Short End of the Yield Curve - WARNING!!!

The "big boyz" are piling into the short end of the U.S. government debt curve. This is not a good sign. This means they are fleeing stocks and looking for "safety" (I use the word because it is what paperbugs think, not what I think). They have distributed their stocks to the public and are now going to let them fall.

Pictures speak louder than words. Starting with the 2 year U.S bond yield (2 year daily chart using a log scale because the moves have been insane):



Here's the yield on a 1 year U.S. Treasury note:



And finally, the 90 day T-Bill yield:



The bond market is screaming deflation. I know, I know many of the big boyz are simply front running the fed for risk-free profits, but this is a big move on the short end of the curve and I think it is meaningful. The last big spike of this size towards zero on the short end of the curve was in September of 2008. Need I say more? Most of the stock investing public doesn't pay any attention to the bond market, and that's just fine with Wall Street. Big money is not so quietly stampeding for the exits from the stock market and the public will be left holding the bag - again.

Now this is where my thesis will be tested. I believe Gold will hold up here on the next bear leg down and even move higher regardless. Yes, it may undergo a correction for any distance back towards $1000/oz. at any time, but I think $1000/oz. is the floor for the Gold price now and a dip back towards these levels would simply provide another buying opportunity. In a stock market panic, Gold stocks will get sold off. In a stock bear market, Gold stocks move to their own drummer, generally sustaining corrections during the steepest downward parts of bear legs in general stocks, then rising the rest of the time if Gold is doing well. I believe Gold will do well.

This thesis relates to Gold's role as money. It is no longer a national currency anywhere, but it is an international currency of last resort and there is less and less trust in paper promises from the spendthrift nations of the world (e.g., U.S., UK, and Japan in particular). I do not think the U.S. is in worse shape than the UK or Japan, we just stand to lose more as the country with the ability to print the world's reserve currency. I believe the international monetary system is continuing to break down and Gold is rising relative to all currencies for this reason. When the yield on U.S. short-term government debt is basically zero, people stampeding into the short end of our government debt curve obviously aren't looking for yield!

This is what Exter's liquidity pyramid is all about. Read about it here if you aren't familiar with it, as I believe it is an important concept regarding the flight to safety in an unsafe financial world. As I have come to realize during my manic swings between inflation and deflation (I started as an inflationist, became a deflationist, and now I'm not sure and not sure it matters to me as a Gold holder at this point of the longer economic cycle), the Dow to Gold ratio will likely provide me the best road map for when to sell my Gold and get back into stocks. Once this ratio gets below 2, I'll be getting ready to sell my Gold and buy a truck load of Gold stocks and then will finally make the switch back to paperbug maybe a year or two after that. This is my rough road map and I don't know exactly how long it will take to get to the 1-2 range in the Dow to Gold ratio.

I would be mighty nervous right now if I was a bull on the S&P 500 (I haven't been for 3 years, but anyhoo...). I would be mighty comfortable staying short the general stock market if I had a long-term time horizon. My main focus right now is on Gold and the Gold miners and looking for opportunities to go long. I may not be able to resist a few general stock short positions if the stock market starts to deteriorate here as anticipated. Santa Claus may not be bringing a rally in the stock market this year...

Unabashed Gold Stock Bull

Gold stocks have outperformed Gold since the crash lows of the Great Panic of 2008. Some have been disappointed with the performance of Gold stocks. I think they have done extremely well and welcome the additional time to accumulate more shares before Gold stock indices blast to new all-time highs. I think Gold stocks are on the verge of a big move higher, regardless of what the stock market does. Here is a ratio chart of the Gold Bugs Mining Index ($HUI) divided by the Gold price ($GOLD) using a 10 year log scale candlestick chart:



Do I think the stock market is about to top out and go lower? Yes. Do I think Gold stocks will follow the market down? No. Have the Gold stocks ever managed to escape stock market carnage before? Many, many times! Everyone remembers 2008 and thinks that is what happens to Gold stocks when the stock market dives. Does everyone forget the 2000-2003 general stock bear market? Gold stocks initially fell with the stock market in late 2000, then COMPLETELY DECOUPLED from the stock market for 2 years and raced higher for MASSIVE gains while the stock market tanked.

