ARE RARE EARTHS A GOOD BUY HERE?

I had a discussion about the rare earth elements and the ETF for those firms (REMX).  These firms have all clearly had great bounces and REMX is actually now in an upward channel.  Upper resistance in the upper channel is $26.40, if we charge through there we could see $27.00 quite easily. 

If REMX bounces around the channel top and heads back down we could see a move to $25.00.
While the purchase of REMX gives you exposure to many rare earth metal miners, most folks that are in this trade aren't in it for a 5% move, they want more potential for upside and don't mind the volatility.  Let's look at another option here for some rare earth dynamite.

REMX

MCP
While REMX looks like a fine set up that is still bullish, please view MCP (Molycorp).  MCP has rocketed off a low around $51.50 that was posted almost 10 days ago!  Wow!  Just observing this move makes we want to hold off on buying into that, expecting some sort of slow down and retracement.  The bulls will need to observe $62.00 closely.  If MCP can powerfully move through that resistance level then a move to $66 or even $71 could be at hand.  Those that feel like the stock needs a breather could take a short here and work for a move back down to $57.50.

The bottom line here is that if the overall macro picture continues in the same vein of a stronger Euro and weaker dollar, we'll have the underpinnings of a sizable move in MCP.  If for some reason reality wakes from its 2 year slumber and the USD drives higher, MCP could face substantial headwinds along with the rest of the equity markets and commodity markets.   

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

I THOUGHT WE MADE MONEY ON THE BAILOUTS....

More great news from our government!

Chrysler bailout hands the US $1.4 Billion in losses.

We are now getting details about the cost of the bailouts from the last several years that were made to various industries.  As I think through this, I am still torn regarding the use of taxpayer money to attempt to save private industry.  It doesn't escape me that these businesses are huge employers and these firms are in the manufacturing area of the economy.  Yes, this is the exact area that I continually say we need, however I would feel better about the entire mess if the recipients of the government help were truly made clean and whole.  In addition, I'd feel better if these firms were non-union firms because the existence of these unions simply means that these companies will be broke again in a few years.  Interestingly, most of the firms that did receive most of the bailouts (outside of banks of course) were all unionized firms.  Further, my feeling is that we essentially stepped in to help extend the life of failing businesses that were uncompetitive, not creative, and not managed to remain in business. 

LOSERS ARE HAPPY ABOUT LOSING
The story I've highlighted draws out that the Chrysler bailout will end up costing Americans $1.34 billion.  At the end of the day, Chrysler was sold to Fiat and now control of the firm in not in US hands any more.  Below are a few quotes from the story above;  

"As part of the loan agreement, Chrysler was given until 2017 to return the bailout funds. If it had taken the full term, the interest accrued on the loans could have significantly reduced the government's losses.  (BUT IT DIDN'T DID IT?!)

Overall, $1.3 billion will not be recovered from the bankrupt Old Chrysler, but Massad still called it a "major accomplishment."
That's because the government originally expected it would lose much more on the auto bailout. Initial estimates from the Congressional Budget Office in 2009, predicted the government would lose $40 billion on the overall auto bailout.
Now it estimates, by the time the $80 billion program is completely wrapped up, taxpayers will have lost $14 billion."

I don't know about you, but I don't recall any Treasury official or any politician telling me we would lose money on any bailout.  I certainly don't recall hearing President Obama telling us that we were going to lose $40 Billion!  Only a government worker can be happy about losing $1.3 billion and consider it a success.

While we didn't lose $40 Billion we are probably going to lose $14 billion.  In government circles, that is nothing, but isn't that the problem with Washington?  Part of the Patient Protection Act of 2009 implemented a requirement to force business owners to produce 1099's for any purchases they made that were over the amount of $600.  The purpose of this legislation was to try to catch small business owners that did not recognize cash income.  Thankfully, this facet of the legislation was removed as lawmakers heard from businesses about the trouble and hardship it would place on them.  Guess how much that was going to raise in IRS revenue?  $17 billion!  So think about it, we are happy about losing $14 billion while in a blink of an eye the government was going to create a nightmare for small business, essentially creating piles of paperwork, and putting a strain on EVERY business in the USA for almost the same amount as we are happy to lose on the auto bailouts. 
GM'S A SUCCESS ISN'T IT?
Of course we are not done with the losses.  Remember GM?  We were planning on unloading the stock we received from that IPO as a result of their bailout, but since going public, GM stock has traded under it's IPO price.

