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Economic
Outlook, December 15th,2002
"The
possession of GOLD has ruined fewer men than the lack of it".
-----Thomas Bailey Aldridge"-------
A visit back
one year ago:
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--Saturday
December 15th, 2001--
Precious metals settled mostly higher Friday, with dollar weakness against
some key foreign currencies prompting funds to cover short positions in
gold futures. The yellow metal is another one of the few
markets that is currently sitting just above '00' year end levels..
prompting this FuturesCom Special Report On Gold
It’s been 21 years since Gold had its heyday. GOLD
BUGS are 'dead and buried.' The Swiss Banks that insisted upon buying some
GOLD for all of their Managed Accounts, have now liquidated their
positions and are probably short. Whatever happened to the "Gnomes of
Zurich?" In the past 21 years, GOLD has mostly been in a Bear
Market………….
In other words, the World has forgotten the Metals that Glitters. The
WORLD is Bearish on Gold BUT it remains just at or near year ago levels ..
Is there any reason to Buy GOLD NOW? There sure is. The fact
that Bulls in Gold are as scarce as a Snowball in July in Miami, is about
the best reason I can give you. But, eventually, VALUE goes to VALUE……
In my opinion a bit of Stagflation in the U.S may be just
around the corner. In case many of you had forgotten , Stagflation
was the culprit during 1974 to 1976, that nasty mix of rising prices
(inflation)) and a recession or stagnant economy.. A phenomenon where
BOTH Prices and Unemployment rose
If the depressionary price spiral cannot be offset by rising demand caused
by growth / consumption and while productivity gains are still
present .. Commercial interests may begin by 'covering their own
asses' so to speak by cutting production to increase prices and attain
profits for their shareholders that way.
So prices may rise and create cost push inflation as a result from
knee-jerk lowered production, War, pestilence or disease (swine flu, mad
cow.. Hoof and Mouth ) and famine rather than the great evil of
Demand Pull Inflation that Greenspan fought during the late 1990's..
What a pickle we would have then...
Copper production cuts..; Oil Production Cuts .... and so on and so
on...Toss in a bit 'o war' a crop disaster or two.. governments who
want to see their only source for income increase in price..and over time
prices rise on their own. Throw in a recession simultaneously
you get Stagflation..
When this occurs it is difficult to know which monetary policy and fiscal
to apply, more uncertainty ,
lower stock markets ect ect ...Everyone running around like chickens with
their heads cut off trying to find a cure..
Leaving HARD ASSETS looking relatively attractive...
Back to Gold... ---
I still see economic expansion in certain 3rd World countries. I see
trouble brewing in South Africa and the intentions of Russia to benefit
from higher metal prices the two countries that produce just about
ALL of the GOLD in the World.
(Platinum already began a long term move higher a couple years back)
Toss in the 'New War' on terrorism that may in fact
last for quite some time and stretch across vast regions of the world, who
knows what will happen...for example ...,Even though North Korea is
signing off on some anti terrorism accords current relations have been
described by some as explosive ..cont--.
--On Dec. 9 - it warned the United States against making it a
target of its war on terrorism, saying Pyongyang is fully prepared for any
U.S. attack and would "mete out unimaginably telling blows to the
aggressors. " "The U.S. still describes the DPRK
(Democratic People's Republic of Korea, or North Korea) as a 'sponsor of
terrorism' for no reason in a bid to provoke a war on the Korean Peninsula
as they did in Afghanistan on the pretense of combating 'terrorism,"'
the official daily Rodong Sinmun said in an editorial monitored in Tokyo.
"The U.S. designation of the DPRK as the target of the
post-Afghanistan war operation compels the Korean people to be in full
combat preparedness to lay down their lives for the country," it
said. The U.S. has taken Pyongyang to task for its nuclear program
and its missile development and exports. "If the U.S. imperialists
opt for a war on the pretense of 'combating terrorism,' all the means of
defense and attack in the DPRK will mete out unimaginably telling blows to
the aggressors and teach them what will be the end of the kingpin of
terrorism," the Rodong Sinmun editorial said.