And the inflationistas out there ought to be familiar with the 1970s stock bear market and Gold and Gold stock bull market. The absolute worst cyclical bear market of the 1966-1980 secular stock bear market? Hands down it was the 1973-1975 bear, which caused a 50% drop in the major general stock market indices. Take a look at this nasty bear, in all its glory (chart stolen from sharelynx's historical charts of interest page, a great site every market historian should have bookmarked):



And here's what happened to Gold stocks during this time using the Barron's Gold Mining Index (next chart also stolen from sharelynx.com):



And, finally, the Gold price during this time (again, massive theft with props to sharelynx):



It is true that during a true stock market panic, everything is sold. But we have already had the panic part. We still have one or more nasty additional stock market bear legs down to go. But stock bear markets do not define the Gold bull market and never have other than in a very general sense (i.e. secular stock bear markets are when secular Gold stock bull markets occur). We are due for a short-term correction in Gold soon, which will affect Gold mining shares. But I believe we are on the cusp of a major Gold stock blast-off higher once this anticipated short-term correction occurs.

It is not the time for fear, it is the time for accumulation of Gold shares that have undergone significant corrections. I have pointed out many over the last few weeks and others will likely start corrections soon. The first half of 2010 should be VERY exciting in the Gold mining sector in my opinion. And remember, this leg up in the Gold price is the first short-term leg up for this intermediate term bull move, not the last. After a healthy and necessary correction that should last 2-8 weeks begins, we are then due for another leg higher in the Gold price that should be equal to or stronger than the initial leg up! This second leg up will cause Gold mining shares to explode higher, regardless of what the general stock market does.

We are now in the pre-mania phase of the secular Gold bull market, where widespread private institutional money, public institutional money and central banks have entered the fray and are increasingly going to do so. Gold is no longer a secret, but the public is not in this thing yet. Things are getting ripe for an upside explosion in Gold shares. This will further prime the pump for the mania phase, the final phase of the secular bull that has not yet begun. Short-term froth is a VERY different animal compared to a long-term secular top. The Indian government is the quintessential definition of "smart money" when it comes to the Gold market and they think Gold is a good deal at over $1000/ounce. Those screaming "bubble" in the Gold market (the same folks who doubted, shorted, ridiculed and/or ignored the Gold bull market up to this point) ain't seen nuthin' yet.

Real Estate - Getting Worse

Though I am sure the National Association of Realtors has some statistic indicating that higher real estate prices are "right around the corner" (as they have every single month since before the crash started), real estate is getting worse. Wave 2 of the residential real estate crash is starting on cue and "walking away" from underwater mortgages has reached critical mass.

The "big picture" real estate mortgage situation hasn't changed. There are some efforts to tinker with what must happen in real estate, but the reality is that the losses are coming and cannot be avoided. The private sector knows this, which is why they are scrambling to stuff all the losses down taxpayers' throats.

Moving the mortgage paper to the balance sheet of the private, non-federal, for-profit federal reserve (who will hand it off to Uncle Sam at the opportune moment) and to the balance sheets of Fannie, Freddie, Ginnie, Sallie, the FHA, the VA, the FDIC, the PTA (just kidding...), etc. is the swindle of the day. Any public-backed institution available is being crammed to the gills with ticking time bombs. It is a total scam that has already sewn the seeds of devastation for our economy for a decade to come. There is no escaping it at this point - we have already taken the plunge using the public kitty.

Here's the "big picture road map" chart, which anyone interested in real estate sector fundamentals has seen (chart from Credit Suisse):



Keep in mind that the mega-spike in Option ARM loans (the majority of which are in California) reflects loans that are not going to have a rate reset, they are going to have a re-cast of their loan terms. In other words, the actual terms on products like "Pick-A-Payment" mortgage loans will change from paying the minimum payment (which is a negatively amortizing, less-than-interest-only payment) to a fixed 30 year principal and interest payment that will double to quadruple the monthly payment for the home "owner" regardless of the interest rate! Low interest rates are irrelevant in this setting and won't help a bit.

