Wednesday, June 30, 2010
I believe the unthinkable is going to happen. My guess is that the March 2009 lows will hold as well for major stock markets as they did for Greece (i.e. they won't):
I am black-bile bearish on equities to the point where I am nervous about Gold stocks here. That's very bearish for me, as I am well aware of the tendency for Gold stocks to largely decouple from equities as they did in the 1970s and 1930s. In keeping with the theme that a picture is worth 1,000 words, here is the paperbug secular nightmare translated through the eyes of someone who has managed to break through the propaganda to the other side of the matrix (21 year monthly log scale Dow to Gold ratio candlestick chart porn with stochastics):
And the path for the stock markets of major economies is being led by China, which is in the same precarious position as America in the 1930s, while we are more like Britain if one wants to look to the 1930s for answers. We ARE NOT EVEN CLOSE TO THE AMERICA OF THE 1930s and any direct comparisons are apples to oranges. Here is the Shanghai Composite ($SSEC) on a monthly 20 year chart to show some more slow stochastic secular chart porn related to what comes next for those not overly concerned with the day-to-day squiggles:
Long physical Gold, short general equities. Biased as can be due to established positions. The Dow to Gold ratio will reach 2 before this cycle is over and we may well go below 1.
Tuesday, June 29, 2010
The U.S. Government ten-year bond yield ($TNX), that is. This is not an inflationist message, though it provides cover for "the world is ending, quick we need to give all our corporate friends some taxpayer money" scenario to recur. The biggest bubble of them all has a ways to go before it pops. Here's a 5.5 year weekly linear plot of the yield action:
People playing the "steepening" trade (i.e. betting on the spread between long-term government debt and short-term government debt increasing) are getting killed right now due to a quick rise higher in short-term yields while long-term yields are collapsing. I'm sure these folks aren't using any leverage though and I'm sure this won't contribute to margin calls that intensify selling in the equity space...
Gold continues to hold up well during the new deflationary pressures that have now resumed in full force. The trillions of dollars wasted trying to "stimulate" one thing or another are gone. There is and will be nothing good left to show for it except among those titans of the universe close enough to the keiretsu teat of federal government largesse. Those mere mortals who took the bait and bought houses in the bubble real estate areas are about to experience that drowning feeling of being underwater, regardless of whether or not a new housing tax credit is passed. Enough demand was brought forward that any new measures will likely be ineffective.
The Dow to Gold ratio looks like it is gathering a head of steam to head back to its March of 2009 lows. I suspect this will happen with Gold acting firm (although even $100/oz swings in both directions should not alarm or surprise long-term Gold bulls) and the stock market tanking. I am maintaining my "long physical Gold, short stocks" trade for now.
Thursday, June 24, 2010
And don't let the door hit you in the a** on the way out. I profiled Morgan Stanley's (ticker: MS) chart in a recent prior post and the anticipated break-down occurred today on decent volume. Here's a 19 month daily candlestick chart of MS thru today's close:
Now why would I be happy that a venerable American corporation may have crossed the line into a potential death spiral? Because, like many Americans still trying to work hard to get ahead, I am angry at what has happened over the past 2 years in this country. Yes, it started long before that, but Morgan Stanley has been as American as Hitler or Mussolini over the past few years. A rigged game favoring fascist/corporatist pigs benefits the few at the expense of the many. I am mature enough and aware of history enough to know that this is just how great empires end, but it still stings.
And I am glad that one of the biggest pigs feeding at the government trough is failing. I am glad because I don't want to live under this system of evolving fascism. I believe that economic freedom works, despite all the hardships it introduces and all the responsibility it entails. I want Morgan Stanley, Goldmun Sucks and JP Whore-gan to fail. I want a level playing field, no matter how juvenile and naive it is to think such a thing may happen.
The confirmed breakdown in Morgan Stanley is ominous for the entire U.S. stock market. The third biggest and baddest Wall Street firm, which is only still a company thanks to the unintended generosity of American taxpayers, is a joke. They have all the insider information, the most sophisticated research, access to free money at no interest and the fastest computers on Wall Street. And they are still losing! HAHAHAHAHAHAAAAHHHHHH!
