It’s all about the Dollar now.
As you know, our currency is weak, weak, weak – collapsing, one might say and Dollar-denominated assets, like stocks and commodities, are rising in PRICE (not value) to keep up with the decline. Interestingly (horrifyingly), our homes are NOT rising in price at all – in fact, they are still declining, despite the fact that a home that was worth 41,666 bars of silver (per ounce at $12 per ounce on a $500,000 home) in May of 2008 is now worth just 8,888 bars at $45 an ounce with a $400,000 value (most homes are down at least 20%).
Do I have to paint a picture for you? Hopefully not as I’m terrible at drawing those cute graphs with stacks of silver next to homes or whatever but I’m sure you get the idea – your home, if it was worth 41,666 bars of silver 3 years ago, has lost 78% of it’s value measured in silver. Yesterday I noted that the entire stock market has lost 50% of it’s value measured in silver in just the past year and yes, silver is the roughest thing we can measure against other than, perhaps, the price of MoMo stocks like PCLN, NFLX, OPEN or GMCR, which have attained such bubble valuations that even a man with 41,666 bars of silver would cry!
Let’s talk gold. In 2008, gold was $850 so a $500,000 home was worth 588 ounces and now, in 2011, we’re down to a $400,000 home worth 258 ounces at $1,545 – a 56% reduction based in gold. At least in May of 2008, oil was the same ridiculous price it is now but, back then, we were able to take a loan on our home to pay for the oil! Copper was the same bubbalicious $4.50 a pound so both copper and oil are performing miserably compared to silver and gold and that, my friends, is the difference between an inflation hedge and a speculative bubble. If the metals were keeping pace with other prices – we could point to them as an inflation hedge but they are running 5 times higher than inflation in gold’s case and 10 times higher in silver’s case over the past 3 years. That is NOT a hedge, that is bubble speculation!
Has your home really lost 78% of it’s value in silver? If you are buying silver for $45 an ounce, you are saying it has. We could make a demand case because people WANT silver and nobody wants a home these days – they are no longer considered good investments and the average person doesn’t have the 20% that is now required as a deposit, nor can they afford even the reduced mortgage payments nor can they afford the skyrocketing utility bills and taxes as the Federal Government saves money by driving more and more costs down to the local level, forcing your town to balance its budget on the back of your home – whether you can afford it or not. In this way, we brilliantly exchange a progressive income tax for flat real estate and sales taxes, further destroying the buying power of the bottom 99%.
This is great news for those of us in the top 1% who have silver or, even better, Priceline stock, which is up 400% in 3 years. PCLN is one of my favorite insanely priced stocks as, with a $27Bn market cap, which is greater than the COMBINED market capitalization of AMR ($2Bn), DAL ($9Bn), LCC ($1.5Bn) and UAL ($8Bn) by 31%. Those airlines have $90Bn worth of revenues and $1Bn in profits for a combined $20.5Bn market cap while the guy booking the flights has $3Bn in sales and $500M in profits with a market cap of $27Bn. At $560, your $400,000 home is worth 714 shares of Priceline!
Feel free to stop me anytime you think things may be getting irrational…
This is what happens when your government turns your currency into Monopoly money! When my kids play Monopoly and they run out of money, they offer each other personal items in exchange for "cash." A stick of gum might fetch $100 while a prized Pokemon card could go for $1,000. Why? Because the money isn’t real! Outside the game, if they are negotiating for a stick of gum, it’s a dime or a quarter – never $100, because the coins and dollars the kids have are a limited resource they know they can exchange for other things.
Not so with the Banksters. They are handed Billions of newly printed bills by the Federal Reserve every single day and pushed into a "use it or lose it" environment – it’s like giving my kids the entire Monopoly (aptly named) bank and telling them they have until the market closes to spend it all and, oh by the way, you’ll get another full bank tomorrow. So what do the Banksters do? They buy PCLN and OPEN and silver and gold and oil and whatever else is not nailed down – even TBills – which drives up the PRICE (but not value) of all those things – especially when benchmarked against the devaluing base currency.
This is how the IBanks are able to con people into paying the wrong price for things at various times to suite their needs. It’s like a massive shell game with so many moving parts, it’s not possible for ordinary investors to know where the ball is or what the ball is worth or what the money in their hands is worth. The confusion engendered by the game allows the con men (GS, JPM, Geithner, Bernanke, etc) to talk up whatever they are trying to get rid of and while the cups and balls are moving around you suddenly find you WANT to find that ball, you NEED that ball and that ball can be PCLN or NFLX or Gold or Silver or Copper or even TBills – all they have to do is move the cups around, engage in some snappy patter and they can get you to buy anything – especially when they convince you that you are playing with Monopoly money!
So go on silver bugs, sell me your house for 78% off – I have a whole mine full of the crap!
Now, let’s ATTEMPT to put a PRICE on the market. I’ve done a simple exercise of adjusting the Russell for the 20% drop in the Dollar since March of 2009 and I’ve run the Fibonacci levels off the adjusted bottom and that gives me a 50% (recovery) line on the RUT of 720, which is still about our Breakout 1 level on the 5% Rule (725) – so we can feel comfortable with that as it’s clearly been good support/resistance. From there, we get 864 as the Dollar-adjusted top for this channel on the 5% Rule and that’s very interesting because it’s right where we topped out.
Looking for a 20% retrace of the run from 720 brings us back to 835 on the Russell, so we’ll be looking for that as a pullback line. Keep in mind that most technical systems take no account of currency fluctuations so these are not likely to be strong resistance points but they will still serve to give us a clearer picture of what’s really happening in the markets – as it doesn’t matter if your stock is up 100% in a currency that is declining by 30% (or 300% measured in silver!).
A Dollar recovery is the enemy of a PRICE rally so be very careful out there, tomorrow I expect to have adjusted levels on all the indexes but, of course, the problem with adjusting levels to the Dollar is the Dollar itself jumps up and down every day – which is why we still like our 5% lines and it’s nice to know that they aren’t broken at all – just the price labels are…
