Good evening, Friends. I often spend Sunday evening looking at charts, following a review of news and coming events for the week ahead.  Of the two big inputs that have been influencing investor behavior, the Greek debt situation and the tension over Iran’s nuclear ambitions (and the related jump in oil prices in response to that tension), one (Greece) seems slightly less urgent, while oil continues to be an issue. Next week, we have testimony from Bernanke, while Europe’s banks will get another round of financing from the European Central Bank (ECB).

None of the above matters very much for those who just trade futures off the 3-minute charts, but a lot of us, including Todd, trade in several timeframes.  I don’t have many opportunities to trade futures these days, but I can hold positions in ETFs, and I can enhance my returns with options. At the moment, I’m predominantly in cash; as the chart above indicates, the SPX has been moving gradually higher, not in a dramatic fashion, but steadily. That means that my longer term portfolio is underperforming, since cash earns very close to nothing,

Because of the relatively low volatility of the price action  the stochastics are overbought, but not dramatically so.  Quite a bit of my weekend reading consisted of pundits either looking for a pullback, or wishing for one.  We do seem overdue, and there are certainly plenty of potential catalysts for a nice bout of profit taking. Still, what the market thinks is reflected in the charts, and it doesn’t appear to me that there’s much wrong with the uptrend shown on this one.

What I’m thinking about doing, given that there may yet be some distance to go before we get a sizable pullback, is to start scaling in, probably through an ETF that features a relatively high dividend yield.  I don’t mind taking a starter position and then adding to it if if continues to move higher.  If the move really starts to look overbought – not because I think that it ought to, but because the vertical bar action combined with the stochastics are flashing danger – I can write calls against the position, and then as things move lower, either pick up additional shares or write puts in the hope of either adding more stock at better levels, or increasing the overall return from the position. I’m not eager to do “buy writes” now, as I’d like to see implied volatility higher befofe selling options.

Just some thoughts for a Sunday evening; it’s been a pretty good year for long positions thus far, despite all of the bricks in the “wall of worry”. Every day that we move higher brings us a day closer to a correction, but since my crystal ball remains cloudy, I’m content to take profits periodically, and rebuild positions cautiously just in case this is one of those cases where things don’t behave as I might expect.  It’s worth noting that the techniques that Todd teaches can be used in dealing with any timeframe; in addition, I haven’t yet found any asset classes where using his approach won’t help.  Best of luck in the coming week.

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We’ve received a number of inquiries from Casey Research subscribers about our opinion on the current rare earth metals market. We have covered this topic previously, but this article, we’ll take a fresh look.

As a matter of a recap, rare earth elements (or REEs) is a generic name for 17 metals widely used mostly in high-technology devices, such as mobile phones, laptops, flat screen televisions, hybrid car batteries, lasers, optics, and military equipment. New uses for these metals are being constantly found, but more on that later.

Despite the name, these metals are not actually rare in nature. The name refers to the fact that they are rarely found in a pure form and are usually mixed with other minerals, which makes extraction complicated and costly. Further, mining and refining of rare earth metals is environmentally challenging, due to acidic and radioactive byproducts. This is why most countries don’t produce REEs. This has led to a reduction in reserves of these metals and left the bulk of production to less environmentally conscious companies and jurisdictions. China has expanded its production and, at least on the surface, looks to have a near monopoly on the industry. According to the US Geological Survey, China possesses one-third of the world’s reserves and produces 97% of global supply.

None of this was a problem until China started introducing trade limits. Dramatic changes took place in 2010, when Beijing officially decided to cut export quotas on rare earths by 72%, to 35,000 tonnes, far below the levels of world consumption. Quotas were further reduced by 35% in the first half of 2011. Steep export taxes were applied, too. As a result, REE prices skyrocketed.

(Click on image to enlarge)

Consumers lost some of their appetite for the now-expensive metals, and most REEs dropped in price – some of them by as much as two-thirds. Prices remain above historical norms, however, and were so lofty that exporters used only half of the Chinese quota allocations last year.

