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Lookout Below
Thus we are more likely to see copper, gold, platinum and silver and asset markets without sufficient spendable income fall further, as derivative debt defaults and contracting earnings and yields play themselves out.
Standard and Poor’s 500 institutional quality stocks currently sell at 79 times earnings for a 1.26 earnings yield, while the recent 5.066% yield of the long Treasury Bond suggests high risk with both types of securities.
Traditionally, people buy bonds when their interest rates are above stock earning yields and hold them until the two come into parity. In the Great Depression, people bought reliable yield. Dome and Homestake Mining paid enormous dividends as do some natural resource securities today.
That gold and silver may go lower before higher is reinforced by current Commitment of Traders (COT) Reports showing the four largest futures traders in gold and silver are 1.7 times and 3.9 times short respectively. In other words, the biggest smartest money is short gold and silver, with enough financial resources to ruin anyone stubbornly holding the other side of the trade.
http://www.cftc.gov/dea/options/deacmxlof.htm
Cash is indeed king.
Congresses, Courts and Executives made numerous systematic efforts to centrally mastermind our economy with more debt and spending. They failed. Now they have to face the music and cut spending as constituent voters and the consumer economy realize it did not work. Going to war is no substitute for prosperity.
Taking over energy, healthcare and the defense industry in the name of economy, global warming, or borrowing more money or raising tax rates to pay for it will not work ere long. Nor will relying on much smaller Brazil, Russian, Indian or Chinese BRIC economies with our deficit trade imbalances carry US for long.
In fact, unlike most, we have a sell on China’s FXI fund:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3251493
There are enough free market and savings left to flee the American establishment as happened around the world. International corporate bankers know this, which is why they attempted to bail each other out to keep their system of usury viable. Domestic bankers are finding foreclosures tough to manage or sell.
Thus we see the bigger risk now as less confiscation of precious or other assets, and more deflationary market forces leading to war.
We are indeed living in very interesting times as the Chinese curse would have it.
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