World Of Wallstreet

Hussman's 2012 Outlook And Mainstream Retirement Planning Alternatives

Here's a dressed up version of an email I just sent out to my two brothers and sister. I'm running about 40% of my 80-something mother's retirement money (the part not locked up in trusts):

"Here's a good piece by the best of the mainstream investment columnists: http://www.hussman.net/wmc/wmc120103.htm. Being mainstream, Hussman does not take into account out of the mainstream risks, including.:

• risks to the whole system from the fraudulent fiat-currency system,
• risks to the middle-class from the "banksters" (the banking, corporate, government elite running the system) or
• Peak Oil.

The key fact in this piece is that the best you can expect from passive, 100% invested in the stock-market investing for the next decade is 4.9% returns minus management fees and taxes compounded annually. I believe Hussman is talking about real returns computed by deflating with the bogus government manipulated CPI numbers, but I'm not sure.

There are a few takeaways from this article:

• The best estimate of what to expect from the investing of our dear mother's retirement money is 2.4% (i.e. 4.9% minus say 1.5% for management expenses minus another 1% for taxes) for the next 10 years. If she lives on what she expects to spend (around $50K/year) and actually gets this return then she should be able to make it to around 100 without running out of money, but without leaving much behind when split four ways.
• The best estimate of what to expect from your own retirement savings (401K or IRA) is 3.4% (4.9% minus something like 1.5% for management expenses).
• Bruce, with his US Post Office pension, should compare what the pension fund is expecting to the article's 4.9% to evaluate the likelihood of his retirement payouts taking a hair-cut.
• If this article seems like boring, complete gobbledy-gook then you should ask yourself how best to take responsibility for your retirement planning. There are no low-risk approaches unless you already have saved way more than you'll need. You can either:
  • save retirement money in tax-protected accounts (IRAs and 401Ks) and live frugally enough to get by on:
    • the gains (losses) from the passive, globally diversified approach (ETFs or Mutual Funds), probably around 3.4%. The risk here is that situation is worse than the best mainstream guy's estimate and "THEY" are going to plunder those tax-deferred savings accounts.
    • the gains (losses) from a top-gun who can play to win with your money without risking it all and who has enough integrity or personal connection to you to actually look out for your interests and save enough. Finding such a guy is harder than it sounds. There's a big straight jacket on your guy if what he's running is in a tax-deferred account. The risk here is either that he plunders your money (e.g. Madoff) or that he isn't really a top-gun and he loses a bunch of your money or "THEY" are going to plunder the tax-deferred savings.
  • spend a few thousand hours spinning up to become a top-gun yourself and retire on your "winnings" from your own savings. The risk here is that you don't actually become a top-gun and don't have "winnings" to retire on or that the investing system is so rigged that small-time top-guns can't make real money.
  • save in the form of physical gold enough and live frugally enough to get by on a fixed number of oz of gold per year. The risk here is that the physical gold is stolen, taxed to death or confiscated by the government or that it doesn't hold its value over the long-term.
  • plan on working as long as your are able and depending on family thereafter.
  • some other thing that doesn't occur to me right now.
  Respectfully and with much love..."

MontyHigh, www.worldofwallstreet.us

 

Does Credit Have To Expand Over Time To Prevent Monetary System Collapse?

How often do you watch a youtube multiple times? Especially an educational one? This is one I watched once and it had enough important information that I had to watch it multiple times to see if it really made sense.

Michael Maloney explains in this long tube (click here) how the fiat, fractional-reserve monetary system works. This is the system used by the USA and virtually the whole world. Maloney claims thats that credit has to continuously expand or the system collapses. Can you help me figure out if he's right?

There's four segments that need to be considered. The first two are gimmees and definitely accurate. The key idea of the third and fourth segments are what you can help me figure out.

Starting at 20:55 and continuing to 22:15 he provides an explanation of how a non-fractional-reserve gold-standard money system used to work. This is good background material, but not particularly relevant as its been a hundred years since any country used that system.

From 22:15 to 28:06 he provides an excellent introduction to how a fiat, fractional-reserve money system works. This is something that is hard to understand, hard to believe but true and quite important. Do you get it? I accept that this explanation is accurate and reasonably complete. He doesn't mention that it is the threat of force (police and military) that is the reason why this system must be accepted by the population.

From 29:59 to 32:12 he claims that because interest is required on all of the money borrowed into existence money that the total amount of debt has to increase every month or the system starts to collapse. 

From 45:09 to 46:34 explains why he thinks the total amount of debt has to increase and why this is unsustainable and must end in a debt collapse. This is because there is more money owed (amount borrowed plus interest) than is created by borrowing (the amount borrowed) and as the debt comes due (debt plus interest) and is paid or rolled over the relative amount of debt to currency in existence increases. This animation is the thing I couldn't stop thinking about and brought me back to this youtube and caused me to write this post.

Ok, so that is the background to the claim and here is the claim under consideration (starting at 31:56) verbatim: "This system requires that we go deeper into debt every month than we were the previous month; we have to always borrow more currency into existence than we are extinguishing every single month or the whole things starts to collapse". That is an exact quote. Here it is abbreviated with fixed up syntax: "This system requires that we go deeper into debt every month ... or the whole things starts to collapse".

Help me here. Is that claim true? And does "the whole thing starts to collapse" imply that the whole thing must collapse or merely that ongoing intervention is required to keep it from collapsing and that continued intervention is inherent in the system.

It seems to me that:

1. the total amount of debt in the system can be reduced by default or debt forgiveness. For example, what happens to someone's debt when they die? It will never be paid back. Whoever the debt is owed to must write the debt off and thus the total debt in the system is reduced.
2. the debt, including interest, owed by the US treasury to the Federal Reserve is in a different category from other debt in that nothing bad seems to happen if the US treasury defaults on that debt. So, let's call total effective debt the total amount of debt minus the amount owed by the US treasury to the Federal Reserve.
3. the amount of money relative to the total effective debt can be expanded by having the Federal Reserve print money (buy US treasury debt) and having the US treasury hand the money out as it sees fit (ordinarily directly to its pals especially to the war industry).

So it seems to me that the system is not unsustainable in that it must end. It seems me that the system is economically inefficient in that economic distortions take place when the US treasury spends money (hands out money) to its pals where that money is wasted rather then invested in more productive activities that a free market select. Should we call that handing out of money to pals malinvestment or looting? In either case it sounds like stagflation to me, not a deflationary collapse and not a hyperinflationary collapse.

So, help me. Am I wrong and is the system inherently destined for deflationary or hyperinflationary collapse or is a "slow burn" (to use Catherine Austin Fitts terminology) ongoing fall in the middle-class standard of living another alternative that can be sustained for years or decades? What is it about the system's operation that I don't get that means that a collapse MUST happen?

MontyHigh, www.worldofwallstreet.us

Euro Crisis: Its Different This Time

I'm hardly an expert, but it seems to me that something significant has changed as far as the Euro crisis is concerned. In the past, the media buzz would be about the Merkel and Sarkozy team. Sarkozy and Merkel would always be meeting, talking, preparing for important meetings, having plans to come up with plans with racy, hopeful headlines coming out every few days. I just don't hear any such buzz.

I think Merkel has dug in her heals and said "No More" to German financed bail outs while everyone else, including Sarkozy, are asking for more. Is this just a negotiating standstill of some kind? Or, is everyone off trying to figure out how their country handles what comes next by themselves? I think the danger of a "Lehman" moment for the Euro crisis is now higher than it ever has been.

What do you think?

MontyHigh, www.worldofwallstreet.us

They're Baaack: Super Committee Reentering Mass Psychology

Its time to reprise this post from a Sept 24 as I'm starting hear a little buzz about this Super Committee in the mainstream media. Seems like if there ever was a trade the rumor situation, this is it. Here's how its going to go (I expect):

1. The looming, incomprehensible, dark and painful US debt situation creeps back into the mass psychology with lots of scary stories about "No Deal" and the end of the world as we know it (closing national parks, kids without school teachers, social security checks not mailed...) - short the dollar, short the US stock market.
2. Culminating right up to that first dead-line (right before Thanksgiving) - cover before Thanksgiving go long US bank stocks in the face of great fear.
3. Deal gets announced the weekend after Thanksgiving - dollar up, US stock market up (especially bank stocks).
4. Go back to number 1 for the lead up to the next deadline (Christmas).

A Look Ahead To Year End: That Debt Ceiling Super Committee Thing's Timetable...

Here's a link to a newspaper article covering the Debt Ceiling supercommittee timetable. Looks like things start really getting hot around Thanksgiving. For me, the rich part is that even if they don't agree on cuts the automatic cuts don't start until Jan 2013 (after the election). I guess that's why they call them "politicians". 

Here's some highlights from the article:

Nov. 23: Deadline for the committee to vote on a plan with $1.5 trillion in deficit reduction.

Dec. 2: Deadline for the committee to submit report and legislative language to the president and Congress.

Dec. 23: Deadline for both houses to vote on the committee bill.

Jan. 15, 2012: Date that the "trigger" leading to $1.2 trillion of future spending cuts goes into effect, if the committee's legislation has not been enacted.

If you are trading you may want to keep this timetable in mind.

MontyHigh, www.worldofwallstreet.us

Chart Of The Day: Want Some 2008 Crash Insurance?

My savings took a giant hit (~70%) from my top in 2007 to the bottom 2008. That was before I started using technical analysis. That can happen when you depend just on fundamental analysis and your analysis is WRONG. I don't ever want to have that happen again.

The above chart shows that there was something I could have done to profit from the big crash in 2008. Go long gold and short copper. Gold as a store of value in times of fear and uncertainty. Copper as a commodity whose price is sure to get hit hard in a major economic slow down. The chart shows that ratio making a continuous move that could more than double what you have at risk, supported the whole way by a very tight 20-day moving average.

The fundamental buzz around copper concerns the almost certainty of a significant recession in Europe (China's biggest export market) along with scary anecdotal stories out of China itself regarding a potential housing bust.

I've already long and strong (but not heavily leveraged) gold with various kinds paper and physical gold. I expect I'm going to play that 20 day moving average on the long gold short copper trade with a decent sized percentage of my networth at risk via the futures market as both a big economic/market hit insurance trade with an expectation of profit. A decent size position, but not anything that could blow me up.

Of course, I'm not recommending any such thing for anyone else, this post is merely pointing out an interesting looking chart that shows you want to look for if another major downleg in this Great Recession resumes.

MontyHigh, www.worldofwallstreet.us

Guest Post From Anonymous: "Forget Peak Oil... The Biggest Blowup Of Our Lifetimes Is Here"

Just got this from someone who tried to keep me from taking the big hit in 2008.  Woulda, coulda, shoulda listened to him then. Last time he was early by a few months but the executioner eventually came. I'm putting it up pretty much unedited with some simple substitution for the most forceful language. I really appreciate him thinking of me and will probably be taking some forceful action after pondering this some more.

Monty, ANONYMOUS here.

Forget peak oil - the freaking biggest blowup of our lifetimes is here('08 was just the start obviously!) . Europe is going to bust and maybe go 100% fascist - we will know in the next few weeks. Oil and commodoties are going to crash like an asteroid. Here is some tidbits of what I'm seeing:
- The proposed solution to the Euro. financial crisis is .... a CDO of subprime Sovereigns ! You can't make this stuff up.
 -- The bond market bitch slapped the Marxist/Fascists Eurocrats and ran the Italian 10yr through the Maginot line of 6% after the announcement of the CDO of Subslime Sovereigns. This was epic ! wake the freak up ! That is like a gigaton nuke going off - Europe is smoked just like when Bear Sterns subprime went in Feb '07 was the push over the cliff, we have it now for Europe. We now wait for the thud at the bottom of the cliff !  Of course, the equity market is drunk and has no clue - just like in '07 until its gets the 2x4 in its face. The bond Vigilantes finally woke up after a 30-yr slumber. They gave the royal finger to the Marxist/Fascist Money-printing subhuman NWOists (New World Order). They see that all the kings men(FED, ECB,IMF, Eu, etc) don't have enough money to pay ! - unless they print. The bazooka is shooting blanks !!!! The bond market is telling this loud and clear. The Emperor has no clothes.

