Larry Kudlow Says Don’t Panic – Dan Mangru Market Commentary August 28, 2011Posted by Admin in Dan Mangru, Market Commentary.
Tags: business, cnbc, crash, crisis, dow, economy, Fox, gold, investing, larry kudlow, news, recession, silver
Larry Kudlow says don’t panic
Posted: August 10, 2011
8:19 pm Eastern
© 2011 WND
The United States has a current debt-to-GDP ratio of 100 percent just like the other Third World nations out there. It also has future liabilities in excess of $110 trillion (an amount that no other country can even fathom).
All the while, the U.S. dollar is losing strength and the cost of living and feeding a family continues to go up.
But Larry Kudlow says don’t worry.
While Kudlow points out that lower commodity prices should spur economic development, he misses out on several key factors that are needed to properly evaluate the market.
First, this isn’t a short-term pullback, this is a market correction. When the Dow Jones Industrial Average (Dow) went down to 6547.05 on March 9, 2009, we were supposed to retrace the low to roughly 50 percent. What this means is that our stock market should have faced some major resistance to move beyond the 9750 mark on the Dow. Instead by 2010 we had blown by it, and with the slight exception of the May 2010 flash crash, we never looked back.
Make no mistake, speculation fueled the market. Case in point, look where we are now. When QE2 (Quantitative Easing 2) was implemented by the Fed last December, the Dow was hovering around 11,000. During April the Dow surged to 12,928. Everything seemed great.
Except it wasn’t.
With continual Federal Reserve (Fed) stimulus (low interest rates, and QE2), traders, black box traders in particular, were given cart-blanche to trade financial markets knowing that they would be flush with cheap Fed cash.
Since the cash was always there, traders didn’t care what the economic news was for the day. They were concerned with liquidity and how they could exploit liquidity to make a profit.
That’s why things such as a high debt to GDP ratio, poor housing numbers, and high deficit spending didn’t seem to register on Wall Street’s radar.
However, once the Fed pulled out their cash and ended QE2, traders started to run for the hills. They began to start dumping stocks. In fact, even sophisticated hedge fund managers such as Carl Icahn and George Soros proclaimed that they were disbanding their hedge funds, returning money to investors, and leaving the market at professional managers.
That should tell you something.
Between the top money guys leaving and the Fed pulling out cash, the fix was in. We were all fed the line that once we did the debt deal that financial markets would rally. And they did … for about an hour.
But that’s when reality hit.
Since then financial markets are starting to realize that the United States has no real end in sight to its flagrant spending ways, and astronomical long-term debt. Without Fed easy money to spur buying, investors are treating the U.S. economy for what it currently is … a sell.
Second, Kudlow points to rising corporate profits as being an indicator that the U.S. economy is still healthy. What Kudlow fails to recognize is that corporate profit guidance is being lowered for the second half of this year. Even Goldman Sachs lowered their guidance for the second half of this year.
Large corporations will see that margins are going down and that after enduring a major stock market correction, consumers are not running around the store waving their credit cards dying to spend. Consumers will not consume as much.
Savings rates are going up. The most recent data from the St. Louis Fed shows the U.S. personal savings rate is at 5.4 percent. Compare that with our April 2005 rate of 1 percent, and you can see that Americans are worried that the economy will fall and they will need their money.
That translates to economic slowdown. When individuals do not spend and start to save more, that slows down production and consumption, which in turn slows down the entire economy.
Third, Kudlow believes that there is a big overreaction going on to the problems in Europe. Keep in mind, Kudlow, along with fellow CNBCer Jim Cramer, thought Lehman Brothers was a good buy before it went bankrupt and wiped out investors.
The easiest way to understand the Europe problem is to think of economies of scale. Greece, which in relative terms is very small country, cost over $1 trillion to bail out.
One small country took all of the financial might and muscle of Europe’s top banks and governments to bail out.
Now think of Italy, the newest country on the brink. Italy’s debt crisis is 10 times the size of Greece. I’ll put it to you this way, the European Union cannot afford $10 trillion.
The entire GDP of the European Union is $16 trillion, so $10 trillion is too big to bail out. An additional problem with Italy is that a huge chunk of its debt is due within the next two years. So this isn’t a problem that can be shoved under the rug.
Combine this with a sluggish Euro and a European Union that is dealing with a global economic slowdown and the recipe is not good. With all of the weakness in Europe, the EU’s stronger countries (Germany and France) should start to see some of their strength erode as they are continually forced to bail out smaller players. By the EU charter, the EU guarantees all of the debt of its member nations. Hence, Germany and France will end up paying the bill for Greece, Italy, Spain, and all of the other countries who have overspent and are nearing bankruptcy.
