Tuesday, March 31, 2009

All in on Goldcorp now

(ticker GG), which is now by far my largest holding. GG is a solid, debt-free blue chip gold miner. I think it will gain at least 30% from today's lows and this gain will occur before May ends. I am using July calls. My other holdings are Royal Gold (ticker: RGLD) and a smaller position in Novagold (ticker: NG).

I was dead wrong on my call for Kohl's (KSS) and Autozone (AZO) to go down and my only saving grace in these trades is that they were a small percent of my trading capital. I know they are going down eventually, but as option holder, you have to be correct on both direction of the move and timing. Oh well, can't win 'em all...

Monday, March 30, 2009

Real estate woes just getting started

The consumer trend to just walk away from mortgages is now well-established. For those with no skin in the game, this usually makes financial sense (ignoring the moral issues) if a good credit score is not needed in one's daily life. But now, as anticipated, even banks are walking away from homes and refusing to participate in foreclosure proceedings!

Walking away also makes sense for banks if they can get away with it and the costs outweigh the benefits of going through foreclosure proceedings. Many banks may get away with this by playing the same games as homeowners facing foreclosure - asking for proof of who the noteholder actually is! Securitization has made this process less than straightforward.

The losers in this situation are not only people losing their homes (who may actually be better off if they can find a cheaper place to rent), but neighborhoods having to put up with empty homes and governments looking for tax revenue. Housing doesn't need more factors going against it right now, but these forces keep piling up.

Gold will far outperform real estate over the next few years and holders of gold will be able to purchase more land with their gold once the dust settles. A bottom in real estate is nowhere near and those hoping otherwise are doing just that. It is not possible for real estate to bottom until at least 2011, which is when the tsunami waves of option ARM and Alt-A loans that need to be purged from the system have passed.

A bottom in real estate in 2011-2012 is the optimistic scenario, by the way, and ignores the obvious psychological factors that will keep real estate low for 5-15 years after the bottom hits. The commercial real estate bust is now in full force and will decimate holders of this asset as well. Unemployment is soaring and has not yet even come close to stabilizing, retail is in big trouble, and banks are insolvent. Many banks don't know if they can make it to Saturday without a not-so-friendly visit from the FDIC (which is also insolvent, but our government will bail out the FDIC repeatedly during this crisis). Remain calm, all is well...

New article on goldseek.com

Authored by yours truly.

Here's the link for those interested:


Sunday, March 29, 2009


So, how have the stock market, U.S. Dollar and gold held up since this bear market began? The top was in for the stock market on October 11th, 2007. Using the closing prices from 10/11/2007 and the closing prices from Friday (3/27/09), here's the latest results for our bear market so far, which unfairly ignore dividends and interest payments:

I will leave it to the reader to decide if he or she wants to add in some interest payments or dividends to see how much the returns on stocks and the U.S. Dollar could be goosed higher, although any reasonable attempts will still show that gold has come out on top. I believe gold will continue to outperform U.S. Dollar-based cash equivalents (even after factoring in interest) and I believe both will continue to trounce the stock market.

Those still trapped in bullish general stock positions due to 401k/403b accounts that allow no reasonable options should be getting ready to hit the exit button (and moving to whatever cash-equivalent investments are available). The spring rally in stocks should have another 4-10 weeks left in it, but then my widow and orphan sell signal will be generated. This is a signal not to be ignored, as the stock market may well lose more than another 50% from the spring top once it arrives.

New article on www.gold-eagle.com

authored by yours truly.

Here's the link for those interested:


Saturday, March 28, 2009

Last chance to hop aboard

for the short-term in most major gold stocks. I use Goldcorp (GG) for much of my short-term trading in gold stocks, as its' options seem to perform well and are liquid. Below is a daily 6 month chart of GG with my prediction for the next 4-6 weeks.

I am already in on GG heavily, but if we drift back down to the 32 level to fill the recent gap on the daily chart, I will be buying additional July call options. Gold stocks should top with the general markets in April or May, then both will go down together. The difference is that gold stocks will be undergoing a routine bull market correction, while general stocks are headed for new lows.