It’s hard to miss the steep rise in prices from mid-2010 to April 2011. Should we expect similar price spikes in the future? And what’s the long-term trend?

Analysts have opinions supporting both bullish and bearish outlooks. Some think another price rally is possible, since the industries using REEs are on the rise and also because there are, in the majority of cases, no substitutes for REEs. Neither is there an immediate solution to the market conditions caused by China’s supply policy. Others believe that the REE market will face a surplus in 2012 and that prices will thus correct further.

The REE market is precarious because supply is artificially restricted. This imbalance can’t be sustained for long, though, because industries and companies that use REEs need to have predictable and stable long-term supplies of the metals and hopefully at reasonable prices. It thus seems reasonable to assume that the market will find ways to decrease the effects of China’s policy.

In fact, there are some adjustments already under way in this market…

New Mines Outside China

Given the high REE prices, some previously producing REE mines are going back into production. Molycorp Minerals, for instance, is reopening its Mountain Pass Mine, which was shut down in 2002 because of competition from China and environmental concerns. The company was recently permitted to resume its operation and is expected to start producing this year. Another recent example is Australian miner Lynas, which obtained a license to begin processing rare earths at a new facility it’s putting the finishing touches on. The company says by the middle of the year the plant will be able to process 11,000 tonnes of rare earths per year (about one-third of current world demand excluding China), and will later double its capacity.

Recycling

Another solution to cope with supply shortages is recycling. Japanese companies have been studying the technology and costs of reusing neodymium and dysprosium from washing machines and air conditioners. Mitsubishi Electric has made some progress by creating a device that extracts rare earth elementsfrom used household air conditioners. The machine “will be installed at a factory run by Green Cycle Systems Corp., a Mitsubishi Electric subsidiary in the city of Chiba and begin operations in April.” Another Japanese company, Shin-Etsu Chemical, announced that it will spend 2 billion yen ($US25.8 million) to build a plant in Vietnam to process REEsfrom hybrid car motors and other products. The factory is expected to open in February 2013 and will produce 1,000 tonnes of rare earths per year.

If recycling technologies can manage to be cost effective, they will become another source of REE supply, albeit not as significant as new mine production.

Replacement

Another way for companies to be less dependent on China’s policy decisions is through new technology that uses less REEs. A widely quoted example is a company called Showa Denko, which managed to decrease its consumption of cerium oxide by half in 2011 by reusing the material up to five times, among other technological improvements. Other breakthroughs are likely to follow.

Relocation

China officially mined 93,800 tonnes of REEs in 2011, only 5% more than in the previous year. Harsh export quotas and modest growth in mine supply are considered by some analystsas the incentive “to give priority of supply to domestic consumers and encourage foreign customers, mostly in high-tech strategic sectors, to move their operations to China.” Whether or not they like it, the state of the current REE market may force some companies to relocate their production facilities to China. Japanese companies Showa Denko and Santoku, among others, have already done so.

Conclusion

It’s clear that REEs have investment merit. These elements are crucial and irreplaceable for a lot of consumer uses.

However, the REE market is small, opaque, volatile, illiquid, and subject to manipulation. It’s further complicated by a lack of reliable data, making it difficult to forecast and risky to play. It’s also worth remembering that REEs are industrial metals, which are usually weak when the economy enters a recession – an outcome we think is more likely than not.

Buyer beware.

[How can an investor know when the time is right to get into a volatile sector like REEs – or out of an overblown sector? You don't need to become an expert in all the areas you invest in; you just need to identify and follow the resource titans who generate the most wins.]

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Good morning members! Here is this morning’s video analysis:

Members should be prepared for possible trade alerts today. I have a few potential trades in mind, but I want to see the price action at the open before getting too involved. I will be in touch throughout the day. Let’s have a great end to this shortened week! The weekend is but a few hours away . . . 