-- Greece tries the referendum route (Iceland) and the pressure causes them to cancel (Ireland). What the freak! Big stakes gamesmanship and pressure!  Greece is still insolvent - only question will the Greeks win(debt repudiation) or the subhumans ( endless austerity and debt slavery while the cartel buys up every Greek asset on the cheap) ?

-- Merkel mumbles about war ! What the freak !
-- Why ? Deutsche Bank is toast. They only have 1% tangible equity. This is why CDS on Greece cannot be paid. I bet they sold a stuffload of protection on Euro-periphery. The Germans are going to be made debt slaves -- screaming and kicking but the bitch is hell bent of making all the germans slaves to the cartel. Merkel is Obama in white woman clothing. 
-- The theft is now getting open and rampant in the last 5 years. Look at MF Global. I bet they got margin calls when Italian bonds shot up and so they stole more money to pay it. My guess is they feared the repo man on the other side of that trade more than they feared the "law". hahaha - the law is for shmucks. That repo man can obliterate Iraq , kill presidents, and give the nobel peace prize to a war mongering marxist. The cartel never loses - the "small" people with the MFG accounts lose. The last days were full of fraudulent transfer.
-- Who is leader is 21st centuary finance ? Zimbabwe ! They led the way into money printing. Given their standards, the Nobel Committe should give a Nobel Prize in Economics to the Finance Minister of Zimbabwe.
-- When Europe blows and that is now just a few months away at most, all banks worldwide will be insolvent by definition.
-- Freak commodities. Buy Gold and Silver , Guns and Bullets, Beans and farts...well you get what I mean . When the Germans murmur war, and contracts worth tens of billions ($37B in Gross GreeK CDS) are thrown in the dust bin, and looting goes on right and left, and the NWOist are making their powerplay to own the world , is thinking about anything else even sane ? Greece should say no debt! and move on, but that would cause Deutsche Bank and the French banks to go under. Then, the ECB would print $3T at least. Worldwide leverage needs to drop in 1/2 very roughly. That's really tens of Trillions, we are going to get there one way (money printing) or another (deflationary depression) or both! The gig is up. Watch the Itl. 10-yr

--Solutions do exist, but they won't be taken because the cartel is too greedy and they control the politicians. Their forefathers were restrained after the Depression, but the current generation has no memory so they are going to blow it up. The politicians are figure heads and toys of the cartel. There are few, too few brave ones and as we have seen , they all get pushed out of the way one way or the other. These greedy freaks are going to blow it all up. When I say Cartel, I mean they use Wall Street just as they use the Military-Industrial Complex...these are the tools of the International Cartel.

-- China has started its move into depression. They lent money out of '08 which was actually something I didn't think they could do, but now the 3-yr credit cycle is coming with a thud. I expect 10-15% drop in GDP in China before its over . Freak peak oil. Its peak misery, you won't be able to give away that dino-stuff.

So if the subhuman cartel prints like crazy -which I think is the path, then we should get some serious inflation at some point, but we need to see the full deflationary shock first that will cause them to print like crazy as the insolvency runs into the trillions (already there, but only partially printed) and then maybe into the tens of trillions...the losses worldwide should be and maybe already are in the tens of trillions as the credit bubble deflates. This should take 5-7 years to play out fully before the debts are wiped and/or currencies reconstituted. Redback $-bills anyone ?

Didn't Take Long To Fill That Gap!

The technical analysis folks believe that gaps in the price history (where there's a gap between one day's trading range and the next) tend to get filled. This chart shows a nice-sized gap in the general stock market between last Thursday and Friday. We now have quite a gap opening up today with "Bernanke Speaks" two-day FOMC meeting results tomorrow.

I was feeling quite scared this morning. Usually that means the bottom is just about in. I expect I'll find some kind of bounce trade to put on this morning. Maybe medium-smallish position in S&P 500 futures.

MontyHigh, www.worldofwallstreet.us

This Week's Deal Doesn't Fix The Europe Debt Crisis

Havey Organ has a great column today (click here) although you might want to skip down to where his survey of Europe Debt Crisis Deal reviews starts. Here's a few of the money quotes (most from this one report from The Economic Collapse:

• "people have begun to closely examine the details of the European debt deal, they have started to realize that this "debt deal" is really just a "managed" Greek debt default."
• "But investors are not stupid.  Greece was allowed to default.  If Italy or Spain or Portugal gets into serious trouble it is likely that they will be allowed to default too."
• "The big message that Europe is sending to investors is that when individual nations get into debt trouble they will be allowed to default and investors will be forced to take huge haircuts. As this reality starts to dawn on investors, they are going to start demanding much higher returns on European bonds. In fact, we are already starting to see this happen. The yield on two year Spanish bonds increased by more than 6 percent today. The yield on two year Italian bonds increased by more than 7 percent today. So what are nations such as Italy, Spain, Portugal and Ireland going to do when it costs them much more to borrow money?"

There's much more in Harvey's column worth scanning.

MontyHigh, www.worldofwallstreet.us

 

They Are Begging For The Printing Press. Got Gold?

I'm guessing we'll get both:

1. An undeniable second-dip recession that is plenty painful and, like the previous one, doesn't seem to go away.
2. Plenty of money-printing out of Bernanke.

MontyHigh, www.worldofwallstreet.us

P.S., A joke:

"Multiple choice. Which is these does not belong with the others?:

(a) Herpes

(b) Aids

(c) Syphillus

(d) High USA unemployment.

ANSWER: (c) Syphillus. You can't get rid of the others."

Fully Bamboozled At This Point...

I had the morning off from church this week taking care of the 10 year old with a cold. That explains all of the posts. For the first time in a week I've had a chance to consider the markets with some intensity.

Here's my findings:

• Overall Impression - I'm feeling quite bamboozled at this point. My general modus-operandi is to do nothing when confused with potentially really bad results. This time I'm going to lighten substantially on some of everything if things don't get clearer to me soon.
• Macro Buzz - This buzz is from reading the news. It says either:

• the Europeans come up with a plausible plan and the risk on inflationary trade is on (Dollar down, US Stocks Up, Commodities Up, Gold Up [but not as much as stocks), Silver up. OR
• they don't (Dollar up, US Stocks Down, Commodities Down, Gold probably down, Silver down).

I guess we'll hear something tonight. I expect an overnight pop thru the morning as they'll definitely have some kind of semi-positive sounding news, but that the deflation trade will show up by the New York close if they aren't close to a plausible plan. I think all this Euro Crisis Macro buzz stuff is obvious to anyone paying attention to the markets. I also think it takes a continuous stream of bad news to keep the fear trade going. No news is good news which pretty much accounts for the recent "risk on" trading action.

There's also very quietly some bearish noise coming out of China which I think is responsible for Copper and other commodity weakness beyond what is expected from the Euro Crisis stuff. This is not fully taken into account by financial press or average money manager. If we get a relief rally, I don't expect commodities to lead.

• Now based on the charts, here's what I see:
  • US stocks broke above their recent trading range but there's stiff resistance within a couple of percentage points. What happens short term depends on the European situation. A move thru the remaining resistance at S&P $1260 is bullish and it will be time to abandon any bearish stock positions.
  • Emerging markets are flat out trending down and ugly. I think this is related to the China macro buzz. They are dragging commodities with them.
  • Everything seems to trade around the US dollar which seems to be weakening.
  • The recent collapse in 30-year US treasury yields (and now their rapid recovery) is signaling that the Euro situation will blow over (I think). 
  • Gold looks ok as long as the 150 day moving average holds. The commitment of trade report is bullish.
  • Silver's chart looks like a bear flag to me. A breakdown under $30 that holds signals another big silver price collapse. I don't buy the Eric Sprott story, yet.

By the end of this week the European situation should be clearer and I expect either to have eliminated my S&P 500 put options hedges or will have lightened up on the gold futures options and cut my core gold stock positions.

Perhaps I'll supplement this post tonight with with some charts, time permitting.

MontyHigh, www.worldofwallstreet.us

No Bid

There is one interesting thing to report from Friday's trading. I'm currently holding a bunch of S&P 500 $1300 Dec 16, 2011 put options as a hedge against deflation taking gold down with everything else.

That's what derivatives are for right? To limit risk.

Well, with the S&P 500 closing on its high Friday in what I consider a "What Will They Come Up With Over The Weekend?" short-covering rally, I decided to lighten up on those put options. Now, these put options are in the money. They have intrinsic value.

Looking at my screen I saw: No Bid for those put options. Let me be clear: Nobody was willing to put up any kind of price (even much less than their intrinsic value) for even one of those put options.

I should have gotten a screen capture for you, dear reader, but the thought did not occur to me.

I considered S&P 500 put options to be pretty liquid, that is, that I could sell them if I wanted to, even under pretty extreme circumstances. Wrong.

That's the problem with "Mark To Market" accounting, you need to have a "bid" under the item to know what its market value is. If seemingly ordinary, short-term, in-the-money S&P 500 put options go no-bid under pretty much ordinary market conditions (the S&P 500 was only up 2%), then just imagine how hard it is to get the market value for all the crazy stuff the "too-big to fail" banks trade:

• Credit-Default Swaps on all sort of little things (individual corporate bonds, Greek sovereign bonds of all types, etc.).
• Hedges on every kind of interest rate.
• Who knows what else they are holding. 

In addition to counter-party risk (where the other party may default and so a paper asset loses some or all of its value), there is "no bid" risk, where you can't find somebody to buy your asset (at any price) when you suddenly need to. At this point I have to conclude that when "The big one" comes, everything is going to go "No Bid", at least temporarily. The May 2010 "Flash Crash" was not even close to "the big one" and yet all kinds of seemingly substantial assets (large-cap stocks and bonds) went no-bid. When the big one comes the banks and markets will be closed. Remember, the markets closed for a week after 9/11 and were closed for months during the outbreak of WWI.

Here's a definition for a "safe haven asset": An asset that can be held for months providing a precise amount of "buying power" at any time under just about any circumstance.

The recent 20%+ rapid rise (and drop) in the price of gold demonstrates that it is not that perfect as a safe haven: It doesn't provide a "precise" amount of buying time over months.

Physical gold, owned with clear title and stored in a safe, accessible location, is a safe haven if you relax the defintion to: substantial "buying power"... This is because gold, thus held, has:

• No counter party risk AND
• Lower "no bid" risk than just about anything. I expect that even during "the big one" that physical gold will still have purchasing power.

Based on what I've learned, the questions I have to ask myself at this point are:

1. How much of my savings do I want to keep out of the banking system in actual Federal Reserve Notes (Franklins) against a temporary bank/market closure. The answer is probably enough to get by for a couple of weeks, but not more because "THEY" typically close the banks so "THEY" can revalue down the currency.
2. How much of my savings do I want to keep in assets other than "physical gold safely and accessibly stored"? At this point the answer is: enough to provide a way of increasing wealth in the face of "financial repression" that is government taxes and government manipulated low interest rates and high inflation. I want to have more than enough to share. On the other hand I want enough in physical gold safely and accessibly stored to make it through "the big one". The amount of physical I want is increasing as the relative risk of the "big one" coming soon seems to be rising.
   

There should be quite a flow of money into physical gold as the desire for this kind of safe-haven increases. Its quite bullish for the price of gold, I think.

MontyHigh, www.worldofwallstreet.us

P.S., Given Friday's big short-covering rally, "THEY" better come up with something good overnight or its back down we on Monday, I expect.

 

Question Provoking Charts

Here's my tour throught "the usual charts" highlighting the charts that make me ask questions. They seem to all revolve around the fundamental question: Has the European sovereign debt crisis been contained or are we in the lull before the storm? Leave me a comment if you have any answers.

