Gold's big drop... Gold stocks still record-cheap... Bernanke wants to print more money... Record oil production in North Dakota... Firefighter feedback...
Gold fell 1.5% today – its biggest one-day drop in three months – to less than $1,740 an ounce. The Market Vectors Gold Miners Fund (GDX), an exchange-traded fund comprised of the best-known gold mining stocks, fell more than 1%...
Some analysts attributed the fall to gold "taking a breather" before the presidential debates tomorrow. We're ignoring the reasons the media provide for the metal's day-to-day fluctuations… It had nothing to do with Obama or Romney...
The metal was up 5.1% last month on Federal Reserve Chairman Ben Bernanke's announcement that he plans to extend quantitative easing in perpetuity. Nothing moves up in a straight line. It was time for gold to give back some of its gains.
Last Thursday, in his Advanced Income newsletter, Jeff Clark told readers, "It's time for a pause in the gold-stock rally." Jeff, our resident trading expert, wrote that gold stocks were showing a "short-term sell signal." He explained…
|
The gold stock bullish percent index (BPGDM) – a short-term momentum indicator that helps determine overbought and oversold conditions – reached overbought territory (above 70) during the recent rally. It just turned lower from overbought conditions and generated a short-term "sell" signal. |
Here's an updated version of the chart Jeff showed his subscribers...
Before his warning last week… Jeff had advised that the U.S. dollar could spike... And when the dollar spikes, gold usually falls. In his S&A Short Report, Jeff wrote after Bernanke's easing announcement…
|
Yesterday's [announcement from Bernanke] pushed lots of things to extreme levels. The S&P 500 closed above its upper Bollinger Band – indicating an extremely overbought condition. And it closed 36 points above its nine-day exponential moving average. (A 30-point spread is typically an extreme difference. So there's risk of a reversal.) |
|
Gold also ventured into overbought territory. It's trading above its upper Bollinger Band, and we'll get a short-term sell signal when it closes back inside the bands. Even though I expect precious metals to work even higher over the coming months, I wouldn't be too anxious to buy them here. It makes more sense to buy them on a strong pullback. |
Jeff nailed the short-term pullback in gold, which fell to $1,734 today from its early October high of $1,791.
But gold stocks are still super-cheap compared to the price of the metal... We wouldn't be surprised to see the pullback in gold continue. But now is a great time to start compiling a list of the gold stocks you want to own and get ready to buy.
After all, the long-term bull case for the precious metal is still intact. Ben Bernanke will continue printing money... The latest iteration of quantitative easing combined with its "Operation Twist" means the Fed has authorized itself to buy up to $85 billion of debt every month. And it left the door open to further purchases of other asset classes.
And considering a speech Bernanke gave in Japan yesterday… we don't see him easing off the print button any time soon.
At a conference sponsored by Japan's central bank (the Bank of Japan) and the International Monetary Fund, Bernanke rebuffed complaints that the Fed is unfairly devaluing its currency... by pushing money into other currencies, causing them to appreciate. A cheap currency helps stimulate an economy through exports and low borrowing costs. An expensive currency does the opposite.
No worries, Bernanke told the audience... He urged foreign governments not to fight the appreciation, to embrace it even...
|
In some emerging markets, policymakers have chosen to systematically resist currency appreciation as a means of promoting exports and domestic growth. However, the perceived benefits of currency management inevitably come with costs, including reduced monetary independence and the consequent susceptibility to imported inflation. |
We hope the irony is not lost on you...
|
While Bernanke has embarked on one of the largest rounds of money printing in history, he's urging other world governments to sit idly and allow us to export inflation.
Also in the speech, Bernanke said he expects U.S. inflation to run at or below the Fed's expectations of 2% a year. So he'll continue easing until it doesn't.
Bernanke doesn't seem to understand inflation doesn't come with an off switch... The trillions of dollars he's printing today are a powder keg... Once it sparks, he has no way to rein in the soaring interest rates and asset prices.
You can read the full text of the speech here.
As bullish as we are on gold, we're equally bearish on oil prices... We believe slowing demand and increasing U.S. production will push down crude prices. (Just today, oil fell nearly 2% to less than $90 a barrel.)
And according to the latest numbers out of North Dakota, we're on track... The news service Reuters reported last week that North Dakota's oil output hit a new high in August. For the first time in history, production jumped to more than 700,000 barrels per day (bpd). The state's production jumped 25,000 barrels per day over July's output, pushing it to 701,000 bpd. At these rates, North Dakota is fast-approaching the production levels of OPEC member Qatar – 770,000 bpd.