And here's an example of what's happening on the ground in one of the major real estate bubble areas: Orange County, California. Following are two charts, both stolen from this article. The first is foreclosure filings in Orange County, California over the past 2 years or so:



If foreclosure filings are rising in a parabolic arc, how can the bottom in real estate be in? Foreclosure sales are a drag on the price of homes and increase the supply of homes on the market. Economics 101. Tune out the propaganda. The next chart explains why things seem to be stabilizing in some areas. This is a busy chart showing the 90+ day delinquency rate versus the foreclosure notice rate versus the real estate owned by banks rate in Orange County:



Homes are being held off the market as foreclosure filings are being delayed and then the bank is simply not following through with taking back the house. In the mean time, 7% of people in Orange County, California haven't paid their mortgage in at least 3 months! There can be no true recovery in real estate or the underlying economy until this is dealt with realistically. This suspension of economic reality is happening in many areas across the country but is most severe in the bubble areas like California, Florida, Nevada and Arizona. Things will get much worse in residential real estate before they stabilize in these and other areas. The stall tactic is simply a way for banks to get organized enough to pass on the bad paper to the government and the larger banks are playing "chicken" with the federal government once again.

This is good news for those who are renters and/or who are waiting to buy a house. Continuing to save money (preferably in the safest international currency known as Gold) will pay off because money saved today will buy more house tomorrow. We have not reached the capitulation phase in real estate for the "hot" markets. Patience will be rewarded. Even if the federal reserve's hail Mary pass to create inflation works for a while, this inflation will not flow into real estate but will rather move into newly forming bubbles instead (I'm betting on Gold and Gold stocks).

I think 2012 is overly optimistic for a bottom in real estate in most areas. The degree of fraud and covering up is too high and this fraud and hurtful government intervention is delaying the price discovery process needed to establish a true bottom in the marketplace. We've probably got another decade of declining real estate prices, much like what happened in Japan after their bubble burst in 1990 and they did the same covering up of the banking losses (following chart stolen from this Reggie Middleton article):



Many more banks will fail, much lower real estate prices are coming in most major metropolitan areas, and both home prices and rents will continue to decline for at least the next 2-3 years. I'm not even going to go there with commercial real estate today, which will only accelerate the pace of banking losses and failures. It's too early to bottom fish in real estate as an asset class (unique individual opportunities aside). Gold will continue to appreciate in terms of other asset classes like general stocks, corporate bonds, government bonds, most commodities and real estate. When Gold is used as the currency of measurement, deflation has been here for a while. It is only when fiat paper currencies are used that the inflation-deflation debate is confusing and more complex.

Here's the Dow Jones Industrial Average "deflated" by the price of Gold over the past 30 years:



People who scoff at the Dow to Gold ratio (i.e. paperbugs) are the same folks that listen intently when they are told that secular stock bear markets end with a price-to-earnings ratio of less than 10 (we're somewhere in the 80s right now) and a dividend yield of at least 5%. You can use these latter measures if you prefer, but we're a long way from the bottom in general stocks (and real estate) no matter how you look at it.

And here are U.S. home prices deflated by the price of Gold over the past 45 years (chart stolen from Adrian Ash at bullionvault.com):



By just burying a piece of shiny metal in the backyard, one will continue to become wealthier due to purchasing power gains in terms of real estate, corporate bonds and general stocks. What could be easier?

Silver - About to Explode?

Most Gold bulls are silver bulls. The 1970s is the reason why and because inflation that occurs when a secular commodity bull cycle is in effect tends to flow into both precious metals. I have been less than wildly bullish on silver lately.

I own some physical silver but hold much more Gold. My concern is simple. In past deflationary cycles, Gold has done well but silver not as well. Since I favor deflation over inflation for this cycle, I heavily weighted myself towards Gold and only hold a little silver. I even made the stupid mistake of shorting silver a few months ago and had my a$$ handed to me.

Silver made a big move today and a short-term break out. Silver can make explosive moves up and down and with a push slightly higher, silver will have a confirmed breakout that targets new highs for the decade. Unlike Gold, silver is still a ways from its all-time nominal high around $50 during the last silver bull market in the 1970s. If silver makes new highs in the next few months, the deflation scenario won't be looking so good.

