Will Bailout Part II Unleash The Mother Of All Gold Rallies?

Back in November 2007, I wrote the blog post below about Citibank, Goldman Sachs and Merrill Lynch all being on the verge of bankruptcy.

“Are Citibank, Goldman Sachs & Merrill Lynch All Bankrupt?”

http://goldsilverstockcharts.wordpress.com/2007/11/04/are-citibank-goldman-sachs-merrill-lynch-all-bankrupt/

And less than one year later, Bank of America was forced to save Merrill, Citi required 2 emergency capital injections, and Goldman a capital injection from Warren Buffett and TARP.

And now 4 months after Hank Paulson threatened America with “Martial Law” and flip-flopped from buying bad assets to injecting capital, the banking system is still in collapse.

Here’s a chart of the XLF Financial ETF since Paulson’s October TARP plan.

The XLF Financial ETF has lost 62% of it’s value since Bernanke & Paulson’s original TARP bailout. 

And while October, November and December were brutal for gold and gold stocks with the deleveraging of hedge funds and the massive withdrawls from mutual funds; gold has now  recovered all of it’s losses, and has broken out against virtually all major currencies, including the US Dollar!

And it’s been even better for gold stocks. Here is the HUI Gold Bugs Index for the same period.

The God Bugs HUI Index has now “doubled” from it’s October lows, while the S&P is down over -25% and the XLF Financial ETF is down over -62%!

Get ready for the Mother of All Gold Rallies, because its coming.

Michael Cerulean

Main Street Fights Back And Says No To The Bailout!

I read this blog post and and had goose bumps, because it perfectly expresses the rage, the anger, and the mistrust that Main Street now has for Wall Street and our politicians in Washington. This is from internet gold trading guru “SliderOnTheBlack” who is sort of an online urban legend, and who has had some of the alltime great rants over the years.

Go Slider!

http://www.sliderontheblack.com/fed-bernanke-paulson/bailout-main-streets-message-to-wall-street-washington/

 Bailout: Main Street’s Message to Wall Street & Washington…

We don’t believe you.

Not a single word you say.

Why?

Do the words “read my lips – no new taxes” ring a bell?

We didn’t believe you when you said – “the credit crisis is well contained.”

We didn’t believe you when you said – “the worst is now behind us.”

We didn’t believe you when you told us the bill would be – “$150 billion.”

We didn’t believe you then and we don’t believe you now.

And how dare you!?!

How dare you trot out a bumbling, stumbling, stuttering, slickster like
the former CEO of Goldman Sachs who personally profited to the tune
of a $700 Million Dollar personal fortune by sending our jobs to China
so some fat cat Wall Street CEO could double the value of his stock options,
grab some lobbyist created tax credits, and drop .09 cents to his bottom line.

Not to mention that he, his former firm, and his ilk, were the ones who created
and profited from dumping all this toxic Wall Street paper on Main Street in
the first place!

Any coincidence that Paulson tried to “bum rush” us into a bailout, right
after Goldman Sachs started to collapse?

Bear Stearns – no problem.

Fannie & Freddie – no problem.

Lehman Brothers – no problem.

Merrill Lynch – no problem.

WAMU – no problem.

Goldman? – problem.

We all know there are no coincidences on Wall Street.

And now you want to keep your $40 million dollar apartment in Manhattan,
your $10 million dollar vacation home in the Hampton’s, and the windfall
profits you sucked out of America, just before you collapse it?

You want us to bail you out of bankruptcy, right before you send us
(and America) into it?

You want bankruptcy reform for you – after you locked us into serfdom
with the bankruptcy reform act of 2005 – right at the peak of the credit,
and housing bubble?

You want a bailout – AFTER you locked us, our children, and America
into debtors prison?

Relief, reform, and a bailout for you… and the bill & debtors prison for us?

You must really think we’re a bunch of chumps.

Well guess what Wall Street & Washington, while “this sucka may go down”
this time YOU’RE going down with us.

Sincerely,

Main Street

Is this Gold’s Moment of Truth?

