Evidently untroubled by fear or qualm, stocks continued to waft higher on Tuesday, pushing the Dow Industrials to their second close in three days above their 200-day moving average. There appeared to be room for further upside, too, judging from the robust performance of Citigroup and Beazer Homes, two excellent proxies for institutional investors’ brazenly optimistic mindset. Citi hit a high of 47.46, a mere 27 cents below its 200 DMA, while Beazer’s blasted above well above its 200-day line, presumably staging for a run today at the 105 level that has contained all rallies in the stock since April. My guess is that the homebuilder’s shares will top at a hidden pivot fractionally above 105, and I’ve recommended accordingly that you purchase some November puts to leverage this possibility.

Time is running out on September options, just as it did, month by month, for the flatulent Aprils, Mays, Junes, Julys and Auggies. Rather than throw in the towel, though, we’ll continue to take a modest speculative stake in a variety of well-selected put options each month. Otherwise, there will be no way to get short belatedly if the broad averages should start to plunge. Most of the decline, in points, will probably occur in three days or less, and – trust me on this – put prices will be in the stratosphere by the end of day one. Now is the time to lay in a fresh supply of puts, since they are cheapest when stocks are on the rise.

…and $375 Silver

Here’s an interesting letter I received over the weekend from Chase K., who thinks gold is headed to $6,000 an ounce, and silver to $375, regardless of whether inflation of deflation does us in. For the most part, I agree with what he says, especially the prospect of a severe deflation preceding an inflationary blowout by Uncle Sam. Chase writes as follows:

“This debate over the eventual direction of the economy is amusing to me. Personally, I don't care whether we have inflation, deflation or stagflation because the price of gold is going up.

In fact, my personal projection is a minimum of $6,000USD per ounce (850/35*250 = historical high/historical low*recent low).

“People keep comparing gold action now to the 1920's and 1930's, which is impossible to do. Before the 1930s, any one, any country could turn in $20.67 to the U.S. government and get one ounce of gold or $20 for a Double Eagle (slightly less than 1 oz.). Roosevelt devalued the dollar and for the next 40 some odd years, any country could trade $35USD for one oz. of gold, fixed and guaranteed by the U.S. government.

French Caught On

“In the late 60's, the French caught on to the U.S. printing press scam and began turning in all of their dollars for gold, causing a heavy draw-down of the U.S. gold reserves. Nixon ‘closed the gold window.’ Now, the dollar is just paper and ink and currently, 400 of them buys an ounce of gold. At $6,000USD for gold, and using historical gold/silver equilibrium, silver should reach $375USD an ounce. Personally, I believe the ratio will approach par.

“As far as the debate:  massive unemployment, falling dollar, falling housing, stock and U.S. bond values, severe deflation followed by government sponsored inflation. I don't have an opinion on the time frame but the sequence appears to have started a couple of years ago. A few analysts believe the unemployment rate is twice the government number and the dollar is down over 25% from 121.”

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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2004, Rick Ackerman. All Rights Reserved. www.rickackerman.com 

-- Posted Wednesday, 8 September 2004 | Digg This Article