Though I have believed deflationary forces were too powerful to be overcome by government intervention, global capital flows and/or an insane level of intentional wasting of money may prove to be too much. If silver breaks out to new highs for the decade, the deflation argument is going to look mighty thin. I remain hedged with Gold, as an inflationary holocaust means that Gold will peak in the $5,000-$20,000/oz range instead of the $2,000-$3,000 range. Either way, Gold holders will win over general stock holders. However, in a heavy inflationary environment, I believe silver has greater upside potential than Gold. Needless to say, I am going to hang on to my remaining physical silver until I see how this one plays out.

Here's a daily chart of the silver ETF (ticker: SLV). This ETF doesn't hold the silver it claims to and is believed fraudulent, but is being used for charting purposes because it can show volume. Silver bulls are advised to hold physical bullion as their core holding. I am not saying this ETF can't be used for short-term trading, but paper is paper and metal in your possession is metal in your possession. Anyhoo, here's a one year daily candlestick chart of SLV:




Here is a long-term weekly chart of silver ($SILVER):



Mr./Ms. Market is always right and those of us trying to keep up with him/her have to be flexible. I am learning not to fight the tape and instead embrace it. If my deflationary stance proves wrong and the government bond market is no longer relevant, so be it. As a Gold holder, it doesn't matter to me - heads I win, tails I win more. Silver is on the verge of sending out a powerful warning to the deflationists to reconsider. If it occurs, I'll be among the first skeptics to give it props and respect the move. If it doesn't, I promise not to act like I saw it coming all along, as today's move in silver was not what I expected.

You're not going to hear inflexible Prechter-like deflationary dogma from me if silver breaks out to new highs for the decade. The Dow to Gold ratio is my secular compass, not the inflation-deflation debate. We should know within a few days whether or not this move in silver is the real deal. Perhaps I'll have to start digging into, researching and expanding my junior silver miner stock list sooner than I thought...

Bottom Feeding - DRDGOLD

Bought some DRDGOLD (ticker: DROOY) today as a bottom feeder play. This is a company that has been doing terribly, deals with political risk in South Africa, and is in the process of having its biggest producing mine closed. The South African Rand is rising and the currency fluctuations are hurting the firm as well. Everything looks terrible for this company right now. The stock has been hammered over the last few months.

Most people would say to avoid this company and stick with proven winners in safer areas of the world. I took a small position today in this company, as I see it differently. This is a company sitting on millions of ounces of Gold and looking (needing) to make a turnaround. Again, mining is a risky business and this firm's stock may go to zero. I am not recommending this stock to anyone.

But in the middle of a raging Gold bull market, which is far from over, turkeys will start to fly and even mismanaged companies in difficult political areas will see stock share appreciation when the Gold price gets high enough. This company is looking to switch from underground to surface mining and has the cash to see itself thru this transition. Because I know we are in a strong secular bull market, I look for the bullish implications in any Gold chart.

Here's what I see on a long-term chart of DROOY (10 year log scale candlestick chart):



And here's a short-term chart of DROOY (6 month daily candlestick):



Wish me luck...

All Kinds of Early Breakout Charts in Gold Stocks

I see early technical breakouts in multiple Gold stock charts on a survey of companies I have been keeping an eye on (some because I own or have been buying or waiting to buy and some because they are simply stocks I watch to survey the "health" of the sector).

In no particular order, here are multiple stocks that are in early breakout patterns. All are 1 year daily candlestick charts. Full disclosure: I am a raging Gold and Gold stock bull right now and see all surprises as coming to the upside. I own all of the stocks (options in the case of RGLD) in this list except Newmont and Barrick. I am biased.

Royal Gold (RGLD):



Barrick (ABX):



Newmont (NEM):



Apollo Gold (AGT):



Tanzanian Royalty (TRE):



Pediment Gold (PEZ.TO):



Richmont Mines (RIC):



And, of course, there are others.

There are PLENTY of Gold stocks out there that are not overbought! Because Gold stocks can be rather volatile, I always buy them before a breakout or after a sharp pullback. There are other Gold stocks that have not yet broken out but look ready to (e.g., NAK, PZG, GBG, RR.V, ADM.V). Anyone care to share some Gold stocks in an early break-out or looking like they are about to break out?