Cronyism works until you need to be smart or agile, then it fails. Inbreeding doesn't work as a policy and only outright theft and cheating can remedy the intellectual deficits introduced by promoting the weak at the expense of the strong. As Martin Armstrong has told us from first hand experience (while he rots in jail for being smarter than the apes), it is about guaranteeing victory on Wall Street by rigging the game, not about the thrill of competition or survival of the fittest.
Two down (i.e. Bear Stearns and Lehman Brothers), three to go (i.e. MS, Goldmun Sucks, JP Whore-gan). Morgan Stanley should go first according to my charts and common sense. Wake me when Morgan Stanley's stock price hits $15/share.
The bear market is back and its job is to destroy the excesses of the prior bull market. The destruction of the U.S. Dollar as the world's reserve currency and the destruction of at least two of the three remaining financial behemoths that support it makes sense from a secular bear market perspective. I am only the messenger and as an American, I would prefer a different message needed to be conveyed. Meanwhile, Gold continues to expose the ridiculousness of our system and its corrupt, hollow core. America is not even close to the worst country in the world, it is just the one with the most to lose. It ain't good for me or the world, but that doesn't change the facts. I am ranting here as an antithesis to the controlled mainstream U.S. financial media - in other words, to speak the truth as I see it, whether good or bad.
Once the Dow to Gold ratio hits two (and we may well go below 1 this cycle), then it is time to become bullish on America again. Until then, let the rot be purged and thrown out to into the oily sea.
OK, sorry for venting, now I feel better...
Wednesday, June 23, 2010
More fractal chart porn. We're back at the 1000 range in the S&P 500 and looking all "head and shoulder-y":
So, perhaps we're due for this, courtesy of the 2000-2003 bear market in U.S. equities (daily chart of some action in the 2001-2 time frame for the $SPX follows):
Could it be deja vu all over again? We'll see.
On an unrelated note, I loved Denninger's rant over at Market Ticker related to Fannie and Freddie getting tough with "strategic defaulters." He says it better than I could. Why is this important/relevant?
Because it shows how governments change the rules at a whim. This is what will happen with our monetary system. Savers who hold paper currency will be screwed by decree one day out of the blue. Only the timing is in question. In this scenario, paper Gold holders would likely get royally screwed. It isn't fair, but c'est la vie.
Hold some actual physical metal as a hedge against insanity and the inevitable outcome that characterizes all monetary systems gone awry throughout history. The U.S. has already changed the monetary rules twice in the last century and we're due for another rule change in the next five years or so if the 40 year cycle holds up as I suspect it will.
Since the return of my black bile bearishness, I have been neglecting the Gold patch a little. My physical Gold is not for sale but I am waiting patiently for a better buying opportunity to buy more physical Gold and to get back into Gold stocks from the long side. My primary positions are physical Gold, cash held in U.S. Dollars (not something I tend to do very often) and put option positions on the triple bullish commercial real estate ETF (ticker: DRN) and the triple bullish S&P500 ETF (ticker: UPRO).
My opinion is that the next and potentially final leg of the cyclical bear market that began in the fall of 2007 has already started. I don't know how far down it will take us and I really can't even know for sure at this point if my bearish opinion is correct. But the whole world, in aggregate, looks like it is in a bear market to me. Here's an 11 year daily linear chart of the Dow Jones World Stock Index ($DJW) to show you what I mean:
Now I am short the market, so I am biased. But knowing the trend is changing and making money from it is not the same thing. Believe me, I know from lots of painful first hand experience. I am not a great trader, but I am getting better. Bear markets are full of rapid plunges and breakneck rallies. The biggest up days in market history have occurred during bear markets. Bear markets are tough and full of surprises, much more so than bull markets, but they also offer the opportunity for fast, large profits.