Banking stocks have been consistently lagging the general stock market for a while. I watch this ratio because banking stocks are a leading indicator for the general stock market according to Gary Biiwii and others.  Can this trend continue and is it too late to trade with a long/short strategy? If nothing else, I think a sustained piercing of the 50-day moving average will probably indicate that the bottom is in for banking stocks and that tradable entry point has arrived.

I've been accumulating Dec 2011 S&P 500 $1300 put options because there's a good chance the current relief rally is about spent and because options seem to be a lot cheaper when the underlying short-term trend is still against them. At what point should I throw in the towel and take a loss if the general stock market keeps rising? When the resistance around that 50% fibonacci and 50 day moving average is taken out and held over a weekend thru a Monday?

The above, way too busy, weekly chart shows the $SPX about to run into a tonne of resistance. Once again, can it fight thru and what criteria (price, time, volume, etc) for broken resistance should I use?

I've been watching the 30-year treasury yield hoping it will give a good signal when the panic stock market selling has concluded (click here for the full analysis). We nearly got a "go long" the stock market signal last week. Should I have reversed my S&P 500 puts position and gone long assuming that the entry criteria were met well enough? In 2008 jumping the gun would have started the trade out with an unsustainable draw-down even though it ultimately would have proved profitable.

Here's another look at long-term treasury yields. Looks like a lot of money is to be made going short. I wonder how expensive TLT puts are?

The US dollar has consistently been moving in the opposite direction of the general stock market (and many other markets), has stopped its rapid rise and retraced 50% of its rise and is at resistance? Will it bounce or will it fall and will it continue to push the S&P 500 in the opposite direction?

FWIW, the monthly US dollar chart looks pretty bearish to me being unable to stay across that trend line.

China took a week off from cratering. Shorting this was certainly a lost opportunity. Will its recovery continue next week? How can the S&P 500 diverge if it can't?

Copper's weekly RSI says the bottom may be in. Time to buy some futures or futures options? Use recent lows as a stop.  

So far, so good with the analysis of whether gold has bottomed (click here). I expect it has, but like most of the charts shown so far it depends on this question: Has the European debt crisis been contained or is it going to trigger another, bigger panic? If its contained then I expect the bottom is in for many markets and were ready for a multi-month rally. If not we should have another major leg down in everything, I expect. Until I get a little more clarity, I expect I'll hold my S&P 500 puts even if the S&P 500 moves a bit higher.

This is going to be, I expect, a very interesting week.

MontyHigh, www.worldofwallstreet.us

European Debt Crisis: No News Is Good News?

In the mainstream financial news its "No News Is Good News".

You might not buy that after reading Harvey Organ's excerpts of Zero-Hedge posts. Sounds pretty grim to this non-expert. Here's some headlines:

You may have noticed that I'm not posting that often. This is because:

• I don't have much to say that I'm not reading in other bigger, out-of-the-mainstream news sources (Jesse, Harvey, King World News, Dave From Denver, ...).
• I've had my head down working til my eyes bleed on my basically a hobby day job. I'm in the rare position of nearly single-handedly coming up with a technical innovation and new product that is the best hope of giving a struggling three-hundred job division a competitive edge. Its amazing fun except when I over-do it.

FWIW, I'm holding $1500 Dec 12 gold futures call options, PHYS and $1300 S&P 500 Dec 11 puts in my trading account, a bunch of PHYS and my core gold miners in my investing account and some gold and silver offshore with GoldMoney.com. I'm not so sure about the S&P 500 puts. Not including taxes I'm up around 20% year-to-date.

MontyHigh, www.worldofwallstreet.us

Interventional Trading, Updated: Bernanke Testifies, S&P500 About To Break Down

It turns out there's a big interventional coming up tomorrow: Bernanke Testifies before a hostile US congress.

Add in that the S&P 500 chart is breaking down.

Add in that my own internal emotional meter is on real fear for the general stock market and US economy even though I don't own US stocks and my day-job (which I don't really need) is secure.

Together I conclude the risk/reward is good for a small, short-term trade betting THEY can push the US stock market up. I just went long ES Dec futures with a nominal value of about 10% of total portfoio value at $1087.75. Will unload around when Bernanke ends his testimony tomorrow. If the move is up strong then I'll hold until near tomorrow's close. Look for an update (for better or worse) after I exit.

This kind of trade would make a lot more sense if it were back-tested. I guess its time to start gathering data for "Bernanke Testifies" days.

MontyHigh, www.worldofwallstreet.us

Update 11:51, Oct 4 - out for a small profit (.2% ish) at $1190.25. I knew that gold was a typical "Bernanke Speaks" interventional but didn't trade it. Gold is down 2.2%. Woulda, coulda, shoulda.

A Look Ahead To Year End: That Debt Ceiling Super Committee Thing's Timetable...

Here's a link to a newspaper article covering the Debt Ceiling supercommittee timetable. Looks like things start really getting hot around Thanksgiving. For me, the rich part is that even if they don't agree on cuts the automatic cuts don't start until Jan 2013 (after the election). I guess that's why they call them "politicians". 

Here's some highlights from the article:

Nov. 23: Deadline for the committee to vote on a plan with $1.5 trillion in deficit reduction.

Dec. 2: Deadline for the committee to submit report and legislative language to the president and Congress.

Dec. 23: Deadline for both houses to vote on the committee bill.

Jan. 15, 2012: Date that the "trigger" leading to $1.2 trillion of future spending cuts goes into effect, if the committee's legislation has not been enacted.

If you are trading you may want to keep this timetable in mind.

MontyHigh, www.worldofwallstreet.us

Be Afraid, Be Very Afraid: Seen This Movie Before?

Seen this chart before?

 30-year treasury yield says its the 2008 crash, all over again [or something worse]. Beats me if it really is, but this is an indicator that something crazy is going on. Hold on tight, because some crazy stuff is happening.

Right now I'm quite heavily leveraged long gold with call options. If support breaks I'll be taking a big loss and running for cover. I'm expecting that at least part of that European flight to safety goes into gold.

On the other hand, my recent post on this chart (click here), says that once that 30 year yield has truly bottomed that an opportunity to go long the general stock market is at hand. I'm waiting for that signal.

MontyHigh, www.worldofwallstreet.us

 

Trading The Gary Biiwii's Most-Valuable Chart

Of all the news letters I receive, Gary Biiwii's is the one I really look forward to every week. I would characterize Biiwii's method as using technical analysis (especially ratio charts) to make macroeconomic assessments and then to invest in individual stocks according.

The following chart of his I consider to be worth, by itself, the subscription price since I started subscribing a couple of years ago. The chart shows the long-term US interest rate trend. While remaining below the moving average the trend is intact. When interest rates approach that EMA the powers-that-be have to put a scare into the stock market to avoid an inflation break-out. When interest rates fall well below that EMA the powers-that-be are free to "juice the system" with money printing. 

Right now we seem to be getting to the point where they are "free to juice". UPDATE: should have said "where have to juice the system to prevent a deflationary collapse". This is pretty remarkable given that at the beginning of this year it was looking like this multi-decade trend was about to change. Let's analyze what happens when conditions are favorable for juicing and see if we can come up with a nice multi-month general US stock market trading system.

The above chart, using a 25% envelope around the 100 month EMA identifies the nine previous occasions where the 30 year interest rate fell a comparable distance from the EMA as the current situation. All of them, except the 1995 case, seem to have occurred during scary economic times.

By far, the worst (furthest from the EMA) was the 2008 global financial crisis. To my eye, the second worst was the 1998 Russian financial crisis. The 1993 recession and 2003 jobless recovery also seemed bad. The others were barely touches of the lower envelope. We can't tell about the current situation, but it looks like its going to be one of those "bad" ones and could be the worst yet. What comes next is going to be really interesting. 

Up until now at least, all of these situations came to an end and things eventually got better than they were at their worst point. So, the questions at this point (now that we are in a such a situation) are:

• How can we determine where the bottom of the situation is? and
• How shall we trade the bounce off the situation bottom low.

Now let's try out a simple trading system based on the idea that when 30-year treasury rates get below that envelope things are really scary and the stock market is near a bottom. The trading system is:

1. Wait until the bottom envelope is touched or pierced - that is until Investors are quite scared and have done a flight to safety. This criteria has been satisfied by the current situation.
   
2. Enter (go long) the SPX (what investors have run away from as too risky) at the close of the first white candle thereafter - that is, after the worst of the fear is over and money has started leaving 30-year treasuries. It could take a few months for this to occur. The longest previous time from the (1) to (2) was for the 1993 panic which was four months. 1998 and 2009 took three months. In the current situation we just satisfied (1) this month (which is just beginning) and now we are waiting to see how big and bad and long this current situation is. I think its a big one and that we are looking at an end of November entrance, but that's just a guess.
3. Exit at the close of two successive red candles - that is, after the relief is over and when fear is starting up again. This takes at least two months (two red candles) but was 28, 29 and 14 months for the three biggest events.

The results this trading system can be seen below. I like the high winning percentage and the fact that the biggest percentage winners were associated with the most drastic events. I'm not real happy with the "Max Loss Before Exit" column. Some of these drawdowns are quite big relative to the trade's ultimate gain. I expect I'll be studying this a lot more closely as the current situation unfolds and will probably put some kind of trade of this type on when conditions seem favorable.

What do you think? Is this current situation going to be a big one? How will you determine when the bottom is in?

MontyHigh, www.worldofwallstreet.us

Here's the spreadsheet: Download 20110910biiwii30yrtlt

Monday Mornings Are For Suckers

Usually no real news occurs over the weekend, but the suckers get all riled up about whatever the current news hype / analysis and react first thing Monday morning. This can be for the general market or for individual stocks/commodities. 

The skilled players are on top of their game, have analyzed the real news before the close on Friday and so don't have to do any trading Monday morning. The very short-term skilled players "fade" the sucker's Monday morning enthusiasm.

This weekend the big hype item is: "Oh oh, these politicians don't look like they can work anything out before the debt ceiling deadline". The result is a pop in the price of gold and a drop in the general stock market. 

The fade seems to be working out this morning. I'm not playing it, but neither did I get psyched out of Friday's short August gold call options hedge trade (click here) either. It remains to be seen whether that trade will make a profit, but at least I didn't panic out when gold was over $1620. 

MontyHigh, www.worldofwallstreet.us

 

What Do They Buy When Its Gasoline's Price That Has Risen?

Here's (click here) an explanation of how the new CPI measurement (that implicitly cuts social security benefits) is supposed to work: "But back to the Gang of Six. You’re probably wondering how they save $500 billion with the stroke of a pen, changing the way CPI is calculated. Easy, as the Washington Post explained a couple of months ago. Instead of saying that consumers will continue to buy apples when the price of apples doubles, you assume they will start buying pears, which are now cheaper than apples."

So my question is [whether the price of gasoline rises because of Peak Oil or money printing (or both)]: what happens when its the price of gas that goes up? I guess they are expected to drive a smaller car (here comes those whole family New Delhi motor scooters to the USA). 

MontyHigh, www.worldofwallstreet.us

Debt Ceiling: What's Coming Up

Here's the money quote from today's Washington Post article (click here):

"The current timeline, according to aides in both parties, would call for the Senate to unveil its bipartisan plan later this week and begin to consider it Saturday. With a week of parliamentary hurdles to clear, the Senate could pass its bill by July 29, leaving the House just four days to consider whether to approve the plan before Aug. 2, when the country would no longer be able to pay its bills."

My cynical summary of the story is something like the following:

• Those country rube Tea-Partiers that just got elected into the house want to change the status quo [COMPLETELY UNACCEPTABLE], SO...
• So, THEY will use their under-control Senate to make sure nothing happens which really changes the status-quo.
• THEY will get THEIR plan worked out in the Senate with no time left for the House to debate or change anything.
• And force those country rubes to either take-it-or-leave it where leaving it will be trumpeted by THEIR MEDIA MONOPOLY as THE END OF WESTERN CIVILIZATION AND ALL WE HOLD DEAR.

