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11292010 November 29, 2010

Posted by easterntiger in economy, financial, gold, stocks.
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Current Positions  (No Changes)

I(Intl) – exit; S(Small Cap) – exit; C(S&P) – exit ; F(bonds) up to 50%  G(money market) – remainder

Weekly Momentum Indicator (WMI***) – last 4 weeks, thru 11/26

+20.32, -6.12, +6.36, -17.96

(3wks ago/2wks ago/1 wk ago/Friday)

The following is repeated from the past 2 reports and is reflecting on prior projections that are matching actual market performance.

No bullish momentum is truly reliable until it can reach and hold or exceed the following levels, near the highs for the year.

S&P500 – 1200  (now modified to 1220, from 1200)          Dow Industrials – 11,000 (now modified to 11,200, from 11,000)

Anything else (lower than these levels) is still within the relatively narrow 4-month ‘trading range’ (changed to 6-month trading range)

This is a firm statement of the market’s current state of stagnation. This has only continued to be an extended opportunity for sellers to maintain their dumping activity to unsuspecting buyers, who are likely to be underwater, starting within the next several months.

Here are the closing numbers for the S&P500 (similar to our C fund) for the past 6 Friday’s

11/26 – 1189.40 (Friday)  <—–12 days – change of -10 points in 14 days!!!!!!
11/19 – 1199.73 (Friday)
11/121199.21
11/051225.85
10/291183.26
10/22 -1183.08
10/15 1176.19

The brief, 2%, Fed induced move 2 weeks ago above 1200 on the S&P500, that of adding $105-110 billion per month in ‘fuel’ to the economy through Treasury purchases for the next 8 months, took about a week to fizzle.  A reality adjustment appeared quickly.  As everyone already has figured out, if this didn’t boost the markets earlier,  it won’t this time either.  Everyone has also already figured out that this money never makes it any further than the hands of the broker-dealers, who use it to move a very narrow number of issues; not exactly stimulating to the broader economy.  This is working for shorter and shorter lengths of time, particularly, since this POMO (permanent open market operations, as it’s nicknamed, aside from the Fed’s official term of Temporary Open Market Operations) only amounts to short term loans, since these funds must also be withdrawn later from the system as certainly as they are added now.  That which is purchased with these temporary funds must later be sold.  The Irish bailout and expectation that Greece, Portugal or Italy won’t be far behind brings images of a domino effect on other economies and their related asset markets.

Expect range bound (flat) markets, optimistically, or, if a tax increase is not avoided at the end of the year, expect substantially weaker markets.

It should be very clear here if you are holding C/I/S fund positions that your reward is very small, exposing you to your greater risk as the true area of focus. If you consider big price swings as a reasonable comfort zone, without upward progress and carrying moderate risk, the next few weeks should be comfortable for you.

In spite of the flat range of the past week, partially offsetting a string of down days off of the peak of the year on 11/05 at 1227, there is a high probability that we’ve seen the high for the next few months, and possibly longer.  1227 was only EIGHT points higher than the prior high of the year, last April.  These widely-spaced (April high, November high) ‘double tops’ practically predict lower prices ahead.  Similar patterns are also showing in gold, silver and oil ($70 to $85 for over a year)

Housing and related expenditures represent almost 15% of our economy.  Fundamentally, so far, there will be no housing recovery until household formation begins to grow again, and that will only happen when total employment begins to increase in a sustained way that isn’t dependent on government props and artificial stimulation.

For years to come, stock/equity markets will continue in a wide range, unlikely to break much above or much below the highs and lows of the prior decade.  Precious metals prices will continue their upswing to further all-time highs for a variety of fundamental reasons, including dollar imbalances and true scarcity in some cases.

Even so, another topic should be brought forward due to the broad impact that it will have on all of us for the remainder of our lives. By focusing as I have for the past several years, I’ve discussed the fundamentals and naturally positive momentum in the gold and other precious metals markets, with effects that are now obvious. So, a few reports ago,  I decided that I would spend more time focusing on the energy  (OIL) markets.

Over the next 5 to 10 years, we will experience some dramatic changes in terms of what we pay, how we use and how we think of energy, certainly for transportation, but also for all other uses.

To get quickly to the point, the 2008 International Energy Agency Report made a number of startling revelations with regard to longer term supplies of crude oil versus projected demands.  A major factor, known as ‘peak oil’, means that for the first time ever, we are now consuming oil faster than we are discovering new sources to replace those that we have been depleting for the past 100 or so years.  Since it is a finite resource, exhaustion will occur at some future point, unless there is some combination of consumption changes and identification of new sources, most of which are presently 100% unknown.

In terms of time, peak oil, according to several trusted sources, occurred in 2006.

Here are several phrases taken from the 2008 International Energy Agency report.

*”… The world of cheap oil is over…”

*”… Current global trends are patently unsustainable…”

* “…The world’s energy systems are at a crossroads…”

*”… The time to act is now…”

Related article
http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article5141848.ece

In 1999, oil was below $20 per barrel.   Since that time, it has averaged from 3 to 7 times higher in the past five years.

Oil reserves in very, large sized oil fields are declining at a rate faster than new fields are coming on line, some more rapidly than they had been projected only a few years ago, such as the Cantarel oil field in Mexico, the world’s 8th largest oil field which is not expected to produce oil much beyond next year, after only being discovered in 1976.

This is while oil consumption is increasing under current patterns, or only flat or slightly declining if incentives and dramatic changes in habits are soon put into place.  Drilling on known fields can’t make up the difference.  Beyond dramatic consumption and conservation changes, the only remaining possibilities are within more expensive methods of extraction of oil in locations previously considered economically unfeasible, or those new discoveries now classified as ‘unknown’ fields, which for all practical purposes don’t exist if they’re not found.

Periodically, I’ll spend more time focusing on the realities of future shortages, their impacts, alternatives and potential impacts on our portfolio opportunities and risks.  This will serve as background information for us to be mindful of the impacts on our individual investment portfolios.

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