Latest Stock Market Outlook from Jim Rogers, Marc Faber, Richard Russell & More!

With the markets looking as turbulent as they've been in the past 15+ months, the financial gurus are out in full force. We've got links below to the latest commentary from our favorites - Jim Rogers, Marc Faber, Richard Russell, Bob Prechter, and more.

Also below are links to important investment trends that you should be keeping an eye on!

Richard Russell: Expect Downside Action in Stocks
If the May 7 lows are violated, look out below!

Why We Shorted the S&P 500 This Week
An update on our latest trade

Robert Prechter: These Technical Indicators Have Me Worried
These 8 "rarely" line up on the same side of the trade

Marc Faber's Outlook on China
There's a crash coming!

David Rosenberg's Latest on the Money Supply
What inflation? Wake me up in a few years.


Excellent Economic Outlook Analysis for US
David Galland Separates Economic Fact From Fiction


Gold Vending Machines in Abu Dhabi
More signs of a top!


Deflation is Alive and Well
So says the US dollar

The Outlook for Crude Oil
What do the technical indicators reveal?

Jim Rogers' Latest Thoughts on Euro and European Bailouts
Why he'd look at silver right now, too

Latest CPI Numbers
Still no inflation to be seen

Germany to Ban Naked Short Selling
Revealing charts on how that worked out for US, Australia

Marc Faber's 3 Favorite Commodity Picks
These picks may be tracing out a "historic low"

How to Differentiate an Inflation Induced Rally From a Normal Run-of-the-Mill Retracement

Just a retracement?

Or is the bull really back?

Maybe inflation?

Deflation Camp - Anyone Left?

Outside of a few lone voices, the deflation camp sure seems to be getting lonely. This is interesting, because the US markets have only now retraced 60% of their previous losses. An impressive rally, for sure, but still within the 38-62% "Fibonacci range" that is generally expected of retracements.

FWIW, the Great Depression retraced a little over 50% of its initial leg down - so we're ahead of the 1930 rally, but just by a bit.

It DOES feel like this rally has been going on forever - over 13 months old, it's sure been impressive in it's magnitude and duration. BUT, it is important to realize that nothing has been decided - at least yet - regarding whether this is a technical rally off of extremely oversold lows, or a brand new bender driven by trillions of new cash.

Viewed with 5 years of hindsight, the current rally looks a bit more "normal" than when you're living it day-to-day.

(Chart source: Yahoo Finance)

The Early Symptoms of Inflation?

What's tricky, though, is governments around the world ARE printing money as fast as they can. And the first symptoms of inflation typically show up in either asset prices, or commodity prices - or both.

Today, we've got asset prices rallying, with financial stocks leading the way - exactly the first place you'd expect to see this "new money" showing up. A lot of financial commentators I've heard recently - good ones too, not just CNBC talking heads - believe this rally is now being driven by newly printed money.

Personally I think it's too soon to tell - we've retraced 60%, not 100%, after all.

But, if we're trading short term, we...

Gotta Respect the 200-Day Moving Average

And revisiting the S&P chart once again, we are indeed still north of the 200-day moving average. Check out the last five years too - you could have done a lot worse than being long stocks when the S&P is trading above the average, and being short when it's below:

According to the 200-day SMA, you should ignore my calls for an impending decline. Instead, you'd set stops around this mark.

(Chart source: Yahoo finance)

So while I may continue to hoot and holler about the odds of a downturn far outweighing upside potential, to be honest, you should probably ignore me, and just respect your trailing stops!

And for more on the power of respecting the 200-day moving average, check out this excellent article from Steve Sjuggerud in Daily Wealth.

If Everything Tanks, What Would Hold Up?

Judging by the price action across the board last Friday - not too much...

Almost everything is getting kicked in the teeth today.

(Source: BarChart.com)

Crude oil and precious metals got taken to the woodshed along with stocks on Friday - no place to hide there.

One bright spot - actually I should say one dim but not dark spot - are the grains. They haven't rallied much this year to date, so there may not be much downside from here.

Grains, by the way, are still one of my favorite secular plays - I just think it's best to avoid them right now. If the Great Depression is a guide, then grains should lead the way out of the Greater Depression as they did last time around.

Some Deflationary Evidence: Two Revealing Charts of Consumer Credit Trends

Late last week, our good friend and fellow deflationist Carson sent over a link from Mish Shedlock's blog, reporting a sharp annualized decrease in consumer and revolving credit.