I think that about summarizes the plan. I hope what the Senate comes up with has tax increases so that we can really put the house tea-partiers to the test and see whether they have real convictions or whether they are COMPROMISERS like all the rest. 

From a trading perspective that means that "THE RABBIT COMES OUT OF THE HAT" over the weekend of JUL 30 and 31. This means the moment of maximum fear is the close Jul 29. I expect I will have lightened up my trading positions (or hedged them by shorting futures) before the close Jul 29.

What am I missing.  

MontyHigh, www.worldofwallstreet.us

 

Do They Think You Are A Mushroom?

If not, why do they think they can keep you in the dark by dumping headlines like this on you:

When actually the stock market is down when viewed by any objective measure given that the value of a dollar is down more than the amount that the stock market is up:

MontyHigh, www.worldofwallstreet.us

 

Mini-Rant: Who Is The Editor Of The BLS Employement Situation Report?

Here's the lead sentence from the actual government report (emphasis added): "Nonfarm payroll employment was essentially unchanged in June (+18,000), and the unemployment rate was little changed at 9.2 percent, the U.S. Bureau of Labor Statistics reported today."

I wonder who it was that did the final edit on that first sentence. 

I find this to be flat out dishonest as the unemployment rate rose from last month's 9.1 percent. This is while we should be in a "recovery" where the unemployment rate should be falling hard. 

This level of spin discredits everything the governement says (including the numbers). 

MontyHigh, www.worldofwallstreet.us

 

 

Let The Charts Talk: We Are At A Scary Decision Point

Here's a tour of the charts as I see them. My overall impression is that most things (but not the dollar) will probably bounce this week because if "THEY" let them continue to fall the mass psychology may turn quite bearish.

Comments follow each chart.

I see that the USD has bounced to a higher high off that oversold low. This reversal looks like it has quite a ways to go as the situation in Europe looks scarier and scarier. Just look how far it bounced from similar over sold conditions in 2008 and 2009. Even the bounce from the bottom in 2010 targets 78. As the dollar rises all of the "Risk On" securities (stocks, commodities, even gold and silver) have suffered in the past. As you can see in 2008 and 2009 gold suffered (although a lot less than ordinary commodities), but in 2010 it continue to reach all time highs as the dollar bounced off a low. I'm expecting not much downward action in gold, but lots of downward action in other things (including Silver) as the dollar continues to rise. We'll see.

The bank stocks broke down from a falling wedge in may and now have broken down from a flag formation. They are down hard year-to-date. This targets a further fall to $42. The RSI is not yet oversold. Banking stocks are a leading indicator for the economy and overall stock market.

Semiconductors, the other leading sector I follow, is similar to the banks, but has not broken down from the flag yet. Semiconductors are down year-to-date.

The S&P 500 seems to have one of those flag patterns, but its MACD looks oversold and its at the 200 day SMA support. That 200 day support is right at the point where the S&P would be down year-to-date. That would be a very bad message for the mass psychology. "THEY" don't want the masses to panic. This chart makes me guess that a bounce off that 200 day support will occur. If not, things could crash downward.

Brazil, the leading emerging market commodity producer, is at the bottom of a multi-month trading range. A breakdown here would be quite bearish for the global economy.

China has broken down out of a symmetrical triangle but has not yet broken down through horizontal support. 

Junk bonds are falling relative higher quality bonds after having topped in early April 11. That signals a downturn in the economy. Run for cover on a breakdown below 1.10.

On the line chart above, the CCI seems to have broken down thru a head and shoulder's pattern. Right below it is support in the form of the 2008 top. If the dollar keeps rising this will probably break down. Once again we are at the point of a big downturn of all the "Risk On" trades.

The CRB has a similar view of commodities, but the head and shoulder's breakdown is even clearer. 

"THEY" pushed crude oil down and slightly thru its 200 day moving average. "THEY" want it to continue down even though its at nice horizontal support. If it continues to go down then we know that "THEY" want a little panic in the markets if it gets them relief on the inflation front.

I think I'll put my thoughts on precious metals into another post. To summarize, I see the global markets at the point of a major breakdown, but without quite having fallen off the cliff yet. I expect to see a rebound this week because I don't think "THEY" don't want the mass psychology to get too scared. If multiple of the above charts break down next week then we could be looking at another crash type scenario.

FWIW, I'm long unleveraged gold with some silver (PHYS and CEF) with some gold miners (GORO, GOZ.TO, DMM.TO mainly) with some crude oil futures (which were making money) and some S&P 500 call options (which were making money) and some cash. The danger I see could affect all of these and I expect I'll be lightening up ono everything but the gold stocks if we see continued downward motions. I would have lightened up on Friday, but I was tied up during the market close.

Do you see it the way I see it?

MontyHigh, www.worldofwallstreet.us

 

Still Think US Federal Government Treasury Bonds Are Safe?

When you are going for a mortgage for a home, the banker wants to know whether you have the income available to support the monthly payments. The basic metric is Debt / Income. 

What is the equivalent of "income" for the US Federal Government (or any other government for that matter)? Surely not GDP (the income of the whole darn country) because the governement could never capture 100% of GDP for the purpose of supporting debt. Rather, the best proxy for income would be tax receipts.

So, that's the debt / tax receipts ratio. In 2010 total taxes were 2.174 trillion dollars. The total federal debt is 14.351 trillion dollars resulting in a debt / tax receipts ratio of 6.6 to 1. So that's like giving a 660K$ mortgage to a couple with $100K of income. I guess they do that. 

But, the Federal Government is already obligated to pay a fraction of its income (taxes) to support other things. This is analogous to a couple where the Dad has child support payments to make for children from an earlier relationship. Let's say that Social Security and Medicare fit that category (leaving out Defense, Medicaid, food stamps and other spending typically classified as "untouchable"). In 2010 Social Security and Medicare totaled .985 trillion dollars. So a revised debt / discretionary income ratio is now 12 to 1. That's like allowing a couple with a 50K$ year income (after subtracting child care payments) get a mortgage for a 600K$ house. That seems really stupid, especially after what just happened to home mortgages. 

But... Is the US Federal deficit borrowing really being used to purchase a tangible asset like a house which can be foreclosed on? No, it isn't. So, purchasing a US government treasury bond is like giving yet another loan to $100K/year couple who has 50K$/year of childcare obligations for children from an earlier relationship and which already has 600K$ of uncollateralized debt (e.g. credit card debt) even though they are spending 60% (3.55 trillion dollars / 2.174 trillion dollars) more than their income and have shown no intention to change.

Who would do that even for a family member? Do you still think treasury bonds are safe? I'm not a financial expert, so please explain to me how I have this wrong. 

MontyHigh, www.worldofwallstreet.us

 

Best Of The Web: Graham Summers, Why the “Is QE 3 Coming?” Debate is a Moot Point

Here's a link to an eye-opening post by Graham Summers: http://www.zerohedge.com/article/why-%E2%80%9C-qe-3-coming%E2%80%9D-debate-moot-point-pt-2

Here's the quote introducing the graph that follows: "The global derivatives market is completely unregulated and frankly no one knows how big it is. However, we DO know that US commercial banks alone have over $230 TRILLION in notional value derivatives on their balance sheets. Of this $230 trillion, 94%+ sits on just four banks’ balance sheets. They are:"

YES, MARTHA, THE Y-AXIS UNITS ARE TRILLIONS!

The piece is short, the writing and thinking is powerful, there's too much I'd like to quote so read the whole thing. I'll close with the money quote:

"In fact, derivatives based on interest rates represent 84% of ALL derivatives in the US. So with that in mind, it is clear the Fed will be engaging in QE 3 and QE 4 and on and on for as long as it can. The reason? Because if the Fed loses control of the interest rate curve, it could trigger a systemic collapse that is FOUR TIMES as large as that of 2008."

MontyHigh, www.worldofwallstreet.us

 

 

Trading Update: Wind Change Breaks (Pun Intended), I Reckon

Contrary to my expectations, the S&P 500 merely retested the cup and handle break out and the retest has held. The chart is bullish. I closed all my general stock market short positions (ES puts, short AAPL, short RVBD, short copper futures) for small losses.

The silver call options are doing just fine and I have already taken some cash back out (by moving form $36 to $38 call options) once. Around 3:30PM I have to decide whether "Its Different This Time" and Silver can keep going or whether I should bank the profits and wait for another entry. That's going to be a tough one.

Still have some gold miners, the short PSLV/long SBT.UN arbitrage trade and a bunch of cash besides the Silver options.

Just keeping anyone who might be interested up to date. Being a good trader means being good at admitting when you are wrong, I reckon.

MontyHigh, www.worldofwallstreet.us

Wind Is Changing

"But suddenly he stood looking up like some startled woodland animal snuffling a strange air. A light came into his eyes. 'Wind is changing!' he cried, and with that, in a twinkling as it seemed, he and his fellows had vanished into the glooms, never to be seen by any Rider of Rohan again", J.R.R. Tolkien, The Return Of The King.

I think the inflation trade is probably over for a while and that we are in for at least a whiff of deflation. Here's my evidence:

The U.S. dollar has stopped falling and, looking at the first gray box as a similar situation, is set to pop for about a month.

On the macro economic front we have a bunch of "the economy is slowing to a stall or worse" including:

• Q1 GDP growth with a 1 handle (and likely to be revised lower).
• Initial jobless claims now securely back above 400K / week (above the rising unemployment threshold).
• Slow downs in various economic measures (Fed Reserve regional reports, ISM manufacturing, ISM service index, the leading economic indicators, etc.).

Jim Puplava for the last couple of weeks has done a good job of summarizing this. Look for where he gets interviewed in the second half of his "first hour".

Dr. Copper (which has a Phd in economics) is well down off its high and has fallen under the key psychological support of $4/lb. Its LME inventories are rising from a higher low than last year (perhaps signaling over supply).

The Gold / Silver ratio has popped just like it did at the beginning of the 08 crash. A rising gold/silver ratio has, in the past, signaled an end of a speculative boom. Bob Hoye covers this in detail during his recent radio.goldseek.com interview. 

Crude oil and commodities overall have given back most of their year-to-date gains without any clear geopolitical reason for doing so. 

That's my case, we'll see whether its right or not. Putting my money where my mouth is, I have, gone short with smallish positions:

• The S&P 500 with put options.
• AAPL - because it doesn't seem to be outperforming the S&P 500 any more when it used to be a leader and while its leading revenue generator (iPhone) is facing fierce, margin-biting competition from Android phones.
• RVBD - because I just don't believe their technology lead is all that defensible. Cisco will soon come to eat their lunch.
• Copper - because I think it trends strongly and I like the stop at a breakout from that $4.10/lb resistance.

I've got stops for each of these positions and will calmly eat a small loss if the wind hasn't changed (and will add on if it has).

What think ye? Might the wind be changing?

MontyHigh, www.worldofwallstreet.us

Bernanke's Press Conference And Mahatma Ghandhi

Here's a great Ghandi quote: "First they ignore you, then they mock you, then they fight you, then... you win". 

I think the Bernanke press conference means that the Audit The Fed guys have made it to stage 3. Next comes "You win". 

MontyHigh, www.worldofwallstreet.us

 

Macroeconomic Situation: Let The Charts Talk

Just a few on the mainstream markets and commodities and then a little bit more in-depth look at the precious metals situation. I end up by providing the charts on my top mining stock holdings. Some of the charts are quite big and you may need to click thru to seem them in their full resolution.

The general US stock market is looking quite bullish having formed a perfect cup and handle formation that targets another 5% rise. This bullish outlook is representative of what I see across the board for mainstream stocks.

South Africa's stock market in particular, being a resource country, looks quite bullish its cup and handle targeting another 14% rise. I expect I'll try to find a reasonably liquid, leveraged way of playing this.

