The bears appear to be in control, while the bulls are trying to hang on and minimize the losses. The blue-chip DOW closed below 10,000 on August 26 for the first time since July 6, when the index fell to 9,686.48. In the previous decline, the DOW held below 10,000 for five straight days from June 29 to July 6, prior to rebounding. The DOW has broken below 10,000 in five of the last six sessions to August 31. In our view, the breaks are worrisome and could point to a more sustained move below 10,000.

With four months remaining in the year, stock markets are negative and under selling pressure. Stock markets have closed lower in 17 of the last 25 sessions to August 30. The bias is negative, as stocks search for a bottom. Until we see it reach one, the downside risk remains high. The overall bias at this time is down, as reflected by the current level of the indices below key moving averages and chart tops. The key will be the ability of markets to hold as we move forward. I continue to be cautious due to a fragile technical picture.

The near-term technical picture has turned more bearish with weakening Relative Strength as of August 31.

Markets continue to be on fragile ground and this should not be a surprise given that the key stock indices were unable to break or hold above some topping resistance on the charts. The failure to break higher was a red flag and a signal of further potential downside weakness to come. All four of the key stock indices are negative this year and are fighting to find some support. The Relative Strength is weak.

On the charts, the stock indices are trading at a crux, below the key 50-day moving average (MA) and 200-day MA, along with the…

What causes a depression? Typically, a depression happens after one or more asset bubble explodes, while the credit supply implodes and dries out. In contrast, most recessions are the result of heightened inflationary pressures and overstocked manufacturing inventories. So, what do you think: are we repressed in a recession or depressed in a depression?

Consider one more argument that it may be the latter. Central banks all over the world, not just in the U.S., have dumped trillions of dollars into the global economy. With that much money in the global financial systems, world economic output should be tremendous. Yet it is not, far from it, which only proves that this is not just another recession and that it resembles more and more a bona fide depression.

All that is growing these days are the unemployment lines. True, there are no soup kitchens for the poor yet, but I suspect there wouldn’t be any just yet, as long as the government is mailing the checks each week for 99 weeks to the currently estimated over 10 million unemployed Americans. Whichever way you look at it, there is nothing simple or ordinary about this economic downturn.

How do things look in a depression? Things change. People change. How they perceive debt changes. How they behave in malls changes. Depressions leave much deeper scars than recessions. They leave people traumatized and take years to…

Successful speculation in commodities has been and always will be a volatile endeavor, but there’s no other capital market that experiences the bandwagon effect to the same degree. Forget fundamentals; the spot price of gold will likely hit $1,500, because it can. With a current spot price of around $1,250, gold only has to appreciate another 20% before achieving this milestone. I think it can easily do so and, along the way, make a lot of money for gold investors.

As we’ve considered before, the gains to be had from gold mining investments are mostly about incremental returns. Gold stocks have been going up for a while now and many are currently trading at their 52-week highs. From my perspective, even the most exciting Chinese stocks can’t compete with gold. The market is just that hot for the commodity.

When China and Australia report manufacturing and GDP numbers that beat consensus estimates, you know that this Asian region is doing well — much better than over here. Australia is doing great right now because of China. The country can’t find enough skilled workers, the housing market is on fire, and it is selling all of its gold and other resource production to China. With a small population base, that’s the makings of a booming economy.

Even when domestic capital markets fret about China’s economic growth, the Asian country’s economy is still growing at an almost double-digit pace. And, along with India, this is a powerhouse region that just happens to have a strong affinity for jewelry.

This is the biggest selling feature for the argument of a rising gold price. The fact is that, with these two economies growing at breakneck speed, the physical demand for gold (in manufacturing and jewelry) is getting stronger. All you have to do is look up the latest financial results of some jewelry chains in China. The first quarter was weak, but the second quarter saw a huge pick-up in sales,…

I’m in the enviable position of being one of the few analysts who called the severity of this recession back in the beginning of 2007, before the word “recession” was even on the lips of the majority of economists.

Back on November 15, 2006, on these pages I wrote, “The risks to the U.S. economy in 2007 are greater than I’ve seen in years.” On January 31, 2010, I wrote, “The hard facts about the real estate market in the U.S. are truly scary. How can the U.S. economy escape the hard landing in U.S. home prices? As we’ll soon find out, it simply can’t!”

A week later I said, “1932, 1933…who remembers those years? The depression of the 1930s was the biggest bust of modern history. 2005, 2006, 2007…welcome to the biggest boom of the same period. When will it all end? Soon, my dear reader. Soon.”