I like Elliott Wave (EW) as one of many tools to be used in technical analysis. Many Gold bulls hate Elliott Wave because a certain Bob Prechter is almost always bearish on Gold. But there are many bullish wave counts on Gold among EW practitioners who don't blindly follow Mr. Prechter (try this one). I am not an EW guy, I just find it interesting and sometimes helpful when trying to guess what the market will do next. In the end, all a speculator can do is guess and remember to abandon ship if one guesses wrong. It is much easier for the average investor to just buy Gold and hold it through what promises to be an historic secular bull market in Gold. I have done this with a large portion of my savings, but I continue to try my hand at speculation.
Anyhoo, here is what I see on the S&P 500 short-term chart in EW terms. Please keep in mind that I am no expert on EW, but my current count fits with my general market thesis, so I am presenting it in case anyone is interested. Following is a 4 month 60 minute intraday chart thru part of today's action:
For those who don't like to play in the rigged casino, holding Gold through this pending mess means you will become wealthier in stock terms, whether the nominal price of Gold rises in U.S. Dollar terms or not. This is what the Dow to Gold ratio is all about: understanding that wealth can be measured in different ways. Since the "true" secular peak in stocks in 2000, cash has outperformed the stock market but Gold has outperformed cash. This trend will continue. Here's a portrait of imminent wealth creation for Gold holders by doing nothing but "being right, sitting tight and ignoring Nadler with all your might":
The Dow to Gold ratio will reach 2 before this mess is over, and we may well go below 1 this cycle.
Tuesday, June 22, 2010
A fully bearish stance, that is. I remain radically bearish on general stocks. Today the New York Stock Exchange ($NYA) had a bearish cross of the 50 day moving average below a flat 200 day moving average. Following is an 8 month daily candlestick chart thru some of today's action:
And here's a similar point in time for the chart that paves the way for what to expect next:
And for those who don't recognize this chart fractal, here is what comes next as of today's close:
Long physical Gold, short stocks. This trade has only just begun in my opinion.
Saturday, June 19, 2010
Another day, another new nominal high in the U.S. Dollar Gold price. Paperbugs hate it and can't explain it other than to say it is a bubble and will collapse any second. Short-term noise aside, of course, the truth is actually the opposite. Because it will be the non-believing paperbugs who will eventually pile into the "long Gold" trade and push us to incredible higher highs. Though it remains fun for me to guess and speculate on when such moves may occur, my core physical Gold position is never traded. I simply like to buy more physical Gold on decent price dips. I am not buying Gold at current prices but I would be if I didn't already have a large Gold position.
Gold is not going away. Gold is giving its warning that the Kondratieff Winter is in full force. Gold is the money of choice, not paper debt tickets backed by apparatchiks and bankstaz. Debt is a cancer during a secular credit contraction. The cold of a K-Wave winter squeezes those who have leveraged themselves against declining asset prices. Gold is debt-free money and the enemy of the state.
The concepts of money and debt are powerful and have been warped and corrupted now to the point where most people alive today actually believe that "this time is different," just as most believed in past fiat regimes. The end of the world is not at hand, but the end of the current monetary system is coming and that ain't good for those stuck with U.S. Dollars when the change comes. And no, you will not be notified in advance. And yes, Gold will be the best item to hold through the transition.
Let Roubini eat Spam and paper fiat notes right through the transition. The market continues to speak the truth of what is to come and what is to be valued over the remainder of this cycle, which will continue until the Dow to Gold ratio hits 2 (and we may well go below 1 this cycle). It's just a Gold secular bull market, as the financial pendulum of history continues its swing away from the Wall Street casino.
To say the barbarous relic is back from the dead is to state the obvious. Gold always comes back from the dead when it is needed because it never dies. It remains the anchor of the international monetary system because Gold, unlike the promises of compromised men and women, never changes. All paper promises and asset classes decline relative to physical Gold during a K-Wave Winter. This trend will continue and is not close to ending in either time or price.