Video by: Chris Vermeulen – www.TheGoldAndOilGuy.com

Suddenly, words written by a mysterious hand appear on the wall of Belshazzar’s palace and they were “Mene, Mene, Tekel, Upharsin”. These are Aramaic names and measures of currency that only Daniel could interpret and provide their meaning which essentially was…

• The days of your kingdom are numbered and will be brought to an end.
• You have been weighed on the scales and found wanting.

The empire ended that very night.

Signs and Symptoms

One does not have to be Daniel to interpret the current economic signs and symptoms of distress. One does not have to be an accountant or economist to know when things do not add up.

For example, if your financial boat has only $1.5 trillion in income but $3 trillion in expenses, you are sunk. Rearranging the deck chairs, bailing and pumping, hoping and praying for a miracle rescue are not viable options. The math is simply not there and this boat will notfloat.

The following 7 methods postpone, but do not prevent a sinking…

• Attempting to borrow your way to prosperity from your neighbors and competitors
• Adding more debt to existing debt that is already unserviceable and calling it a solution
• Changing accounting/valuation rules to avoid bankruptcy and calling it progress
• Robbing Peter’s account to pay Paul’s bill and hoping no one will notice
• Throwing crumbs of interest cake to the peasants and calling it stimulus
• Camouflaging an increase in taxes on the masses
• Printing money with wild abandon to pay for your misdeeds

These are precisely the current economic conditions we find ourselves in today. Do not be fooled. This total financial picture is not one of survival, success or solutions but a clear act of desperate drowning in the frigid waters of financial reality.

The Empire of Debt Ends

Clearly, living within our means is a tried and true concept that everyone needs to import and adopt. Simple logic, third grade math and an empty piggy bank would clarify the problem for most people. However, our representatives in charge of this task simply don’t understand basic accounting principles. This math is quite simple and knows no political affiliation.

A point will come in time where the well of wealth runs dry, accounting shenanigans end and sources of new income are exhausted. At that very moment in time, economic bankruptcy will begin, reality occurs and the debt creation will cease.

My research suggests a reality check, resolution and financial redemption will not begin until about 2015 to 2016. A convergence of unknown financial variables in the interim, the negative effects of debt acceleration and black swan events, could alter that forecast.

On a dark night, a few years hence, the empire of debt will most definitely end.

Fundamental and Technical Projections

Fundamentally, and under the current financial circumstances described above, increases in the price of gold and silver will be significant and substantial over time. A stage three gold and silver advance will probably occur during the time frame noted above. It is simply a matter of time and patience but preparation must begin now.

In the meantime, technical indicators also point to new all time highs in gold and silver prices later this year. In particular…

• Gold prices in other major currencies reveal a generally bullish posture while the USD completes its continuing bearish weekly advance.
• The daily XAU/Gold ratio showed a massive bullish engulfing price pattern last week. This is in the context and setting of a nearly 6 month base pattern development. In addition, the weekly XAU/Gold ratio chart also demonstrates a potential bottom formation. We are not there yet and this will take more time.
• The weekly Market Pendulum XAU Market Health Indicator indicates base pattern development and is strongly suggestive of a breakout in due course. An XAU weekly close above 215 would begin that bullish trend.

These comments also apply to the US gold and silver market as well since their structure, trends and cycles are quite similar to the XAU.

Step by Step Analysis

On our free website, you will not find blue sky predictions, only clear, credible and convincing evidence. Improvements in gold and silver prices are always in steps and considerable patience needs to be exercised while waiting for the next surge or price Achievement to occur.

• In our article from 12/18/11, Seen by Many, Recognized by Few, we noted that “This month’s waterfall decline and its ultimate end will be seen by many and recognized by few for the nuggets of opportunity and value it represents”.
• A second article from 1/05/12, The Glory Hole, described strategic gold trends and indicated “That gold and silver are bedrock values of our collective financial security and the mother lode is under that waterfall”, plus a place to look for those nuggets.
• A posting on our website on 1/26/12 noted the recent $200 advance in gold and a $7 increase in silver. It suggested that one should restrict new purchases to retracement periods.
• An article dated 2/19/12, Breakpoint, presents interesting Cost, Debt and Wealth Transfer analogies we all can relate to plus short term XAU indicators.