Thursday, March 26, 2009

Pedal to the metal

Since the War in Iraq against some vague imaginary threat cost so many lives and wasted so many of our financial resources, Obama has decided to expand the War in Afghanistan. This is a disaster and will only increase the calls to diversify away from the U.S. dollar and away from the United States as a world superpower.

Fighting third world countries that pose no reasonable threat to our country is a sure sign that we are an empire in decline. Those who drink the Kool-Aid and buy the 9-11 bullshit about terrorism being an imminent, constant threat have already lost the battle against terrorism because they are terrified.

Don't worry, I do have a financial point to this rant. The government is spending money it doesn't have based on the future earning power of we, the citizens. How many Americans really give a shit about Afghanistan? How many truly believe that securing our borders would be less cost effective and result in fewer lives being lost than sending our bravest citizens half way around the world to risk their lives blowing up shadowy figures in caves?

When you spend more than you make, you are living in the moment at the expense of the future. Think how many Americans now regret buying that expensive house, SUV, or boat. Almost everyone has had to tighten their belt and pay down their debt (if they are able to and still have a job), yet our government responds by spending like a drunken sailor (I mean no offense to drunken sailors, of course) using other people's money on things of little value to its citizens. Keynesian economics demands that governments pick up the slack when its citizens start acting irrational and try to save money and pay down debt.

Handing money to the worst run banks, insurance companies, auto companies, and hedge funds is corporate fascism. Almost everyone who pays attention now recognizes that our political system is broken and beholden to whoever gave the largest campaign contribution last election. A system like this is inherently unstable and investing in such a country is as risky as investing in any emerging market economy.

By pushing the petal to the medal using debt and playing chicken with the value of our currency, the government has made only one thing certain: those with any assets to protect need to be invested in physical gold held away from the prying eyes of our overbearing government. I missed my chance at $880 and decided to take the plunge in buying more when the price dipped to $920/ounce a few days ago.

The primary trend

cannot be changed by government bureaucrats or central bankstas. Keep that in mind every time you hear some new program, plan, wish list, stimulus, regulation, emergency measure or decree. What governments and bankstas can do is amplify or mute the primary trend to a limited degree.

So, the reckless, irresponsible policies of the early 2000s amplified the bull markets in commodities and housing and ensured that their eventual bust would be more severe. Now, we are in a deflationary period and the government is piling on debt to offset the contraction in private debt, monetizing the debt, and solidifying the corporate fascism model. This will prolong the current depression and ensure that it is worse than it would have been and also ensure the first few attempts at recovery will be muted.

When measured in gold (and to lesser extent silver), the form of money with the longest track record and most stable history, many illusions are revealed. This is why the Dow to Gold ratio is key to understanding long term trends in financial markets and it will continue to be until we abandon the fiat system and back currencies with hard assets like gold. I am not saying that a gold-backed monetary system is not without problems and I am not saying that it prevents boom-bust cycles, I am simply saying that it is confusing to the average retail investor when the measuring stick is unstable.

A perfect example is the double top in equities between 2000 and 2007. This is not a "real" double top, as our dollar was debased by 40% to achieve this double top. Additionally, this 40% dollar debasement is an understatement and is based on the U.S. Dollar Index ($USD), which means only that we depreciated our dollar faster than other countries could depreciate their paper currencies.

The chart below (can't remember where I stole it from) illustrates this well, as it shows that the 1970s were basically as bad as the 1930s in terms of inflation-adjusted returns:

However, people think to themselves: "Hey, I broke even in the 1970s. At least I didn't lose money in the stock market." This is the illusion that a paper fiat system demands the sheeple swallow to avoid revolution. The Dow to Gold ratio cuts through the crap/illusion to show the truth when markets are measured in hard currency that cannot be debased by government apparatchiki.

We are going to a Dow to Gold ratio of less than 2 and probably less than one this cycle. This alone should be enough to keep you out of the stock market, unless attempting to time and trade short-term swings. The policy of quantitative easing has never worked at this point in the business cycle and won't work now. Ask Japan, which remains mired in a 28 year bear market that is not over yet.

The only wild card is whether or not our reckless, short-sighted policies will permanently eliminate us as the holder of the printing press for the world's reserve currency. In other words, gold will either go to $2000-$2500/ounce in a worst-case scenario hard deflation or it could go to $10,000/ounce or more if we have a currency crisis, but it will outperform the stock market either way.

