Spain has turned critical.

The crisis in Europe is coming to a fast boil. It is the turn of Spain to feel the brunt of invester displeasure:

http://www.telegraph.co.uk/finance/financialcrisis/9301270/Spain-faces-total-emergency-as-fear-grips-markets.html

The article by Ambrose Evans-Pritchard details the numbers and the response of governments to them. The situation can be summed as such: Spanish banks are broke and unless they are rescued by large bailouts, they are toast. Seeing this, investors demand higher returns on Spanish bonds, the last report was 6.7%. One official is quoted that if Spanish bond yields go to 6.8% then there will be a rapid sell off of the bonds. It would mean that the ECB has refused to bail out the banks. The 'austerity' demanded by Germany is not happening in Spain or Greece. So, these countries edge ever closer to default on their bonds.

Will the ECB print the money to do a rescue? That is the immediate question. The ECB remonstrates that it does not have the authority, but it in fact it did print 1 Trillion Euros and lent it out a while back. Everybody knows that the money will not be repaid. (Hint: if these countries could come up with the funds, they would not have needed the 'loans').

Europe is caught in a vicious circle. Reducing deficits reduces their GNP, because a lot of the economy is either run by the govt or is dependent on govt spending. The result is a recession and an even higher deficit. The deficit must be made up from bonds, on which the governments must pay higher yield - again this makes the deficit rise.

PM Cameron wants Europe to increase its productivity but how? Productivity will not increase unless industry is privatized and the govt stops handing out "free" services. And the unions are dead set against this.So, the alternatives are getting rid of soft Socialism or default or print money.

In the face of all this implosion we see that gold is holding its own, while the US Dollar is rising as panicked Europeans are buying Dollars. I am betting that at some point both the ECB and the FED will have to print.

Facing the finalcial abyss.

It is hard to grasp the numbers that circulate in the world's financial system. That's why the post by Egon Von Greyerz on KWN is a jaw dropper. Mr Greyerz is the Founder and Managing Partner of the Matterhorn Asset Management of Switzerland. He cites S&P that corporate financial needs in the next few years total $30T. According to Greyerz, derivatives now total $1.1 Qquadrillion, of which JP Morgan has maybe $70T maybe $100T. And their recent loss in derivatives  speculation is $8B, maybe $100B. Love the way these folks toss around ranges, like money meant nothing. How much of the JPM loss is due to trying to manipulate the silver price?

Greyerz estimates the financial hole as $100T deep.How much of that will be printed and when is what will drive world finances and economies in the near future.

DOW theory signals - back in Bearmarket.

Richard Russell reports a major DOW theory signal for resumption of the Bear Market.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/29_Richard_Russell_-_IMPORTANT_-_Major_Bear_Market_Signal.html

According to the charts, the DOW Industrials made a new high on May 1, but this was not confirmed by the Transports. Then both averages broke below a previous low.

Russell believes that the driving force for the Bear is the expected exit of Greece from the EU and later, default by Greece and then Spain.

My belief is that the FED and the ECB will print before that happens. The FED meets a couple of days after the Greek election, which may give the FED the expected push to do QE3. Larry figures that the FED will now watch the DOW and a likely point is 11,500 for the FED to act. Gold and silver miners have been rising in expectation of gold going higher.

Slouching toward QE3.

I always like posts from which I can learn. Such was the interview of Keith Barron in KWN today. Mr Barron pinpoints June as a pivotal point in the financial world. First, we will have a Greek election. Greece may leave the EU and cause a lot of calamities. The second important event is the FED meeting around the middle of June. Bernanke has already hinted that the FED considers the economic recovery too slow. This opens the door to QE3. But, if they do not decide at the June meeting, the next opportunity is in August - too close to the election.

Financial markets may react sooner.

Volatility now.

I checked with the various gurus and here is the trend to expect. I emphasize that I do not average contradictory opinions as that would give me guidance that is useless.

Here is my sum. The ECB is waiting to print again. Greek parties that agree to austerity are rising in the opinion polls, so the rescue of Greece will continue. Then there is Spain, Portugal and Ireland and Italy waiting to erupt.

