What’s Ahead for Gold and Silver

I hope you enjoyed hearing from
ETF Master Portfolio’s
Rick Pendergraft yesterday. One thing I particularly enjoy about working with Rick is that he is a ruthless opportunist when it comes to investing. Wide-eyed enthusiasm won’t get you far in investing. As a money manager, Rick has an obligation to find the profit opportunity in any situation. And his clients and
ETF Master Portfolio
subscribers can attest he does a great job.

As you probably know, Greece is voting (again) whether to adopt austerity measures to lower spending and secure the next round of bailout loans this morning. And the stock market is expecting a positive outcome.

It’s still amazing to me that Greek citizens are rioting in protest of austerity measures. Yes, it’s easy to understand that nobody wants to see their incomes cut, but the alternatives for Greece are far worse.

Without austerity measures, Greece will grind to a halt, as it cannot access the credit markets. That leads to rampant unemployment. It seems obvious that some short-term pain is the better way to go. In fact, it’s the only way to go.

The rally over the last few days has been led by financial and energy stocks. Oil prices never made it to my hoped-for target of the mid-$80s, but oil stocks have certainly rebounded strongly.

As I said when the IEA announced that it was releasing 60 million barrels of oil from global reserves, you can only manipulate a market for short period of time. Market forces will always win out in the end.

The rally for financials is getting a renewed push this morning as Bank of America (NYSE:BAC) has announced it has settled some bad mortgage claims for $8.5 billion. While the settlement amount will push the banks’ quarterly results deep into the red, it removes much of the uncertainty hanging over the bank.

More uncertainty will be removed later today, when the Fed votes on new interchange fee rules. Interchange fees are the money banks receive from retailers who allow customers to use bank cards. The current level averages $0.44 per swipe. The Fed proposed cutting that fee to as low as $0.12.

That’s clearly a big hit to bank revenues. But the scuttlebutt is that the Fed will compromise and set the interchange fee somewhere around $0.20. If it’s more, banks will rally. If it’s less, expect a sell-off.

Ultimately, it’s hard to consider the "too big to fail" banks as anything more than a trade. The long-term prospects for Bank of America and Citigroup (NYSE:C) just don’t look that great.

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