But I’ve always predicted a severe recession, never a depression. And here’s why I continue to believe that:

Ten thousand American banks failed during the Great Depression. Many depositors lost their money. By the time this recession is over, 1,000 banks in the U.S. will have failed. The FDIC covers the money depositors have in banks to the tune of $250,000 per depositor per institution. There was no FDIC insurance in 1932.

The stock market had been rising for the majority of the 1920s until the crash of 1929. If we look at the chart of the S&P 500 stock index (which is not as easy to manipulate as the Dow Jones Industrials, with stocks being cherry-picked in and out of the Dow Jones), the S&P 500 stock index has been down for over a decade.

In the 1920s, you could have bought stocks with 90% margin (only 10% of your money). For years now, you’ve needed at least 50% up front to buy a stock and stocks have to be preapproved for…

So, the improving economy is bringing bank profits back up again. When you add in the $18.0 billion in profits these banks had in their first quarter, we are looking at a profit for U.S. banks of about $40.0 billion in the first half of this year.

But, despite the banks starting to lay on the profits again, they continue to tighten the lending standards. In the second quarter, net loan and lease balances for U.S. banks declined $95.7 billion.

Hence, instead of the banks lending out money to get the economy going, they are lending less. Sure, I’ve heard bank presidents say that consumers and businesses are not borrowing. But I also know of many businesses that cannot get loans, because they cannot meet the stricter requirements. You cannot compare the lax lending rules of 2005-2007 to the rules of today — there is a huge difference.

Banks have an obligation to their shareholders to make money. After all, it is the shareholders’ money that is at risk. Thus, to ask banks to make lending easier, with the risk of loan losses increasing, is not fair. That’s like asking my business to lower the cost of our publications to make them more affordable to all, but that would risk the viability of the business and the people who work in it.

In this economy, on one side, you have the consumers/businesses that need money, but can’t get it, because lending requirements have become stricter. On the other side, you have the consumers/businesses that don’t need the money and are not borrowing (even though they qualify), because they are concerned about spending/growing in today’s weak economy. That’s why they call it a recession.

Yes, economic conditions are improving. But until confidence levels return — the confidence for banks to lend more aggressively, the confidence for consumers to borrow to spend again, and the confidence for businesses to invest in…

The spot price of gold really doesn’t have to do much going forward. It only has to stay where it is in order for gold companies to produce significant profit growth this year. Even the junior producers are now participating in the current rally for gold stocks. This is a sign that institutional investors are paying much closer attention to a sector that is often ignored.

Again, enthusiasm for stocks or even specific groups of stocks always occurs in waves and the key to making big money from equities is being in the right sector at the right time. Very often, the best returns aren’t about owning individual stocks, but the right sector that’s experiencing positive industry momentum.

The mining business has that momentum now and it’s most pronounced in gold. As individual investors, however, we don’t tend to identify with the industry, because mining operations are often in foreign lands and in secluded locations. Companies have head offices in financial centers in order to more easily raise money, but everything else is on location on a remote property. Combine this with the volatility inherent in commodity prices and it’s no big surprise that most investors tend not to be interested in this group for investing purposes.

This is why institutional participation makes up most of the investors in a public mining company and why financing a mining business is tailored to meet institutional needs. This often means that a company will raise regular equity capital and attach sweeteners like warrants to an offering in the hopes of attracting more institutional money.

I believe that the gold mining business is only at the beginning of a long run of prosperity. The global fundamentals are in place to sustain high gold prices.…

Covered call writing (also called Buy-Write) means you hold an underlying position in the stock represented by the call option. It is much less risky compared to naked call writing, in which you do not have an underlying position in the stock. Be aware of this distinction, as it will save you lots of stress and potential unnecessary losses in the long run.

Let’s take a look at Cisco Systems, Inc. (NASDAQ/CSCO) and assume that you own 1,000 shares at a cost base of $15.00 per share. You are already up just over $5.50 a share based on the prevailing price of $20.50.

You continue to be bullish on Cisco, but at the same time feel that the stock may continue to pause given its failure to move higher and its retrenchment back to just above its 52-week low of $20.36. There are several strategies at your disposal. You can sit on the position and wait for the stock to rise. The problem is that this is an inefficient use of capital in my view.

So, why not make your capital work for you? It’s much easier than you think and represents a win-win situation. The process involves writing covered calls on your holding of 1,000 shares of Cisco. For every board lot (100 shares) of Cisco, for example, one call option may be written.

Covered call writing is a straightforward, low-risk generator of premium income, and it guarantees a selling price for the stock. Don’t write a covered call if you do not wish to lose the stock due to a possible exercise from the call holder.

