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I don't know if you've noticed it, but the nature of the gold action is beginning to change. Previously, when gold rose, the next day traders would take profits and gold would correct. But April gold was up 25.90 [Thursday], and instead of taking profits [on Friday] gold was up again – and sharply.
As I said, the gold action is changing – what's happened to the profit taking? Gold buyers have stopped taking profits, they are buying and sitting with their gold. Physical gold has now been swept off the market. Coins are only sold by dealers with big premiums over spot – that is, if you can find a dealer who has any gold coins at all.
A few sites ago, I wrote that I believe gold and silver are finally moving into their third (speculative) phase. Seasoned investors are thinking in terms of the demise of the dollar and of all fiat money.
As I said, the gold action is changing – what's happened to the profit taking? Gold buyers have stopped taking profits, they are buying and sitting with their gold. Physical gold has now been swept off the market. Coins are only sold by dealers with big premiums over spot – that is, if you can find a dealer who has any gold coins at all.
A few sites ago, I wrote that I believe gold and silver are finally moving into their third (speculative) phase. Seasoned investors are thinking in terms of the demise of the dollar and of all fiat money.
- Richard Russell
Global semiconductor sales tumbled 22% in December from a year earlier, putting 2008's decline at 2.8%, as the recession continues to batter the industry and prompt cutbacks from both chip producers and buyers.
Semiconductor Industry Association President George Scalise said, "The industry is currently facing an unprecedented period of uncertainty. A resumption of sales growth will depend in part on the effectiveness of various measures now under consideration by the federal government" to stimulate the economy.
Consumers drive more than 50% of all semiconductor demand, leaving the sector increasingly linked to the economy, consumer confidence and disposable income, Mr. Scalise noted. While sales of electronic products held up "reasonably well" during the first three quarters, the recession "severely dampened" fourth-quarter sales.
Semiconductor Industry Association President George Scalise said, "The industry is currently facing an unprecedented period of uncertainty. A resumption of sales growth will depend in part on the effectiveness of various measures now under consideration by the federal government" to stimulate the economy.
Consumers drive more than 50% of all semiconductor demand, leaving the sector increasingly linked to the economy, consumer confidence and disposable income, Mr. Scalise noted. While sales of electronic products held up "reasonably well" during the first three quarters, the recession "severely dampened" fourth-quarter sales.
- Wall Street Journal
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You Made 647% If You Were Paying Attention on This Date
By Tom Dyson Monday, February 2, 2009 You Made 647% If You Were Paying Attention on This Date -
These Businesses Are in a Death Spiral
By Porter Stansberry Saturday, January 31, 2009 These Businesses Are in a Death Spiral -
What the Best Trader You've Never Heard of Is Buying Now
By Dr. Steve Sjuggerud Friday, January 30, 2009 What the Best Trader You've Never Heard of Is Buying Now -
Those Oblivious Fools... How to Make Money Off 'em
By Dr. Steve Sjuggerud Thursday, January 29, 2009 Those Oblivious Fools... How to Make Money Off 'em -
The Government Doesn't Want You to Use This Amazing Strategy
By Tom Dyson Wednesday, January 28, 2009 The Government Doesn't Want You to Use This Amazing Strategy
These Bloodhounds Want to Raise Rates by 10%
By Tom DysonTuesday, February 3, 2009
In the 1980s, there was a group of traders called the Bond Market Vigilantes. These traders were like the guardians of the free market economy. They kept the government in check by driving up interest rates every time it tried to increase its finances or induce inflation.
Richard Russell, the dean of the newsletter world, calls them "bloodhounds."
Whenever the Bond Market Vigilantes sensed inflation, they sold their bonds. As prices on bonds fall, their interest rates rise. Higher interest rates made it more expensive for the government to borrow. They made it harder for people to buy houses. They hurt the economy. In short, the Bond Market Vigilantes prevented the government from engaging in reckless borrowing and spending by always threatening higher interest rates.
Today, the Bond Market Vigilantes are too weak to make a difference. To keep their economies strong and their citizens employed, Asian counties, especially the Chinese, lend gargantuan sums of money to the U.S. government. This massive intervention smothers the Vigilantes. It stops them from doing their job.
As things currently stand, the government and the Fed may take any steps they want to stabilize the economy, no matter how much these steps cost.
Now, the government is like a fat schoolboy taking candies from a well-dressed stranger. It has spent $8.5 trillion of future taxpayers' and foreign creditors' money guaranteeing debt and bailing out failed companies. But the government doesn't have its own money to pay for these remedies. So it borrows and inflates.
Analyst Jim Bianco's research shows the government's remedies have now cost America more than World War II. The Fed is expanding the money supply at a current rate of 151% a year... and in the last three months, the Treasury borrowed $485 billion. It has never borrowed this much in 12 months. In 2009, the government will run the world's first trillion-dollar deficit.