Most of North Dakota's production comes out of the Bakken shale formation. According to Bloomberg figures, Bakken was producing 635,000 bpd by itself at the end of August. This is practically double the production at the same time last year and makes the state the second-biggest oil producer in the U.S. after Texas. Bloomberg predicts that combined with the nearby Three Forks and Sanish formations, the Bakken region could be the largest oil producer in North America over the next 30 years. The burgeoning oil industry there gives North Dakota one of the lowest unemployment rates in the country and one of the fastest-growth rates of personal income.
We've written many times about the massive shale boom happening across the country... how North America is now the "Saudi Arabia of natural gas"... how new technologies such as horizontal drilling and hydraulic fracturing ("fracking") are changing the whole oil and gas economy.
Porter predicted all this back in his Investment Advisory's May 2010 issue, titled "Peak Oil Is a Flat Lie." Back then, Porter introduced readers to a company he called a "fulcrum play" in the natural gas bonanza. (And due to its unique infrastructure, the company also made Porter's list of "Trophy Assets" – which he published in a July special report.) Since his initial recommendation, his readers are sitting on 25% gains. Out of respect to paying subscribers, we can't divulge the name here, but Porter recently told readers the company remains a "buy" in his model portfolio.
In August, Porter produced four different reports explaining the tremendous shift in the global energy sector all this U.S. production is causing. In this series of reports, he describes newly tapped shale regions that have huge potential, but have yet to make mainstream headlines.... and provides two different strategies to invest in this new shale play. And his "Global Oil Value Monitor" tracks the capital structure of more than 70 companies in the sector, which he updates weekly. To learn more about Porter's work on this phenomenon and gain access to his recommendations to investing in it, click here.
New 52-week high (as of 10/12/12): Wal-Mart (WMT).
In Friday's Digest, Porter discussed our recent trip to Germany and some free-spending firefighters we encountered. Over the weekend, the feedback rushed in. Here are some of the best. Send your notes to feedback@stansberryresearch.com.
"I just finished reading Friday's Digest and wanted to respond to your meeting with the firefighters from San Francisco. I too am a firefighter with over 20 years of service on my current department. I work for the citizens of a mid-sized city in South Carolina and I can guarantee you that the firefighters in my state make nowhere near what they do in San Francisco. After 20 years of service and the rank of Lieutenant I earn just over $50k/yr. I lead an engine company of four men. Working 'only' 10 days a month is a bit misleading. We work 24 hour shifts which equates to three 8 hr days. While we can sleep at night we're up when the alarm comes in. In that regard if you take away the 8 hrs for sleep we're still working roughly a 40hr week when you look at an entire month.
"I agree that some departments, and usually those with union representation, have used contracts to inflate salaries and benefits. But please don't paint all firefighters with the San Francisco brush. The vast majority of firefighters across our nation work long, hard, dangerous hours and are paid a fraction of those in unionized, larger departments. If you're ever in town look me up, I'd be glad to give you a tour." – Paid-up subscriber David H.
"Some years ago our local firefighters brought in a hot NY attorney to help them with their contract negotiations. He done good. The IRS now shows that of all the Stuart [Florida] citizens making over $100,000, more than half are firefighters. And most of them have second full time or part time jobs. And the new fire station has individual rooms for the guys to sleep in (no more dormitory-style cots).
"No one denies the value of the work our firefighters do, but at this level of cost it is just plain nuts." – Paid-up subscriber David Myhre
"Your story about the San Francisco firemen made me throw up in my mouth. I deeply appreciate having a firefighting force, however, the situation is out of control. I served in the Army and was in harm's way similar to a fireman and I can assure you I worked more than 10 days a month and could not afford annual vacations to Germany.
"I just can't fathom how our governor can bear to go to the people for yet another tax increase in November when this kind of rampant union mismanagement is allowed to continue. I really feel bad for this great nation and think daily about how far off the path we have gone. I do believe it will take a crisis of epic proportions to instill in us the will to fix it." – Paid-up subscriber Joe Hanna
"I just want to take this opportunity to thank you for the opportunity to receive knowledge. I am a housewife, author and artist. I've never invested in anything. Unfortunately, ignorance is very costly. Although I don't know how to invest, against opposition, I am in a quest to educate myself and see a transfer of wealth, this time, in my favor (with yours and God's help).
"I am acquiring knowledge as to how to invest as, I've mentioned, I have NO CLUE. As I go along, with your insight, I will keep you updated. Thanks again. One day I aim to be part of your club." – Paid-up subscriber Rebecca Pizarro-Smith
Regards,
Sean Goldsmith
New York, New York
October 15, 2012