What Does This Chart Mean?

Following is a one year chart of the yield on the 1 year U.S. Treasury bond:



The yield on this relatively short-term instrument of perceived safety (in the minds of paperbugs) is now lower than it was during the Great Fall Panic of 2008 and it is now at its lowest point in over 50 years. This is a deflationary warning signal. This is a market set rate, which means people are buying this bond hand over fist in search of - well, what are they in search of? It can't be yield. Perhaps they are interested in benefiting from currency appreciation due to the strong Dollar policy of widdle Timmy Geitner (hee hee).

This chart is all about a move into perceived safety. The bond market is bigger than the stock market. Big money continues to stampede into short-term U.S. Treasury debt. Some of that money, now that the yield on short-term debt is basically zero, has been moving into Gold for safety instead. It doesn't take a lot of money to move the Gold market - it is a small market relative to the global government debt market. Yes, there are speculators/hedgies/retail investors chasing the Gold market higher, but they (we?!) are the price takers, not the price setters.

I think this bond yield chart is signaling that another deflationary wave in most asset prices is coming soon (I know, I know, I've been waiting for it since May). This would drag real estate, general stocks and corporate bonds down another notch in nominal price as reality comes back to these markets and hope of recovery is destroyed. As a Gold and Gold stock bull who is not currently bullish on commodities, I welcome another round of asset price deflation in Gold terms (because Gold is my cash holding and thus such a scenario increases my wealth by increasing my purchasing power). I think the nominal Gold price will hold up much better this time around if another deflationary asset price wave hits. Such a scenario would set up higher profit margins for Gold miners going forward as the costs of mining drop further relative to the price of Gold.

Such a scenario would demoralize the peak oil crowd, paperbugs and weak Gold holders alike over the short to intermediate term. And yet, such a scenario would also set the stage (after a multi-week correction) for a raging Gold stock mania that should be coming soon to a theater near you (it's not a question of if, it's a question of when in my mind). Just food for thought when thinking about what might happen next in the markets...

It's About Gold, Not Inflation or Deflation

Gold's getting ready to have a short-term correction if it didn't start today. Trying to game short-term corrections in a raging bull market is a fool's game and there's no reason to do it. Simply buy on sharp pullbacks and hold on. It's not rocket science for those with a time horizon of more than a few days. One simple 10 year monthly log-scale chart can tell you where the current secular bull market is:



Anyone who has studied prior secular bull markets knows that a 4 fold gain over ten years is not a bubble and is not anywhere a secular top, but "bubble" calls are everywhere in the mainstream financial community regarding Gold. First, they don't see it coming and say it can never happen and then they call "bubble" the second it does! I love it because Gold is still climbing a wall of worry. Yes, the short-term speculative froth is a little high, but long term (I am not a day trader), Gold has a long way to go regardless of what paperbugs think.

There is too much confusion regarding Gold and its role in society. This confusion, of course, is not by accident in a paper currency regime. The deflation versus inflation debate, it seems to me, has become the democrat versus republican debate in my opinion. In other words, it is a distraction and unimportant to serious Gold investors. Those who thought a democrat (i.e. Obama) would fix our country's structural problems and stop the senseless warfare against innocent third world nations hopefully now understand and will learn from their naive mistake.

We are in the "confidence versus no confidence" cycle and let's just say that confidence in Wall street and government isn't exactly waxing right now. The Dow to Gold ratio, in my opinion, is a more reasonable proxy for the current secular cycle than the inflation versus deflation debate. The Dow to Gold ratio is a measure of confidence in "the system." Gold is a proxy vote of "no confidence" in the system while the Dow Jones Industrial Average is a proxy for a "confidence" vote in the system.

People who think Gold is a good inflation hedge and a lousy deflation hedge have accepted the argument of the paperbugs. The rest of the argument then goes on to tell you why oil or stocks are a better inflation hedge and how Gold has failed as an inflation hedge in the past. Once you accept the false premise of Gold as another commodity play/inflation hedge like oil, you can no longer analyze Gold in its proper context.