Let’s say you are mid-term neutral on Cisco and believe that the stock may have limited upside potential prior to January 2011. What’s the next step? Given this, you could generate some premium income by writing calls on your 1,000…

I don’t speak “car” well, but if I were to compare Japan, the world’s third largest economy, to a car, I would have to say that Japan’s economy has been driving in reverse for so long that it may have forgotten what it means to at least shift to “P.” And, as the fragile U.S. economy most likely is headed for the double-dip recession, dragging with it other world economies, kicking and screaming, things are not looking up for Japan. Quite the contrary.

Just like policymakers in the U.S. are contemplating adopting further stimulus measures, Japan went beyond the contemplation stage and went straight for expanding its $236-billion bank credit program by a third. And, as more money was pledged towards boosting the domestic demand, the currency markets had an unpleasant jolt when the yen started rising sharply against the U.S. dollar and euro. To illustrate, since April of this year, the yen has increased 12% against the U.S. dollar.

It is quite a paradox; Japan, with its red-hot, sky’s-the-limit currency and its sickly yellow, weak economy. Let’s just say there were quite a few FX traders and currency analysts scratching their heads recently. What most are also seeing is that the yen might be miles away from hitting the resistance level. At the same time, what the yen’s ascension leaves behind is a growing aversion to any risk-taking and further deterioration of trade imbalances.

What is the yen doing to Japan’s manufacturing sector? Well, it’s just killing it. According to a number of government-sponsored surveys, about 40% of Japanese manufacturers fear that, unless the yen stops rising, they might be forced to shift their production lines abroad…

Billions of additional dollars will be created out of thin air to pay for the purchases of U.S. T-bills. In the short term, the buying has pumped more air into the bubble already formed in U.S. Treasuries and other bonds. In the long term, the QE2 can be expected to depress the U.S. dollar further and to revive inflation. This will eventually lead to the higher yields demanded by bond buyers, bringing the bond bull market to its end.

The start of the secular bond market dates back to 1981, when the U.S. bond yields peaked at 16.7% for T-Bills, 15.7% for 10-year Treasuries and 17.3% for corporate grade bonds. In the course of the subsequent 30 years, the combination of declining inflation and the Fed using cuts in interest rates to revive the cyclical downturns in the economy has brought all yields to historically extremely low levels.

In those 30 years, with every recession, the Fed drove its benchmark federal funds rate to lower and lower levels.  Finally, the Fed has run out of room to lower short-term rates.  In December 2008, in a desperate attempt to halt the financial and economic meltdown, the Fed cut the federal fund rate to the current zero to 0.25% rate. That has left the Fed little choice but to implement QE1. Commencing March 2009, it purchased $1.0 trillion in long-term bonds.

The QE1 has done wonders for the bond and stock markets and has helped stabilize the financial industry and the economy. Alas, 18 months later, the U.S. and global economy are showing renewed recessionary signs, jolting the Fed into another round of QE. Most of the bond classes have responded by soaring to new highs. However, the response has been subdued in stocks, suggesting the quantitative easing of the Fed will provide only modest benefits to the economy.

Public investors, who…

Intel is a good benchmark stock to follow, because so much of today’s economy uses semiconductors — computers, cell phones, consumer electronics, and cars. The company’s stock price had been holding up very well until it announced that it would purchase security company McAfee, Inc. (NYSE/MFE) for $7.7 billion. The market just isn’t sure about Intel’s corporate strategy with this purchase. Investors don’t have a sense as to whether this acquisition will be a good fit.

The company is also rumored to be interested in purchasing the wireless semiconductor business of Infineon Technologies AG (NYSE/IFX), which is Europe’s second largest chip-maker. This acquisition would allow Intel to manufacture chips for Apple’s “iPhone.” This is one area where Intel’s been lacking in operations. As we all know, smart phones have been tremendously popular.

Investors seem to like Intel’s strategy with Infineon Technologies, but not the acquisition of McAfee. It’s understandable, because investors don’t like to see companies purchase other businesses that operate outside of their core competency. McAfee has an existing alliance with Intel, but the company operates to secure corporate and consumer computers, an area quite unfamiliar for Intel.

Once all this acquisition dust settles, I think that Intel could be an attractive opportunity for large-cap investment. The stock is currently yielding close to 3.5%, because its price has been hammered over the last few weeks. The bear market has certainly helped with this move. Nobody expects the company to experience any runaway growth anytime soon, but earnings are still expected to tick higher over the coming years. It’s likely that Intel’s strategy to diversify through acquisition comes down to trying to accelerate growth in an otherwise growth-less…