I just plotted the Fed's historical data since 1978 (which I chose because there was a single quarter anomaly in 1977 that I didn't feel like dealing with).

First, we see that consumer credit, as of February 2010, is decreasing at an annual rate of 5.5%:

Consumer credit, after trending positive YOY in January, is once again heading south.

Next we look at revolving credit, where the data is even uglier, both in current and historical terms. Revolving credit decreased at an annual rate of 13%:

Will this debt ever be paid off?

The sharp decline in revolving credit, which is defined as credit that does not have a fixed number of payments or payment schedule (think credit cards), would appear to support the debt deflation argument (of Robert Prechter, most notably) that much of the current debt outstanding is going to go unpaid.

So while the government has engaged in quantitative easing to "ease" the issuing of its own debt, it has not yet offered to print up some greenbacks to pay off the debt of American citizens.

Thus far, it appears Americans are still choking on their massive loads of accumulated debt, unwilling to take on more credit, no matter what the Fed does.

It will be interesting to see if the Fed is able to reverse these trends.

Though Maybe We Should Just Short American Stocks Right Now

What's the most damning future indicator for America's near term economic outlook?

How about the latest cover of Newsweek?

Uh oh!

PS: Hat tip to MarketFolly for the tip here.

PPS: If you're into contrary investment thinking, I'd HIGHLY recommend The Art of Contrary Thinking by Humphrey B. Neill, which I reviewed here (ironically the same week we interviewed MarketFolly for the blog too!)

Another Bernanke "Guru Moment" - An Instant Classic?

The man who proclaimed the subprime problem was "contained" in March 2007 (after which Jim Grant hilariously quipped "yeah, to planet earth") - is back in the news again with another "guru moment".

The Wall Street Journal reports:

The U.S. economy should continue to recover at a moderate pace this year, but it will take time to restore all the jobs lost during the recession, Federal Reserve Chairman Ben Bernanke said Wednesday.

In his latest assessment of the economy, Mr. Bernanke told a congressional committee the pace of the recovery this year will depend on if consumers spend and companies invest enough to make up for fading government support.

"On balance, the incoming data suggest that growth in private final demand will be sufficient to promote a moderate economic recovery in coming quarters," the Fed chief said to the Joint Economic Committee.

Any fellow contrarians want to take the "under" on Ben's latest gem?

Jim Rogers Says Get Ready for $2,000 Gold!

Here's the latest Jim Rogers interview on Bloomberg:

http://www.youtube.com/watch?v=c-vd1-Ec2FY

A short bit with another clueless interview, so there's not too much new:

• Still likes commodities for another 5-10 years (based on the secular bull market beginning in 1999)

• Thinks gold will top $2,000 by the end of the decade, thanks to money printing

Jim notoriously sandbags his own trading acumen - always insisting he's "no good" at calling price/timing specifics - yet those who follow him closely know he's often pretty accurate with these calls as well!

You may also like:

• Why Richard Russell is very worried about the bond market

And My Current Positions - Cash, and Pass!

While it's very tempting to take a flyer short position, betting on a near-term decline, I'm going to actually respect the 200-day moving average this time. We'll see how it works out.

Other than some longer term short S&P and long US dollar positions I've got via ETF's, I'm mostly in cash, mostly waiting for the next mega leg down that I think is coming.

In retrospect I should have kept my long positions, and just kept moving up the trailing stops, until they were stopped out. Ah well, investing and trading is a lifelong learning process.

Have a great week in the markets!

How Do Gold Stocks Perform in Deflationary Depressions?

Let's take a stroll down Great Depression memory lane to find out what would happen if, in fact, we do slip into a deflationary depression. Would our gold stocks get trashed?

It's important to consider all the possible scenarios that could unfold...since it seems like we're heading for, or already in, a depression, we now need to figure out if it will be inflationary, or deflationary. And then, which investments will perform well in each environment...with the perfect scenario being one that would perform well no matter which way the money scales tip.

Do gold stocks fit the bill? Read on to find out!

***

Gold Stocks in a Depression

By Jeff Clark, Editor, BIG GOLD

What if deflation wins?

While we think the odds are strongly stacked against it, particularly given the government’s furious pace of money printing, the prudent investor understands – and respects – the time-tested adage, “Nothing is guaranteed.” So while our chips sit squarely on the spot marked “inflation,” what will happen to gold stocks if we’re wrong?

