Gold plunged 15% immediately after Jim Cramer recommended his listeners buy gold this week.

Gold plunged 15% immediately after Jim Cramer recommended his listeners buy gold this week.

Jim Cramer has a good informative show. Just don't follow his advice until you do your own study. For instance you should have bought inverse ETFs for gold and silver four hours before he recommended gold. You should buy the regular ETFs about a month after he recommends them so that they have a chance to bottom out.

We have noticed that the instability in financial markets is the result of the low resistance (the efficiency of the market). Our economy rides like a car with no shock absorbers. We hit a rough patch of road and if our speed sets up a harmonic frequency between the disturbances and our economic system we can fly off the road and crash (an economic depression). Car shock absorbers remove energy in proportion to the energy input and hence dampen and eliminate accidents so long as your speed does not have an associated energy level that exceeds the capacity of the shock absorber. A small tax on market trades of all types would have a stabilizing effect and would take more energy out of markets that are more out of control and little out of markets that are stable.


World Markets:
We believe the worst of the current market decline is just about spent. Volume on this last decline was still quite low showing the decline lost momentum. Yesterday the market tested some people dearly again and came close to recent lows. But the data still looks like the next three-month bullish cycle has already begun. Jim Cramer will no doubt claim we had a double bottom and it is all up from here. We think it is up from here but only for about two months.

China is in a state of confusion. Since they started buying Euro's and selling dollars the dollar has grown stronger. Since they recommended developing countries establish a basket of currencies the basket has gone up in flames. Is Jim Cramer communist China's FED chairman in disguise?

Economic Calendar

This Week

US Net Long-term Treasury International Capital (TIC) Flows rise to $140.5B in Mar vs. $47.1B in Feb. The 90.7 Billion increase is an impressive rebound from the last two months which showed a combined decline of -8 billion. The increase was the highest since April 2008. It seems in June the flow of funds back into the dollar resumed after some moves out in prior months.

The NY Empire State Manufacturing Index recorded a figure of 19.11 in May compared to a reading of 31.86 the month prior. Any positive value is still goodness but the decline in the number was more than expected.

Building Permits Apr: Down from 680K last month to 606K. But housing Starts Apr rose from 626K to 672K. This implies that the oversupply rate is declining over time.

The main producer price index (PPI) fell 0.1%, seasonally adjusted. The core rate, which excludes volatile energy and food prices, rose 0.2%, the Labor Department reported. That is at a 2.4% annual rate that is not inflationary.

Yesterday:
Core CPI Apr remained at 0% for the second month in a row. The CPI dropped from +0.1% to -0.1% due to lower food prices. The dollar is becoming stronger and that will damage the balance of trade and result in more imports and more American unemployment that will be deflationary.

Crude Inventories dropped significantly from 1.95M down to 1.62M and that should cause energy prices to continue rising.

May 20
Continuing Claims
Initial Claims 05/15
Leading Indicators Apr
Philadelphia Fed


Market Outlook May 20, 2010
The markets yesterday tested investors risk tolerance to shake out the weak hands. The buying opportunity was extended another day.


World Markets

Asian markets were down last night, Shanghai down -1.2%, Hong Kong down -0.2%, India up 0.7%, and Japan down -1.5%.

European markets are down today in the range from -0.3% to -1.2% this morning about half way through their day.

US pre-market futures are down this morning by about -0.7%. As with yesterday and most days U.S. Futures are a snapshot of the moment and do not correlate with what happens by the end of the day. Yesterday it was another buying opportunity and today it says this morning there is still an opportunity to buy relatively low.