Commentary for the Week of March 8

[What themes will drive investment in the next decade? In the essay below, ‘Mercurious,’ a frequent contributor to the Rick’s Picks forum, sees the ebullient U.S. consumer as a dying breed. Even so, for investors who understand that consumption itself is not going to die but merely change, there is money to be made. RA] As investors, we should be keen to discern changes in large-scale behaviors that will affect the what and when of our buys. The market ideally is a barometer of where we are in an increasingly interconnected world, and even factors like high frequency trading are usually just amplifiers of what is, rather than total distortions of it. When we survey the effects of ongoing world-wide financial and political distress, can we begin to see changes in the contours of how we think and what we buy? If we do, it would be prudent to take them into consideration and invest accordingly. To begin, this is fundamentally a U.S.-centric analysis. While other areas of the world are rising fast in overall consumption spending and investing, the U.S. still leads that metric, and for the time being remains the dominant arbiter of popular culture. I think the feedback mechanism of instant communications is supporting the emergence of a world-wide cultural norm, so this is not just about the U.S. in the long run, but I'll confine myself to the U.S. for now. Some themes we would want to be aware of in orienting ourselves to the current domestic landscape would be: a flood of technological innovation, much of it focused on and available to the masses; a retreat/collapse in widespread employment of a level consistent with a middle-class lifestyle as we've come to know it; tremendous political ferment on both the left and the right; unprecedented levels

[So many systems are failing – financial, healthcare, education and government, to name a few of the biggies – that one might think it had all been planned that way by the “experts” who hold sway over our lives.  In the essay below, a friend, V.R., a management consultant, takes note of some disturbing signs that things are likely to get worse before they get better. RA] Remember the bumper sticker “If you’re not outraged, you’re not paying attention”?  I propose that attention itself is an investment, and like all investments, requires vigilance in execution and bypassing the “noise,” The marketing pitch of “New and Improved” slowly engulfed our entire culture. It conditioned (i.e., brainwashed) everyone to believe more in what’s new than what has worked. We are, in effect, addicted to newness as a panacea, having little memory of what worked before. With U.S. education falling to about 30th in the world, we have a population that knows little and whose analytical reasoning ability is as shallow as the latest newscast.  This spells opportunity for some.  For example: Through the promotion of pharmaceutical medicines by “captains of industry” who had a vested interest in replacing what still works for a minority of believers, the medical world brushed aside the accumulated knowledge of natural remedies to sell patented pharmaceutical wonders. Also sidelined was the “prevention” idea, such as exercise, and only eating food not technologically tampered with.  The population has been conditioned to believe in drugs, despite glaring evidence to the contrary that is easily found (and discounted).  In this case “they” are the doctors who all attended medical schools funded primarily by big pharma, so what else could doctors know?  Vioxx, an FDA approved drug, was on the  market till 50,000 people died from it and Merck sold $2.5B

Like a breath of spring, wasn’t it?  Just when we were expecting yet another short-squeeze toward Dow 14000 and beyond, the Indoos plummet a refreshing 203 points, bowing to economic realities and rationality at last. Or was it just March madness? Who cares. When some uncharacteristically glum Wall Street wrap-ups hit the tape late Tuesday afternoon to acknowledge the stock market’s steepest decline of the  year, it were as though we’d died and gone to heaven. It was even better than that, actually, since the selloff did not exactly take us by surprise. A trading “tout” that we first aired in mid-January called for a 600-point Dow rally to 13085, but here’s the timely update that went out to subscribers shortly after midnight Tuesday:  “The Dow [has gotten] as high as 13056 — close enough to the target to turn us very cautious.  This means, for one, that we are not taking the likelihood of yet one more short-squeeze rally as a given.  In fact, a downdraft that exceeds 12883 would create the strongest bearish impulse leg on the daily chart that we’ve seen in a while.” In the actual event, the Dow blew past 12883 on its way to an intraday low at 12734. So how bearish are we?  Not as bearish as you might think, actually -- just very cautious, as noted above. We leave bullish and bearish “feelings” to gurus who possess, um, crystal balls. We don’t purport to see the future – only to trade day-to-day realities that can change so fast that if you stop to pat yourself on the back after making a good trade or prediction, you risk getting flattened by Mr Market’s equivalent of an 18-wheeler. But as long as you don’t take your eye off the truck, there is nothing to