I guess its not surprising that all of these dollar denominated charts look so bullish given the way the dollar has been falling. As I see it, the dollar can drop another 3% until it reaches major support that will probably be manipulated to hold. The lower trend line says the dollar is dropping around one point a month so we have another couple of months to go before "THEY" seriously have to slow the drop.

As you can see, the US stock market has gone nowhere, year-to-date, when you remove the effects of the falling dollar.

My theory is that "THEY" are intentionally dropping the dollar because the Chinese are keeping their currency pegged to the dollar to keep the flow of jobs and industry from the USA into China. The dropping dollar is intended to cause enough painful inflation in China to force them to allow their currency to rise.

Anyway, the message I get is that the current trend can continue for a few more weeks.

The rise of commodities has slowed for a couple of months but appears set to continue rising. 

Crude oil is representative of commodities in general and had its highest weekly and monthly close since the summer 08 spike. It too looks set to continue to rise.

Copper is the main divergent example that I've found. It looks pretty weak and the break below trend-line and horizontal support, if confirmed on Monday, may be a nice setup for a short to hedge precious metal positions. I wonder how liquid the copper put options are?

On to precious metals.

Something extraordinary is happening with Silver. How long it can continue is anyone's guess. Having faked a top last Monday and having done quite nicely thru a bunch of manipulation this week (options expiration, Bernanke speaks, GDP announcement), I think Silver has further to run. I don't expect whatever happens to be mild so one needs to have a way to play this that minimizes risk.

Gold looks pretty overbought and its RSI is at the level where a mild correction followed by a multi-week consolidation begins. Another case where leveraged positions must be managed to minimize risk.

With a starting point of 8 years ago, gold and silver on this chart have about the same end point and starting point. This means they have risen proportionally by about the same amount (with silver having risen about twice as much as gold). This chart clearly illustrates how badly Silver was crushed (relative to gold) during the financial crisis and how it has now caught back up. I guess this chart argues that Silver might slow down from its parabolic rise and go back to rising approximately twice as fast as gold. 

The above three charts show hold gold has been doing relative to representatives of gold mining costs. In two of the three charts gold has been doing pretty well and has been holding its own in the third. This is bullish fundamentally for gold mining stocks.

Gold miners relative to gold itself are now trading at the bottom of a trading range. This, combined with the relatively bullish $GOLD:$COPPER, $GOLD:$CCI and $GOLD:$WTIC charts suggest that gold miners might start outperforming gold itself.

Gold miners have been frustrating me lately having lagged gold, but the above chart shows that they have survived a retest of their breakout and, if anything, the chart says they are a buy.

Without further comments, here's my top-six mining stock holdings: Gold Resource Corp (GORO), Gold Ore Resources (GOZ.TO), Medusa Mining (MLL.TO), Rio Alta Mining (RIO.V), Dynasty Metals And Mining (DMM.TO), Fortuna Silver (FVI.TO).

I invest in mining stocks on based on the long-term technicals of their underlying fundamentals (metal prices) and on the fundamentals of the individual stocks themselves. I don't use charts much on individual stocks, so you'll see some pretty ugly charts here (among some other pretty ones). 

GORO is my biggest holding by far. I know of no other miner that has the same combination of stock holder friendly management, great rocks and a no-bs intention to pay big dividends.




 

Well, that's the way I see it. The inflation trade is on and its time to party. I expect I'll mainly be holding next week (with profit-taking if they accumulate in the Gold and Silver call options), although I may open trades outside of precious metals in Copper and South Africa.

MontyHigh, www.worldofwallstreet.us

Got 12 Minutes? Federals Reserve Fraud Manipulates Down Treasury Interest Rates

This fast-paced, well-researched, youtube (click here) about how the Federal Reserve is selling put options to suppress long-term treasury interest rates is worth a peek.

The questions at the end about what might/will happen I view as an "exercise for the reader". Let's see if I "get it":

1. Someone is selling put options on long-term treasury bonds.
2. Meanwhile, the treasury is selling way too many bonds. Oversupply causes the price of treasury bonds to fall.
3. The fallen treasury price moves the put options into the money. 
4. Whoever is holding those put options exercises them.
5. Whoever has sold the put options must buy the treasury bonds at an above market price.
6. Whoever has sold the put options loses a lot of money.
7. If that somebody is the Federal Reserve then the Federal Reserve will have to print up the money to buy those treasury bonds at the above market price (and perhaps resell them resulting in a loss that is covered with part of the printed up money). 
8. Printing up money is inflationary which drives up long-term bond interest rates.
9. Rising long-term bond interest rates push down the price of long-term treasury bonds pushing more treasury puts into the money (or further into the money). 
10. Steps 4..9 repeat with escalating inflation (hyperinflation folows)?

So, once again, the Federal Reserve (and the Banksters) are "gaming" the system for short-term results making the system brittle and subject to catastrophic failure either somwhere down the road or sooner should something unexpected stress the system. 

MontyHigh, www.worldofwallstreet.us

 

 

Pre-BiiWii Scan: Let The Charts Talk... [With Quite A SCARE NARIO]

This post captures my macro-economic evaluation based on the charts that took place before looking at Gary Biiwii's weekly news letter (that does the same kind of thing only with a lot more panache). I like to form my own thoughts prior to listening to advice. Gary is quite a bit less of a risk taker than myself so he helps keep me in-line.

I hope to be putting up a separate short-term gold/silver trading post later today and I have another more philosophical "how to play what's going on" piece in mind for sometime after that. 

When I last left off (as I recall), I had concluded:

• The inflation trade is on.
• Something extraordinary is happening with silver. 

This week we'll start with "What's New" and then note what to look for as signals that the jig is up for the inflation trade (that's the SCARE NARIO) and then for confirmations and divergences of the previous conclusions.  

Here's what's new:

Gold and gold stocks have broken out (to the upside) out of triangle consolidation / continuation patterns. Gold broke out of an Ascending triangle pattern and Gold stocks out of a Symmetrical pattern (using Bulkowski's Encyclopedia of chart patterns as my reference). 

For the Gold's Ascending Triangle Bulkowski claims that, in a bull market, the security should reach its measured target 75% of the time. The measured target is around $1570 which is around 6% higher than Friday's closing price. I'm long and strong and hoping to add more call options on a pull back to anywhere near $1450. 

For Gold Stock's Symmetrical Triangle Bulkowski indicates that they should reach their measured target roughly 66% of the time. The target is $660 or roughly 10% higher than Friday's close. I'm already all in in gold (and silver) mining stocks in my IRA (more of an investing account). 

I hope you can find the generousity in your heart, dear reader, to rejoice with me. This change is both bullish for my intermediate term prospects and has managed to get my account values into the green for the first time (year-to-date) and to an all-time high. 

Well, that hopeful note ends as I bring you to this week's SCARE NARIO (start the creepy music). 

 
There is a lot to see in this chart:

• First of all, notice how highly correlated the stock market is to the crude oil price since the bottom in Mar 09. That is similar to crude oil and stocks up until mid-06. I expect that if crude oil continues to rise faster than the stock market that the general stock market will diverge as it did last time (NOTE: Last time it crashed). 
• Second, please notice that cup and handle formation for crude oil from mid-06 to Oct 07. From there crude oil went on a tear to its top in June 08, but stocks topped out as soon as this break out really got going. We have almost the same thing going on now and stocks may well have topped out (see the charts that follow). It seems unlikely to me that history will repeat itself so soon as the "recency bias" affects the mass psychology, including the psychology of the policy makers enough to prevent a repeat. But, I expect some kind of crazy-bad thing to follow soon, probably more of an inflationary recession than a deflationary-smelling crash. The message for me is to stay on my toes ready for a big change and get more liquid (hard because of the illiquid stocks I'm holding in my IRA). 
• Stocks clearly started falling apart after crude oil plateaued for a few months beginning in Oct 07, but gold pretty much tracked crude oil rising a little earlier than crude oil. This kind of plateauing action could start any day now this year, although gold's bullish posture may have it get skipped altogether. All hell broke loose when crude oil finally peaked at the end of June 08 and had that big down week in early July 08. Using the same timing that would be about 9 months from now or around the start of 12 (or end of 11). But, if things are going to repeat something that happened recently, I expect them to repeat sooner. Repeats can happen, but I think they usually happen with shorted timing as the traders anticipate what is next and trade sooner causing it to happen sooner. Say, perhaps mid-summer 11. Look out for a really big down week in crude oil as a "jig is up, crash coming signal". 
• Gold diverged from crude oil shortly in the middle of Q1 08, that is, shortly after the Q4 07 crude oil price rise pause, that is, shortly after crude oil started ramping up again after that pause. This kind of divergence signals another deflationary episode in my book, while having gold continue to track crude oil all the way signals more of an inflation crackup and then inflationary recession type situation. 
• The dollar was falling hard while crude oil was rising in 07 just as it has been falling hard during the recent crude oil raise. Deflation (and stock market crash) was signaled when the dollar stopped falling while crude oil kept rising in Q2 08. Look for the same thing as a signal of deflation again. Look for the dollar to continue to fall while crude oil continues to rise as an inflationary recession signal. 

Now, here's the same chart only looking at the copper action.

In 2008, copper stopped rising and fell into a range trade while crude oil continued in its last gasp rise (choking off the world economy). Here we are right now in another similar situation with copper having moved into a range trade while crude oil continues to ramp. This indicates that the jig may soon be up this time. Look for copper to pop out of the top of that trading ranging if the party is to continue. 

Well, to summarize, the inflation trade is still on, but there are lots of warnings that we are paralleling the 2008 crash, that is:

• the end is near and 
• that what follows will be quite significant (is that how you'd characterize the 2008 crash?) and not pretty at all. 

ACTION: Despite the bullish $HUI and gold charts, I've got to find a way of dancing closer to the door, that is, getting more liquid by either lightening up on gold stocks, holding more names or shifting money from illiquid Jrs to more liquid mid-cap and large-cap gold stocks or holding a combination of large-cap gold-miner options plus gold bullion via GTU or something like it. 

Well, that concludes the SCARE NARIO. Now back to looking at charts that confirm and diverge from the "Inflation is on" theme. I'll leave the "Silver is doing something extraordinary" for the upcoming Gold and Silver Short-Term Trading Plan post I hope to get around to. 

Basically a confirmation, the general stock market is bumping up against its February highs. The fact that the February highs have not been taken out leaves this as less than a full confirmation. If I wanted to take a low-percentage, but high risk to reward position that hedges my precious metals positions I would go short the S&P 500 with a stop of a daily close above $1345. Hmmm...

Divergence: The Bank Stocks and the Semiconductors ordinarily lead the general stock market, but are nowhere near their February highs. 

Confirmation: Biwii's multi-decade big change is upon us graph continues to flirt with a inflation/rising long-term interest rates signal. 

Confirmation: The US dollar chart is plenty ugly having broken down to a 74 handle! I'm kind of expecting a short-term pop back to that RSI trend line as part of an overbought and THEY DON'T WANT A DISORDERLY US DOLLAR fall move short term, but intermediate-term this is a confirmation. 

Confirmation: The $VIX, which is a measure of stock market fear, is at the bottom of its post-crash trading range. By the way, that bottom is quite a bit higher than bottoms seend during the pre-crash "Great Moderation" days. 

Confirmation: The emerging markets are off their recent bottoms with the commodity-producers sporting post-crash highs.  

Confirmation: Junk Bonds, relative to high-quality corporate bonds, show no fear as they threaten to breakout to post-crash highs. 

 

Confirmation: The commodity indexes (especially the oily CRB index) are at post-crash highs. 

Divergence: The agricultural commodities and the base metals (as represented by copper), which had been leading the commodities (and everything else) up out of the crash are nowhere near their February highs. 

Overall, I think the inflation trade is still on, but the SCARE NARIO and the divergences are clear enough that I want to be dancing closer to the door and ready for whatever ugly thing comes next. 