If you are waiting for the evening news to announce it is time to protect your assets, you will be too late. However, common sense suggests the best time to buy gold, silver and stocks are in retracement periods for maximum benefit.

The Handwriting is on the Wall

It can be said that unless this financial ship changes course radically and immediately on debt issues, the weight of the evidence suggests severe economic problems are coming. The signs and symptoms of this distress are already clear.

Again, the primary purpose for buying gold or silver is for preservation, protection and profit as well as survival from the destruction of paper money. It’s just that simple.

The hour is now late and the financial handwriting is on the wall. Invest wisely.

The peculiar vocabulary and concepts inhabiting an options trader’s thoughts are often the source of confusion to visitors to my world. I have often pondered that learning to understand options is a lot like learning a foreign language. When you arrive in the country whose language you seek to learn, you need a functional vocabulary immediately.

In order to be able to understand my world, I thought it would be helpful to discuss a bit of my language since it is helpful to grasp a few basics. I want to touch on some of the basic concepts necessary to form the basis for a functional language we can use to communicate concepts underlying a rational (hopefully) thought process leading to trade design and management.

In ruminations to come we will return to these fundamental concepts and begin to understand their function in the dynamic world of an options trader.  The nuances of their specific structures are beyond the scope of this blog.  We will return to consider these factors in virtually every trade because they re-appear each and every day in my world. For today, just shake their hands and remember their names.

One point not often discussed is the way in which options are priced. The quoted option price is in reality the sum of two separate components. These are referred to as the intrinsic and the extrinsic portions of the premium. I think of these as steak and sizzle respectively.

As I type, AAPL has closed at around $395. The January 390 call has 41 days to expiration and could have been bought for $18.90. Of this sum, $5 represents intrinsic premium and $13.90 represents extrinsic or time premium.

This is an important distinction because it is the extrinsic premium which is subject to time decay and change due to variations in implied volatility. We will get to a discussion of implied volatility in next week’s missive.

The intrinsic premium is subject to change solely due to changes in the price of the underlying security. There is no sizzle in the intrinsic premium; you can buy the option today, exercise it to buy stock, sell the stock, and pocket the $5. Of course, your trading career will not last long with that sort of trade, but my point is that the intrinsic premium has an easily calculable true value.

The situation with the extrinsic premium is quite different. The value changes not only with time to expiration but also with the constantly changing implied volatility. It is for this reason that an option trader must be very careful with this extrinsic component. Depending on the specific option under consideration, extrinsic premium may represent all, a portion, or a trivial amount of the entirety of the option premium.

Another important concept is that of the “moneyness” of an option. An individual option can be classified in one of three categories of “moneyness:”

• At-the-money
• In-the-money
• Out-of-the money

At-the-money options by definition consist of a single strike price. Both in-the-money and out-of-the-money strikes usually contain several individual strikes within their groups.

In our example of AAPL, the at-the-money strike is the 395 strike. The in-the-money strikes consist of all calls with strike prices below 395 and all puts with strike prices above 395. The out-of –the-money strikes consist of all calls above the 395 strike and all puts below the 395 strike.

Obviously since the price of the underlying defines the category into which an option is classified, the category into which an individual option fits is fluid and changes dynamically with the price of the underlying asset.

The reason for taking the time to discuss in some detail this classification of “moneyness” is that there are important reliable characteristics of each type of option.

At-the-money options characteristically contain the absolute greatest dollar amount of extrinsic premium. In-the-money options have the least amount of extrinsic premium. Out-of-the-money options consist entirely of extrinsic premium, and therefore only contain sizzle . . . no steak can be found there.

Because the functional characteristics of these three categories of options differ, it is a basic strategy to combine options of different “moneyness” to achieve trades with the best probability of success and the highest risk/reward scenarios.

For example, buying an in-the-money call and selling an at-the-money call gives birth to a call debit spread, a high probability trade structure for the trader who is bullish in the underlying.

