U.S. Stock Market - March 29th Week In Review

After weeks of anticipation and several close calls, the S&P 500 Index finally advanced to a new record high late last week. The Dow Jones Industrial Average also posted a record high. On balance, U.S. economic news was relatively positive on the week, but the real credit for advancing stock prices can be attributed to friendly comments from most Fed officials and ongoing accommodative monetary policies from the Federal Reserve. William Dudley, president of the NY Fed, was the most friendly. In comments on Tuesday, Dudley said that the Central Bank must press ahead with its bond-buying efforts (aka QE3) because U.S. fiscal policy is now a drag on the economy in the near term.

Here are Thursday’s closing marks, with changes from Wednesday’s close, and also with changes on the week, respectively (Good Friday, 3/29, was an Exchange Holiday):

                                                                    Thursday’s Change                   Weekly Change

Dow Jones Industrial Average      14,578.54     +52.38         +0.36%        +66.51          +0.46%

S&P 500 Index                                1,569.30     +  6.35         +0.41%        +12.30          +0.79%

NASDAQ Composite Index             3,245.00      +11.00        +0.34%        +22.52          +0.67%

Russell 2000 Index                             951.55     +  1.30         +0.14%       +  5.30           +0.56%

As bad as everyone thought it was in Cyprus, it now actually appears to be much worse. Large depositors had expected to lose 20% to 30% of their cash held in the nation’s largest bank, the Bank of Cyprus, but now they are expected to lose at least 60% of their cash as the size of large deposits that could be "confiscated" now appears to have been overestimated. Reports have surfaced that many large deposits from Russian origins escaped the trap of rigid capital controls through bank-branch loopholes that were not closed fast enough to prevent legal withdrawals. At the end of the day, it’s not hard to see that ALL deposits in excess of 100,000 euros per account at both the largest and second largest banks in Cypress will be totally confiscated by the State to make good on the latest 10 billion euro “bailout” agreement with the ECB, the IMF, and European Commission (aka “the troika”).

Last Monday, March 25^th, U.S. stocks open higher on relief that a last minute Cyprus bailout package was agreed upon, but then share prices turned lower as Reuters reported that Dutch Finance Minister Jeroen Dijsselbloem said the Cyprus bailout should be viewed as a “template” for solving banking problems in the region. Dijsselbloem later released a statement clarifying his remarks (backpeddling), saying Cyprus is a “specific case with exceptional challenges” which required the measures agreed upon. However, now it appears to me that Mr. Dijsselbloem’s original comments are gaining support. It’s pretty clear to me that forced depositor “Bail-in” resolutions, as witnessed in Cyprus, will be used again by other troubled sovereign countries in Europe and elsewhere.

Every month or so, I like to look at the website of the U.S. Mint for the latest statistics on the sales of American gold and silver coins. With the threat of complete confiscation of customer bank deposits now very real, it seems to me that maybe we should all begin at least a small program of actual gold/silver coin purchases “just in case”! American Eagle Gold/Silver coins can be purchased safely and efficiently from the U.S. Mint directly. And if the latest U.S. Mint sales data is any indication, I am already way behind the trend here. For the first three months of 2013, through it’s American Eagle coin program, the U.S. Mint has sold $468 million worth of gold, which is 39% more gold than was sold in the same period last year. The U.S. Mint has also sold $427 million worth of silver coins, which is 40% more silver sold this year as compared to the first three months of 2012. Currency devaluations on a global basis through central bank monetization of sovereign debt will continue and maybe even accelerate in the weeks, months, and years ahead. Gold/Silver coins represent an excellent "store of value" option for investors. Precious metals mining stocks look like another very good option for investors now as well. Prudent diversification can be achieved here with ETFs like the GDX, GDXJ, and SIL. For your review, a copy of the latest Weekly Bar Chart for the Gold Miners ETF (symbol GDX) is attached below.

John Hussman, the head of the Hussman Funds (www.hussmanfunds.com) and one of the great market researchers of our time, may have written his best weekly column ever this weekend about the U.S. stock market. I encourage every serious investor to read it, but for anyone on a tight schedule here is the first paragraph (which definitiely gives you a fairly strong sense of Mr. Hussman's market view right now):

"Overvalued, overbought, overbullish. When in history have we seen the Shiller P/E (S&P 500 divided by the 10-year average of inflation-adjusted earnings) above 23, the S&P 500 over 60% above its 4-year low and 10% above its 52-week average, with investment advisory bears below 20% for at least two weeks running? Three times: the April 2010 peak, the March-May 2011 peak – both followed by corrections approaching 20% – and today. Even if one ignores the historical evidence suggesting the potential for significant bear market losses over the next couple of years, speculators should be aware that present conditions have been hostile even in the context of the recent bull market advance." John Hussman, Ph. D., from this week's column entitled "We Should Already Have Learned How This Will End" (http://hussmanfunds.com/wmc/wmc130401.htm).

Bottom Line: Just when you thought that Cyprus was “done” and that global financial markets would not be impacted by this relatively minor Mediterranean country, the news just keeps getting worse there. So-called “Forced Depositor Bail-in” procedures are clearly on the front burner of every sovereign Treasury and Central Bank in the world now. European stock markets, led by Italy and Spain, have been under pressure for most of the last three weeks. Related selling pressures will spread globally very soon. In the U.S., the old axiom “sell in May and go away” for equities will be changed to “sell in April and go away” as a major correction soon gets underway. Are there any places to hide? Cash is King and Gold/Silver mining stocks will probably outperform the broader market averages over the next three months at least.

Gold Miners ETF (symbol GDX) with Computer-generated Buy & Sell Signals