The Great Depression Speaks

The most notable example of what happens to gold stocks in a prolonged deflationary environment is the Great Depression. However, the United States was on a gold standard at the time, so miners had a guaranteed selling price – which was a good thing for them, because their operating costs were plummeting. So the comparability isn’t perfect, but let’s see what we can learn.

When the stock market crashed in 1929, gold stocks were part of the general wreckage (sound familiar?). The market then rallied and recovered almost 50% of its losses by April 1930, with gold shares again tagging along. It’s what happened next that gives us our first clue about deflation’s effect.

When the bear market resumed in the summer of 1930, all securities sold off again – except gold stocks. Gold shares stayed basically flat until early 1931, when they boarded the elevator and headed for the penthouse.

Let’s look at how shares of Homestake Mining, the largest gold miner in the U.S. at the time, and Dome Mines, Canada’s senior producer, performed during the Great Depression.

And the chart doesn’t show that you could have bought both stocks at half their 1929 price five years earlier, which would have led to gains of around 1,000%. And get this: both companies paid healthy and rising dividends as the depression wore on; Homestake’s dividend went from $7 to $15 per share, and Dome’s from $1 to $1.80.

Yes, volatility was high in the gold stocks throughout the depression, with occasional wild price swings, but after the 1929 crash most of the volatility was to the upside.

The bottom line is that the two largest gold producers – during a time of soup lines and falling standards of living – handed investors five and six times their money in four years.

From Homestake’s chart, you get a clear picture of what the stock did compared to the market as a whole:

You’ll notice the large spike down in both Homestake and the Dow during the 1929 crash... but then look at Homestake’s recovery immediately afterward, returning close to its old high. This is eerily similar to our recent pattern: our stocks sold off violently last October but have since doubled or more from their bottoms.

You’ll then notice that Homestake took almost two years to exceed its old high, but once it broke out, it was off to the races. The stock doubled four times in five years during a seven-year run to its peak after the ’29 crash.

The conclusion? If history is any guide, gold stocks can hold their own against deflation. And they could profit tremendously if the demand for gold as a safe haven continues to grow.

Gold vs. Deflation

On April 5, 1933, President Roosevelt issued an executive order forcing delivery (confiscation) of gold owned by private citizens to the government in exchange for compensation at the fixed price of $20.67/oz. And less than nine months later, he raised the gold price to $35, effectively diluting the dollar in every wallet 41% overnight and swindling everyone who had turned in his gold.

We don’t know exactly what an untethered gold price would have done during the depression, but given its distinction in history as a store of value, it’s likely to retain its purchasing power in a deflationary setting regardless of its nominal price. In other words, while the price of gold might not rise, or could even fall, your best protection is still gold.

But with this said, the overriding concern is that in a fiat system, any deflation will be met with an inflationary overreaction (as we’re seeing). And the worse the deflation, the more extreme the overreaction will be.

It’s for this reason that the editors of BIG GOLD urge you to own physical gold, in your possession and under your control, given its reliability as a store of value in both inflationary and deflationary environments. If you have less than our recommended one-third of your investable assets in some form of gold, check around for places to buy gold coins and bars at good premiums.

The Silver Lining

For those with an inclination toward silver, our research points to clear signs that silver is increasingly being viewed as a store of value and not just as an industrial metal.

Here’s a comparison of silver’s performance vs. base metals over the past six months (10-1-08 through 3-31-09), which includes last fall’s meltdown:

Silver +6.7%
Copper -36%
Lead -18%
Aluminum -35%
Nickel -25%
Zinc -13%
GFMS Index* -54%

[*Based on the average equally weighted settlement price for aluminum, copper, lead, nickel, tin, and zinc.]

If silver were viewed solely as an industrial metal, the price would be off sharply.

This doesn’t mean we think silver or silver stocks can’t go temporarily lower from here, but rather that the demand for silver as a store of value metal will be growing.

Bottom line: Whether we’re served debilitating deflation or insidious inflation, holding gold (and silver), along with an appropriate allocation of precious metals stocks, offers us both a fort for protection and a canon for profit.

Buying physical gold and silver as safe-harbor assets is for many investors a no-brainer at this point. But only a few have heard of another prudent gold investment – one that has gone up more than 50% in 2008, at the exact same time when the overall stock market bombed. You don’t want to miss out on owning this “48 Karat Gold” stock… click here to learn more.