Next week we will cover the stealth concept of option trading, implied volatility. Failure to understand the impact of this variable is the most common cause of beginning options traders’ failure to succeed.

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This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

“No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.”

~ United States Constitution, Excerpt from Article 1, Section 10 ~

A quick glance at most of the headlines over the weekend and the primary focus seemed to be either calling a near term top in domestic equity indices or a focus on the Greek debt situation. Why is anyone even paying attention to what is going on over there? Until the ISDA declares a default where the underlying Credit Default Swaps (CDS) are triggered, it is all just noise.

The ECB has broken the rule of law by placing itself as the senior creditor ahead of private creditors, the Greek government is trying to pass retroactive legislation to trap private sector creditors holding out of the PSI, and the leader of Greece was not even elected by the people of Greece – how much more manipulation and insanity do we need to monitor?

Similar to the price action since 2008, central banks around the world control everything from financial markets to the ascent of political leaders. These same political leaders help central bankers and planners control policy and decision making at the highest government levels in Europe and around the world. It would seem that the United States should change the motto from “We the People” to “We the Bankers.”

However, there is one particular asset class that even the central bankers have a hard time controlling. While they can impact short term price action through direct currency manipulation initiatives, in the longer-term gold is likely to move in only one direction – higher.

The price action on Tuesday reminded market participants that actions such as the Greek bailout come at a cost. Quantitative easing and/or printing money (depending on what one wishes to call the practice of producing fiat currency out of thin air) has a direct impact on the price of gold.

Many financial pundits argue that gold has no utility, but what they fail to recognize is that gold is the senior currency to all other fiat currencies. Silver is also a form of currency and is senior to all other fiat currencies as well. While one can draw the utility of gold into question, the idea that gold is the senior most currency to all other fiat currencies is not new.

The Constitution of the United States of America, which is over 200 years old, refers to gold and silver as forms of payment.  Looking back thousands of years the Romans used gold coins as a form of currency. The idea that gold and silver are currencies is certainly not a grandiose thought or a stretch of historical concept. Trying to depict gold as a worthless asset depends on your view and consideration of fiat currency.

There are those that would argue that the Federal Reserve of the United States is not actively manipulating economic conditions domestically or abroad. For those that view gold as a poor investment or hedge against currency devaluation need to consider the charts illustrated below. The chart below was produced by Thomas Gresham of Gresham’s Law.

Total Asset Growth of the Federal Reserve System – 1915 – 2012

It is rather obvious by looking at this chart that the Federal Reserve has actively sought to enter domestic and foreign financial markets. The surge in balance sheet assets serves to prove how far the Federal Reserve Bank is willing to go to maintain markets which seemingly are only allowed to move higher over time.

This chart is bearish for nearly any form of paper backed assets. The above referenced chart is long-term bearish for the Dollar and Treasuries and long-term bullish for physical gold and silver. As the Federal Reserve continues to debase the U.S. Dollar in concert with other central banks’ monetary easing programs, gold and silver prices over time are destined to move higher in virtually every form of fiat currency.

During the same time frame that the Federal Reserve has seen its balance sheet grow exponentially, the rapid rise of M2 money supply is staggering. The long term chart of M2 is compared to gold futures in the charts presented below.

M2 Money Stock

Gold Futures Monthly Chart

It is rather obvious what has happened to the price of gold as the M2 money supply has grown. The idea that the Federal Reserve has not already destroyed a significant amount of the purchasing power of the Dollar can easily be refuted by the two charts shown above.

In the short-term, gold and silver could suffer from a pullback, but in the intermediate to longer term it is unlikely that we have seen the highs of this bull market for either metal. As long as central banks around the world continue to print money and expand their balance sheets gold and silver will remain in a long-term bull market. The daily chart of gold futures is presented below.