While the long term trend for gold still looks positive. The HUI Gold Bugs Index chart since the March highs is clearly in a downward trend.

 

But I think that gold and gold stocks are going to reverse this trend very soon. And I may be in the minority with this opinion, but I think that Ben Bernanke is NOT done cutting rates. I predict that Bernanke will take the Fed Funds rate down to 1% before he’s done.

Housing is the key to the Fed’s rate cut decisions. Stocks are way off the DOW 14,000 highs from last fall. The US consumer is deeply in debt and has a negative savings rate. What’s different about this recession is that there is no savings nest egg, cushion for the consumer to fall back on.

Unemployment is rising and will continue to do so. Real incomes have been falling since 2000, and with a negative savings rate in the US, the Fed must prop up consumer assets (housing, and stocks), or consumer sentiment, and spending (2/3rds of US GDP) are going to collapse further.

I think that Congress, the Treasury, the Fed, and the CFTC are going to do what ever they need to do to bring oil prices down. And once they near $100, I think Bernanke will cut, and continue to cut rates down to a 1% Fed Funds rate, as long as oil stays near $100.

Here’s an interesting chart.

Most people feel Oil is in a bubble. But, this chart shows that it’s really just now catching up with gold!

The long term trend line for Gold is still very bullish, but that first chart above for the HUI Gold Bugs Index has me worried, because in my opinion, gold stocks must lead the metal, if gold is going to new highs.

What’s scary is that this corrective phase in gold and gold stocks could get really ugly, with gold correcting all the way back down to the $630 range – and STILL be in a long term bull trend!

While most believers in gold are long term investors and not traders. It is very difficult to take a correction from $1,000 down into the $600’s and still hold on to one’s gold.

I think that gold is a “hold” right now, and only with minimum core positions. I want to see the gold stocks lead the metal. And I want to see the HUI break out of it’s cascading downward trendline shown in my first chart, before I would move gold back to a “buy.”

Hold core positions strongly. If you’re a trader – you may want to study this chart from internet trading guru SliderOnTheBlack. Here is a link to an incredible chart on his Silicon Investor Forum Board that shows the HUI gold bugs index consolidation and breakout patterns for this cycle.

http://siliconinvestor.advfn.com/readmsg.aspx?msgid=23923456

We may just be experiencing another consolidation phase in gold stocks, and the HUI may very well be a spring that is getting tightly compressed, just prior to it’s next major breakout. And I believe that the fuse that is going to launch gold is Mr. Ben Bernanke, because I do NOT think that he’s done cutting rates.

Given the choice between inflation, and a housing collapse pushing the US into a very severe recession, I have no doubt that Bernanke is going to choose inflation.

Here’s another great chart. This one is called – “Ben Bernanke’s Report Card”

And guess who his teacher is?

Gold!

Another great chart in this post.

 http://www.sliderontheblack.com/gold-silver-stocks/trichet-weber-trump-bernankes-bluff-and-the-market-calls/

Hang tough gold bugs. I think that the US stock market, housing market, jobs/unemployment, retail sales, auto sales, and the banking/credit crisis are going to get worse – and Mr. Bernanke is finally going to do what he proclaimed he would do if he ever faced a deflationary crisis – drop money from helicopters!

Good Luck all, hold tight and wait for the breakout shown on my first chart above, because it’s coming soon!

Michael Cerulean

Ben Bernanke (a.k.a. Edward Scissorhands) Bogeymen and Gold.

On Tuesday January 22nd, with  global markets tanking and DOW futures set to open down 500 plus points, Ben Bernanke once again blinked, caving in to an unknown “bogeyman” that turned out to be Jerome Kerviel, a junior level trader at French bank, Societe General.

Bernanke delivered an emergency stop-gap rate cut of .75 basis points, but the markets weren’t happy with that, and Ben Bernanke doing his finest impression of Edward Scissorhands - caved in once again, and gave the markets another .50 basis points at the Fed’s regularly scheduled meeting last Wednesday.

So much for standing alongside U.S. Treasury Secretary Hank Paulsen just months ago and talking tough about the U.S.’s “strong dollar” policy. And so much for talking tough about fighting topline inflation.