Let me ask you some important philosophical questions:

Why did Gold back currencies or act as a currency in multiple previous historical periods (i.e. what was the rationale) over the past few thousand years and why did Nixon sever the U.S. Dollar's final link to Gold in 1971?

Why was Gold ownership made illegal for citizens in the United States from the early 1930s thru the early 1970s?

Why has Gold gone up significantly in price during a recent period of rising interest rates (i.e. the 1970s) and during a period of falling interest rates (i.e. the 2000s)?

The answer to these questions is part of the answer to why Gold will continue to appreciate in price. This is despite the fact that you can't eat Gold, the world is not coming to an end, Gold pays no interest, Gold has no growth prospects, Gold pays no dividends and you can't spend Gold at Wal-Mart. Yes, Gold will continue to outperform general stocks, whether you think it's appropriate or not.

Is the secret to Gold the U.S. Dollar Index? Not if recent history is a guide:



Is Gold a lousy investment during deflation? Not if recent history is a guide:



Is Gold simply a way to bet on a stock market decline or rise? Who knows based on recent history:



The simple truth is raw and not so pretty: Gold is a good investment when people lose trust in their society and its power structure. Think of the shift in trust over the past few years when it comes to bankers, Wall Street, the federal reserve (not federal, but rather a for-profit corporation given a no-bid contract to counterfeit money), and the federal government.

Gold is a bet that the "powers that be" are going to screw things up even worse than they already have/they already are. Does that really sound like a high risk bet to you? If it does, go back to watching CNBC and see what Cramer has to say (I hear he's pushing Gold stocks these days, which naturally makes me nervous but one can't have a mania phase without widespread public participation...). Have you not read about the real estate crash that is far from over, the insolvency of the entire U.S. banking system, the global coalition forming to dethrone the U.S. Dollar as the world's reserve currency, the now legendary level of fraud on Wall Street and at the highest levels of government, and the lies behind the "wars" on terror, drugs, and freedom in the United States?

Once you understand these things, do you really want to keep your savings in a crappy 401(k) where you get to choose between "blue chip growth," "aggressive growth," or "lifestyle 2020"? Now look, I am not saying stocks can't do well if confidence in the U.S. Dollar starts to plummet at an accelerating rate. Stocks are one of many hedges against inflation. But Gold is the asset class in a strong secular bull market. Gold is leading the Dow and the S&P 500 over the past decade, not the other way around. This trend will continue until we get close to a point where one ounce of Gold is equivalent in price to the Dow Jones Industrial Average.

If you don't believe me, read what Martin Armstrong has to say (if you keep telling the truth Marty, they're never going to let you out of jail!):

GOLD $5000+ 11/11/09

Cynic's Economic Dictionary

Though there are plenty of words, phrases and definitions to add, the world of finance needs a "working man's" dictionary of commonly used terms. I thought I would get started on this project. Without further ado, here are the entries I feel need translation from the world of high finance and government double speak into real-world terms:

federal reserve: a private, non-federal, unconstitutional, for-profit corporation whose interests are aligned with whomever can make them money and have nothing to do with the interests of the United States (unless the private sector stops borrowing money).

economic stimulus: a fascist policy of spending/stealing other people's money or counterfeiting money for the benefit of the elite or another small segment of the population with a powerful corporate lobbying group.

quantitative easing: counterfeiting money.

inflation: what happens when you counterfeit too much money. A stealth tax on every one (i.e. you) who is not sitting close to the counterfeiting machine.

deflation: the normal, healthy state of the economy when sound money is used (see "money" definition below). Bankers fear deflation because they make less money, so bankers destroy any savings you may have (see "inflation" definition above) to counteract deflation and ensure that they make an adequate profit.

money: Gold and silver (at least according to the U.S. Constitution, which is no longer relevant and should be ignored).

good: bad

bad: good

buy and hold: a mantra of paperbugs, a surprisingly mainstream cult of fanatics that only invest in general stocks or stock indices like the Dow Jones Industrial Average. This cult provides an efficient way for people to lose most of their life savings when a secular paper bear market is in effect (like the one that started in 2000, which is far from over).