Gold Futures Daily Chart

As can be seen above, it is not out of the question that we could see gold pullback to test one of the key moving averages in coming days/weeks. However, I expect the key support area to hold in the event of a sharp selloff. Ultimately, I expect to see a breakout over the resistance zone in the days/weeks ahead. However, I would not be surprised to see gold consolidate or work marginally lower from current prices before breaking out to the upside. Right now the primary threat in this fledgling gold rally is a short-term spike higher in the U.S. Dollar. The primary catalyst which could drive a flight to the Dollar involves the sovereign debt situation in Greece and the Eurozone as a whole.

While the short-term price action may be bearish, the intermediate to longer term time frames are quite bullish for metals as central banks will continue to race to debase their currencies. Quantitative easing in the U.S. and around the world will become pervasive and gold prices could potentially soar in value. The data from the Federal Reserve Bank itself suggests that they are indeed increasing the money supply. As time has passed, the money supply and gold have seemingly grown in lockstep with one another. Surely inquiring minds do not consider this mutual relationship between gold and the money supply to be purely coincidental.

As further evidence that the Federal Reserve continues to use quantitative easing to manipulate asset prices through direct entry into financial markets, a chart of the velocity of M2 clearly depicts that the velocity of money is declining. I am not an expert regarding macroeconomic data, but if the velocity of money is declining to 1960’s levels would it be a stretch to say that we may be going through a period of stagflation? The chart below illustrates the Velocity of M2 Money Stock courtesy of the St. Louis Federal Reserve Bank.

Velocity of M2 Money Stock

For those unfamiliar with the term velocity of money, it is simply the rate of turnover in the overall money supply. The velocity of M2 is expressed as the number of times that a Dollar is used to purchase final goods or services which are included in the total gross domestic product.

Conclusion

The short term technical picture in gold is a bit suspect due to overhead resistance and recent U.S. Dollar strength. However, the longer term macro factors that impact the value of the U.S. Dollar and precious metals are all telling us the same thing.

As time wears on and central banks do even more to prop up the broader economy and failing financial institutions, it is without question in my mind that gold and silver will both benefit handsomely from these decisions being made by central bankers from around the world.

Ultimately, I am very bullish of gold and silver in the intermediate to longer-term, but in the immediate short-term frame gold could consolidate or pullback before breaking out to the upside.

By: Chris Vermeulen – Free Weekly ETF Reports & Analysis: www.GoldAndOilGuy.com
Co-Author: JW Jones – Free Weekly Options Reports & Analysis: www.Optionnacci.com

This material should not be considered investment advice. J.W. Jones is not a registered investment advisor. Under no circumstances should any content from this article or the OptionsTradingSignals.com website be used or interpreted as a recommendation to buy or sell any type of security or commodity contract. This material is not a solicitation for a trading approach to financial markets. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This information is for educational purposes only.

Gold And Silver Stuck In A Holding Pattern

President Obama promised to turn around the floundering economy that he inherited from his predecessor. He promised jobs. He promised transparency. Not only did he not deliver on those campaign promises, he has led the nation further into the abyss on all counts. Today we are less prosperous, deeper in debt, and enjoy fewer liberties than when Obama first stepped into the Oval Office. His own party is losing faith in the messiah.

You can see that loss of faith in the steady downward trajectory of Obama’s approval ratings. While Democrats can take heart from the fact that no truly viable candidate has emerged from the GOP, it’s clear that “Hope and Change” will not be sufficient to rally the electoral troops for Obama again in 2012. Voters are hurting, and Obama’s claims that the blame lies with George W. Bush no longer provide any solace.

Not only is the president’s own reelection in jeopardy, his sagging polls are dragging down other Democrat candidates as well. Republican Bob Turner handily took Anthony Weiner’s seat in New York’s 9th Congressional District, a district that had been a Democrat stronghold since 1923. New York’s 9th District has previously been represented by such Democrat stalwarts as Chuck Schumer and Geraldine Ferraro. During the special election for Weiner’s seat, Obama had only 31 percent approval in that district, although he won there with 55 percent of the vote in the 2008 presidential election.