Finally, Kudlow fails to point out several key ticking time bombs in the United States. First is the real estate market. With shadow inventories and foreclosures, home inventories should skyrocket to all-time high levels in the United States.
Second, student debt in America is at an all-time high. Fueled by government loans, universities have been charging students higher rates every year, regardless of what the stock market or the economy is doing. Current student debt in this country is estimated at $1 trillion. Just so you know, that was the amount of money that was needed to bail out our banks.
Third, municipal debt is a major issue. If cities and states start to go bankrupt, all hell could break loose. Remember, less than a year ago, California (the world’s 9th largest economy) could have gone under. The effects of a default of that size would cripple the domestic and global financial economy.
So Mr. Kudlow, in times like these, while panic may not be the right feeling, all is not well. Investors should be very concerned. They should be safeguarding their assets against a major stock market drop and planning for the future.
But then again, maybe that message isn’t one that the talking heads want to hear or give.
Tags: bernanke, cme, Commodities, gold, inflation, margin, markets, obama, paulson, sell off, silver, slim, Soros
The ins and outs of ‘silver selloff’ explained
Exclusive: Dan Mangru reveals why small-timers are crushed and big boys win
Posted: May 04, 2011
8:22 pm Eastern
By Dan Mangru
© 2011 WorldNetDaily
Almost makes you want to go out and register as a Democrat. That way we can redistribute some of this wealth as our current president would like.
But the current silver market is a classic case of irrational individual investors driving up the price of the market, only to have sophisticated institutions leave them holding the bag.
Well how did this happen and what happens to the silver markets from here?
The silver rally goes back to the bailouts of late 2008. After $700 billion of TARP, billions more to save the auto industry, and the election of Barack Obama, it became very clear that the U.S. was in the mood to print cheap money.
After reaching a low of $8.79, silver began to slowly rally. First it rallied due to Ben Bernanke almost tripling the monetary base. Then it rallied due to the $860 billion Obama stimulus. Then it continued to rally after Obama became the first president in United States history to rack up a yearly deficit in excess of $1 trillion.
Before we knew it silver was trading in excess of $30 per ounce.
Wow. What a move.
After going up some 400 percent individual investors started to take notice. Then as the U.S. markets started to sputter, Ben Bernanke and the Federal Reserve instituted something called Quantitative Easing 2 or simply QE2.
QE2 has the net effect of placing more U.S. dollars into the financial system and ultimately into circulation.
When more dollars are placed into the market without the necessary demand, inflation happens.
This was the impetus that individual investors needed to get in the game. Silver again started to skyrocket.
Then came news that Bernanke didn’t plan to stop QE2 by this June and planned to take it further.
We now saw silver hit intraday highs in excess of $49, a sign of major speculation and irrational exuberance.
You see in silver markets, many individual investors are leveraged buyers of the metal. What that means is they take a loan out to buy more silver than the money they have in deposit.
While some individual investors use a smart amount of leverage, many times they are tricked into borrowing anywhere between 4-8 times their money.
Case in point, if you had $10,000 cash in your account, you could buy let’s say $50,000 worth of silver borrowing at 5:1 or five times the amount of money you have in the account, for a total borrowed amount of $40,000.
Utilizing margin is supposed to maximize your profit, but when used unwisely, it maximizes your risk.
If you bought silver between $47-49 with this type of margin, your overall account value would be in the area of $37,000-$39,000 (depending on fees, costs, etc.).
That means that you have lost all of your original $10,000 and you are now liable for the difference between your account value, in this case $37,000-$39,000, and your loan value, which in this example is $40,000.
Had you just bought $10,000 worth of silver, your account would be down to about $7,500-8,000 but you would still have positive equity. With unsafe leverage in our example above, you end up owing between $1,000-$3,000. This is known as a margin call.
From $8k to owing up to $3k. That’s a very big swing.
Now getting back to overall markets. Realizing that leverage and speculation were driving prices higher, the CME Group (which is the owner of the Chicago Mercantile Exchange) hiked margin requirements three times since the beginning of last week.
This caused firms to tighten up their leverage and some firms even made stricter requirements than the CME Group.
The reduction in the amount of leverage that can be used caused selling pressure to increase last week which brought silver down to $45 an ounce after trading higher than $49 per ounce just days before.
Then add on top of this a once in a lifetime event (literally), with the death of Osama bin Laden. This sent silver prices, which rallied back to $48.22, down to $42 per ounce.
However, once the market absorbed the Osama factor, silver prices rose in excess of $47 off its Osama lows.
Institutions know the game. They knew that with margin requirements tightened that if they started selling they could trigger a significant selloff in silver. So they did.