Deflation Risks Subsiding...Goldilocks Has Been Achieved

Ben Bernanke was right – if you put your mind to it, and print enough money, you CAN prevent deflation.

New CPI numbers show that the core CPI (excluding food and energy, which nobody really uses anymore) actually jumped 0.3% last month, their largest increase since June 2008. About 40% of that increase came from tobacco taxes though, so you can bet our economic leaders are congratulating themselves on a “Goldilocks” inflation/deflation scenario.

Now they just have to figure out a way to put all that newly printed money away – shove all that toothpaste right back in the tube - and we’re all set.

Recommended reading: Andy Kessler on why Bernanke should spell out plans to combat hyperinflation.

The Dumbest Inflation Explanation I've Ever Heard

This is - by far - one of the stupidest things I've ever read.  This gem came in a monthly e-zine sent out by a real estate agent who got her hooks into me after the housing bubble started to pop, smelling fresh virgin real estate blood in the waters.  Needless to say, we're still renting - and buying commodities.

For your amusement - yes this is a real copy/paste.  I used initials to protect the innocent.

Dear Brett,

Fight inflation, buy a home! 

CJ heard someone say that recently. Makes a lot of sense to us! Every time someone buys a home, potentially hundreds of people get paid. That has a huge impact on the economy. Especially is this so in new construction. So, while it seems the government is being generous in giving away thousands of dollars in tax credits to people who buy homes this year, the government sees the tax credits as a sound investment! The economy gets back far more than the tax credit when you buy a home. AND, more home purchases might mean less government borrowing. High borrowing may fuel inflation. So, who's the next person you know who wants to buy a home? Please call us with their name and number and do your part to assist the economy. Thanks.

;hgerh;g'ersadg

Brett again...that was me smashing my head into the keyboard...3 times

For a more insightful look into inflation, check out Bud Conrad's article Battle of the Flations.

Dollar Hammered After Fed Announces It Will (Actually) Print Money

Yesterday, the US Federal Reserve announced it will buy up to $300 billion of US long-term Treasury securities over the next 3 months.

Where will the Fed get that money?  It will essentially create it out of thin air - also known as "printing money."

Shockingly the markets did not like this announcement from the Fed with respect to the dollar - apparently traders fear that by printing new dollars, each existing dollar in circulation will decrease in value.  Check out these moves just from the past 24 hours in the dollar and gold:

The dollar gets taken to the woodshed.

As traders flock to a form of money that can't be printed.

In a prescient guest article last December, Bud Conrad stated his belief that The Fed would ultimately opt for inflationary policies, rather than risk deflation.  

But the longer-term expectation is that Bernanke’s assertion – an assertion now backed up by action – that the government can and will print new money to any extent needed is the more important force.

Further Reading: Battle of the Flations, by Bud Conrad

4 Reasons Treasuries May Not Fall...Yet

Tom Dyson, who also believes in the short case for long-dated US treasuries, writes in today's DailyWealth that it may be some time before treasuries actually start to fall.

But he closes the article by mentioning that the danger is much greater on the long side of this trade - and mentions a great recent quote on the topic by legendary investor Rick Rule:

"Money will be attracted to the liquidity and transparency of the U.S. long Treasury market. I think this will be the final bubble of my generation. Crowding into a 20-year bond in a depreciating currency when inflation sets in, and long rates inevitably rise, will be a religious experience for the victims, in my opinion."

Thomas Jefferson on Inflation and Deflation

"If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless." - Thomas Jefferson

Deflation Everywhere You Turn, Get Comfortable

My morning glance at the Futures screens revealed that, well, just about everything is down across the board. Of special note:

• Cotton flirting with the 60-cent handle (wow, that looks cheap)
• Silver getting kicked in the teeth again
• Oil off big again, flirting with $90

Not to mention global stock markets getting slammed across the board.

In fact the lone positions weathering this storm appear to be our old friend, the Japanese Yen, and US Treasuries - both due to this flight to "safety".

Maybe "perceived safety" in the case of Treasuries - is it really safe to lock in a long-term yield that is below the rate of inflation, to a heavy debtor with an awful balance sheet?

I'm playing this mostly from the sidelines. I've got my long Japanese Yen position, which is performing nicely. While adding another contract may be the trade to make, I'd like to see how the rest of the week goes at the very least. I don't like buying the Yen, and the Swiss Franc for that matter, on these spikes, as I've seen them give back these gains before.

