBC and Fox Business and its like watching soaps on CNBC and whats happening in the business world on Fox, period!
CNBC talking heads are media whores, and little else. Run the other way when they (CNBC) speak.

Its like seeing a great stock/mutual fund promoted to BUY on the cover of Money magazine. Even it if were legit, the stock/mutual fund is long past its time when you see it on a magazine cover, capeesch?

2008 Nov 25 10:27 AM