Sunday, March 22, 2009

Road map - gold stocks versus S&P 500

The outperformance of gold stocks relative to the S&P 500 has just begun a new multi-year bull leg up, meaning gold miners will dramatically outperform the stock market for the remainder of this general stock cyclical bear market. Below is a 10 year monthly ratio chart of the $HUI gold miner index divided by the S&P 500 showing the "big picture" trend:

This new multi-year leg up in gold miners while the general stock market tanks should result in an even more dramatic outperformance than the 2000-2003 period, as the fundamentals are more bullish for gold miners and more bearish for general stocks than during the last general stock cyclical bear market in 2000. History is repeating itself again, as gold stocks shine during secular bear markets in general stocks.

By the way, gold stocks will outperform the gold price during this period as well, just like last time (i.e. 2000-2003):

The return for the S&P 500 (ignoring dividends) from the secular top of the last bull market in 2000 to Friday's close is roughly negative 50%. For the $HUI (ignoring dividends), it is positive 710%. Neither the secular bear market in general stocks nor the secular bull market in gold stocks is over by a long shot. In fact, the biggest gains for gold stocks during the last depression came during the first cyclical bull market after the 1929-1932 bear (see chart below, stolen from www.gold-eagle.com)!

One of the reasons I am trading gold miners is because though they will markedly outperform general stocks, they are not immune from big legs down in the general stock market and will have sharp corrections after bull runs up for this reason. I plan on getting out of gold stocks in the next 4-8 weeks, as I believe we have started the final short-term bull thrust for this intermediate-term leg up in gold stocks and the top will be in this April or May. An intermediate-term correction through the summer should then occur and lead to a new intermediate term leg up in gold stocks this fall.

Once I think the intermediate-term top in gold stocks is in this spring, which should correspond with an intermediate-term top in general stocks, I will be looking to short weak-looking stocks (and yes, I will short gold and/or silver stocks if they look ripe for it) in anticipation of a fresh bear market plunge in all equities.

Saturday, March 21, 2009

The hungry, rabid 200 pound gorilla

(aka our federal government and its private central bank) is completely out of control. The feds are eliminating any hope of the private sector recovering in a normal manner. Instead, the government sector is crowding out the private sector, making the identical mistakes that helped cause and without question prolonged the last economic depression.

The government is far too incompetent to decide which companies live or die and they really don't try to do any form of due diligence anyway. Congress generally bails out only those corporations that it owes political favors to due to prior campaign donations and other behind-the-scenes political ties. The agenda is political, not economic. This creates a form of corporate fascism that crowds out independent, successful, well-run, entrepreneurial businesses and strikes at the very heart of what makes America great. One need only look at the story of the FDIC chastizing a well-run bank for not making enough bad loans to see George Orwell's worst case Big Brother scenario happening right in front of our eyes.

The more debt the government takes on recklessly in a foolish attempt to reverse a deflationary debt crisis, the stronger the deflationary forces will become and the longer the current Depression will last. This global economic depression will be more severe for America than the last one in the 1930s was - the choices that have been made and that are being made right now at the federal level guarantee it.

The only wild card is the currency, which is the reason to own physical gold as your main cash equivalent while weathering the storm. Three more banks and 2 decent-sized corporate credit unions (i.e. their customers are other credit unions, not the public) went under today after the close and widdle Timmy Geitner is set to talk about his shiny new plan to save his friends (I mean the country) early next week. Another brief panic leg down in the stock market wouldn't exactly be surprising...

Friday, March 20, 2009

Started a position in NovaGold Resources today

(ticker: NG). This is a risky, speculative play on a smaller gold mining company (i.e. not for conservative investors!). During a gold stock bull market run, like the one that began this past October, the large cap blue chip miners bottom and begin to rise first. Once it is clear a bull run has started, the smaller cap, riskier and more speculative gold miners then begin to perk up and make a run up in price.

I entered a bullish position on NG today near the lows via June call options and have an order in for some additional calls that should fill if the stock drops a little more. The bulk of my investment money is going into GG (Goldcorp) and RGLD (Royal Gold), but NG is a potential high reward short-term play (possible 200-300% gains in 4-8 weeks using options). NG has not made as big an initial upward thrust as the larger cap gold mining stocks have over the past two days, but it should move big before this final spring rally leg in gold stocks ends.