Also have my short Soybeans contract - which looks like it wants to bust through that lower level of resistance.

All in all, we may need to hold tight on the commodity front until the global economy gets through this soft spot. My suggestion would be to get comfortable. When the global economy reheats, we will have some fantastic buying opportunities.

Inflation vs. Deflation: The Battle Rages On

The battle between inflation and deflation continues to rage on, with deflation mounting a very impressive counterattack. Check out this chart of last Thursday's single day sector returns, courtesy of Agora:

It's challenging, to say the least, to make money investing when EVERYTHING in EVERY market is going down. This is the classic deflationary nightmare that triggers harrowing thoughts of the Great Depression, and prompted Ben Bernanke to once quip that the United States had a magical invention called the printing press that could stem any deflationary tide.

Please consider, though, that recessions (and depressions) are not inherently deflationary. Germany's pre-WWII depression comes to mind as an inflationary mess that ultimately led to the rise of Adolph Hitler.

The playbooks for inflationary and deflationary environments are quite different. In an inflationary environment, you want to avoid many stocks and almost all bonds, in favor of gold, silver, and other tangible commodities. In a deflationary environment, the argument goes that everything goes down in price, so you should just hold cash.

The inflation/deflation battle is one we'll continue to track closely here. While I do believe the government will print its way out of any potential deflationary scenario, thus giving inflation the nod, the deflation argument is certainly a valid one.

Which contender are you putting YOUR money on? Inflation...or deflation?

Marc Faber on Investment Outlook - Great Presentation

Really great info and insights here from Marc Faber on the near term and longer term economic outlook, from his vantage point.

I really love how he calls the Fed a "money printing machine." Interesting thing about his viewpoint is that, while he believes inflation will ultimately rule the day, he believe deflation will take hold in the short term, as the credit crunch worsens in the private sector.

Shorts Beware - Bush hauls out the PPT

In case you were under the illusions that the US operated completely free markets, this should set you straight. Article goes on to state what we've talked about - that governments are between a rock and a hard place, and they will opt for inflation instead of hard landings and debt repayments.

Why keep an eye on government actions? They have the ability to move markets, like it or not - so we have to account for the government in our trades.

Right now, here's what I see:

• It's an election year - government will therefore do everything in its power to buoy markets. This includes masking statistics (see yesterday's post on inflation) and keeping asset prices afloat (if inflation is triggered, so be it).
• Rates are coming down further, dollar be damned.
• Don't be surprised to see a socialistic, inflationary housing rescue plan pumped through (as everyone figures out Paulson's plan was pure show.

Of course there is still the risk of deflation, but wait for confirmation before you begin trading on that premise. Right now inflation seems to be taking the day, and what performs best in times of high inflation? You guessed it - gold and basically all commodities. Stocks may appear "flat", as they were in the 70's, but if you account for inflation, you're getting slammed by staying in stocks - especially as pricey as they are now.

The Real Inflation Number

The oft quoted site www.shadowstats.com says it all on the homepage - using pre-Clinton era CPI calculation methods, inflation is running north of 8%. This probably jives a bit better with your own personal observations of food and energy prices.

Suddenly a 5% savings account doesn't seem so great. Add in the depreciating dollar (down 9% last year against a basket of currencies), and you need to be making 20% annually just to stay afloat.

More from John Williams at shadowstats.com - this may come as a shocker, but you can't believe everything the government tells you:

“Politically, it is extremely important for the Bush administration to keep the monthly jobs changes on the plus side, because a down month or two could provide the timing base needed for the National Bureau of Economic Research to call a recession, and such is not wanted in an election year. As with the month before, the reported monthly payroll gain was statistically indistinguishable from a monthly contraction.

“Keep in mind that beyond the standard gimmicks, the Bureau of Labor Statistics simply can report any jobs number it desires. The current message from the reporting seems to be that the administration does not want to show a recession, but it would like Mr. Bernanke to ease further.”

Inflation on the Way

Nice, but scary, article in today's Rude Awakening

It's frightening how much free cash the central banks are pumping into the system - M3 rose 12% year over year (yikes)!

It's hard to see this ending well.

Bernanke - No Onions, Again!

Well, just bought my gold contracts back again. It's open season on the dollar - everyone take your shots!

For those just tuning in - the Fed cut rates another 0.25. Inflation, here we come!