Thursday, June 17, 2010
While the bulls shout with glee and claim how wrong being bearish is, I have continued to buy puts on the S&P 500 and commercial real estate. So much so that I am at my limit in terms of what I am willing to risk. I have plenty of dry powder, but it is for Gold-related items, not general stocks. I am majorly bearish and now HEAVILY biased. While Gold continues to act as the international currency of choice for those who have broken out of their paperbug shackles, the U.S. Dollar has also received a good bid from the herd. Gold is winning the clash of the titans again today, and will of course win the final war of monetary supremacy, as it has done for thousands of years.
I remain patient when it comes to Gold and Gold stocks. I am not concerned about missing "the" move in Gold stocks, I am concerned that the stock market is about to tank. I want to focus today on the stocks of the "big boyz" of finance who haven't yet been destroyed like Lehman Brothers or Bear Stearns. I am speaking of Morgan Stanley (ticker: MS), Goldmun Sucks (ticker: GS) and JP Whore-gan (ticker: JPM). I have discussed the chart of Morgan Stanley recently. Here is the recent action in this stock on a 60 minute intra-day chart over the past 4 months thru part of today's action with the S&P 500 shown at the bottom of the chart for comparison:
And here's a similar type of chart only over the last 16 months for GS:
I am having trouble with uploading charts right now (not sure why, probably a temporary technical glitch), so I can't show you the chart of JPM over the past 16 months right now. JPM is the biggest of the group and actually has the strongest looking price chart. The theme is the same, however, with all 3 of these firms failing to bounce higher with the rest of the market over the past 2 weeks. Why is this? What is the message here? Don't financial firms lead the market rather than lag it during a bull market? Aren't financial firms often the ones to give you an advanced warning when trouble is coming for the economy and rest of the stock market?
Please remember that these 3 firms all failed miserably and are only in existence today due to a massive government bailout. The smartest sharks in the room became fish food in the Great Fall Panic of 2008 and only stayed alive through American "generosity." And yet the belief in the power of these firms to keep the stock market afloat remains powerfully entrenched. They failed in 2008 and they will fail again (and again).
And what is the message copper is trying to send today by falling almost 3% on a day when the US Dollar Index is down? And how about the short-term breakdown in the copper to Gold ratio? Let's just say I am rather comfortable holding puts on the stock market here. Anyone left in the casino knows the odds are stacked against them. We are all guessing in the short term, but due to a deficiency in my character and our paper monetary system that encourages speculation to maintain purchasing power, I love the game. I remain extremely bearish on the stock market. Place yer bets...
Monday, June 14, 2010
Probably from all that black bile bearishness I've had sloshing around in my gut lately. We hit my "ideal" topping zone today in commercial real estate, so I loaded my little lifeboat with a lot more puts today on the triple bullish DRN ETF. I also bought many more puts on the triple bullish UPRO ETF, which tracks the S&P 500.
Continued warning signs today. The TED spread had another ramp higher today. Short-end government debt yields collapsed again today. Zerohedge posted how European banks are parking all their money with the ECB instead of trusting each other. The S&P 500 hit its 200 day moving average today for the third time in as many weeks and failed at this all-important technical analysis line.
Another one or two day wonder wouldn't surprise me during options expiration week, which is why I still have a little dry powder left in my kamikaze bear trading account. Such a scenario would allow us to fill the gap in the $VIX before we crap (we came close today).
"Dollar down, stocks up" didn't quite work out as the bulls had hoped today and I think a lot of bullish correlations may be breaking down shortly. Over the short to intermediate term, the only thing I am bullish on is physical Gold held outside the financial system. Around mid-summer, I hope Mr. Market will present me with an opportunity to return to the bullish camp on Gold stocks. In the mean time, I am heavily short paperbugs.
Sunday, June 13, 2010
U.S. Dollar bulls have been correct as long as the scoreboard they use to claim victory is the stock market. T-Bills have indeed outperformed the stock market over the past decade. However, U.S. Dollar bulls have ignored a better asset class in their flight to safety - Gold. It takes 4-5 times as many T-Bills or U.S. Dollar bills to buy Gold as it did a decade ago.