In 2010 or 2011 – when the Chinese arrangement ends – the Bond Market Vigilantes will return. Watch gold for the signal. Gold is a much smaller market than the bond market, so it's more nimble. When gold makes a new high above $1,050, you should immediately start looking for shelter. It means the Chinese arrangement is winding down and the Vigilantes are coming.
The Vigilantes will run interest rates up by at least 10%. They will force the U.S. economy to deal with its debt problem, the root of all our troubles today. No more bailouts, no more government guarantees, no more expensive spending programs, and no more printing money. This is what the situation was like in the early 1980s. It was chaos, but those who prepared ahead of time made a fortune.
This time around, while the vigilantes restore balance, you should own only gold, cash, and short-term money-market instruments.
In the meantime, you should use the stability to earn as much income as you can by selling options against blue-chip stocks and holding high-yield bondsand other income investments. These investments prosper when there are no Bond Market Vigilantes around.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
Sign up today to read more investment ideas from Tom Dyson.
Richard Russell, the dean of the newsletter world, calls them "bloodhounds."
Whenever the Bond Market Vigilantes sensed inflation, they sold their bonds. As prices on bonds fall, their interest rates rise. Higher interest rates made it more expensive for the government to borrow. They made it harder for people to buy houses. They hurt the economy. In short, the Bond Market Vigilantes prevented the government from engaging in reckless borrowing and spending by always threatening higher interest rates.
Today, the Bond Market Vigilantes are too weak to make a difference. To keep their economies strong and their citizens employed, Asian counties, especially the Chinese, lend gargantuan sums of money to the U.S. government. This massive intervention smothers the Vigilantes. It stops them from doing their job.
As things currently stand, the government and the Fed may take any steps they want to stabilize the economy, no matter how much these steps cost.
Now, the government is like a fat schoolboy taking candies from a well-dressed stranger. It has spent $8.5 trillion of future taxpayers' and foreign creditors' money guaranteeing debt and bailing out failed companies. But the government doesn't have its own money to pay for these remedies. So it borrows and inflates.
Analyst Jim Bianco's research shows the government's remedies have now cost America more than World War II. The Fed is expanding the money supply at a current rate of 151% a year... and in the last three months, the Treasury borrowed $485 billion. It has never borrowed this much in 12 months. In 2009, the government will run the world's first trillion-dollar deficit.
In 2010 or 2011 – when the Chinese arrangement ends – the Bond Market Vigilantes will return. Watch gold for the signal. Gold is a much smaller market than the bond market, so it's more nimble. When gold makes a new high above $1,050, you should immediately start looking for shelter. It means the Chinese arrangement is winding down and the Vigilantes are coming.
The Vigilantes will run interest rates up by at least 10%. They will force the U.S. economy to deal with its debt problem, the root of all our troubles today. No more bailouts, no more government guarantees, no more expensive spending programs, and no more printing money. This is what the situation was like in the early 1980s. It was chaos, but those who prepared ahead of time made a fortune.
This time around, while the vigilantes restore balance, you should own only gold, cash, and short-term money-market instruments.
In the meantime, you should use the stability to earn as much income as you can by selling options against blue-chip stocks and holding high-yield bondsand other income investments. These investments prosper when there are no Bond Market Vigilantes around.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
Sign up today to read more investment ideas from Tom Dyson.
THE NEWSPAPER BUSINESS HAS BEEN BETTER
Our award for the "smoothest" downtrend of the past few years has to go to the newspaper business.
As you'll see from today's chart of USA Today publisher Gannett, the newspaper business is in a sorry state right now. During a grinding downtrend, Gannett shares have declined from $50 in 2007 to around $5 now. The chart of fellow newspaper giant New York Times tells a similar story.
As our colleague Porter Stansberry described in this essay, it's the story of a business swirling down the toilet bowl. Companies are conserving cash and advertising less… folks are using free websites like eBay and Craigslist instead of classified ads... and most people under 30 never read the newspaper (most papers are terrible, so we don't blame them).
"Trend following" traders enjoyed huge profits in 2008 shorting stocks, commodities, and just about everything else. For any of you "trend guys" looking to make similar returns in 2009, have a look at newspapers.
As you'll see from today's chart of USA Today publisher Gannett, the newspaper business is in a sorry state right now. During a grinding downtrend, Gannett shares have declined from $50 in 2007 to around $5 now. The chart of fellow newspaper giant New York Times tells a similar story.
As our colleague Porter Stansberry described in this essay, it's the story of a business swirling down the toilet bowl. Companies are conserving cash and advertising less… folks are using free websites like eBay and Craigslist instead of classified ads... and most people under 30 never read the newspaper (most papers are terrible, so we don't blame them).
"Trend following" traders enjoyed huge profits in 2008 shorting stocks, commodities, and just about everything else. For any of you "trend guys" looking to make similar returns in 2009, have a look at newspapers.