"Treasury Department is now likely to wait until mid-August or September to hold a secondary offering for the company’s stock, people with knowledge of the matter said previously. At the initial public offering price of $33, Treasury must now sell the remainder of its shares at an average of $53 to break even."

 

Hmmm.  I'm not sure if we're going to see $53 any time soon.  What about you?

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

MR. ROBINSON MOVES TO A NEW NEIGHBORHOOD

Remember Mr. Robinson?  This brings back childhood memories doesn't it?




While it is fun to go back and watch those SNL episodes a real life Mr. Robinson is taking advantage of the real estate crisis in Flower Mound, Tx.  It seems like his neighbors aren't too happy, but I applaud his ability to do great research and use the system to his advantage.  I'm not really sure why his neighbors don't support his action other than the fact that it seems as though he may have the ability to get a better deal than they did.  Ultimately this could be a win-win for them and him.  I normally wouldn't play the race card, but it does seem as though that may be a factor as well.



Personally I'd rather see people take advantage of a bad situation versus have the asset waste away.  Think about how our government went out handing out the "bail outs" to our banks and industries.  What if they would have simply paid a check to each family for $100,000 or $200,000 but made the requirement that each person had to pay off outstanding debts with that newly printed money.  Essentially this is what happened, but the money skipped you and me and went to banks while they were able to keep your obligation as a liability on the books.  Isn't that simply a travesty? 

No, I'm no communist or socialist, but think about it.  Your government printed and borrowed money through huge deficit spending to "create" jobs that were green jobs or were going to be stimulative.  We've learned that the creation of those jobs cost more than $200,000 each and those jobs did  not last.  Have you forgotten all of the programs that have failed?  TARP, Cash for Clunkers, homebuyer tax credits, and Shovel Ready Jobs were just a few.  While the government was spewing money to huge multi-national firms that pay little or no taxes (GE) folks like the original owner of the house in Flower Mound were laid off and lost their homes to foreclosure.  In this case the mortgage company that actually wrote the loan (and kept it) also blew up.  Where were their bailouts?

Good for this guy, I hope he gets the property and I hope that he maintains the home and I hope the neighbors grow up.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

JAMES GRANT SAYS THE DEBT CEILING IS A JOKE

James Grant tells us the Debt Ceiling Crisis is a completely made up farce.



James Grant, publisher of Grant's Interest Rate Observer, talks about negotiations between U.S. lawmakers over raising the federal debt ceiling and reducing the budget deficit. Grant also discusses the Treasury market, the gold standard and Europe's sovereign debt crisis. - http://www.bloomberg.com/video/72621750/

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

HOW GOLD & SILVER MAY COLLAPSE IN A SOVEREIGN CREDIT APOCALYPSE

TRADITION
As readers know, I've expressed a fondness for gold and silver as an asset class for a couple of years now since August of 2009.  The reasons for this affinity is that our Federal Reserve has had little concern for preserving the value of the US dollar and therefore gold and silver have become a safe-haven as an inflation hedge.  Europeans also like the glittery stuff and have favored it because the sovereign debt issues in the Eurozone have forced them to use gold and silver as the un-currency of choice.  Individuals in emerging countries also have looked to gold as a store of value in an effort to fight inflation in their nations.  In other words, Americans, Europeans, Brazilians, Indians, and Chinese have all purchased gold because in a way it is a store of value for their assets.  The question remains though, why do central banks own gold? 

DESPITE HEIR BERNANKE'S ASSERTION THAT GOLD IS NOT MONEY, EUROPEANS THINK IT IS -

After the Greek debt crisis and the Italian sovereign credit rating issue, Europeans are not messing around with their assets and hoping for the best, they are planning for the worst.  While Ben Bernanke suggests that gold is not money, Germans certainly think it is valuable (whatever you call it).  Please see the following article; I've used Google Translate since the original source that is linked is in German. (WELT ONLINE -)

The buyers of gold are driven by worries about the future of the euro zone and the euro. After the doubts about the creditworthiness of Portugal and Ireland now also come to doubt on Italy's creditworthiness.  In the past five days Pro Aurum has sold gold worth more than € 21 million - three times as much as in "quiet times".