That's the way I see it. How do you see it? It will be real interesting to see how my superior, Gary Biiwii sees it. 

MontyHigh, www.worldofwallstreet.us

 

The Monday Morning Fade...

As I watch the tape, I think I see a tradeable pattern: "The monday morning trade". It goes something like this:

• Individual investors get jazzed up about this or that over the weekend.
• They dive in Monday morning (even pre-market) pushing the markets this way or that. 
• Later that day the markets do some significant "reversion to the mean". 

Today I see it in the S&P 500 and in Copper. Recently I've seen it with uranium stocks.

So, the trade is:

• to see what's hot pre-market on Monday and, 
• when it peaks shortly after the 9:30 open, short it.
• exit around noon. 

Anybody done any empirical studies of this or have any comments?

MontyHigh, www.worldofwallstreet.us

 

Macroeconomic Analysis: Let The Charts Talk... Inflation Trade Is Back On!

So party on, Garth! The jig is not up yet.

The gold/silver ratio went down hard making new lows again today. This is, according to my mentors, the clearest indication that the inflation trade is on. A turn up in this ratio is the thing to watch for prior to a general market downturn. 

The VIX spiked to nearly 30 and is now back down at a nice soothing under 18. Here's a quote from Richard Sipley's Market Indicators on the VIX: "...increase in the index have historically been positive for the short-term performance of the market". 

The S&P looks bullish having found support at the 100 day moving average and having a bullish MACD crossover. The fibonacci numbers say its probably headed back up to retest the recent highs. 

The banking stocks found support where the chart said they should (and right at the first fibonacci number). Its this kind of chart that makes me think there's something to fibonacci numbers. The MACD is right at a bullish crossover. The banks are first up against the wall should we get another round of real deflation so their bouncing off the support helps confirm the inflation story. 

The semi-conductors, which are market leaders similarly bounced off support and have a bullish MACD crossover. 

The S&P continues to consistenly lag the commodities. More confirmation for the "inflation trade". 

Yep, commodities look pretty darn strong. No sign of a trend change here. 

The US dollar is in a little oversold bounce, but the trend looks down and 2009 indicates that it can stay in the lower half of the RSI months more. "THEY" want the dollar to go down (to help pump US exports), but not in a disorderly fashion. 

The US 30-year bond has completed a bounce and seems headed lower. Who wants low-interest, long-term fixed rate bonds while inflation is revving up?

One discordant note is emerging markets which are no longer leading. Brazil for example seems to be consolidating in a trading range. 

Another discordant note is real-estate which isn't partying with the other girls. This chart looks like a short to me with staying above that trend line for a day or two as the stop. 

Gold mining stocks are in a symetric triangle which usually is a continuation pattern. They could break out immediately or go back down to the bottom of the triangle (around 525 or down 10% to where the 200 day moving average might be if it goes there). From there, if the pattern holds, it can be expected to turn up for another attempt to break out of the triangle. It will be very interesting to see if it can break out this week. 

Well, that's the theme I see in the charts: The current post crash march upward of all asset classes is set to continue (for at least a bit longer). 

Best wishes to you and your trading, dear reader.

MontyHigh, www.worldofwallstreet.us

 

 

Short Term Trading Plan: Dump The Uranium, Hunker Down

Here's where I stand:

(1) No silver or gold call options (got stopped out at the worst point on Friday). This doesn't look so dumb now.

(2) 42% long gold stocks, 11% long silver stocks (down from 75% long gold and silver mining stocks). I dumped, at the close yesterday, everything that was not either:

• High-grade ore core position OR
• Just too illiquid to sell.

(3) Around 32% cash.

(4) 5% long S&P 500 ES put options (short the US stock market) whose nominal value greater than (20 by about 1/3.

(5) Short copper futures whose nominal value is about 9% of total portfolio value.

(6) Long CCJ (Uranium miner) call options worth at the close yesterday around 1% of portfolio value - this seemed like an excellent move at the close yesterday, but now, given the further problems at Japanese nuclear reactors this appears to be going to zero.

So, overall I'm in a lot more conservative position than I have been. By far, the bulk of the gold and silver miners I'm holding are high-grade producers than can withstand virtually any down-turn in metal prices.

Here's the latest:

• Japanese stock market crash overnight as the size of the damage (and maybe some nuclear uncertainty/panic) kicks in. 
• World markets down hard. 
• US markets open down hard.
• Gold and silver down hard.
• Gold and silver miners (especially my Junior producers) down harder than gold and silver. 

My short-term trading plan is:

• Take the loss on the CCJ (Uranium Miner) shares. My variant perception that the nuclear power plant situation is "not that bad" and no significant radioactive material will escape was wrong. When you are wrong, admit it, get out and move on.
• Stay in the defensive position and watch the charts, especially on gold, S&P 500 and copper for a bottoming processing. 

Here's a summary of the moves I've made lately:

• Dumped the gold and silver options - not such a dumb move now.
• Went short the S&P 500 quite substantially - this worked out quite well, but it might have been luck.
• Went short copper substantially - is working well.
• Took a smallish loss on the Variant Perception trade on the Japan nuclear situation - oh well.
• Sold a bunch of gold and silver miners close to the start of a seemingly big correction - not bad, could have been done a little earlier and I should have been exiting the illiquid positions as the market became overbought.
• Decided to hold the rest of the gold and silver miners - we'll see whether this is a good decision.

At this point, I'm down quite a bit since the start of the year but am in a reasonably defensive position and don't feel very bad.

Having this down on paper helps me. Perhaps it helps you, dear reader.

MontyHigh, www.worldofwallstreet.us

What's Going On? The Dollar Is Saved! Stocks Are Scary! Precious Metals Are Weak!

Has something really changed? The dollar which looked like it had technically broken down (see below) has popped from the low 76s (breakdown!) to the 77s!

The S&P 500's inexorable rise from last August is now stuck in a weak-looking symmetrical triangle (threatening to break down):

Precious metals are suddently plunging:

How scary! What are we going to do? Why is this happening?

Here's my best guess for why this is happening and why it may well be temporary:

"THEY" have to sell some 10 year (yesterday) and 30 year (today) bonds. "THEY" are doing a little manipulation (dollar up, stock market, precious metals and commodities down) to make those bonds look like a good investment (at least on the day they are on sale). This is different from very recent history where selling bonds didn't have this kind of action. But its just like what was happening the spring and summer of 2010.

So, I'm just going to hold and watch for a few days before concluding any significant trend reversal has started, I expect. If its just a little manipulation to sell bonds then things could start to revert to normal (dollar trending down, stocks, commodities and precious metals trending up) as early as this afternoon.

MontyHigh, www.worldofwallstreet.us

 

Just In Time To Be A Sucker Again ...

Pretty powerful contrarian indicator. Just amazing. In order to win in the markets you don't have to be "The Smartest Guy In The Room", you just have to be smarter than the herd.

Don't you just love the powerful analytical thinking that goes into the herd's investing: "It didn't feel right to be back in until now".

MontyHigh, www.worldofwallstreet.us

Chart Of The Week: The USA's Post-War Economic Era Is Over

The three longest times for the economy to grow back to the pre-recession peak number of jobs are (see chart below, hat tip www.ritholtz.com):

• 1990
• 2001 - which was worse than 1990.
• 2007 - which is worse than 2007 and whether the USA ever has more jobs than in 2007 is really an open question.

Three "this time is differents" in a row = a New Era in my book.

Why anybody thought the USA's post-world-war 2 economic growth was the benchmark for future expectations is beyond me. At the end of WW2, the USA was the only Industrial country with its infrastructure intact. Of course it was easy to compete then (and of course that easy dominance is unsustainable).

MontyHigh, www.worldofwallstreet.us

The Really Big S&P 500 Chart, Part 3

This short post is a continuation of these two recent posts (click here and here). There's no point in reading this post if you having read parts 1 and 2.

Here's the current S&P 500 chart:

Here's the most comparable chart from the end of February 2007 (back when "The Great Moderation" was consensus and things were still "Strong For Longer"):

The similarities are pretty interesting:

• Both had strong, nearly correction free rises off the previous summer's lows (29% since Aug 10 vs 19% since Jul 2006).
• Both at the end of February had three consecutive down days immediately after crawling to a multi-month high within nothing quite the same for months.
• MACD was just giving a down crossover signal. 

It will be quite interesting to see if what follows now is similar to what followed in 2007:

A one day 3.5% drop two days later continuing to turn into a (top to bottom) 6% drop in little more than a week.

Clearly that is not "end of the world" stuff, but what's coming could be much worse 2007's end of February zephyr. The US and the rest of the developed world's economy is much weaker that it was in early 2007. Its more threatening for me this kind of minor loss is typically amplified in the gold mining stocks I'm holding (something I've learned the HARD WAY).

Just in case, I bought a bunch of S&P 500 puts today at the close to partially my large gold mining exposure against this kind of a correction. The puts cost less than 4% of my portfolio value, so even if those puts go to zero its not that bad (and I don't think they'll go to zero before I sell them). I kind of expect to make money on them and if I do make money to make a lot of money (offsetting large paper losses in the gold mining stocks).

When a correction comes, it typically comes suddenly and the S&P 500 seems quite overdue for such a correction (see part 1, click here). I can't claim a real edge here and this is not a prediction, but it is clearly a risk and I thought buying some insurance was the thing to do.

We'll see. Of course, everyone has to take responsibility for their own trading decisions and do their own due diligence and this, like everything else on this site, is educational and is not investing advice.

Leave me a comment if you think this "historical chart pattern matching" technique is either:

• Completely worthless OR
• Has some value.

Its what I've been doing lately because it seems to have some merit, but it might be too early to really tell.

MontyHigh, www.worldofwallstreet.us

The Really Big S&P 500 Chart, Part 2

This short post is a continuation of a recent post (click here). There's no point in reading this post if you without having read part 1.

Here's the current S&P 500 chart:

I think the S&P 500 is in a rather precarious position (see previous post). As of yesterday we have had two consecutive down days. I expect that "THEY" will find a way to produce an "UP" day today. If they don't, and the S&P has not already flash-crashed, then I expect I'll go short at the close, probably via S&P 500 futures.

Are you thinking the way I'm thinking?

MontyHigh, www.worldofwallstreet.us

The Really Big S&P 500 Chart: Steep, Straight And Tighter Than Ever

Just started my weekly overview of the charts and this one lept right out at me (its really big, I guess you need to click thru):

To me the interesting thing is how steep, straight and tight the S&P 500 advance has been since last August. There has been just one little correction in November. The especially interesting thing to me is the "tightness". The line formed by the advance is very thin (meaning very few days with big moves and especially no multiday corrections) and very dense (meaning no gaps or big moves either way).

Look at how much looser, fatter and gap-ier the rises are out of the Mar 09 bottom and the 2003 bottoms.

The closes parallels are the run up from February to May in 2010 and and maybe the run up beginning in July 06.

First let's take a look at how the current S&P 500 chart looks:

The higher-highs for the post-last summer run are marked by blue arrows. They are bunched together pretty tightly aren't they.

Here's how the closest parallel (spring 2010) turned out:

Its started out as a 5 day gap with no higher high in sight and then pretty quickly the flash-crash. The drop from my "jig is up" point to the bottom of the flash crash was 1190 to 1155 (or -3%) and the final low was at 1010 (or -15%).

Here's what happened with the not quite as close parallel from early 2007:

This one, like early 2010, ended with a quite sharp, one-day drop which quickly turned into a 6% drop. In this case the big drop came on the third day after the higher high and on the fifth day after the higher close.

Well, this one deserves more pondering, but its time to head off to church and then to a wedding.

Perhaps I'll update this posts with more conclusions, but at a minimum I can say that my expectation is for the current steady, straight rise in the S&P 500 is:

• going to end with a sharp quick decline,
• there will be less than the 5-day warning given before the sharp decline (because the memory of the flash crash is so fresh on trader's minds and the flash crash was given 5 days warning) and
• that the depth of the decline I expect will be at least 5%, although my emotions expect something even bigger than that.