"The DPRK is not Afghanistan. The DPRK is ready for defense and
attack. The DPRK'S striking power and the sphere of its strike do not know
the limits," said the mouthpiece of the ruling Workers' Party of
Korea.
North Korea is believed to have developed missiles
capable of delivering a nuclear warhead. In August 1998, Pyongyang stunned
the world by test-firing a three-stage Taepodong-1 missile over
Japan into the Pacific Ocean. It is currently working on a longer-range
missile known as the Taepodong-2, which analysts say will be capable of
traveling more than 4,000 kilometers and hitting Alaska and Hawaii with a
nuclear, chemical and biological warhead
And just today, out of SEOUL( courtesy of AP)-- North
Korea rejected U.S. demands for an inspection of its alleged nuclear
weapons program and refused to participate in talks on its missile
development. "There is neither condition nor need for the
Democratic People's Republic of (North) Korea to accept the 'nuclear
inspection,"' said Rodong Sinmun, the official newspaper of the
North's ruling Workers' Party. "The same is the case with the
'missile issue,"' it added. North Korea has
increased anti-U.S. rhetoric since U.S. President George W. Bush warned
this month that it and Iraq would be "held accountable" if they
developed weapons of mass destruction to carry out terrorism.
"The U.S. is going to use the dialogue with the DPRK as a lever to
pressure
and an opportunity to find a pretext for military provocation," said
Rodong. The report was carried by the North's official news agency, KCNA,
which was monitored in Seoul. The North has accused the United
States of preparing to make it the next
target after Afghanistan in the U.S.-led anti-terrorism campaign.
North Korea is on a U.S. list of countries sponsoring terrorism. It
maintains a 1.1 million- military, the world's fifth largest.
The U.S. keeps 37,000 troops in South Korea to deter North Korea, a legacy
of the 1950-53 Korean War. Technically that war ended in a cease-fire,
not a peace treaty.
As far as Currency or Gold goes who needs
it just buy Stocks... right....
Over the last couple years many stock bulls
and CEO's forgot what real money is and began treating stock as a
'currency'.. We all know the result.. they ended up blowing their
'investment brains out' ...
Best of all, my friends and Associates say I am crazy to predict a Bull
market in GOLD.
Most Economists are happy to stick with the Crowd and be Wrong than
take a chance and be Right. They rationalize that it is better to be wrong
and not stick your neck out than take a chance of being Right.
The World created economists to take the heat off the weatherman...After-
all, if you are wrong with the Crowd, you can always say----But so &
so was also Wrong.
2002 could be another so so year for Stocks, in my
opinion. If we see a sharp decline in the Stock Market in 2002, I wonder
how the billion dollar ‘funds ‘will react this time ?
I hold the view that one should have at least some
Precious Metals representation in their Portfolio. Now I am Not
saying that one should sell the Farm and buy gold or silver and platinum.
But I predict that Gold may rise at least $30/40 in 2002 and might even
trade above the $350 level in my opinion.
SILVER, even though industrial demand has diminished may trade near
the $ 475 and has a chance to rise above the $5.00 level, in my
estimation. Especially if 'ole' Warren Buffet decides lease rates on
his silver are too cheap and decides not to lease an ounce...
PLATINUM
HAS BEEN the best performer in the Precious Metals arena in the last
few years. We might see another rise to at least $600 next
year…….Since very few traders and investors are thinking about
investing in GOLD, I am more sure than ever that I may be right.
SANTAYANA once said that
"Those who forget History are doomed to repeat it." I agree….
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Sunday, December 15th,
2002
7:00 AM eastern standard time
As 2002 ended its first week of the
final month of trading, without much fan fare gold crept up amidst the abrupt
upheaval of the Presidents Economic team as the Unemployment rate tapped six
percent..
Upon completion of the second week of the final month Gold closed at it's
highest weekly close since the first week of October 1997, while the PPI fell
last month to it's largest decline in Six months….
--Point of note --
--Before the great last advance of the roaring 1990's that culminated
the 1982 to 2000 Bull Run, the SP500 was trading at 975 during the
first week of October 1997, the Dow sat at 8050 ish and the Nasdaq sat at
1750... Looking way back , December 31
of 1981 the Dow sat at 875.00 by Dec 31, 1999 the Dow had risen to
11497...during that period the GDP or as was known at that time, the GNP rose
nearly 200 % a stunning achievement of growth but still dwarfed by the 370 %
growth that occurred between 1964 and 1981.
