Commentary for the Week of March 8

For Baby Boomers, one of the most wrenching aspects of The Great Recession has been watching their retirement dreams slip away. Instead of inheriting the wealth their parents took more than 60 years to accumulate, Boomers can only watch in dismay as this once-vast sum is depleted by a combination of rising expenses, paltry yields and longer lives. Who would have imagined even a decade ago that $1 million banked for retirement would generate barely enough income for a modest lifestyle, never mind cruises to Tahiti, Broadway shows and golf vacations in Scotland? While their parents worry about running out of money if they live into their eighties and nineties, Baby Boomers are getting squeezed from the other end as their children graduate college with poor job prospects, worthless degrees and hefty college debts. And yet, there is no getting around the fact that these kids, as well as tens of millions of workers now in their thirties and forties who will never know financial security, will have to pay for the Baby Boomers’ Social Security and Medicare. Obviously, something has to give. But what?  That is the Question of the Week.

[Today’s edition of Rick’s Picks continues with a new format that replaces the customary daily essay with a question concerning some important issue of the day that readers can discuss and debate until the conversation grows tired. RA] The Powers That Be would have us believe that the U.S. economy has been recovering for the last several years. In fact, for most Americans The Great Recession of 2007-09 never ended. The term “Great Recession” itself has come to be used mainly by pundits and news anchors who wish to imply that, more than three years after the recession officially ended, its effects are still very much with us. Growth has averaged less than 2% over that time – the feeblest recovery on record – and median household income has actually fallen by $2718, or 5%, in real terms. This is especially troubling, considering the colossal size of the monetary and fiscal stimulus attempted so far. So feeble have been the results that even economists -- as optimistic a bunch of useful idiots as the White House could have on its side -- are predicting that second-quarter growth will be even slower than the anemic 1.8% achieved in Q1. What say you, readers? Here are some questions to consider: Was the recovery never more than a bunch of statistical lies, doomed from the start? And even if not, can it possibly take hold if payrolls and wages remain stagnant? What if the real estate market suffers a relapse, or – heaven forbid –  the stock market collapses? Your thoughtful comments are welcome.

Rick’s Picks inaugurates a new format today that will give forum participants a larger role in shaping the discussion.  Instead of the usual essay, I will be posing a question that concerns a key issue of the day. Today’s relates to a theme that has been sounded here many times over the years: Which do you foresee:  inflation, hyperinflation or deflation? To get the discussion rolling, here’s a post of mine at Mises.org in response to a thoughtful essay by Ed Bugos. In the essay, Bugos, a mining analyst and senior analyst at The Dollar Vigilante, asserts that although CPI has been tame, inflation is very much with us and will soon take off in a big way. My comments were as follows: "Mr. Bugos and other inflationists (although not the hyperinflationists, who may yet have their day) envision inflation returning more or less gradually.  But suppose a global flash crash were to occur, triggered by some black-swan event? In such circumstances, the financial system would implode overnight, banks would be shuttered indefinitely, credit cards would cease to 'work', and the economy would revert to barter/cash. Such an outcome would be catastrophically deflationary. "Try to imagine an inflationary 'remedy' and you see that there are none -- certainly not the one used by the German government in 1921-23, since that required tight collusion between the government and a largely unionized labor force. "Nor can it be argued that a flash crash and financial-system implosion are impossible.  Indeed, this outcome seems entirely likely, if not to say inevitable, since the global financial system is hard-wired to a $650 trillion derivatives edifice that has been built on ethereal collateral." Your further comments are welcome.

