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June 22, 2010 / Jeb

U.S. Economy Breaking Down, Attempts To Prevent Deflation Failing

The United States is facing a crisis of a rising dollar and a recession where basic  industries over the past several months have experienced a nasty decline.  This condition is a concern for policy makers as the federal stimulus appears to be wearing off.  The economy seems to be slowing and cash, treasuries, silver and gold appear to be the area of strength.

One bellweather blue chip Alcoa is down over 25% the past 6 months.

In January after breaking into new 52 week highs Alcoa experienced a nasty reversal and has been in a 6 month downtrend.  Meanwhile, the U.S. dollar is rallying as well as gold and silver.  This is a major deflationary sign.

Yesterday’s move to disconnect the yuan to the dollar was a mutual decision for both governments to stem the global deflationary crisis by devaluing the dollar.  The U.S. government has done everything they can to prevent a deflation by keeping interest rates at all time lows, buying back treasuries to keep mortgage rates low and a massive federal stimulus.  Now this latest move is another attempt to use China to decouple its currency, devaluing the dollar.

Although yesterday’s attempt appeared to be bullish as every media outlet believed that this would help global economic growth and the U.S. Economy, the market showed that government intervention can not subdue nature’s law of supply and demand.

The reality is years of bad debt and easy money need to work its way through the system.  Eventually the markets and forces of supply and demand will reach equilibrium.  Now investors are protecting their wealth by moving into gold and silver and I have done the same.

Economically sensitive equities and basic materials need to be avoided.  It is an important time to preserve wealth by being in gold and silver during this next downturn.

Gold appears to be making a very bullish crossover pattern on its relative strength chart compared to the S&P 500 index.  Each time it has made this pattern over the past 3 years with both moving averages pointing upwards has been very lucrative to gold investors.

The transportation averages had a nasty reversal today to further prove that movement of goods is under pressure.  Transportation is the clue to see if economic recovery is continuing.  Today’s reversal is evidence of weakness and further proof that businesses and individuals are holding onto their cash.

Today showed strong resistance and failure at the 50 day.  This is an extremely bearish pattern.  We must be defensive.

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5 Comments

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  1. David / Jun 22 2010 9:25 pm

    Hi,

    I read your advisory to hedge my gold shares with a short position on the general market. Well, I followed your advice by buying put options on IWM, the Russell 2000 Index ETF today. I am already ahead of the game by today’s close. I look forward with anticipation to tomorrow’s market in the United States, knowing that I will make even more profit.

  2. Tuni / Jun 23 2010 9:00 am

    Thanks so much for your blogs. They are right on. When do you suggest going back into gold stocks as from what I thought I read-there may be a little pullback-Thanks

    • Mining For Winners In Any Market / Jun 23 2010 9:43 am

      Hey Tuni,

      I am not bearish on gold and silver. Due to overall market weakness trailing stops will be monitored closely. I do believe gold and silver will maintain its uptrend.

  3. jay / Jun 24 2010 7:25 am

    Hi, noticing the chaikin money flow for uxg.to is weak and trending down,i was surprised to see this considering the stocks strong performance! any thoughts?

    • Mining For Winners In Any Market / Jun 24 2010 9:34 am

      chaiken money flow is a secondary indicator to me and I do not use it.

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