As the clash of the titans between the U.S. Dollar and Gold continues, Gold looks much stronger this time around as the U.S. Dollar benefits from a flight to safety. Many are happy to park their money in the U.S. Dollar temporarily even though they don't like it over the longer term. Risk is relative, after all. How much easier it is to sleep at night once one realizes that Gold is money and a better place to park one's cash when safety is sought at this point in the economic cycle.
The deflationists who understand that Gold is the center of what money truly reflects are few and far between. The delusion of the international monetary system remains intact and keeps many paperbugs from seeing the truth. The promises inherent in the current irredeemable fiat money system will be broken when the time is right. This is as certain as night following day. The only question is the timing and the specifics of what the new system will look like. When you're on the right side of the long term trade and understand the eventual outcome, it is hard to be upset at 15-20% annual returns while waiting for the denouement.
There is panic building underneath the surface, just as there was in the late summer and fall of 2008. When that panic manifests, stocks will fall hard, currencies will fluctuate wildly (including Gold), and commodities will not be a safe haven. However, when the dust settles, Gold will be one of the winners. Just as it was in early 2009 when the dust finally settled. All those who point at Gold's "collapse" in the fall of 2008 are happy to forget that Gold was back at $1000/oz. in February of 2009. They may or may not forget again when the next round of panic ensues. Gold will benefit from the flight to safety. Any temporary blips induced by margin calls should be used as buying opportunities for those who truly understand why Gold is the only secular bull market left standing.
Actually, that last statement is incorrect. The other secular bull market left standing is government debt. All those calling for the imminent collapse of U.S. government bonds and bills have been horribly wrong for a decade now. I don't see these markets collapsing any time soon. If they do, then we can start to talk about Gold beyond $5,000/oz. Until then, Gold will continue to compete against Uncle Buck for investment funds when there is a flight to safety.
In no particular order, here are some charts I found or continue to find interesting over the short-term. First up, Exxon Mobil (ticker: XOM, 42 month daily chart and see previous post related to this stock):
Next up, Freeport McMoran (ticker: FCX, 3 year daily chart and see my previous post on other base metal miner blue chippers RTP and BHP):
I have also been focused on the copper to Gold ratio recently (see this prior post). To avoid beating a dead horse too much, I decided instead to show a chart of an industrial metals index (Goldmun Sucks' Industrial Metals Price Index [$GYX]) to Gold ($GOLD) ratio, which is the same concept as the copper to Gold ratio (5 year weekly chart of $GYX:$GOLD ratio):
And for those who aren't watching it, yes, the TED spread ($TED) continued to power higher on Friday:
I don't think there are any serious Gold bulls out there who haven't noticed the U.S. Dollar skyrocketing just as it did before the last credit and stock market implosion. Here's one of those pesky Dollar denominated debt instruments that seem to respond to a flight to safety, the 1 month U.S. Treasury Bill ($UST1M):
I am sure I am just being overly pessimistic and the Dollar rising is a sign of the strength of the global economy. Economic strength is what the European stock markets are telegraphing after all:
And since China has been in a confirmed bear market for a while, I am sure it is the USA set to lead the world into a recovery. So many Americans have now walked away from their mortgages (and other debt obligations) that, freed from the shackles of making mortgage payments, they are about to cause the economy to catch fire! Given all the high-paying jobs that are being created and protected in the government sector, I see nothing but blue skies ahead...
Gold will continue to benefit from the flight to safety and will continue to crush the performance of the U.S. Dollar, as it has done for the past 10 years running. Part of my bias towards expecting stock market chaos sooner rather than later (well, other than being a put holder on stocks), is that it fits in well with my expectation for an important Gold stock bottom this summer. Of course, Mr. Market has a way of delivering surprises to those who think they have him figured out. This is why I never trade my physical Gold, I only accumulate more of it on weakness. Still waiting patiently for any weakness in the Gold price to add to my savings account. In the mean time, I will be reacting to any further price strength this week in the stock market by buying more puts for my trading account.