Economics

[[wysiwyg_imageupload:2255:]]By JW Jones

The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.

Talking heads everywhere are predicting the commodity bubble has burst and pointing fingers at excessive speculation in silver and oil. Margin requirement changes in silver futures have been fingered as the primary catalyst for the nasty sell off. Silver had gotten way ahead of itself in terms of price and parabolic moves higher are usually followed by parabolic moves lower. For silver buyers on Friday, April 29 a painful lesson has been learned as their investment has declined more than 30% in 5 days.

[[wysiwyg_imageupload:2248:]]By Gary Dorsch

One year ago, few traders were expecting a pullback of any significant degree, with the Dow Jones Industrials perched above the 11,000-level. Traders had become complacent after a year long advance, in which the Dow Industrials had risen +70% above its bear market low, while retreating only twice for minor pullbacks. Traders stopped thinking about potential dangers, and started believing the risk of another bear market had vanished. Yet simmering beneath the surface was the specter of a sovereign debt default, rivaling the size of Lehman Brothers', and threatening the world economy with a "double-dip" recession.

Tech Talk for May 4

[[wysiwyg_imageupload:2228:]]By Clif Droke

A rather eye-opening headline appearing in the financial press is worth discussing here because it’s symptomatic of a bigger problem plaguing the economy.  This problem will only increase in the coming months and there’s ample reason for believing it will eventually undermine the cyclical bull market in stocks.  The headline reads, “Kimberly-Clark to hike prices after profit falls.”

[[wysiwyg_imageupload:2227:]]By John Mauldin

I have written repeatedly about the Endgame in the weekly letter, as well as in a New York Times best-seller on the same topic. By Endgame I mean the period of time in which many of the developed economies of the world will either willingly deleverage or be forced to do so. This age of deleveraging will produce a fundamentally different economic environment, which the McKinsey study referenced below suggests will last anywhere from 4-6 years. Now, whether this deleveraging is orderly, as now appears to be the case in Britain, or more resembles what I have long predicted will be a violent default in Greece, it will create a profoundly different economic world from the one we have lived in for 60 years. This makes sense, in that the prior world was defined by ever-increasing amounts of leverage. Outright reductions in leverage or even a significant slowing of the rate of growth is a whole new ballgame, economically speaking.