A Democrat pollster attributed Turner’s win to “the incredible unpopularity of Barack Obama dragging his party down in the district.” Similarly, Republican Scott Brown took the Massachusetts seat that had been held by Ted Kennedy for almost 46 years. Brown’s win was attributed in large part to widespread discontent over Obama’s policies, particularly Obamacare.

A Democrat strategist is warning his clients not to run in 2012. He said, “I don’t want to see good candidates lose by 12 to 15 points because of the president.” Pete Sessions (R-TX), National Republican Congressional Campaign chairman, said, “This clear rebuke of President Obama’s policies delivers a blow to Democrats’ goal of making Nancy Pelosi the speaker again. An unpopular President Obama is now a liability for Democrats nationwide in a 2012 election that is a referendum on his economic policies.”

The New York Times has observed that no incumbent president since FDR has won reelection with unemployment over 7.2%. Keep in mind that unemployment is actually much higher than the officially reported 9.2%. Other presidents have recovered from low approval ratings and high unemployment and still won reelection, but that will not happen here.

The steps necessary to turn the economy around are antithetical to Obama and his collectivist, big-government philosophy. He will not make a 180-degree change in direction, so there is virtually no way unemployment will fall at all, not to mention substantially, before the election. Nor does he have any plans on the drawing board by which his popularity will rise. Instead, Obama berates a “do-nothing” Congress, including a Democrat majority in the Senate, for not passing his jobs bill – another dose of the same toxic medicine that has brought us to the economic doldrums where we languish today.

Even if Obama turns out to be his party’s standard bearer in 2012 and wins the election, he is likely to enter his second term having to deal with Republican majorities in both the House and Senate. Lacking the political skills of Bill Clinton, who similarly faced a Republican Congress, Obama would spend four years in a standoff with an intractable legislature – truly a do-nothing president.

Many of those who so enthusiastically supported Obama in 2008 now have buyer’s remorse. They could have had Hillary. Obama himself may be having second thoughts. He told NBC’s Ann Curry that “there are days where I say that one term is enough.”

Obama told ABC News’ Diane Sawyer that “I’d rather be a really good one-term president than a mediocre two-term president.” It’s fair to say that neither of those are realistic options. Neither really good nor mediocre remain within Obama’s reach.

Early in his presidency, he told NBC’s Matt Lauer that “if I don’t have this done in three years, then this is going to be a one-term proposition.” Clearly, he has not and cannot “have this done” in three years or four years. Looks like one term it is.

Stepping Down

Obama has been compared to Harry Truman, who came from behind in 1948 to defeat Thomas Dewey for a second term in the White House. Truman ran successfully against a “do-nothing” Republican Congress. Obama is busy blaming this “do-nothing” Congress for not passing his jobs bill. Unlike Truman, who faced a GOP majority in both the House and Senate, Obama so far only has to deal with a Republican House. He still faces gridlock.

Obama has also been compared to Truman in 1952. Truman believed that he could have the nomination simply for the asking, but he was challenged and defeated in a New Hampshire primary by Estes Kefauver, a first-term senator from Tennessee. Shortly after that defeat, Truman withdrew from the race. Ostensibly, he withdrew in the best interest of the country and because he was concerned that he could not govern effectively for four more years because of his advanced age. In fact, Truman was deeply disliked. He had been unable to bring the Korean War to an end or tame the federal deficit, and faced charges of corruption and cronyism in his administration. Sound familiar?

Another parallel can be drawn to President Lyndon Johnson. Johnson was too much associated with the costly and unpopular Viet Nam war, and his Great Society was said to be a failure. He faced challenges from within his own party from Senators Eugene McCarthy and Bobby Kennedy, the brother of the assassinated president Johnson had replaced. On March 31, 1968, Johnson announced that “I shall not seek and will not accept the nomination of my party for another term as your president.”

Democrat pollsters Patrick Caddell and Douglas Schoen, in a November 21, 2011 opinion piece in the Wall Street Journal, note that Truman and Johnson both “took the moral high ground and decided against running for a new term as president.” They conclude that “President Obama is facing a similar reality – and he must reach the same conclusion.”