Below is a 60 minute intraday chart covering the last 5 months with my thoughts:

Wish me luck...

Always keeping an eye on the big picture

The bear market in general equities is not close to being over. Not by a long shot. I promise. The arguments being bandied about by rational speculators and investors relate to whether or not we have seen an intermediate-term bottom in stocks. Anyone telling you that this is THE bottom in stocks for the long-term is dead wrong and will lead you down the path to financial ruin. So, speculators and short-term traders need to struggle with the tape on a daily basis to determine where we are headed for the next day, week or month.

Longer-term and novice investors, on the other hand, just need to get their money out of the market and into something safe like gold or a basket of senior producing gold mining stocks (like the gold miner ETF GDX, for example). A bear market rally is to be sold into. Those still clinging to the notion that general stocks are coming back because Cramer thinks they are and "gosh darnit, they have to or I'll never be able to retire" are in for a very rude awakening.

The last so called Great Depression had fewer economic destructive forces at work than we have today on a relative scale basis. So why is it going to be different this time? Hope is fine and good, but it shouldn't guide investment decisions.

The 30 year chart of the S&P 500 below, in my opinion, tells the entire story and almost guarantees a move down to the S&P 400 level. And that's only the bottom if things go well. Are people really prepared to take another 50% haircut in their general equity holdings from today's levels?

So, I speculate with funds I can afford to lose (not that I intend to lose...), but I have ZERO long-term holdings in general stocks and general stock market indices because I know what's coming next. Rather than fear it, since I know I cannot control it, I intend to profit from it and I intend to preserve capital by holding physical gold (the ultimate form of cash). Because when the dust settles, though it is likely to get ugly before that happens, there will be amazing long-term opportunities in general stocks and real estate for those so inclined. But you'll need to have capital left over when this bear market is done to take advantage of those opportunities.

Now Trade Gold at FOREX.com

was a marketing email in my inbox today. I won't be playing, but remember that gold is a currency, gold is money, and gold is sounder than every fiat paper currency on the planet. For those who don't know Forex, it stands for "foreign exchange," as in an exchange to trade currencies. Forex.com simply provides a platform to speculate on currency movements. It seems that large institutions such as banks and Wall Street recognize gold as a currency much better than the general public does.

Cash (i.e. currency) is king during a bear market, no? You just have to pick the right form of cash...

On an entirely different note, two articles I wrote have just been published at other gold sites - my first foray into such a thing. Have a look if you're so inclined:



Thursday, March 19, 2009

Evidence shifts to gold correction being over

I have been trying to time the gold bull now that I own a core of physical gold and a few miners, using the rest of my investment funds to speculate on the shorter term swings in stocks. I had anticipated the gold stock correction had a few more days to go, but purchased all my RGLD and some of my desired GG "early" in case I was wrong. I was wrong. Though nothing moves in a straight line, the past 24 hours' price action in the gold miners looks impulsive and I believe the final leg up in the spring rally has begun, which should last 2 months or less.

For those, like me, who missed getting fully long into their preferred gold mining shares at the lows, remember that the pullback after the first mini-leg up (i.e. measured in days) is often fairly steep and should provide another decent entry point. I missed my chance to accumulate more physical gold at the lows yesterday as it just missed my self-set entry "buy signal" of $880 and when it got close enough for me to consider pulling the trigger, I was busy at the day job.

Mr. Market teaches yet another lesson to those of us who think we have it figured out. Speculating entails risk (not that a "buy and hold" strategy doesn't...). I always feel more comfortable with the longer-term than the shorter term. The "big picture" is clear: gold and gold stocks are in a long-term bull market that is nowhere close to being finished and general stocks and real estate are in long-term bear markets that are not close to being finished.

Tuesday, March 17, 2009

IRA and 401k confiscation likely

So don't say no one warned you. It may take a while before things get bad enough, but I would think next fall might be a good time after a fresh plunge in the markets rips retail investors' faces off once again. A bear market rally into the late spring, which should start within the next month or so, will quiet these voices for a while, but the charge has already started. Here's a mainstream media link showing how lobbying groups are already involved.

