Precious Metals Bubble?
Research for Online Investors

by John Dalt

9/8/09

Oil took off this morning on the back of a weaker dollar.  Gold and silver, along with zinc, copper and other commodities catapulted higher last week.  This is a strange play, because interest rates are not bouncing higher, which reflexively happens when the dollar sinks.  I am more inclined to think the gold and silver launch last week was a good old-fashioned short squeeze that caught everyone off guard.  Now we are all trying to explain it, and look to the usual suspects.

We owned silver in the SwingTrader service and sold at our stop limit in the morning, before the market rallied.  I am not crying over spilled milk, we made money, but there was no reason for precious metals to rally when the equities market was soft and investors were moving to treasuries for safety.  Look at GLD last March 6 when the S&P 500 hit 666.  Investors were selling to raise money as the market declined.  GLD rallied with the market, and then sold off the first week of April, to set a low that has held during the recent rally.

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I nflation is not forefront in everyone’s mind yet, so I say again.  The precious metals rally does not make sense.  What goes up must go down, but the depth of the fall is unknown.

Health care is on everyone’s mind, as the President will address a joint session of congress on Wednesday night.  The negotiations are ongoing with a few republicans that the democrats feel can be “peeled” off, or bought off, to support their program.  This gives them the ability to call it a bi-partisan approach to reform.

It appears that the president will back away from demanding a “public option”, for a trigger mechanism to turn Uncle Sugar into Uncle Health Care Insurer if health costs do not come down.  Meanwhile, the new funding mechanism is to tax insurance companies.  You couldn’t make this up if you mixed beer and wine while watching football.

How can health care costs come down if you raise taxes on the providers?  How can health care costs come down when doctors have to practice defensive medicine, and are still subject to lawsuits for trying to save someone’s life?  It is estimated that up to 35% of all tests, ex-rays, and procedures doctors order are unnecessary, but provide a defense in a lawsuit.

How can health care costs come down when state insurance commissioners set the coverage limits that vary at every state line?  Highly regulated industries, like insurance companies and utilities, become very adept a lobbying states for regulations that tilt the playing field to their advantage.  Running counter to state’s rights is hard for me, as I would prefer a free market.  In a strange twist, regulation by the federal government may be less burdensome than 50 insurance commissioners setting policy for their state.

Portability and pre-existing conditions have to be addressed.  There should be a waiting period for people that did not have prior insurance coverage.  Otherwise, many will wait until they get sick to buy insurance.  This happens now, 36.5% of the uninsured make over $50,000 per year, but don’t buy insurance because they are in good health.  Young people that think they are invincible don’t buy insurance, they think it costs too much and want someone to give it to them, like their parents or Oh Bama!  Read our article on “Health Care, Who Needs It” for a breakdown on the nation’s uninsured.

I would also invite you to reread, “Health Care, A Plan.”  This plan builds on my experience as a County Commissioner.  My goals were to maintain our private insurance and health care delivery system, while providing healthcare to citizens needing assistance.

Five more banks were closed this weekend to bring the total this year to 89.  The FDIC spent $401.3 million of their insurance fund to close the five, 35% of the assets of the banks! The $10.4 billion the FDIC had at the end of July is being whittled away.  By my count, that is 29 banks closed since August 1.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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