How to trade it remains to be considered. Buy S&P puts? Buy calls on some $VIX based ETF? When to buy them? There are lots of questions.

MontyHigh, www.worldofwallstreet.us

 

Crunching USA Debt Numbers, Part 1: What Deficit Are They Targeting?

I'm starting a series of posts which I hope will increase my understanding of the USA's debt and perhaps be of use to you, dear reader, in your thinking about the USA's debt. I'll be keeping all of the numbers in a spreadsheet. I'll put links for my sources at the bottom of each post. Those links to sources may be the most valuable thing about these posts.

This may be useful to you, dear reader, because I am a seeker of truth. The first truth I seek is: How big a problem is the debt. The second truth is how soon does this debt cause big problems that affect one's investments?

My seeking of truth seems to be quite different from everyone else I run into. They all seem to be trying to spin numbers to make a point. The kinds of points they are trying to make seem to mostly fit into the following categories:

• The debt is {fill in the blank: Obama, Bush, Republican's, Democrats...} fault.
• The debt is so big we're freakin doomed. 

Now, I'm just a humble software engineer, so some of my calculations and musings might be obvious to a financier, but I'm trying to figure things out for myself using the actual facts.

In this post, I start with an easy topic:

How big can the federal government deficit be without making things worse? I believe that the establishments "plan", if there is one, is that we'll have "a short period of time" when the deficit is too big, but then things will go back to normal and the deficit will shrink to this "its ok" deficit level.

In order for a debt to be sustainable, the payments to support the debt (the interest on the debt) must not grow relative to the income supporting the debt. The United State's income is referred to as its GDP (Gross Domestic Product) which, for 2010, was 14.7 trillion dollars [1].

Assuming interest rates don't rise, the deficit must be less than the annual GDP growth (thus keeping the debt to income ratio (or debt to GDP ratio) constant. The table that follows provides the size of deficit the US economy can support at different growth rates.

This begs the question: Well what is a good value for expected economic growth. Let's start with the last 10 year. An approximately 4.0% nominal annual growth rate increases the 2000 GDP of 9.0515 trillion dollars [2] to 2010's GDP over 10 years. The "real" growth rate is not that high, but we aren't talking about the real growth rate. To keep the debt supportable we must keep interest rates constant and keep the growth of the deficit below the nominal growth rate.

This means that if the USA can shrink its deficit in the next couple of years from its current 1.6trillion-ish value to around 600B$ and the economy continues to grow as it has over the last 10 years (and interest rates don't rise) that the US federal debt is "all right".

That's what the establishment is shooting for. Think all of those rosy assumptions can work out?

MontyHigh, www.worldofwallstreet.us

Here's the spreadsheet: Download Unitedstatesdebt

 

[1] 2010 US Estimated GDP - http://en.wikipedia.org/wiki/Economy_of_the_United_States

[2] 2000 US Estimated GDP  - http://www.bea.gov/

Inflation Anecdote: "Five Below" Replaces "Dollar Store"

My nine year old son informs me that he doesn't want to go to Dollar Store anymore. He wants to go Five Below (where everything is five dollars or less, I believe).

 

When I was a kid it was a five and dime store. So, that's 50 to 100 to 1 dilution in the buying power of the dollar in my own fifty something lifespan (at least 9% per year compounded. That's quite a bit higher than the claimed CPI). To be the equivalent of the millionaire of my youth you have to be worth at least 50 million today. In that light, how does your retirement savings look?

 

"Hey Dad, how long until that next monthly allowance comes in?"

 

I wonder what fraction of Dollar Store, Five And Below and similar store sales occur in the first week of the month?

MontyHigh, www.worldofwallstreet.us

P.S., Gold has gone from $35/oz to $1361 today, a 39 fold increase. So, you could argue from these data points that gold has not kept up with inflation. If you include accounting for the income tax (call it 30%) due when you sell the gold the 39 fold increase fallsl to a 27 fold increase. So, by these data points gold, over the long term, has only protected against 1/2 to 1/4 of the effects of inflation. Capital preservation is harder than you'd think.

News Paper Industry Looks Like A Lung-Cancer Patient On Its 15th Chemo

   

Just scanned the New Year's Sunday New York Times, Sunday Washington Post and this weekend's Barrons looking to hear what the elite is trying to feed the college educated sheeple regarding the economy. This is the first time I've done this in years.

 

Its a wasteland, but a much, much thinner wasteland than it used to be just in number of pages. I guess Craigslist, Ebay and Google is the incurable cancer that has these papers in a "Brave Fight To The End". 

 

The washington post looked the worst. Basically no articles in the business section and no "outlook for the year ahead" in the outlook section. Nothing.

 

The New York times was similar (no outlook anything) except the lead editorial observed that the recovery was weak, that the economy is "growing" but nobody can feel it. To keep it going, it needs:

(a) More stimulus - the recent tax deal's stimulus will offset local/state budget tightening, but more is needed including

(b) Fostering industries which can grow employment while...

(c) Preparing to get the budget in order, but no specifics and certainly not doing anything anytime soon. 

 

Oh, the New York times had a couple of articles about how dangerous it is to trade in and out of ETFs and to try and time the markets. The best you can do is buy and hold.

 

And then it had an article showing the outcome of every possible combination of buying the S&P500 one year and selling another year (wish I had the graphic) and they basically most combinations sucked (with some of the better combinations ending with 4%/year after inflation). And that's for the decades when the USA was by far and away the dominent world economy relatively untouched by the Wars that ravaged the competition. Here it is:

 

 

In other words, same old STUFF on a substrated of unstated gloom. What the USA needs is more of the status-quo and maybe things can sort of get a little better.

 

Barrons seems to be on the same page as the NY Times editorial. Last year was easy, this one won't be as easy, but you should buy companies like GM, Pfizer, Intel, etc. Pretty darn lame. 

 

Nobody, but nobody is mentioning the possibility of either a double-dip recession or significant inflation (or any other kind of extreme anything). No mention of PIIGS, China dependency, rising long-bond interest rates, financial fraud, insolvent too-big to fail you name it, commodity inflation, currency depreciation wars, unfunded health-care/retirement liabilities, insolvent pensions, anything really threatening.

 

Everyone one is expecting a boring 2011. Not me.

 

Think those rags could possibly be more wrong? And this is the best the establishment can come up with? Maybe Dmitri Orlov is onto something. It does read like a 1987 Pravda.

MontyHigh, www.worldofwallstreet.us

P.S., I forgot to mention that a Sunday NY Times cost 6$! But, inflation is contained at 1% isn't it?

Cherry-Picking Denninger's Predictions And My 2011 Outlook

The out-spoken Karl Denninger provides a fair evaluation of his 2010 predictions and his predictions for 2011. Its a long, bearish and good read that pretty much lines up with my 2011 outlook.

My outlook is:

1. The current speculative move higher of every continues for some number of weeks. I'm thinking at least a couple of weeks and probably thru all of January and it could run out until March sometime.
2. Then things get very scary with either a major turn-down of the market and economy (Denninger, Hoye and others) or a major inflation up-move with a stagnant to rolling over in real terms economy (not sure who is in this camp, but hyperinflationary extremists include James Turk and Gonzolo Lira). Everybody and their brother remembers 2008, so when the shift happen I expect its going to be quite dramatic (e.g. flash crash from last May with no immediate bounce back or the crash of 1987). I don't think gold and gold stocks will be hit as hard this time. Silver is a different matter.

 My outlook could be wrong, but what I'm thinking about now is:

(A) What is the catalyst for the shift from (1) to (2).
(B) Is there any way to ride (1) all the way and yet prepare for (2) prior to the shift actually happening. 

So, with all that in mind, here's a couple of noteworthy excerpts from Denninger:

Pursuant to (A): "We're not going to get away with spending another $450 billion in deficits on top of the $1.6 trillion we blew last year... Since we put in place hundreds of billions in tax incentives and changes for the next two years, and The Republicans won't back off on that, we're going to see some sort of spending issue.  ...The Republicans can do whether the Democrats like it or not as they can refuse to pass and send up appropriations bills or continuing resolutions!" -- MY OBSERVATION: Increasing the debt limit is likely to be a major political bru-ha-hah, cause a lot of fear, crank the price of gold up and probably be the catalyst for the shift.  This link (click here) says: "Currently, that figure sits at $14.3 trillion, but the government will hit a wall in February 2011 where it will be unable to continue operating unless the debt limit is raised." If this turns into a big deal, like I expect, then things will get very crazy by the end of January.

Pursuant to (B): "Expect extreme volatility.  Anyone thinking the VIX in the teens makes sense is going to be proved nuts." -- MY OBSERVATION: I need to dig into $VIX related ETFs and derivatives to see what kind of cheap crash insurance I can buy right now.

Well, I know I've been writing more than most can take the time to read, but I'm off my day job and I'm playing hard and trying to record what I think is of real value, both for you dear reader and for my own benefit.

MontyHigh, www.worldofwallstreet.us

Northbeach2000: Portfolio Update - 2011 - The Year of the Black Swans

[Editor's Note: World Of Wallstreet is again grateful for Northbeach2000's contributions.]

 As we approach 2011, it seems that I'm not nearly as sanguine about its economic prospects as most of the talking heads and other so called market experts.  Frankly, I just don't see how we are going to get thru it without some major shocks to the system.  Listed below is a partial list of what I believe could be black swan events that could rattle the system and the financial markets:

1)  Euro - Ireland votes in a new government sometime early next year who then pull an Iceland.  They basically tell the IMF, ECB and whoever else is listening to take their $100B Irish bank bailout package and shove it.  When you consider that Ireland only has 5MM people (thus putting each one $20K in debt in order to bailout their banks), I just don't see the Irish as being willing to "take one for the team."  Keep in mind that Ireland is geographically reasonably close to Iceland, and the Icelandic people, if you recall, told the British banks and others whom their banks owed money to to go shove it a couple of years ago, and that decision seems to have worked out very well for them since.

 

2)  Peak Oil - Most everyone is assuming that GDP growth will be fair to good next year.  Here's the problem I have with that.  You can't have growth without increased energy consumption.  Since transportation is 98% dependent on CL - Is the world going to be able to produce enough new incremental barrels of crude oil to fuel this economic growth, or is the price of CL going to have to continue to rise in order to force out the marginal users in a constrained suppy environment?  I vote for the latter since we are at Peak Oil (whether others realize it or not).  If I'm correct, then our presently constructed economy is in real trouble.  Why?  Simple.  How did the economy and the American consumer do during 2008 when CL approached $150/BBL?

 

3)  Government deficits and QE2 - What a complete joke!  We are being told that QE2 was meant to keep longer dated interest rates low, thus helping the housing market recover and the stock market to rise thus causing a wealth effect that would help us out of recession (yes, as far as I'm concerned, we are still in recession since our GDP "growth" this year has been fueled by using a fraudulently low CPI inflation number.  i.e.  GDP growth = nominal growth minus inflation).  This is complete B#llsh#t

The truth is that QE2 is absolutely required to fund our national $1.5T fiscal deficit.  Think about this.  Where else could the federal government go to raise that much money without causing interest rates to go thru the roof, and thus force private borrowers to be "squeezed out"  from access to the capital markets?  All QE2 is, at the end of the day,  is the partial monetization of our annual deficits.  But here is the kicker - IT IS NOT WORKING.  Why?  Simple.  IT'S NOT LARGE ENOUGH.  $75B/month of treasury security purchases by the FED may sound like a lot, but it really isn't when you consider that the Federal deficit during November ALONE was $150.4B.  When you think about it, all the FED is doing right now is to allow the government to continue with its insane spending policies for a while longer.  IF QE2 ceased tomorrow, the politicians would be forced to deal with our fiscal crisis RIGHT NOW since the government would no longer be able to borrow vast amounts of money at absurdly low interest rates.  For that reason, I expect QE2 to be followed by QE3, etc. since our entire financial house will implode the moment the FED steps out of the picture.  JMO

 

With the above in mind, Here are IMO the 2 most important charts that I plan to to follow during 2011:

 

WTI Crude Oil Price  

 

As long as CL doesn't go much above current prices, there may be hope for U.S. 2011 GDP growth

 

 

10 Year Treasury Yield

As long as the yield on the 10 year treasury note stays below 4%, there may be hope for the federal government to keep this cocktail party, Madoff Ponzi Scheme going thru 2011. 

