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Stockprowler
picks CDE for March 2008
It is expected that the Federal Reserve Bank will cut interest rates
by another 50 basis points as early as next week in a doomed attempt
to reverse the collapsing housing market and to stimulate the economy.
Fed Chairman Ben Bernanke recently warned that as many as 60 million
homeowners will see their mortgages go under water! Think of it… 1/3
of the homeowners in the U.S. will have home loans larger than the
market value of their home. This coupled with the resetting of interest
rates for variable rate loans that came with 2 year teaser rates means
that homeowners will be abandoning homes or facing foreclosures in
record numbers. Banks will be forced to take back these homes and
put them up for sale in a housing market that is already depressed.
I have heard talk that some bankers are considering writing down the
principal on these loans rather than taking 50 cents on the dollar
in foreclosure sales.
As
the Federal Reserve continues to move toward slashing the funds rate
to ZERO, the Fed is also printing and pumping more money into the
money supply to keep banks afloat and to keep the economy from collapsing.
And this in turn devalues the dollar further. The Arabs, of course,
are demanding more of these worth-less dollars for their oil. As energy
costs increase in the U.S., the cost of everything that requires energy
to produce also increases. Food and energy costs alone have jumped
nearly 10% in the past 12 months. Make no mistake, the seeds of hyper-inflation
are being sown… and stagflation will be the inevitable consequence.
Sometime
in 2008, if they haven't done so already, many American consumers
will reach their maximum debt level… pushed to the wall by mortgages
they can't afford, excessive spending and irresponsible use of credit
cards, and the rising cost of just about everything. The resulting
slowdown of the economy will be the beginning of an eventual catastrophic
meltdown of the U.S. economy. Some experts see it as the beginning
of what could be another great global depression.
Last
month 63,000 jobs were slashed as businesses began to cut operating
costs in response to decreased demand for goods and services. And
as more and more people lose their jobs, less money will be available
to buy goods and services further depressing sales. Unemployment could
very likely hit 10% by year end 2008. The federal government will
be under heavy pressure to create work programs to put people to work
and to stimulate economic growth… much like Roosevelt did in the 1930s.
But this time it will be different. The U.S. government is broke…
over $50 trillion in debt. China, Japan, and Europe will be unwilling
to make any more loans for fear that the U.S. will be unable to pay
them back. Where will the U.S. get the needed money? Simple, it will
print more and more… until we have stagflation in triple digits and
the dollar becomes worthless paper.
How
did we come to this?
- President Nixon doing away with the gold standard back in
1971 creating a fiat dollar.
- The Federal Government's longtime love affair with debt
- President Clinton pushing through a NAFTA agreement over
the objection of leaders in his own party. The result being that
much of our manufacturing base and jobs went overseas to cheap labor…
and multi-national corporations reaped the harvest at the expense
of middle class America.
- The Federal Reserve interference with free market
forces… changing federal funds interest rates to prevent an economic
slowdown artificially delayed the inevitable and has set in motion
economic forces that could well be catastrophic.
- President Bush and his 7 year war with Iraq. He should be
impeached for incompetence… or if he did know what he was doing,
he should be tried for treason. In my view it is treasonous to have
squandered $2 trillion of America's wealth and sacrificed its brave
men and women in uniform for no good justifiable reason.
Outlook…
Some experts see us in a protracted depression lasting
10 years or more, exacerbated by the large number of baby boomers
retiring in the coming years.
What
to do?
It
looks to me that gold and silver offer the only safe havens in the
event of economic collapse. In my view, everyone needs to think about
having a substantial portion of their investment portfolio in precious
metals. I think silver is a better place to invest right now. Silver
is trading around $20 an ounce… up from $14 just a few months ago.
Gold is at $975 an ounce. Historically, the gold/silver ratio is around
20/1 which means silver has some catching up to do. Silver would be
more fairly valued with respect to gold at $50 an ounce. As the state
of the U.S. economy worsens gold and silver will likely continue to
climb… some market experts see gold going over $2500 and silver hitting
between $130 - $150 an ounce. I don't think it is necessary or even
wise to have physical possession of silver bars and coins. I like
the silver stocks… in particular the undervalued Coeur d'Alene Mines
Corp. (NYSE:CDE) trading around $4.70 a share. The company recently
recorded a $2.73 cash cost per ounce of silver and commissioned a
new mill facility at its Martha Mine in southern Argentina. The Idaho
based Coeur d'Alene Mines is in position to
become the world's largest silver miner when its newest high tech
mines come online. CDE could easily become a $30 or $40 stock as the
worst case economic scenario starts to unfold.
Well,
all right, that's it for now… place your bets, sit back and relax.
Remember, this is speculation not investing and quite often we get
rewarded BIG for taking a chance…
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Good
Trading... Stockprowler
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