Inflation be damned when there’s Wall Street bankers to be bailed out!

All the market has to do is call, and Edward Scissorhands will cause rates to fall.

So what does gold think about our new Fed Chariman, Mr. Bernanke?

Well, they say a picture is often worth a thousands words, and this one is no exception.        

   

So why would Bernanke cut rates 125 basis points over the span of just 7 trading days, with Oil climbing towards $100 and Gold towards $1,000?

 First of all, because the collapse of the housing bubble and subprime mortgage paper is only just the beginning of  the derivatives meltdown that is spreading like the ebola virus through global markets.

Swiss banking giant UBS stunned markets last week with it’s third round of subprime writedowns – that now total a staggering $18.4 billion dollars.

And now the bond insurers are in meltdown, needing an estimated $200 Billion Dollars of capital infusions just for the industry to maintain their AAA credit rating. Barclay’s just issued a report on the bond insurance crisis, stating that over banks hold over $800 billion in bonds and would incur losses on the ratings downgrades that would require additional capital infusions of $143 billion dollars.

 By the time this recapitalization of U.S. banks is done, OPEC and Asian souvereign wealth funds will control the U.S. banking system.

 This is not the same as when the Japanese were buying up trophy property and gold courses in the 1980’s. We have just transfered control and influence over our financial system (and fiscal policy) to foreigners.

This is an unprecedented and historic transfer of wealth.

Wall Street has extracted obscene pay levels and bonuses while gutting the infrastructure of the U.S. financial system that is now being sold off piece-meal to our creditors.

And do not for a minute – buy into these temporary relief rallies in the U.S. market, because the credit contagion is not over. Quie the contrary – as it’s just getting started.

Lying dead ahead is the securitized credit card, and auto loan paper to worry about, just as the U.S. economy stands poised to rollover into a deep recesion. And then there is the next shoe to drop — commercial real estate.

 This recession is occuring during a housing collapse and when the U.S. consumer with his “0″ savings rate – has nothing to fall back upon – except a pile of debt. And banks now battered by mountains of worthless subprime paper, will find rising deliquencies in auto and credit card loans and a potential collapse of yet another bubble in commercial real estate.

Bernanke by slashing rates and injecting liquidity, is  placing a huge bet that a slowing U.S. economy will ease inflation pressures,  and that oil and commodity prices will ease.

But, given the proposed $150 billion dollar U.S.  stimulus package that’s a cinch to pass both houses – I’d suggest that traders take a look at what gold did off the last stimulus package proposed after the Gulf Coast Hurricanes of 2005:

Now I know gold traders expected more of a rally off of Bernanke’s double rate cuts. But, you have to acknowledge that much of the recent move to new all time highs in both gold and gold stocks, along with oil’s run to $100 dollars – was in expectation of these cuts.

I believe that gold will build a brief and solid base here and is set to explode through triple digits as Bernanke will undoubtedly deliver yet another cut that the market is now pricing in.

This past Friday, traders bid up base metal companies like BHP and RTP, who have greatly lagged the gold plays into Bernanke’s rate cuts. I believe that gold and gold stocks will build a solid base over the next few weeks, and then will explode to new highs as the Bush stimulus package becomes reality, and as Edward Scissorhands is called on once again to cut rates and appease market angst. So hold on tight and get ready to enjoy an incredible ride.

Are Citibank, Goldman Sachs & Merrill Lynch – all bankrupt?

 Any card-carrying gold bug worth his salt knows that gold is money. It has been since the origins of time. And has continued to be – even into the face of mass dumping and manipulation by global Central Banks.

While it’s price may fluctuate – it’s role as money - never will.

Unquestionably gold’s role as money, and as a barometer of inflation and reckless behavior among  bankers has once again emerged – directly into the face of every effort to silence it.

The one place where gold’s voice is always ultimately heard – is in the global currency markets. The beauty of the currency markets is that it’s the only market too large for central banks to manipulate for any prolonged period of time.