[Statistically speaking, the average Baby Boomer has not socked away nearly enough to live well in retirement. Is there time to get back on track?  Yes, according to our good friend Doug Behnfield, a Boulder-based financial advisor. But it won’t be easy, he says, and the steps he has outlined below in a letter to clients will create a heavy drag on the U.S. economy in the years ahead -- especially if millions of Baby Boomers try to play catch-up by saving like crazy. RA] When I turned 55 years old back in 2009, I did a study to determine what the 80th percentile 55-year-old household looked like financially, in general terms. I originally called the EBRI (Employee Benefit Research Institute) in Washington D.C. because I wanted to get a feel for how well prepared my cohort was for retirement. I was referred to an economist at the University of Chicago who heads up the Survey of Consumer Finances for the Federal Reserve Board. Not exactly the beginning of a movie script, but I struck up a very informative relationship with this individual who lived and breathed the financial reality of the American household. What unfolded was an eye-opening effort to determine what it would take for the Baby Boomers to retire with a lifestyle befitting the upper middle class of one of the most prosperous societies in the history. After all, who could be so pessimistic as to forecast failure for the people who sit at the center of our most influential demographic age group? But the data on their current financial condition is, to say the least, daunting. And particularly now, at 57, they do not have much time to prepare. There were three primary reasons why I chose the 80th percentile 55 (now 57) -year-old household. First,

After spiking above $110, the price of a barrel of crude oil receded sharply on Friday, suggesting that the winds of war had abated, if perhaps only temporarily. Oils ups and downs seemed to track Obama’s rhetoric concerning Iran over the weekend. It began with the President saying, in an interview with Atlantic Monthly magazine released late in the week, that he would never allow Iran to develop a nuclear weapon and that it was no bluff to say that the U.S. was prepared to use force to prevent this. But by Sunday, the President had somewhat changed his tune. In a speech before AIPAC, the pro-Israel lobby group, he said there was still time to give negotiations and sanctions time to work. This line landed with a thud at the AIPAC conference, although Obama drew cheers for insisting, in the same speech, that “I do not have a policy of containment; I have a policy to prevent Iran from obtaining a nuclear weapon.” He further noted, to much applause, that “I will not hesitate to use force when it is necessary to defend the United States and its interests.” We had suggested here a while back that readers tune out the speeches and headlines in order to gauge the odds of war with Iran. If a pre-emptive strike against the country’s nuclear facilities is coming, we reasoned, it seems certain to be reflected by a rise in the price of oil, much as occurred in the months leading up to the U.S invasion of Iraq in March of 2003. Unfortunately, our current forecast for NYMEX April Crude suggests a run-up to at least $120.18 over the near term -- about 12% above Sunday night’s levels near $107. Although Iran’s threats to shut down the Strait of Hormuz have presumably

Precious metals appear to be recovering nicely after Wednesday’s punitive selloff. Although we initially assumed it might take a few weeks for gold and silver to build a base for the next moon shot, yesterday’s price action hinted that bullion quotes could be off and running much sooner.  To be sure, the price action yesterday just inches from ground zero was relatively timid, with small gains driving the markets.  However, that was to be expected, given the ferocity of the previous day’s plunge. It would have scared hell out of many investors, turning them cautious for the time being. But perhaps not for long. What was most encouraging about yesterday’s rally was its calmness, with relatively few of the whoops, feints and dives that characterize nervous markets. In fact, bulls made their ascent the way an experienced rock climber would scale an imposing cliff – i.e., one secure handhold/foothold at a time. From a technical standpoint, the chart above shows what Comex May Silver must do before we assume that the trauma from Wednesday’s shock-and-awe selloff  has mostly worn off. If you happen to trade the metals, we’d recommend setting an alert a tick above the highlighted peak at 36.185; for that is where bulls will once again have the bad guys on the run.  The peak may not look like much – in the parlance of our proprietary Hidden Pivot Method, it is known as a “peak along the wall” -- but it can be quite useful for purposes of gauging the determination and confidence of buyers. And if they’ve got the guts we think they’ve got, they should be able to push the futures through the resistance today or perhaps Sunday night with little or no evidence of deflection.  [Follow the action from ringside with a free trial