With bullion prices on the upswing and a possible end to the bear market that has ravaged mining shares for nearly two years, it’s a good time to look at a pair of junior exploration companies whose properties we recently visited. The companies are Rye Patch Gold [RPMGF: OTC], with holdings totaling 65 square miles along the Oreana and Cortez trends in Nevada; and California Gold Mining Inc. [CGM: CN] , which owns the 3351-acre Fremont Property in Mariposa, at the southern tip of the Motherlode just outside the border of Yosemite National Park . Like most small exploration companies, their respective stocks are trading at bargain-basement levels that beggar belief.  We would have no qualms about recommending either stock to family or friends. The caveat, however, is that neither stock is likely to move significantly higher if bullion quotes remain in a funk or fall. First, Rye Patch. A visitor to sites the company has leased near Elko and Winnemucca is certain to be awed by their panoramic grandeur. With a sweep of the hand, CEO Bill Howald traces out a broad vista of hills and valleys outside of Elko that contain gold and silver ore that is Rye Patch’s for the taking. With so much land under the firm’s operational control, much of it contiguous with promising stakes held and mined by much bigger companies, it’s truly astounding, but also depressing, that one can buy a share of Rye Patch these days for just 17 cents. That price could just as easily go to $2 a share or more if investors were to return enthusiastically to the idea that gold itself is precious. Alas, and for now at least, bullion mania seems a distant prospect. As such, our enthusiasm for the two companies is based on our strong

With all respect to Scott Fitzgerald, there would appear to be more than a few second acts in American lives. But let it be said that there are almost no second acts in the high-tech business. Thus, while a sociopath like Eliot Spitzer is on the verge of clawing his way back to quasi-respectability after having plummeted into a Mindanao Deep of disgrace, Blackberry, on the other hand, still looks like a goner. Recall that the parent company, Research In Motion, nearly flatlined a couple of years ago after failing to anticipate the paradigm-changing capabilities of the smart phone.  When Blackberry very belatedly jumped on the Android-powered bandwagon, the effort received muscular support from the press, presumably because thousands of reporters and editors were still hooked on Blackberry’s uniquely comfortable keyboard. They remained journalistically loyal to the device with some obsequious ray-rahs and full-page feature stories, even after the company’s 2.0 release proved to have been a work in progress – one that needed fixes for a few bugs and minor functional shortcomings. One might infer that RIM at that point was muddling through Act III; but in fact the firm was, and still is, slogging through the third scene of an extended Act II that will never be completed. We wish it were otherwise, since RIM has tried so hard to get it right. But here’s a recent headline –let’s call it a death notice – culled from an online source:  Research In Motion Posts Huge Q1 Miss: First Net Loss in 8 Years, Blackberry Launch Delayed, 5000 Jobs Cut.  In response to all of the bad publicity, Blackberry’s CEO has done what any CEO would do – i.e., pleaded for more time. We truly wish him well, since, in trying to reinvent itself on an extremely unforgiving deadline,

There’s probably a trillion dollars or more parked in T-Bonds that could soon be looking urgently for a new home. As such, it’s probably a good time to revisit our technical forecast calling for a Dow rally to 16800 -- an 11 percent premium over current prices. Where else can all that money go?  Regardless, we have to assume that a wild plunge into shares right now would be a dream come true for Bernanke & Company, since it would help sustain the meticulously crafted illusion of a recovering economy even as steeply rising mortgage rates asphyxiate the U.S. real estate market. Whatever happens, it’s safe to assume that a new investment paradigm is in effect globally, since anyone holding Treasury paper these days must feel like a dead duck.  How dead? Our technical runes suggest that even after the sharp selloff of the last three weeks T-Bond futures still have quite a ways to go before they could attempt to get traction, never mind put in a solid floor. Specifically, we’re looking for the September contract to fall to at least 129^03 – a 3-1/2–point plunge from here – before they would become an attractive buy. Thirty-year mortgages would be headed north of 4% at that point, which, when combined with the stringent lending standards already in place, would virtually eliminate first-time buyers from the housing market. That in turn would weaken sales upstream, since homeowners looking to trade up would be frozen in place. A Blowoff? As for the Industrial Average, the chart above suggests a push is imminent to a lesser “Hidden Pivot” target at 15649.  That would be a relatively modest thrust, amounting to 549 points, but the additional 1151 points needed to reach 16,800 would by no means be assured. From our technical standpoint, odds