Yes, Central Bankers can and do intervene in the currency markets from time to time. But, the bully-pulpit, not actual intervention is their main weapon, for no Central Bank has the currency reserves to manipulate any major currency for any prolonged period of time.

Over the last year and a half, both gold and gold stocks have been stuck in a trading range. But, a few months ago, this writer began to see action in the currency markets – specifically in the Euro Dollar, that signaled that gold was not just “alive and well” – but, also ready to soon launch to new highs.

 Back in July this blog cited the “Euro Dollar:Gold Ratio” as the key indicator to watch, in confirming that Gold and Gold stocks were about to enter a new rally phase:

 http://goldsilverstockcharts.wordpress.com/2007/07/03/the-euro-dollar-says-gold-is-doing-just-fine/

 And “rally” they have!

Gold has finally entered it’s most profitable and perhaps it’s most parabolic stage as the ultimate flight to safety currency:

“Gold as the only safe, true, and honest form of money.”

Over the last few weeks we have seen more cracks develop in the global financial system. Stanley O’Neil was forced to resign as the CEO of Merrill Lynch as the firm wrote off $8 Billion Dollars in subprime credit derivative losses. Citibank’s CEO looks to be the next casualty as Citi’s stock crashed over 20% in the past week. And speculation swirls over “Level 3 Off the Books” assets that are still valued at the banks own “market to model” valuations. Goldman’s “Level 3 Assets” which are valued at their own “mark to model” valuations are said to be $72 Billion – over twice the firms capital base of $36 Billion.

Goldmans entire existance relies upon the valuation of those “off the books” Level 3 assets.

The ”books” of America’s largest banks and investment houses are now being exposed as another — “Enron.”

No wonder the U.S. Dollar has collapsed to all time lows, and no wonder Gold is exploding to new highs.

If you have any questions about gold as money, or about it’s role as a safe haven in times of crisis – here’s your answer!

Just look at that chart – what a thing of beauty!

That chart holds up as a self-evident truth, even into the face of all the lies and manipulation that the Fed, the Treasury and the Investment Banks can muster.

No spin-meister can change these facts:

Just since August:

- Gold is up 33% against the U.S. Dollar

- Gold is up 23% against the Euro Dollar

- Gold is up 17% against the Swiss Franc (the “other” ultimate safe haven currency!)

- Gold is up 16% against the Japanese Yen

Make no doubt about it – Gold is the answer!

And the questions it may be answering are these:

Are Citibank, Goldman Sachs, Merrill Lynch, Bear Stearns, Countrywide Financial and Fannie Mae – all bankrupt?

Have the “books” of the entire U.S. Financial & Banking System  become – one giant “Enron”?

Are we about to see the largest bailout in modern history – dwarfing the S&L crisis and the post September 11th reflations?

And the final question:

 If so – how high can Gold go?

Michael Cerulean

Ben Bernanke Blinks and the Market Calls!

Gold, the HUI gold stock index, commodities and global markets have exploded to new highs, as Ben Bernanke decided to take the handoff from Alan Greenspan and run with the “asset bubble” ball by unleashing unbridled inflation upon the American people.

Greenspan has to be the luckiest man alive since that last Iraqi to make it over that Kuwaiti bridge in the Gulf War… all thanks to Ben Bernanke.

The market dealt Bernanke his hand and even with 3 inflation cards up, Bernanke blinked and decided to cut rates and bail out Wall Street. 

Bernanke’s decision to cave in to market pressure and to put Wall Street and the DOW above the American people and  fiscal responsibility, is a day that will live in infamy. It was also the day that insured “Greenspan’s Getaway” with his legacy as “Maestro” still intact.

And how about the Alan Greenspan legacy book tour?

Were you as amazed as I was?

From appearances with Matt Lauer on Good Morning America, to 60 Minutes and his book promo appearance charading as an interview with CNBC’s Mario Bartiromo – U.S. Taxpayers were treated to the equivalent of hoisting Barry Bonds up to America’s youth as the flag bearer of  sound mind, sound body and sportsmanship.