Although yesterday’s Congressional testimony by “Helicopter Ben” Bernanke was fundamentally meaningless, it caused gold and silver prices to take a spectacular dive. They got hit after the ‘Nank, prevaricating as usual, said the central bank wasn’t rushing to crank up a QE3 stimulus.  While this may be true as far as it goes, it belies the fact that the money spigots have been wide open for years and will remain so, probably, until the financial system collapses. More on that below.  Concerning the savaging that precious metals received, they are all but certain to recover, since the forces that have been driving them steeply higher for more than a decade are still very much in place. Even so, it could take at least a few weeks for gold to build a new base for a shot at $2000, and silver for a push into the mid-$40s. In the throes of yesterday’s brutal, deftly engineered shakeout, Comex gold dropped $104, or nearly six percent, in just a few hours. The April contract hit an intraday low of $1688 after trading as high as $1793 the day before. As for Silver futures, they suffered their worst single-day loss since September, falling $3.76, or 10 percent, from intraday high to low. Mining stocks fell in sympathy, lopping three percent from the value of the Gold Bugs Index (HUI) and five percent from GDX, an index that tracks the shares of junior miners. Although Silver futures fell harder than gold in percentages terms, the technical damage was worse in the latter. Notice in the chart above that April Gold’s plunge exceeded two prior lows on the daily chart. This created a bearish “impulse leg” of daily-chart degree, according to our proprietary Hidden Pivot Method of analysis, and it is the worst such damage we’ve

Stocks are creeping into the red zone, according to our proprietary technical indicators. A possible end to the Mother of All Bear Rallies begun three years ago? Perhaps. But rather than guess about such things, we’ll let the charts tell us what we need to know.  We don’t have a crystal ball, after all, but we’ve learned that the stock market cannot change directions in any significant way without telegraphing the turn on the lesser, intraday charts. This they did back in January, when a pullback to a key ‘hidden” support signaled the big rally that was to follow. Specifically, using Hidden Pivot Analysis, we were able to tell subscribers to expect a Dow rally of at least 600 points, to a minimum 13085. At the time, we were bearish as all hell on the real world.  However, and as all traders come to understand, the stock market is unconnected to the events of the real world. Under the circumstances, trying to predict its ups and downs on the basis of the  headlines is futile.  Nonetheless, bearish as all hell, fearful of war in the Middle East and ever mindful of the economy’s fitful descent into Depression, we wrote the following in a Rick’s Picks “trading tout” disseminated to subscribers on January 18: “Take any dozen good reasons for being bearish right now and they still don’t equal the bullishness of the chart shown [see above]. The undeniably compelling rally objective is 13085, a 4.8% move from current levels, and one can only surmise that the dusting the 12158 midpoint received on the last pullback (12/28) all but clinched a finishing stroke to the higher number. Moreover, it implies that bears shouldn’t get their hopes too high even if, in the next few days, the Dow plummets 324 points to

A school shooting in Ohio left one student dead and four wounded. It also pushed the other big story of the day – Angelina Jolie’s wretchedly skinny arms and legs -- below the fold by dinner time. But the real shocker was a story that said eating certain kinds of fish or taking fish oil supplements can actually do the body good. Specifically, the omega-3 fatty acids that are so abundant in fish oil appear not only to sharpen the mind, but to slow the aging process, improve cardiovascular health and reduce inflammation and joint pain. That’s quite a list, and it’s particularly good news for your editor, since, on his doctor’s advice, he began taking a fish oil supplement several years ago.  Not the cheap stuff, which the doctor said could cause more harm than good, but high-dosage, pharmaceutical-grade fish oil that supposedly contains no traces of mercury or other seaborne toxins. As for the benefits, while it’s true that, at the ripe old age of 62, we have been forgetting to zip up our fly about half the time and leaving credit cards on store counters perhaps twice a week, we remains convinced that the consequences of our forgetfulness would be a lot worse if not for the fish oil.  Meanwhile, the story on the evening news about fish oil’s undeniable benefits is about as man-bites-dog as it gets, since health care professionals have done their darndest over the years to promote the idea that only prescription drugs are effective in curing what ails us. Putting aside the fabulous press Vitamin D supplements have enjoyed recently (undeserved, according to my doctor)  just about every supplement you can think of has been vilified over the years by medical science: St. John’s Wort, melatonin, zinc, biotin, Vitamins E, C, B