When the Dow moved from 874 to 875 year end to year-end... something Wall
Street seems to omit.... it’s a curiosity that i find interesting.--
As last weeks revived global concern about nuclear weapons (and potential use
of) fed risk averse holders of
U.S Dollars and Global investors appetite for the Yellow Metal's long forgotten
store of value properties.
Investors continued on the year long trend of selling dollars pushing the Euro
to it's highest weekly close since the first week of the New Century and the
dollar index to it's lowest weekly close since the last week of January 2000.
Where was the EC in October of 1997 ? --1.1130 --
As we move forward into 2003 , new members to President Bush's Economic
team that will join with the Ole' Copper local in efforts stoke the flame of the
economic furnace not to just make it warm, but to heat it up.
There are going to get tax cuts galore and deficit spending like a kid in a
candy store . If we are lucky we
might even get more rate cuts. …..what the heck, lets make it a bakers dozen ! ….
All this is supposed to be bullish towards job growth by encouraging businesses
to spend and hire workers once profits are within reach, concurrently the
stock market is supposed to pick up on the increased economic activity and begin
a brand new bull run that is going to last for years.
Which according to Stock market bulls is where we sit right now..
However, as i have been saying since
long before the September of 2001 calamity, re-inflation is really what
they needed to do.( while I was recommending bull stock market posture --ugh--)
-Not merely tax cuts and rate cuts-
Over the last year we have seen
general price rises in raw commodities, but those rises can be attributed to
cuts in production, for example grains, copper and cocoa where the demand to
supply balance has been tilted to demand on lower production or special events
like weather and war. China has
helped boot demand , but not nearly as much as expected.
It will be interesting to see what happens if final demand does kick in.
However , it just appears to me that
final demand still stinks except for housing.
Our dollar is and has been way too high to encourage exports of technology,
services and goods .
The long forgotten manufacturing sector has to be revived to get the fire
burning bright and the government knows it.
Generally speaking , consumers and businesses must
perceive that higher prices are coming down the pipe to encourage final demand
to pick up at a faster pace.
Consumers are pelted with sales every day of the year..
and are now cherry picking at will…
Given that interest rates are so low. and productivity so high businesses ,
still reeling from corporate malfeasance shock and lack of leadership seem
rather reluctant to make any real investment to encourage future profit gain.
Which could further stagnate the prospect of job growth and eventually lead
to a decline of intellectual innovation and advance until more dire conditions
occur and advance occurs through need.
Toss in a lingering debt problem for consumers and
businesses alike and there seems to be very little impetus for any real
change in growth from the 3 to 4 percent economy.
Which may not even be achievable if
job losses persist due to overcapacity and immigration subsides due to Homeland
security issues.
During the 1990's it's estimated that 8 out 10 additional new male workers were
immigrants.
Estimates looking out ten to 15 years and made prior to September 11 , 2001
concluded that there will be 75 %
more persons over the age of 65 and only 25 % more persons aged
25 to 35....If those additions do not continue due to homeland issues, a
lack of workers needed to supplant the dis-investing retiring baby boomers
could become an real problem in years
to come.
That's why productivity was and is so important to Mr. Greenspan.
Fewer workers will be available to supply the dis-investing retirees with
goods and services as we move towards the end of this decade and into the next, thus
resulting in an inflationary trend as time moves forward. Which has a
negative effect on the general economy and more so on the general
P/E ratio of stocks as does
dis-investment.
.
Which could explain the reluctance of the Fed to really do what was needed at
the beginning of the slowdown, fearing that re-inflation prior to the
dis-investing years could result in a real mess down the road, but that
reluctance , along with the whole ball of deflationary debt ridden corporate
malfeasance wax has led to other problems for the current economy and stock
values…. so really, the result is STILL ONE BIG MESS that could last for
a while ..
----The Markets may be giving us that message again now.----
Happy Trading
wil@futurescom.com
Dec 15th , 2002
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