I almost gagged on my portabella tortellini when asked if he felt any responsibility for the present credit, subprime and housing crisis, and he replied – “No….none”

No responsibility for cutting interest rates to record lows and leaving them there far too long which created a global debt & credit orgy! “No responsiblity… none.”

 That’s beyond incredulous.

There’s irrational exhuberance and then there’s unbridled hubris.

The biggest bubble Greenspan ever created still remains unpopped.

– his ego.

I was nearly speechless when I saw his denial of “any and all responsibility” for this mess America finds itself within.

Do you want to know what I think about Greenspan’s legacy?

Alan Greenspan should be charged with crimes against humanity for dropping bombs of economic mass destruction upon  America’s economy and it’s people, because our children and perhaps our children’s-children will be paying for his ego and hubris.

• The U.S. Dollar is collapsing.
• Inflation is exploding.
• The U.S. economy is rolling over into recession.
• The Housing Bubble is going to make the “S&L Bailout” look like a pimple.
• And millions of Americans stand to loose their homes, their jobs and their futures because of Alan Greenspan – and now Ben Bernanke.

Just look at this message from the markets.

Here’s what the market said about “Bernanke’s Blink.”

And the HUI Gold Stock Index explodes +120 index points in less than a month:

“Bernanke speaks and commodities answer!”

 Alan Greenspan has now exited — stage left. And Ben Bernanke has taken the “asset bubble ball” and decided to run with it.  Gold and commodities are not just reflecting a weaker U.S. Dollar, nor are they just riding a liquidity tide that lifts all boats. They are signaling that Ben Bernanke has  not only “blinked” and lost his ”stare-down with inflation,” but that he has also adopted the Greenspan methodology of trading one bubble for another… digging America and Americans an ever deeper economic hole.

The Fed has injected a massive amount of liquidity over the last month with 3 repo injections of $31 Billion, $29 Billion and $38 Billion.

As the U.S. Dollar collapses, investors jumping upon this Fed & PPT orchestrated DOW bandwagon rally resemble those arranging deck chairs on the Titanic. 

In case no one else has noticed, those charts above have signaled that the lifeboats have already been launched.

– Michael Cerulean

Bernanke unleashes the “inflation trade.”

The Fed has finally chosen between runaway inflation and saving Wall Street insiders from the collapse of the housing, subprime and derivatives bubbles.

Inflation has been unleashed and given the slowing U.S. economy and the continued effects of the collapse of the housing & subprime lending bubbles – “stagflation” is now waiting in the wings.

This chart says it all:

 The Gold Genie has  broken out of Bernanke’s bottle!

Of particular note – Gold led the CRB index on this move and that tells me that this move will be based on a “gold is money” move – and not a broad based rally in all commodities.

For those “true believers” who saw all the positive currency signals that gold was transmitting over the last few months, and who used this recent correction from the shakeout of over-leveraged Yen-Carry Traders to load up on more gold,  I say: Boo-Yah!

 Gold is back!

 Back leading all commodities.

Back as true and free money.

 And back as the true and honest indicator of irresponsible monetary inflation by nearly all global central banks.

Hang on for the ride – this one’s just getting started!

And the best part of this move is that gold and silver stocks are still cheap. Gold has led this initial move and both physical silver and gold & silver stocks remain historically cheap to gold.

It’s time to load thy boat and hold on tight.

In my next post, I’ll review my favorite, individual gold and silver stock picks.

Michael Cerulean

The Euro Dollar says – Gold is doing just fine!

Gold bulls have now endured 14 months of consolidation & distrubition and many are now throwing in the towel. But, should they? Is the great gold & silver bull dead? Have we already seen the highs for this cycle? Or, are gold and silver merely in a long, drawn out consolidation phase?

For answers you need only look to the Euro. The Euro is now among the strongest of global currencies. So, let’s set the bar high and take a look at gold vs. the Euro.

Here’s the chart that holds many answers:

         

 Given the recent dumping of gold onto the market by Central Banks,  gold is showing amazing resiliency. We’re still riding on the 200 dma and as noted in “red” – and every penetration below the 200 dma has led to an immediate influx of strong buying and a “V-Rally.”