I agree with Larry that both the ECB and the FED are waiting for the right time to print. So is Switzerland. The main motive is to avoid deflation and initiate some serious inflation to stimulate moribund economies and inflation to combat deflation. Volatility will come from inflationary and deflationary forces clashing.

Larry thinks that the FED will wait untill the DOW hits 12,500. I do not think that they will wait till then. Bernanke wants the Obama regime to win re-election and for that they need an economy that is humming if even for just a few months. Such things have a lead time, so Bernanke does not have a lot of time.

Filtering out the distortions.

There are several trends in force and one must understand and filter out the self serving distortions introduced for political gains. I will enlarge on this later.

The factor that is driving finances today is the financial implosion of Europe and the United States. But, if you look at some numbers, you might miss it. For example, look at the first graph (10 year Treasury yields). The yield is 1.7%. Even if you believe the government's figure of 3% inflation per year, buying a 10 Year Treasury yields you a 2.3% loss per year. Yet, people buy it. How come? Because institutions are dumping European equities and parking the yield in Treasuries and US Dollars.

The second graph is the US Dollar Index. We see that the value of the US Dollar is increasing while the FED prints more of it. It has risen for the same reason that Treasury yields dropped: European assets are being liquidated, people are withdrawing Euros and changing them into US Dollars.

How about gold and the miners?

Gold is holding its own. It is said by the pundits to be "volatile." When the US Dollar Index increases, gold drops then recovers when the Dollar Index stops rising.

Rick Rule has an interesting forecast for the miners. He thinks that ownership will change from institutions to high end customers AND large gold producers. We have already seen an uptick in miners and explorers. The rise in gold miners forecasts an expectation of rise in gold prices. Not as soon as I calculated, but it is around the corner.

That brings us to consider the self-serving lies peddled by the Media for the benefit of the Democrat Party. Remember the commercials made by Michael J Fox on behalf of Senatorial candidate McCaskell? Fox alleged that Bush banning embryonic stem cell research would stop his expected cure for Parkinson's disease. Of course, Bush did not ban that research, he merely stopped funding it by the government. Well, Mr Fox now admits that after Bush the Democrats lifted the ban. Was Fox cured? NO!!! But, McCaskill was elected based on a lie.

Another Big Lie that is circulating is shown in the next slide. Who is responsible for increasing spending and the debt? George Bush, thunders the Democrat machine and its megaphone. The last slide is from a propaganda piece put together by Pelosi. How is the Big Lie achieved? Simple. The first year of the Obama increases of one Trillion dollars are counted as Bush spending. From then on the new budget is counted as a baseline. Obama even complains that Republicans stand in the way of recovery by refusing to increase the budget, even though they agreed to raise the debt ceiling.

What about the gold price and the financial crisis? The financial crisis is heading for the US, make no mistake about it. Gold prices will go up, it is just a matter of time.

Do not fight the market. Part 2.

Most people who talk or write about investments emphasize the good trades they made. So, maybe I might be of use about talking about my failures. Bank stocks? Ouch. General Motors? Ouch. Toyota and Honda were moderate losses. But, it was my investments in the gold and silver minoers that were to save my hide.

You see, I listened to a presentation by Weiss Research. They predicted a big drop in the DOW, so I sold all stocks. They told me that gold and silver miners were going way up so I bought in. It worked for a while. The DOW fell and QE1 and QE2 seemed to stop the fall way earlier than Larry's formulas predicted. The rec to avoid stocks continued and I stayed out. The miners did well and I made back most of the losses. Then I lucked out. A friend came to live here and we bought a house and rented it out. And we bought a new car and decided to give one of our kids a loan to pay off credit cards, anticipating that inflation would make the loan lose its value. So, we had to sell some miners pretty much at the top.Just sheer luck.

Then gold began to go down. It eventually fell 20%, but the miners fell 50%. We were urged to "hold our positions." I did. True, I did not buy the "Insurance" (shorts) and the miners went way down. I should have sold all the gold, silver and uranium miners and not fight the market.

The moral? Gurus are not as infallible as they pretend. And all gurus pretend that other gurus are dumb. And they also pretend that central bankers and such do not know what they are doing. But, every one goes wrong sooner and later. That's when the mlosses occur. Fortunately, the correction in gold will be over soon and the miners have already started to rise.

