Financial Markets

Most people believe that the major capital markets in the U.S. are basically free markets with, occasionally a little bit of rigging here and there. That is hooey! Evidence shows that the opposite is the case—the rigging is fundamental with a little bit of free markets sprinkled around.

Last week, the DOW dropped 4%. It has dropped 8% in the last thirty days. The powers that be have given up trying to artificially hold the DOW up but have instead switched their attention to another area. In the March 7th edition of "Beartracks," I tried to stress the importance of the current situation as follows:

I am now more confident than ever that the value of the DOW will continue to erode. It started crashing four years ago, but, because of the Fed's smoke and mirrors (read in; inflation), no one noticed.

The problem is, if they are going to continue to quash PMs and energy, and, because of impending interest rate pressures, bond are also perched on a precarious ledge, where should you put your money?

I believe the greatest potential is currently provided through the investment in instruments that are interest rate sensitive. The prime rate is going to rise much faster than the mainstream realizes.

On the war front

Uncle Sam wants you. He needs you. He'll bribe you to sign up. He'll strong-arm you to re-enlist. And if that's not enough, he's got a plan to draft you.

The Army and Marines are extremely overextended by the war in Iraq. The "weekend warriors" of the Army Reserve and the National Guard now make up almost half the fighting force on the front lines, and young officers in the Reserve are retiring in droves. And now we have Iran, North Korea and Venezuela on the horizon.

The Pentagon, which can barely attract enough recruits to maintain current troop levels, has involuntarily extended the enlistments of as many as 100,000 soldiers. Desperate for troops, the Army has lowered its standards to let in twenty-five percent more high school dropouts, and the Marines are now offering as much as $30,000 to anyone who re-enlists.

Defense manpower officials concede there are critical shortages of military personnel with certain special skills, such as medical personnel, linguists, computer network engineers, etc. The potentially prohibitive cost of attracting and retaining such personnel for military service, has led some officials to conclude that, while a conventional draft may never be needed, a draft of men and women possessing these critical skills may be warranted in a future crisis.

If you are between the ages of eighteen and forty and have special skills, such as those mentioned above, bundle up. It has become very drafty in here.

Precious Metals

The Fed will shift their attention to making the energy commodities and precious metals markets as unattractive as possible, so as to dissuade investors from flocking to those markets. They want your money in their game (bonds), not someone else's. I would look at every dip in the PMs and the energy sector as a buying opportunity from here on. As I have stated before, time and time again, gold and silver are going to the moon. Unfortunately, when they finally lift off, it will be too late to participate if you are not already vested. Through a series of limit up sessions, their prices will quickly become purely speculative.

Speaking of Energy

It would appear that many who think oil's price will go higher believe it will form a shorter-term spike -- jumping higher for only a brief time, triggering a serious economic slowdown which in turn will cause demand for oil to plummet and bring oil's price almost as quickly back down. This in essence is the argument made by the Goldman Sachs  analysts who recently gained lots of attention by suggesting that oil could spike to $105 a barrel.

The fact that Goldman Sachs (the quintessential mainstream pundit), suggested that oil may spike to $105 leaves me thinking that it probably won't, in the short term.

I am long term bullish on the entire energy sector. I feel that caution may be the watch word for the short term. Volatility in the energy sector may remain extremely high throughout the spring and summer.

The Fed

The Federal Reserve is not going to be able to engineer a “soft landing” for the dollar. It is impossible to have full control over a financial market. Alan Greenspan said he was going to make a “soft landing” for the Nasdaq in 2000 and it didn’t happen.

As touched on in the preceding commentary, the Fed has lost control of the economy and has only the Bernaeke money machine left as an option. They will continue to do what they have done so far which is to over inflate the world economy with the production of even more dollars.

The idea of raising interest rates to control inflation is ludicrous when the money supply is growing by leaps and bounds. There is nothing more inflationary than printing money. The game has lasted as long as it has because foreigners were willing to loan us money as long as we used it to buy their goods. Well, I think that party is about over.

The Fed will have to aggressively raise interest rates in order to offset the effects of inflation on the value of treasuries. This will cripple the equity markets and leave middle class Americans holding the bag.

If you know hyperinflation is coming, and higher interest rates are eminent, opportunity abounds. I will continue to explore how this knowledge can be empowering in up coming newsletters.

Financial Survival

Keep your eyes on the bond market. As the U.S. Bond market goes, so goes the world's economy. As strange as it may be, the dollar is still the fuel of the world's economic engine.

Follow the course opposite to custom and you will almost always do well...

Its not what you don't know that will screw you up, it's what you know that is wrong. The spin you hear from the mainstream media is intended to mislead you. Open your eyes and face the future. If you leave your head in the sand and ignore it, you are only leaving your butt exposed for the world to kick. This all may sound like gloom and doom, but when you get a handle on what is going to happen, you will have a future filled with opportunity. Fortune favors the Informed.