As institutions were selling, individuals who were overleveraged in silver began what the term “margin call” means. As the price went down, it triggered individual investors to sell their positions in order to cover their investment amounts. This drove down the price of silver even further.
Add on top of this hedge fund gurus like George Soros indicating that he will start to liquidate his long gold and silver positions, and the down market can take on a life of its own.
As the market continues to go down further, shaking out most individual investors, we will start to see institutions re-enter the game, buying back in the $30s the same metals that they sold in the $40s.
You see even the institutions that are just getting out now (in the low $40s to high $30s range) aren’t concerned because they’ve been buying silver since it was trading in the $15-20 range.
So to them all they lost was just a couple bucks of profit.
But the opportunity to take silver from $49 to let’s say $36 just to buy it back again and ride it all the way to $50, that’s a score.
For silver buyers out there, key adages provide the proper insight into these markets.
The first adage to follow is to remember history. Historically, gold trades at a 16 times premium to silver. These days that ratio is at 38 (meaning the price of gold is 38 times the price of silver.
Although margin requirements on silver are now more onerous than those on gold, the underlying fundamentals and price ratios for silver make it very attractive.
Secondly, individual investors in silver should be long-term players, not short-term flippers.
Silver is a dangerous metal. It can go up and down as much as 20 percent in just a couple of days. We’ve seen that before. We’ve seen it now. And we will certainly see it again.
If you are a long-term player you can afford to sit out these short-term hiccups and just focus on the long term fundamentals. The U.S. dollar is heading down, emerging markets are consuming more, and the demand for silver (industrial, inflation-hedge, and luxury) is increasing.
Just look at U.S. debt. We have $14 trillion in unfunded Social Security liabilities, $77 trillion in unfunded Medicare liabilities, and $19 trillion in unfunded prescription drug liabilities.
That’s $110 trillion new dollars that we have to print just to cover our existing liabilities. God forbid that President Obama figures out a new way to start spending even more money.
So when you want to know where the price of silver is going, I’m going to give you the same answer that Steve Forbes gave me today while we talked at Starbucks, “Just follow Ben Bernanke.”
Because as Bernanke gets the orders to print the dollars to pay the bills, silver will go up and up and up.
Tags: alternative investing, business, Commodities, currencies, dan mangru, david mcalvany, Dollar, finance, Fox, Fox Business, gold, investing, ira, jack reed, john t. reed, management, mangru, mangru report, mcalvany, news, real estate, silver, talk, terry coxon, tv, U.S., van simmons, wealth
Watch extended coverage from Freedom Fest 2010 with Dan Mangru moderating a special panel on Alternative Investing. While so many investors are confused as to what that actually is, for the purposes of this panel alternative investing is any type of investment outside of stocks, bonds, options and mutual funds.
The panel features David McAlvany of McAlvany Wealth Management, Van Simmons of David Hall Rare Coins, Jack T. Reed author of How to Protect Your Life Savings, and Terry Coxon of Passport IRA. They will provide key insights on topics such as gold investing, the currencies most likely to beat the U.S. dollar and why the U.S. dollar might be good to hold in the short run, whether investors should pay down debt as opposed to making new investments, how to buy real estate during hyperinflation, and the importance of liquidity.
Robert Kiyosaki One-On-One with Dan Mangru From New York City – The Mangru Report – Episode 6 June 8, 2010Posted by Admin in Interviews.
Tags: 401k, bad debt, communists, conspiracy of the rich, dad, dan, fannie mae, gold, good debt, housing, kiyosaki, mangru, mangru report, oil, poor, poor dad, real estate, report, retirement, rich, rich dad, robert, silver, taxes
Watch Dan Mangru sit down for an exclusive one-on-one interview with Robert Kiyosaki, the author of “Rich Dad, Poor Dad”. In this interview, they discuss everything from government debt, what is good debt and bad debt, President Barack Obama, Fannie Mae, Taxes, the 401k, real estate, as well as his number 1 investment.
Tags: Abu Dhabi, anger, Anthony Pulieri, bailout, brazil, china, currency, dan mangru, e.u., euro-pacific capital, florida, gold, greece, haridopolos, john browne, mangru, mike, report, russia, safe, senate, uae, United Bullion Group
Original Airdate: May 29, 2010. Broadcast on: Fox Business
Here’s a double dose of The Mangru Report Panel of Experts. In these two installments you’ll listen to John Browne of Euro-Pacific Capital, Anthony Pulieri of United Bullion Group, and Florida Senate President Mike Haridopolos discuss whether the U.S. dollar could be replaced by gold as the world’s international currency, why China, Brazil, and Russia are pushing for a safer currency, and why Americans are justified in being angry that their taxpayer dollars went to a Greece bailout.