Despite yesterday’s weakness in gold, technical signs remain as bullish as they’ve been in months.  In the chart below, notice how the rally off last Thursday’s low exceeded two prior peaks (#1 and #2). This surge represents a bullish “impulse leg,” according to our Hidden Pivot System, and the last time one occurred, back in April, it predicted a $100 surge. This time, however, the impulse leg looks even more promising, since the two peaks exceeded were more challenging than the ones surpassed last spring. The implication is that once the rally has been fully corrected, August Gold will take another leg up that is equal to or greater than the $81 leg just completed.  In theory, however, before this happens, the futures would need to pull back by at least $16 to be fully recharged.  Tuesday’s $28 pullback more than met that requirement, and although there could be more backing and filling in the days ahead, from this point forward August Gold is good to go for an $81 thrust. To be sure, there are cautionary flags out at the moment, since the recent bear market low at $1179 exceeded a key Hidden Pivot support of ours by $40.  This suggests that weakness will return during the summer. However, we’ve learned to keep an open mind concerning our technical indicators and to never chisel our expectations in stone. More immediately, though, gold looks like a bull play on a time horizon of about 5-7 days. Assuming yesterday's 1238.30 bottom survives, the countdown for the $81 thrust would begin at exactly 1259.10.  Getting long at that price would still be risky, however, since placing a stop-loss in the obvious place – i.e., beneath yesterday's 1238.30 bottom -- would imply  entry risk of more than $2000 per contract. In practice, we

[The apex of yesterday's 174-point short squeeze left our bearish option position (see below) undisturbed, since the put options we'd have exited on a 59-cent print traded no lower than 61 cents. When the flood tide receded, the puts rose to end the day at 81 cents. If DaBoyz should attempt to leverage Independence Day seasonality yet again, we're prepared to blow out the position for a probable loss of $100, commissions included. RA] A bearish option trade that we recently recommended in the Diamonds illustrates how Rick’s Picks attempts to establish short positions that are essentially riskless, or very nearly so, in a rampaging bull market. Last Tuesday, with DIA trading near 148.78, we told subscribers to buy put options if this popular trading vehicle, a proxy for the Dow Industrials, rallied to a Hidden Pivot target at 150.39. Here is the trading “tout” exactly as it went out to subscribers that night: The 150.39 rally target shown [click here] is a tempting spot to try shorting, since the ABC rally pattern has many characteristics that we like. Accordingly, I’ll recommend buying four July 146 puts if DIA trades above 150.35. Stop yourself out if the puts trade for 0.20 less than you paid for them. You could also offer 400 shares short at 150.37, stop 150.47.” The 10-cent stop-loss we advised on the stock may seem extremely tight to experienced traders, but it turned out to have been a little wider than we needed; for in fact, the Diamonds peaked on Thursday’s opening bar at exactly 150.42, three cents above our target. This is shown in the chart above.  In the chat room moments later, several subscribers reported buying the puts for 0.79, so that is the price we used as a cost basis for our naked-short position.

[Since Wednesday night, when the commentary below first appeared, gold has broken down yet again, having traded as low as 1179 in after-hours action Thursday night.  The fact that a major 'Hidden Pivot' support at 1219.20 held for only a day is quite bearish going forward. Meanwhile, judging from the e-mail I received and comments posted in the forum, just about every person on earth has been expecting Comex August Gold to fall to at least 1150 for months, if not longer. If you haven't weighed in already, we invite you to post your own target in the forum, since someone is bound to be right. Earliest postmark with the correct call wins a trip to Six Flags Over Newark. RA] Gold has plummeted anew, diving $54 to a low that missed a bear market target of ours by less than $2 on Wednesday. The intraday bottom at 1221.00 fell 1.80 shy of a 1219.20 target for the August Comex contract that had been disseminated to subscribers when the futures were trading $200 higher. So now what?  Because the target was an important one, a “Hidden Pivot” support that had been ten weeks in coming, we should expect a substantial bounce, even if it doesn’t last for long.  By substantial, we mean $100 or more over a period of perhaps 5-7 days.  However, the more feeble the bounce, the more bearish the implications for the intermediate-term.  To be more specific, if the futures were to take out the 1219.20 support within the next day or two, or exceed it after having bounced no higher than $20-$30, that would be a very bearish sign going forward. So far, the rebound has amounted to $23, most of it achieved in after-hours trading. This is a modest showing, to be sure, although hardly