mark-to-model accounting: fraud.

strong Dollar policy: an attempt by government to destroy the value of our savings and our paper currency.

democrat: corporate whore that favors welfare over warfare (but reserves the right to engage in both).

republican: corporate whore that favors warfare over welfare (but reserves the right to engage in both).

price to earnings ratio: only useful when it supports the bullish CNBC case (see "buy and hold" above), otherwise is an out of date, useless metric and should be ignored. When the PE ratio is too high, a "smoothed" or "operating earnings" PE ratio is used to keep the sheeple calm (PE is currently in the range of 85 for the S&P 500, near its all-time highs, so it is obviously of no use to serious investors).

Dow to Gold ratio: a method of getting ahead financially that must be marginalized at all costs lest the sheeple catch on.

I mean no offense to those who identify or are affiliated with any of the terms listed above. The federal government now helps to control and/or owns financial firms, insurance companies, auto companies, car sales, the real estate and mortgage market, health care, farming, energy, education, wages, travel, media and other aspects of our lives but most still like to pretend that we live in a free market economy (everything's relative I guess, eh?). Economy is a crack-pot science because the only economics taught in formal educational institutions is that which supports the goals of the state, comrade.

Enjoy the permanently fresh, imported, processed, genetically-modified popcorn while our economy buckles (even further) under the impossible burden of an incompetent, bloated, out-of-control corporatist bureaucracy. Fortunately, a new economic cycle of growth and prosperity should be less than 20 years away. In the mean time, burying some metal in the backyard is a great investment and doesn't require an E-Trade account. Sorry for the cynicism, but I need to vent after a long day. Ahhhhh, I feel much better now!

GDXJ - Welcome to the Party!

The Junior Gold Miner ETF (ticker: GDXJ) from Van Eck Global is now in business. Though I have a problem with putting larger silver miners in this ETF as the heaviest-weighted holdings (get info from the Van Eck website here), I will be participating. This is a good vehicle for those looking to get into the more speculative side of the Gold patch without doing all the homework. It also provides a measure of international exposure.

As Gold continues to surprise to the upside, much to the paperbugs' dismay and astonishment, the Gold miners are likely to continue to play "catch up" to the Gold price. The all-time highs for many Gold stocks are now within reach (if they haven't been exceeded already). I can only hope that GDXJ will catch on rapidly so that long term LEAP options will become available soon.

Here's a link to a chart of this junior Gold mining index, which I can't seem to manage to steal/copy so that I can paste it into this rant. This ETF has a reasonable expense ratio of less than 1% and the chart is probably near the high end of its current upward trending channel, so I wouldn't be rushing into the frenzy buying this ETF today, as every uptrend has pullbacks and this one in junior Gold miners will be no exception. Remember that Gold and Gold stocks typically have a bullish run from fall to spring, so there's plenty of time.

It is also important to recognize the liquidity (i.e. speculative money flow) this ETF will provide to the junior sector. Both retail and institutional investors will likely participate significantly in this ETF. While the Dow Jones Industrial Average continues to show anemic volume, the senior Gold mining ETF (ticker: GDX) shows continued bullish increase in volume. Gold investors know where the real bull market is (below is a 3.5 year chart of the GDX ETF since its inception to show this powerful secular volume trend):



As the Dow to Gold ratio continues to trend towards parity, more and more investors are jumping on the Gold ship. Though "contrarians" are now calling for a top based on this excessive bullishness, they did the same thing with oil at $40, $80 and then $100. We will absolutely have a parabolic bullish phase in Gold to match the one that previously occurred in oil (oil went up roughly 14 fold before its crash, which would translate into a Gold peak price of roughly $3500/oz.). Though I am in no position to say whether or not "the" parabolic move in Gold has already started, I do know that we are a long, long way from "the" secular top in the Gold market. Also, Gold stocks as a sector will likely peak months to a year or more AFTER the Dow to Gold ratio bottoms out. The timing of the release of the GDXJ ETF is impeccable. I predict major success for this new financial offering.

Disclosure: I have no relationship with Van Eck Global but I have invested in GDX and GDX options in the past and plan to invest in the GDXJ ETF soon.