 As traders we have two plays here. The first is based on value. Add to positions and buy gold on any dip below the 200 dma – just set stops 5-6% below the 200 dma.

The second trade, a safer play –  is to add to positions on any momentum breakout above the blue-dotted trendline, which I think is imminent.

 All the fundamentals of the gold bull remain intact. We are witnessing  an unprecedented increase in global money supply. Derivatives are growing exponentially and we are seeing the smartest of smart money like Sam Zell and the Blackstone Group – cashing out. The U.S. used a credit and debt bubble to create an asset bubble in housing, and presently in U.S. equities. With cracks developing in subprime and mortgage backed securities, we’ve seen the warning signals in the derivatives market. It will be when, not if – when the meltdown in derivatives becomes a once-in-twenty year rogue wave event. Be prepared, stay the course, buy gold on any and all dips at and below the Gold:Euro 200 dma trendline and get ready for the imminent breakout back about the trendline. The U.S. Dollar is on life-support and Central Banks are doing their very best to keep the “yellow canary” in the coal mine silent.

They don’t call patience a virtue for nothing. Stay the course and be patient. When, not if… gold and silver will re-launch for part II of this generational bull market.

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

HUI Gold Stock Index Signals New Highs

After 8 gut-wrenching months, the HUI gold stock index has finally signaled it’s ready to move through last May’s sector highs. Here’s a snapshot of the present cycle for gold, using the HUI gold bugs index.

Each new up-leg of this cycle for gold & gold stocks has required a consolidation phase.  Technical bottoms are formed via selling exhaustion. Ideally, they correspond with a positive change in underlying fundamentals and investor sentiment.

The Fed has utilized every tool in it’s bag of tricks to keep the U.S. consumer and the economy afloat. They removed M-3 from public scrutiny, they’ve manipulated PPI & CPI numbers to where official inflation numbers have become a public joke. They’ve created one asset bubble after another and have flooded the world with U.S. Dollars.

But, sooner, or later – all chickens come home to roost.

 The beauty of Gold is in it’s versatility. Gold can trade as a commodity, it can trade as a currency and it always trades as the ultimate safe-haven during times of geopolitical and economic turmoil.

On the commodity side, we are only in the early stages of a generational bull market. There are three undeniable long term catalysts for this move.

1. The insatiable appetite of China, India and the emerging economies of the world.
2. A generational repudiation of paper currency for hard assets.
3. Massive global inflation and expansion of the money supply that can not and will not stop.

As a currency, Gold offers the lone refuge from the ravages of inflation. We have reached an unprecedented level of global inflation and it is not just the USA that is running the fiat printing presses on overtime. Here are the expansion rates in money supply for the major global economies over the last year.

- Russia has increased money supply by + 43%.
- India has increased money supply by + 20%.
- Brazil has increased money supply by + 17%.
- China has increased money supply by + 15%.
- Great Britain has increased money supply by + 11%.
- France has increased money supply by + 8%.

Golds biggest moves occur when it leads (not follows) the commodity sector. These initial moves often emerge with great stealth and remain under the radar of most traders.  And that is exactly what happened in November. While gold was in the midst of yet another correction – here is what we saw:

Gold confirms the global helicopter drop of fiat currency and errupts against all  currencies.

 

 Gold re-establishes it’s leadership to the CRB commodity index.

Gold breaks out agains the DOW – even as it hits new highs.

In my next post I’ll talk about where I believe gold & gold stocks are going and what the catalysts of this phase of the generational gold bull will be.

 Buckle up, it’s going to be one helluva ride!

Gold and commodity correction over?

This recent collapse of crude oil rocked the world of commodity bulls.

But, Oil is bouncing back, hard and fast.

As is Gold…

                  

Since last May’s blow-off top in commodities; every explosive rally in gold has led to an equally violent correction. But, gold bulls have endured and persevered.

The question remains: Is this just another wild whipsaw ride, or are we  witnessing the formation of the next major breakout in the gold cycle?

In my next post, I’ll share some charts that I believe support the case for this being the next major move for gold and gold stocks.

And this one is going to shock even the most bullish of the gold bulls!