Age of Enlightenment

Today silver entered the 18th century, ever so briefly poking its nose up above $17.00, before dropping back a few pennies.  Needless to say, the broad market hasn't been doing as well in 2008.  Despite another 50-basis point rate cut (for a total of 1.25% in January) all of the major market averages are down.

Some of the mining shares are underperforming the metals, but that won't last forever.  Soon enough, the juniors will revert to their normal performance of providing leverage to the metals prices.  And when they do, look out.  The exploration companies that have real assets are screaming buys right now.  Even larger companies like Silver Standard aren't just cheap, they are stupid cheap.

It is clear than Ben Bernanke has thrown in the towel on fighting inflation, and the ECB won't be far behind.  Were it not for the Germans and their long memories of the Weimar Republic hyperinflation, the Mediterranean countries would already be cutting interest rates.  And when the euro goes through $1.50 I doubt even the Germans will be able to hold the line, or the euro could break up into national currencies again.

Like a couple of punch-drunk boxers leaning on each other, the euro and the dollar are trying to hold each other up, but gold (and silver) will appreciate against ALL currencies. If you're conservative, buy CEF.  If you can afford to take risks, buy juniors.  And then buy more juniors.

And now for something completely different

It is now only ten days to Super Sunday, as in Super Bowl 42.  Not XLII, as the NFL calls it.  I had to take three years of Latin in high school, and I have had my fill of Roman numerals.

The New England Patriots are a 13-point favorite, as they are still undefeated.  It is hard to argue with 18-0, especially when the New York Giants are one of those 18.  On paper, it looks like a mismatch.  But then I didn't think the Giants could beat the Cowboys, either.  And I was sure they couldn't beat the Packers in Green Bay, a game played in weather so cold that I wouldn't go outside for three seconds, let alone three hours.

But here they are.  And the more I think about it, the Patriots aren't the same team that ran up the score on opponents early in the year.  They have some age on defense, and lately they have had to outscore their opponents.  I think they are vulnerable to both the pass and the run.  The Giants can run effectively with Brandon Jacobs and Ahmad Bradshaw, and their receivers made a couple of Pro Bowl defensive backs look silly in the NFC title game.  The real problem is stopping the Patriots, who rang up 38 on the Giants in December.  No one's been able to do that all year, and I don't think the Giants can do it.

The Patriots have so many weapons (Moss, Welker, Stallworth, Maroney, Faulk) that all you can do is try to slow them down.  In addition, the Giants defensive backs are hurting, and they aren't very good even when they're healthy.  But Randy Moss hasn't played well the past two weeks, and Brady threw three interceptions in the AFC title game.

If they played this game ten times, I think the Patriots would win nine of them.  Logically, the Giants will stay with them for two or three quarters, and then Eli Manning will make the big turnover that he's overdue for, and the Patriots will pull away.

But since I've been wrong about the Giants so many times already, my prediction is the Giants pass rush will disrupt Brady's offense just enough in a high-scoring slugfest ending with the biggest Super Bowl upset in 40 years.

Final score: Giants 34, Patriots 31

That being said, I will not bet a nickel on the Giants.  I do all of my gambling in the stock market, where the odds are much better.

Helicopter Ben to the rescue

Today the Gold Cartel stared down into the abyss, and ended the inflation vs. deflation debate, as far as I'm concerned.  Yesterday with the U.S. markets closed for MLK Day, global markets plunged with Canada's TSX down 600 points.  Last night, all of the markets in Asia crashed as well, with India down 9%.  With the overnight futures indicating the Dow would open down 500 points (and might well go off a cliff after that) Ben Bernanke cut the Fed Funds rate by 75 basis points.

They said they're trying to stave off a recession.  But as I recall, we used to have recessions every four or five years, and the world never came to an end.  Bush and Cheney aren't running for re-election, and if any incumbents are blamed it would be the Democrats who control the House and Senate.  So why was it so important to cut interest rates today, instead of waiting until the next Fed meeting on Jan. 29-30?

Because the financial markets were about to become unglued.  A bond insurer just lost its AAA rating, and the credit-worthiness of the $556 billion worth of bonds it insures is now called into question.  And this is only a tiny portion of the $450 TRILLION worth of derivatives that sit on top of a $13 trillion economy.  We have already seen $10+ billion write-offs at Citigroup and Merrill, and that is only the beginning.  The companies themselves don't even know what they have on their balance sheets, and what they are worth.

So the Fed and the Treasury are going to pump at least another $140 billion of fiscal stimulus along with the monetary stimulus (another rate cut at the Fed meeting next week?) because now they have to inflate or die.  They think they can control inflation later, but they know that if deflation takes hold, there is no antidote.  When companies go out of business (think Countrywide and Bear Stearns for starters) they don't come back.  Everyone loses their jobs, and the effects ripple throughout the economy.

And to think that with monetary growth (the reconstituted M3) running at 15%, gold and silver are below $900 and $16 as I write this.  Not for long! 

Past the Spanish Armada, Plymouth Rock next

On Thursday, the price of silver surpassed the Spanish Armada being destroyed by storms in the English Channel (1588) and yesterday it passed the Pilgrims landing at Plymouth Rock (1620)

The Age of Enlightenment approaches, and at this rate silver could test the American Revolution ($17.76) or even the Battle of Waterloo ($18.15) soon.

And if Ben Bernanke opens his mouth again, we could get there even sooner.