TFN eNews 12/04/2009: A grim warning for the markets
Published via e-mail broadcast on December 4, 2009
In today’s TFN eNews:
* Reverse demand and the most profitable mining business
* Penny stock fortunes
* A grim warning
Dear TFN eNews reader,
For the past couple of years — since the housing market turned own — jewelers, currency exchange stores, pawnbrokers, and a variety of Internet-only stores have developed a lucrative new business.
They’re buying gold for cash.
Cash-strapped suburbanites with boxes full of bling and readjusting mortgages suddenly thought they could fall back on paying this month’s bills with last year’s luxury expenditures.
The result often is a rough awakening. Diamonds (and gold jewelry) may be a girl’s best friend. But they’re really only a store of value when you get them free. As a gift. Or handed down from your late Great Aunt Gertrude.
Because gold bullion may be at record prices right now. But those prices apply to gold of 99.9999% purity. That’s not necessarily true for the gold used in your Dr. Quinn, Medicine Woman-designed Shared Heart (”Two Hearts Beating as One”) Collection pendant.
But it’s not only purity. Jewelry, like almost any other consumer item in the world, is sold at tremendous mark-ups. Consider double the materials cost standard. The more pretentious the designer name, the higher the mark-up. That diamond-studded heirloom ring you thought might pay your mortgage and groceries for a month may only fetch the equivalent of a tank of gas.
(Bullion and silver coins are sold more gainfully.)
*** Cash for gold businesses have been buying up more and more gold as the recession has expanded. So far, the business model has been working out nicely. Even after the cost of melt-down and purifying, rising bullion prices ave made this a cash cow
In a way, these “scrap” companies are like gold miners… only more profitable: Rather than extracting trace elements of gold from tons of rock and sediment, they’re mining the richest reserves of precious metal — sock drawers and jewelry cases!
But there’s something unhealthy about the dynamics: You see, over 60% of the traditional demand for physical gold has been for jewelry.
Jewelry currently is not a growth business. In fact, with all the bling flowing back into the smelter, you could say there’s now negative demand for gold jewelry. And gold prices are currently pricing most future jewelry demand right out of the market.
How long can a business with an unlimited supply of “convertible” department-store jewelry out there last if commercial demand keeps falling?
Your guess is as good as mine. Although today I thought I saw one of the four horsemen of the Apocalypse sauntering by.
Rapper and perennial benkruptee MC Hammer (”You can’t touch this”) is now appearing in commercials for a company, aptly named Cash4Gold. It buys more than 1,700 oz of gold per day…
It’s always a bad sign for any industry when a D-list celebrity has to be resuscitated as a spokesperson…
*** Sometimes, you just got to move: TFN Penny Stock Confidential members today took 28.1% gains on Xenonics Holdings Inc. (AMEX:XNN).
The stock was up close to 11% on no discernible news whatsoever. But gains seemed wobbly and I can’t tell if this will continue.
Having entered the position on November 10 and sold today at $0.80.
28% aren’t bad… but certainly not the moon shot I had hoped for. Of course, there’s always the danger that we sell too soon. But then, holding too long is just as bad: I’m still heartsick about not taking 100% gains on MMRF two weeks ago!
This market seems to be hostile to extended price spikes. Our quick 28.16% added to the average gains of 46.8%, with an average holding period of 8 days, all generated in the first month of PSC’s existence.
I expect movement in two other of our open positions — CombinatoRx, Incorporated (NASDAQ:CRXX) and ImmunoCellular Therapeutics, Ltd. (OTC:IMUC) early next week.
See what all the fuss is about and become a Penny Stock Confidential member! http://www.todaysfinancialnews.com/PSC/LAUNCH/EPSCKB11.html
*** TFN’s resident strategist Andrew Snyder was anything but light-hearted today — despite a week of terrific gains at TFN Strategic Trader:
“What a difference a week makes. Five trading days ago, the Street was expecting yet another major collapse after news of Dubai debt trouble was brewing. Today, thanks to solid employment data, investors are in a partying mood. So who’s right? Last week’s bears or this week’s bulls?
“None of them! All we have to do is look at the value of the dollar and its relationship with equities market over the past few months. Almost without exception, the Dow has moved inversely to the dollar. When the greenback weakened against the euro, the equities market was green. When the dollar strengthened, we saw red.
“But today is different. The dollar is up and the equities market is up.. or at least it started the day up.
“The Dow is sitting at 10,400 — not because of economic strength, but because of the trade-related benefits of a weak dollar. Because our currency is cheap, export revenues will rise and bottom lines will increase. But thanks to today’s stronger-than-expected unemployment data, foreign investors are once again looking at our economy and wondering if rates will rise sooner rather than later.
“If interest rates begin to rise, the dollar will gain strength fast. And that means all those points the Dow gained from a weak dollar will have to be given back. That is, if the markets remain rational. In fact, its already happening today.
“Notice the markets gave back all of their early session gains as the dollar increased in value. As I write, the euro is trading for $1.4877, 1.3% below yesterday’s settlement price of $1.5074.
“That is not good news for gold bugs. The precious metal has given back a whopping $40 in valuation today, taking its worth (at least to today’s investors) to $1,177 — a decline of 3.4%.
” If the dollar continues to strengthen relative to its international brethren — especially the euro — the equities market will be forced to give back much of the recent gains. For the next month or so, I recommend oil shorts, domestic importers and, dare I say it, retailers.
“Most everything that has been categorically weak over the past four months is about to have its time in the spotlight.
I have been warning that it’s going to happen, and it finally has. Hopefully you were prepared.”
http://www.todaysfinancialnews.com/investment-strategies/warning-crash-imminent-10485.html
*** *** If you want to make the highest gains, you have to play the smallest stocks!
We’ve identified 12 tiny stocks with “Moon Shot” potential! Read on… http://www.todaysfinancialnews.com/PSC/LAUNCH/EPSCKB08.html
*** Quote of the Day:
“There is absolutely no moral case, much less constitutional case, for Congress forcibly using one American to serve the purposes of another American, a practice that differs only in degree from slavery, which we all should find morally offensive.” — Walter Williams, Creators.com
Recommended Reading:
3 Penny Stocks With Winning Potential
Today’s Top 3 Financial News Stories:
MoneyNews.com – Hussman: 80% Chance of Big Market Crash “Although the S&P 500 Index catapulted by 64 percent from March, the Federal Deposit Insurance Corp. reported 4.94 percent of loans and leases being overdue by the end of the third quarter, reaching an all-time high.”
Telegraph.co.uk — Dubai assets could be ‘untouchable’, lawyers warn embattled bondholders “Creditors to Dubai World have been warned by lawyers that the assets behind the bonds could be ‘untouchable’ because of the complicated legal structure in the United Arab Emirates (UAE).”
Bloomberg.com — Canada Stocks Drop as Gold Futures Fall the Most Since January “Canadian stocks fell for a second day, shirking a global rally, as the unexpected decline in the U.S. unemployment rate sent gold producers to the steepest retreat since April.”
Cordially yours,
J. Christoph Amberger
Executive Publisher, TodaysFinancialNews.com
Next Article: Depression 2010: New Oil Shock Will Kill the American Recovery!
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