 

As for Gold, and my belief in it as a sound monetary alternative to fiat currencies, this is the trend that I want to see continue.

 

Gold Versus All Major Currencies - Long Term Trend

As long as Gold continues to outperform the major fiat currencies, then I'm in no rush to abandon my oversized PM positions.  JMO 

 

Significant changes since my last update:

 

1)  I took additional long term profits in CEF and moved the proceeds into mostly PHYS, but also SLV.  The reason I did this is the fact that CEF, with the Gold:Silver ratio now well below 50, is more influenced by the price of Silver rather than Gold (i.e. CEF owns Gold And Silver Bullion at a fixed ratio of 50 to 1 ounces).  It is my intent to continually reduce my position in SLV and add to my position in PHYS as (if) the Gold:Silver ratio continues to contract.

 

Gold Silver Ratio 

2)  I changed my strategy in managing my SPY short.  Instead of being short the SPY directly, I'm using front month SPY options to provide roughly the same protection but (hopefully) at a lower cost if the S&P 500 continues to rally.  When putting these trades on, they were structured such that it resulted in a very small credit to me(thus no loss if the SPY is within the price spread of the puts and calls when they expire).

 

 

 

Current Portfolio: 

 

Energy Dividend Payers (26.2%) - Crescent Point (CPG-TSE - 4.6%), Baytex Energy Trust (BTE - 4.9%),  Keyera Facilities Income Fund (KEY.un - TSE - 4.7%), Alliance Resource Partners (ARLP - 3.8%),  Penn West Energy Trust (PWE - 4.2%), Natural Resource Partners (NRP - 4.0%)

 

PM Stocks (20.8%) - Gammon Gold (GRS - 7.1%), Jaguar Mining (JAG - 6.3%), Yamana Gold (AUY - 7.4%)  

Gold/Silver Bullion (52.6%) - Central Fund of Canada (CEF - 32.1%), Sprott Physical Gold Trust (PHYS - 10.4%),  Silver ETF (SLV - 10.1%)

 

Cash - .4%

 

S&P 500 SHORT on Total Portfolio Value - 50%

(Long Jan $120 Puts - Short Jan $128 &$129 Calls) 

 

JMO.  We all bet our own money and take our own chances. 

Northbeach2000

Best Of The Web: Hussman On When Value Money Managers Lag

Here's what I'd call the quote of the week (from this week's edition of Hussman's weekly commentary): "the performance of value managers has often been least impressive when the market was approaching a long period of dull and often negative returns". The piece has already shown that value oriented stocks have been lagging badly lately.

The title of the piece is: "A Fed-Induced Speculative Blowoff".

I guess I'm with Hussman that we are in a Fed-induced speculative blowoff, but given that my portfolio is small enough that I can get out in a couple of trading days, I'm going to keep dancing at the party (but I'll be dancing closer to the door by moving to more liquid positions and higher quality stocks). I think the party can keep going for a few more weeks.

I recommend reading the whole thing (and reading Hussman weekly). I think he's the best of the "free" mainstream commentators (better even than the very find David Rosenburg). 

MontyHigh, www.worldofwallstreet.us

P.S., I find his discussion of gold stock towards the end interesting and valuable, but think that gold and gold stocks have quite a bit further to go despite the rising 10-year treasury rate because Hussman does not discuss the distinctly bullish for gold Central Bank change from selling gold to buying gold. I think this makes things different from Hussman's historical models.

Best Of The Web: Biderman On Who Is Buying US Stocks (Driving Up The Stock Market)

Quite a fascinating CNBC interview with Charles Biderman of TrimTabs investing. For the interview along with Zero Hedge commentary click here.

Biderman observes that retail and institutional investors are not buying US stocks and wonders who is buying them. He speculates that since stocks started rising at the same time that QE2 was unofficially announced by Bernanke last summer at Jackson Hole that it is QE2 money that is being recycled into buying stocks.

I wonder if it is sovereign wealth funds that are selling their treasuries to the Federal Reserve and putting the dollars into US stocks. This seems like a reasonably natural thing to do. What would you rather hold? Worthless paper (US medium-long term treasuries) or a piece of an overvalued US company? Both probably will not hold their value, but at least with the US stock there is something of some value backing it up.

For me, the money quote is 3:00 into the interview: "As long as QE2 continues and the government is basically taking assets away from asset holders and creating cash to give them and go buy something else; that something else apparently is equities".

So, how long can the US stock market continue to rally? If this theory is right, as long as the Federal Reserve keeps QE2 going. Despite the dumb-money sentiment being way too bullish, I think this can continue for weeks or months and am playing the inflation trade, although not in US equities. We'll see.

Here's the quote Biderman gave Zero Hedge after the interview completed that closes the Zero Hedge commentary: "At some unknowable now moment in time, unless the economy starts to grow again, no amount of QE can work forever in keeping the current stock market bubble from bursting."

If this intrigues you, I recommend you click thru and listen to the whole thing and read Zero Hedge's commentary.

MontyHigh, www.worldofwallstreet.us

Macroeconomic Outlook: Charts Revisited

When we left off last week (click here), several charts where on the verge of providing significant signals. This quick post revists those.

The S&P 500 was on the verge of breaking out of a picture perfect cup and handle formation targeting another 22% rise. This is about the best, most reliable technical formation and it is now confirmed.

The US dollar still can't make up its mind whether it wants to follow that inverse cup and handle formation down to the 71 level. Is this a hint that more Euro trouble is coming right up?

Copper has just completed its highest weekly close this ever. This points to real inflation revving up.

In contrast, Crude Oil backed off from its cup and handle formation this week (backing off from more inflation).

Overall, the charts point more to an inflationary asset and commodity price ramp up this week than last week with the S&P 500 and copper leading the way.

MontyHigh, www.worldofwallstreet.us

Inflation Trade Is On

Hold onto your hats between now and the end of the year.

MontyHigh, www.worldofwallstreet.us

Macroeconomic Outlook: Let The Charts Talk

In this post I'm going to put up the interesting subset of the charts that I use to evaluate the global macro-economic condition.

Unless I state otherwise, what has happened since last summer is really what I'm concentrating on in a chart.

The charts pretty much agree that we are on the verge of an inflationary melt-up with the leading charts showing this meltup already underway. An inflation meltup is a time of increasing inflation accompanied by unsustainable economic growth. The S&P500, $GOLD, gold stocks and crude oil all have targets that are 20%ish or higher above current levels. Is 20% inflation over the next year or so enough to be considered a siginficant inflation jump? How long this persists and what happens afterwards I don't really know. Key charts are at resistance and if they bounce off this week then the clear inflationary meltup call may subside. I expect I'll be referring to these charts thruout the week to determine whether they confirm my inflationary hypothesis.

Here's the key messages I get from the charts:

The U.S. dollar bounce triggered by Euro troubles seems to have bumped topped, run out of energy and has broken down thru a couple of key areas of support. A dollar turn-down facilitates the inflationary melt-up hypothesis.

Several leading indicators (semiconductors, crude oil, copper) have just broken out of resistance which, if the breakout holds, points towards an inflationary breakout.

Peak Oil looks like it might be starting to bite as crude oil relative to other commodities is no longer lagging and has broken thru the 100 day moving average I use to detect trend changes.

Something extraordinary is happening with silver as it appears that the "Huge Silver Shorts Are Really In Trouble This Time" theory may still finally be right. I expect I'll be holding onto my leveraged silver positions with trembling finger to the exit trigger while this parabolic rise continues.

Gold (and gold stocks) still look strong.

Now, here are the charts:

The S&P 500 is one more up day (or week) from breaking out of a perfect cup and handle formation while we are in a seasonally strong time of year. A breakout targets another 17% rise for the S&P to over 1400. This is what I mean about being on the verge of an inflationary melt up.

The semiconductors, which typically lead the S&P 500, have already broken out.

The US dollar has completed an Euro-trouble triggered over-sold bounce and looks (to me) to be resuming its decline have broken down thru resistance and the 100 day sma. By the way, that's an upside down cup and handle formation targeting 71. This pattern is only invalidated if the dollar can crawl above 83.5. The dollar has been driving virtually all markets for some months now and a fall to that 71 target will very probably produce quite a bracing inflationary meltup.

The BDI is the main item I see that is not confirming the inflationary meltup. Does this mean that this is a pure monetary kind of inflation taking place?

Copper has completed its highest weekly close ever and is threatening to breakout above that $4/lb resistance. A weekly close clearly above this week's close would add strong weight to the inflationary meltup hypothesis. Ask yourself this, does it benefit J.P. Morgan (click here and here) to have copper produce a bullish technical signal after they have accumulated a humongous long position (80% of LME inventory copper)? Which way do you think copper will break if a price rise benefits J. P. Morgan?

Crude oil is breaking out of a cup and handle formation which targets around 110$/bbl. That's an inflationary meltup. The world has shown no ability to avoid an economic downturn after such a crude oil price spike. So, this points towards an inflationary meltup and then an inflationary recession. Whether this is confirmed this week is pretty important.

The S&P 500 has consistently been unable to keep up with commodities for the last few months. Just as in the inflationary 70s, the general stock market (unleveraged) is not a good place to be in an inflationary meltup.

Uranium, like the S&P500 and crude oil, is on the verge of breaking out of a cup and handle formation. This cup and handle targets a 35% price rise.

Crude Oil, relative to commodities in general, has broken thru a descending trend-line and the 100 day moving average. Crude oil is not lagging general commodities any longer. If this continues it points to Peak Oil beginning to bite. This is an ugly scenario: Monetary driven inflation supplemented by Peak Oil driven inflation leading to quite a nasty global economic downturn (perhaps inflationary). This is another one to watch closely as the week progresses.

A falling gold/silver ratio ordinarily points to the inflation trade being "on". It has been doing that for quite some time and is now in an extraordinary state. At no time in the last 10 years has the gold / silver RSI been in such a consistently oversold condition. On other occasions it would go oversold and then strongly correct back to an RSI 50 (typically going further up to the RSI 70). On other occasions, one would have to jump out of silver as soon as the RSI oversold condition was relieved. But now, something extraordinary is going on. I'm in real fear of my leveraged silver positions taking a big, sudden hit, but I'm holding on tight. 

Silver has been rising hard since the end of August. It has been supported all the way by the SMA 20. The trading policy of exiting leveraged long positions after two days with no higher high has been good in this kind of silver rise during this run and on earlier runs. One reenters when either a bottom has formed or when a white candle with a higher high occurs. Alternatively, you could wait for the 20 day moving average to be pierced prior to exiting.

The $CDNX index (mostly Jr precious metals miners) is capable of staying RSI overbought for weeks. Its been doing that lately and looks like its already started another such run. Hold onto those gold mining exploration Jrs at least as long as that RSI stays up there over 70.

The large cap gold miners (represented by the $HUI index) have been outperforming the S&P500 since Apr and, like crude oil, are breaking out of a cup and handle formation. This targets a 26% price increase over the S&P 500 (whose cup and handle formation, not yet confirmed points to a 17% price increase). So we have a reason for expecting a 47% rise in large-cap miners. How much higher might the small-cap miners and explorers rise?

Well, that's how I see it. The charts don't always continue like I predict. The dollar immediately turned around last month (on Euro fears) after I put out a post saying the dollar was kicking off another inflationary run. Everyone has to do their own due-diligence and this post is educational, not investing advice.

MontyHigh, www.worldofwallstreet.us