Oil Is Headed Higher

Aggressive inflation will send oil a lot higher than $200 (USD) by the end of this cycle. Of course, gold will be significantly higher by 2016. This suggests that $200-$300 (USD) oil won't carry the same real cost as it would in 2011.

Let it not be said that the lunatic fringe cannot see the forest through the trees.

West Texas Intermediate Crude Oil (OIL) AND Oil to Gold Ratio (OILGLDR):


Headline: $200 Oil Is a "Totally Exaggerated" Forecast, Says Energy Analyst Gheit

Oppenheimer oil and energy analyst Fidal Gheit unequivocally believes that the uprisings, which have also been seen in Egypt, Tunisia and Bahrain, will spread until authoritarian dictatorships are ousted throughout the Middle East. (See: Saudia Arabia's Regime Wll Fall, Says Analyst)

If that does eventually happen, he expects oil to hit $120 to $130 a barrel -- but not $200 or $300, as some have speculated. Those calls, he says, are "totally exaggerated and totally irresponsible."

Source: finance.yahoo.com

China Signals Dominance in Stealth Jet Test Flight

A far more likely scenario than Pomfret's musings is that Hu is playing a cagey game. By hinting that the People's Liberation Army made the decision without civilian knowledge, Hu is showing he is reasonable and not warlike but the test underscores China will no longer be bullied by America.

This carries monetary implications going forward.

Washington Post columnist John Pomfret argues the recent test flight of the J-20 stealth fighter just hours before U.S. Defense Secretary Robert M. Gates met with Chinese President Hu Jintao was a blunt challenge by the military establishment to Hu's power. (Click here for Youtube video of the fighter jet) Pomfret surmises there is chaos within China's political circles because it appeared to Gates that Hu did not know of the test. Pomfret's hypothesis would certainly be a scary if true.

But is Pomfret right? Is the military really taking on President Hu in a power struggle? Is China about to crack?

Far from it. The opposite is true. President Hu is undoubtedly quite in control of China and displayed his power to Gates by employing a plausible deniability ploy.

A far more likely scenario than Pomfret's musings is that Hu is playing a cagey game. By hinting that the People's Liberation Army made the decision without civilian knowledge, Hu is showing he is reasonable and not warlike but the test underscores China will no longer be bullied by America. Hu's ploy of plausible deniability is in fact a common negotiating technique by the Chinese and it is surprising that Pomfret and other pundits missed that.

Source: finance.yahoo.com

Investment History Made One Day At A Time

The gold stocks, following three taps and out trading heuristic, broke away from long-term consolidation on May 2010.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining


As expected, the gold shares have also tightened their correlation with gold.

Historical Correlation Gold Stocks and Gold

2010.12


2011.02


Now gold and silver, breaking away from upper channel resistance, are beginning to accelerate to the upside.

Silver, London P.M. Fixed


Investment history is made one day at time, yet few investors seem to recognize the key events.

Perhaps the rumors of the possible introduction of McLobster provides just enough distraction to keep the public investing in the old paradigm. :)

The Problem Is Debt, Not Jobs

The rate of job destruction has slowed appreciably. This is illustrated by the slow and steady climb of Jobs Creation Histogram (JCH) towards zero. While this is good news for job seekers, it does not suggest an end of the economic problems that continue to plague the global economy. The headlines and talking heads seem unable to recognize is that today’s economic problems are debt rather than job based.

Gold has and will not decline on “good” jobs news, because job creation is not driving it. Gold is rising as a result of currency devaluation across the globe. Currency devaluation, i.e. printing money to meet obligations, has been the politically acceptable solution to excessive debt burdens that trouble most industrialized economies.

Job Creation Histogram (JCH): Net Nonfarm Payrolls Added/(Lost) less Civilian Labor Force Added/(Lost), 12 Month Average.


Headline: February payrolls jump, jobless rate near 2-year low

Employers hired more workers in February than in any month since May last year and the unemployment rate fell to a near two-year low, the strongest sign yet the recovery has become self-sustaining.

Nonfarm payrolls increased 192,000, the Labor Department said on Friday, in line with expectations. Data for December and January was revised to show 58,000 more jobs created than previously estimated.

Source: finance.yahoo.com

U.S. Dollar Index At Important Technical Juncture

The dollar index is dangerously close to completing the "three taps and out" trading heuristic of a large consolidation pattern that formed in 2008. A break of this pattern would signal not only continuation of the secular downtrend and but also, and more importantly so, further loss of confidence in the dollar and the paper it denominates.

U.S. Dollar Index

One Heck Of A Mess

That’s because Mr. Gross is no dummy. He knows that economic growth is highly dependent on public sector spending. This is fact – right or wrong. Economic growth will crash faster than public support for increased taxation if the flow from the spending spigot is restricted too quickly. States, according to the Constitution, cannot declare bankruptcy (at least not yet) and unlike their Federal counterpart they lack the ability to devalue to meet their growing obligations. This means the federal government, like it or not, is coming to the States' or peoples’ rescue sooner or later. It will likely be sooner rather than later. The "rescue" will be either through direct cash infusions to State coffers or indirect federal stimulus and quantitative easing to combat the massive drop in local, state, and personal spending. It could be characterized as one heck of mess, but that might be an over simplification.

Headline: PIMCO Gross urges slow pace of deficit cuts

Bill Gross, co-chief investment officer of PIMCO, the world's biggest bond fund manager, on Thursday urged lawmakers to cut the massive federal deficit but not so swiftly as to choke off the nascent economic recovery.

Speaking exclusively to Reuters Insider, Gross said: "Let's cut the deficit, but let's do it gradually," so that real economic growth can take hold.

Lawmakers struck a deal on Wednesday that delays for two weeks a showdown over the current year's spending plan. Republicans are seeking some $61 billion of cuts to help reduce the deficit, estimated to hit $1.65 trillion this year, but Senate Democrats are preparing a measure that would keep funding essentially flat.

Source: finance.yahoo.com

Rising Stock Markets Don't Always Translate Into Currency Adjusted Profits

The proper description would be Wall Street jumps on optimism that quantitative easing will continue unabated until the wheels fall off. That verison is not as user friendly, so as George Gershwin once wrote,

You like "po-tay-to" and I like "po-tah-to",
You like "to-may-to" and I like "to-mah-to";
Po-tay-to, po-tah-to, to-may-to, to-mah-to!
Let's call the whole thing off!

Most investors have yet to realize that rising stock markets don't always translate into currency adjusted profits. And, so continues the real-time lesson in currency devaluation.

U.S. Large Cap Stocks Capital Appreciation Index (LCSCAI); S&P 500 to Gold Ratio


Headline: Wall Street jumps on optimism before jobs data

Stocks rallied on Thursday as oil prices slipped and better-than-expected economic data raised expectations of a strong employment report on Friday.

With oil prices pausing from their recent climb, investors focused on the U.S. economy, which has shown steady improvement in reports this week. Many believe the Labor Department's report could be a turning point for the recovery.

"The expectations are high," said Bill Strazzullo, partner and chief investment strategist at Bell Curve Trading in Boston. "I don't think anybody wants to be short going into tomorrow's payrolls number."

Source: finance.yahoo.com