Gold is much more than a commodity," said Barbara Lambrecht at Commerzbank Rohstoffanalystin. The present development shows that gold is not only a hedge against inflation but an anti-anxiety indicator against the dollar. "Gold is a currency that is currently benefiting from the weakness of the two key currencies, the dollar and euro."

NO BRAINER BUY GOLD HUH? 

Well, maybe.  As you recall I made a confession that I've been trying to buy gold since $1475, but never got an entry that I had targeted (regret is dripping off of me).  Although I haven't added to positions I am still going through my normal process of wondering how this trade could blow up and I believe I've found one.  Margin calls.

HOW MARGIN CALLS UNDO A GREAT TRADE

Let's think through this cataclysmic scenario that all gold and silver buyers are essentially betting on (ok, not all, but the Mad Max types).  We wake up one fine morning to find out that the Irish or Greek citizens have had enough and they have essentially overthrown their governments and ousted them through a bloodless revolution of sorts.  Let's call it a Debtor's Spring.  The New People's government renounces all claims to debt by the ECB, IMF, and foreign banks and labels it "odious debt" meaning that it was debt that was corrupt and not for the benefit of the people (google odious debt).  The revolutionaries halt all principal and interest payments.  That declaration sets off a chain of events that tears the Eurozone apart and damns the Euro as a currency.

In response, global markets tank, the Euro is trashed, the USD goes higher, and oddly, gold and silver do moonshots in the wake of the carnage.  The tremors of the collapse are felt world wide and within days fear has a firm grasp on all developed economies.  As banks work through their exposure to the worthless debt of European countries, gold and silver begin to sell off strongly.  Why the fall?  Margin calls.  As investment banks, hedge funds, insurers, and commercial banks all attempt to sort through the tangled positions (many of which are levered) they get calls from worried counterparties demanding collateral payments.  As they attempt to cough up cash they will sell as much of the remaining valuable stuff as possible, meaning that gold and silver and commodity positions are liquidated at a furious pace.  

Note, the sale of these assets are timed right at the moment when folks that are holding gold and silver are all taking a collective sigh of relief.  Now some of my readers and friends suggest that this too is the time that the USD collapses in sympathy with the implosion of the Euro fiat currency.  I don't know, perhaps that is correct.  Perhaps it implodes on the weight of its own debt or a chain reaction to the collapse of the Euro, since the Fed has extended so much to Europe in the form of USD swaps.  But needless to say, it is ugly, and that translates into a free fall in gold and silver despite the notion that they are a safe haven. 

Now our friends at http://www.fofoa.blogspot.com/ suggest that they have seen this coming in the post - FREEGOLD IN THE PROPER PERSPECTIVE.  Essentially, they suggest (as I have suggested but not for this reason) that this will be the moment when a rift takes place between the trading or paper value of gold and the value of the real hard stuff.  In other words, the value of gold for GLD may be $500 an ounce but if you asked your local coin shop or friend what they'd sell you a 1 oz American Eagle coin for, they would respond with something like "$3,500 for you buddy".  This amorphous pricing is hard for me to get my head around since I've been known to buy and sell physical gold and silver and attempt to play movements in these markets.  If this perspective is correct you almost need to retain a portion that never gets sold to protect you and your family.  In these collapse situations, this will be your only asset that has any value, unless of course you have some oil storage facilities on your homestead.   

 

RIDING THE BRONCO

I think the take away is that there will be extreme volatility as we near and cross the event horizon of the Euro fiat collapse.  Essentially as the collapse begins we'll endure a face ripping off acceleration in the price of gold and then a rapid drop as banks look to stop their bleeding.  As more worries surface about the health of institutions these gyrations will be repeated over and over.  

 

I'm not sure if there is a "best" game plan for enduring this ride, but it is clear that in the aftermath of a Euro collapse and possibly a knock-on fall of the USD I'd rather have some gold than some worthless Euros or USDs in a bank account.

 

GOATMUG   

 

 

 

 

 

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/