Do not fight the Market. Part 1.

This is a sage advice, but hard to follow. Why? I asked. Because the average man or woman does not have the knowledge and the expertise to do all the things you need to do to succeed and make money from investing. So, you follow expert advice. And sooner or later, expert advice turns out to be wrong. The person who pays for the mistake is the Investor.

Let me follow the investment saga of Weiss Research. The organization had assembled an impressive staff of technicians and traders and Mr Weiss, a great salesman.

The idea was that the study of cycles has yielded a method that could forecast ups and downs and that combined with stop loss prices could protect profits.

Larry Edelson was the cycle guru, who could forecast cycles and give advice. Larry figured (his cycles told him) that economic troubles would force the Stock Market to collapse to DOW 9,500, the FED would keep printing and gold prices would soar. We were to be out of stocks and into holding gold and silver and mining shares.

It did not happen that way. The DOW refused to collapse and short selling produced a whopping loss. Gold rose then corrected (beginning in September 2011) and we were urged to hold our long term positions. Then gold stabilized, but gold and silver miner stocks continued to fall.

Larry: "Here we go again."

"Here we go again" is the title of Larry's infomercial. Having failed in his last year's forecast of the DOW 9,500 and gold below 1,400, Larry Edelson is at it again. This time he forecasts the DOW to fall below 12,000 and gold to plunge below 1,400. This is a different forecast though. This time the plunge is to be followed by wide scale money printing by the Central Banks of Europe and the US and THEN gold to rise above $5,000. Larry Edelson offers a service that tells you for a paltry 7 grand a year when and how to profit from this change.

Larry's work is NOT to be dismissed even though he was wrong last year. His thesis is that due to the debt crisis in Europe (and the recession that is hitting Europe) wide scale printing of money will be undertaken, which will propel gold prices. While, the American economy is not in recession, neither is it healthy, so that the FED will also print.

European banks are teetering and Europeans are converting Euros to US Dollars. This has propelled the rise of the US Dollar (see second figure), which then reduced gold prices (top figure).

Larry is not tuned in to the markets (though he claims he trades the market) in the sense of following individual trades, so he disregards the following: 1. the USD has stopped rising and shows a double top and 2. gold has stopped falling and even its sideways trading is flattening out. There are orders for gold below current prices that under gird the current price.

My prediction was that gold would hit a new high at the end of May (based on length of previous correction calculations). This has not happened so far. But a bottom in gold prices and mining stocks seems almost imminent.

What will the FED do?

A lot of people watch the Ten Year Treasury Note yield as a measure of inflation/deflation. When plotted on a weekly basis, this graph tells us that the FED is still keeping the lid on the yield by buying it with printed money. OK, in reality, digitized money.

In reality, TNX is not a measure of inflation (either monetary or price), but investers' view of the state of the economy. Treasuries are believed to be a safe way to store money, since the govt guarantees it. It earns little and even with a moderate inflation, the yield is negative.

The FED and the Obama regime have painted themselves into a corner. Newly printed money accumulates in the banks as reserves, on which the FED pays interest. So, the money injected into the system remains not only unproductive, but is a drag. In addition, the Obama regime is busy trying to kill American assets in coal, oil and natural gas. No wonder that 41% in WV voted for a Texas inmate in the primary running against O'Bungle. And these were Democrats.

Meanwhile, the FED may have to to some serious interference, if it wants to avoid a collapse. What could these be? Well, the FED could buy into Exchange Traded Funds (ETFs) to prop up the Stock Market and bonds. The Bank of Japan is doing just that.

Turning point?

It has been nine months since the correction in gold and silver got under way. Gold and silver miners were especially hard hit. There is evidence that this correction is coming to an end. In fact, I have predicted that gold will hit a new high at the end of May. I will present the evidence.

The first two figures represent the graph of gold and silver. A reverse head and shoulder formation is evident for both metals. The next three graphs are the three ETFs that track the miners. All three ETFs show an uptick yesterday when gold was falling.

The final two graphs show the price of a silver miner in Mexico. The last slide shows a reverse head and shoulder and the slide before it shows yesterday's uptick.

The investing public has thrown in the towel this week in time for the big boys to start buying.