Caddell and Schoen concede that…

Mr. Obama could still win re-election in 2012. Even with his all-time low job approval ratings (and even worse ratings on handling the economy), the president could eke out a victory in November. But the kind of campaign required for the president’s political survival would make it almost impossible for him to govern – not only during the campaign, but throughout a second term. Put simply, it seems that the White House has concluded that if the president cannot run on his record, he will need to wage the most negative campaign in history to stand any chance. With his job approval ratings below 45% overall and below 40% on the economy, the president cannot affirmatively make the case that voters are better off now than they were four years ago. He – like everyone else – knows that they are worse off.

They urge the president to “abandon his candidacy for re-election in favor of a clear alternative, one capable not only of saving the Democratic Party, but more important, of governing effectively and in a way that preserves the most important of the president’s accomplishments. He should step aside for the one candidate who would become, by acclamation, the nominee of the Democratic Party: Secretary of State Hillary Clinton.”

They note, “Having unique experience in government as first lady, senator and now as Secretary of State, Mrs. Clinton is more qualified than any presidential candidate in recent memory, including her husband. Her election would arguably be as historic an event as the election of President Obama in 2008.”

That Schoen and Caddell are Democrat pollsters who worked, respectively, for Bill Clinton and Jimmy Carter is all the more telling of the mood in the party. They claim to “write as patriots and Democrats – concerned about the fate of our party and, most of all, our country. We do not write as people who have been in contact with Mrs. Clinton or her political operation. Nor would we expect to be directly involved in any Clinton campaign.” They conclude that “not only is Mrs. Clinton better positioned to win in 2012 than Mr. Obama, but she is better positioned to govern if she does.”

Hillary, however, will supposedly have none of it. She told CBS’ White House correspondent Norah O’Donnell she would not consider running for president. She said, “I had a great run, I was very grateful that I could do that. I felt just really good about the experience, but that was then and this is now, and I’m looking forward.”

Caddell and Schoen will not be swayed, however. “If President Obama is not willing to seize the moral high ground and step aside, then the two Democratic leaders in Congress, Sen. Harry Reid and Rep. Nancy Pelosi, must urge the president not to seek re-election – for the good of the party and most of all for the good of the country. And they must present the only clear alternative – Hillary Clinton.”

Will Obama seize the high moral ground and step aside? Not likely. He is probably incapable of blaming himself for his predicament. He could be forced aside, perhaps by the threat of a scandal (Solyndra, MF Global, and illegal actions by his attorney general and Department of Justice). He seems even now to have trouble understanding what went wrong. He has apparently not yet considered the possibility that the luminaries with whom he has surrounded himself, including Fed Chairman Ben Bernanke, could simply be mistaken about how the world works.

Laissez Faire

Oddly, a do-nothing president is just what we need, but of a different sort than Obama. The answer to most of the difficult questions about government is that government has no business doing whatever it is in the first place. Of the crop of Republican contenders, only Congressman Ron Paul and New Mexico Governor Gary Johnson acknowledge that reining in the lumbering, overreaching behemoth that our government has become is the real challenge facing the next president. Other Republican hopefuls pay lip service to whittling government down to size but not by the drastic steps that are now not only necessary but overdue.

Indeed, our government has now become so hostile and damaging to its citizens that one could fairly argue that we would be better off with almost no government at all. As Grover Norquist famously stated: “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.”

Both Ron Paul and Gary Johnson are seen as not being presidential material because they are unwilling to perpetuate longstanding scams. They are thought not to be presidential material because they don’t understand how the game is played or, if they do, because they are unwilling to play it. Admittedly, presidential politics has been such an extremely complex and convoluted affair that it seems only sophisticated players can handle it, but that is exactly what is wrong here.

[Obama's policies are clear on one point: he seeks to continue slyly draining investors' assets through inflation. There are ways to circumvent it – if you're willing to learn how to make friends with shifting trends.]