It is important to have government apparatchiks manage your money, because they have shown AMAZING prowess at handling taxpayers' money and they are all much smarter than you are. This will be a disaster I won't wait around for. I'm out after this spring rally in gold stocks makes me some more coin. I'll take my chances with the tax consequences using a non-retirement account and will gladly pay the withdrawal penalty to avoid this coming debacle.

Call me paranoid, but I see what's coming and it ain't pretty. What better way to fund government expansion than to steal every one's retirement money and invest it in government bonds? This is not the first shot across the bow (see towards the end of this blog entry for the link of interest) and it won't be the last. Caveat emptor.

A fool and his/her gold soon part

This link purports to "bust financial myths." My favorite, being a temporary gold bug, is below:

MYTH 5. Gold is the best place to hide in a lousy economy. In early February, an ounce of gold traded for $910. That's just where it sat a year ago, when world economies weren't so bad off. But foreign and domestic stocks, real estate, oil and riskier classes of bonds have all tanked since, and now gold looks -- ahem -- as good as gold. However, gold does not typically benefit from a recession. As inflation slows, people buy less jewelry, industry uses less gold, and strapped governments sell reserves to raise cash.

Truth: Gold tends to rally in prosperous times, when you have inflation, easy credit and flush buyers (kind of reminds you of real estate. . . ).

Misinformation like this, intentionally spread, should be illegal. I don't even know where to begin. Gold holds its value over one year while everything else tanks 50-75% so you should sell it? Gold does not benefit from a recession?! Try your history books or just look at my previous investigation into the pendulum between gold stocks and the general stock market in our country over the past 100 years. People buy less jewelry and this rocket scientist thinks this will make the gold price go down? Try investment demand. When governments sell their gold reserves, the gold price goes down? Only when gold is in a bear market (when any news causes a sell-off), which it clearly is not.

The gold and gold stock bull markets have a long way to go. Once jag-offs like the one who wrote the piece above in the mainstream financial press tell you to sell all your regular stocks and just buy gold and gold stocks, then we'll be near the top of this secular gold and gold stock bull market. The continued misinformation and lack of education/knowledge about what drives gold and the gold miners higher just means more buying opportunities for those of us who have stopped drinking the Kool Aid. The Dow to Gold ratio will get to one and probably below it and the minimum upside target for gold is $2000-2500/oz., with the potential to reach five figures. The best part is that the biggest moves in the gold price and gold stocks are yet to come!

Getting closer to showtime

I patiently await the final gold stock rally into the spring, which has not yet begun. Many people think gold miners are going to get crushed when the stock market finally makes its spring recovery, but nothing could be further from the truth. One need only look at the 2000-2003 general stock market bear to see how things are going to play out in the gold mining sector.

This is my road map, which is always adjusted as Mr. Market provides more data, on how the rest of this spring will play out for gold stocks:

Why would I think this is what's going to happen? Three reasons:

1) History and seasonals - gold stocks generally top out in the March to May time frame during a bull run that starts in the fall. We didn't get the typical frenetic top of a gold bull leg up, so it should still be ahead.

2) Fundamentals - couldn't be stronger. People who think you need inflation for gold mining stocks to rise have bought the line sold to the sheeple. You need expanding profit margins, just like with any stock in any industry, to attract the big money. Gold miners make beaucoup dollars during significant deflation, as costs go down while gold (being a currency) does well like many strong currencies. Forget the decade of the 1970s, which is down the road. Think 1930s, when gold stocks absolutely crushed general stocks and made huge gains.

3) The general stock market indices should be bottoming in the next month and gold stocks will bottom before general stocks (just like this fall), so the timing of a bottom in the gold miners in 1-2 weeks makes sense. When the general stock bear market rally finally gets going, it will carry the gold stock bull higher with it.

Here's an example from the beginning of the gold stock bull market in 2000-2001, when the current secular (i.e. measured in decades) gold and gold stock bull market began:

In the next week or two, things may seem scary for a few days, as gold stock plunges can be quick and ruthless. But this is the time to buy, not fear. Having said these things, this coming leg up will be the last before a longer term correction that may well last until the fall. The coming bull run up will be fast and over in 2 months or less and then a wicked correction will likely occur so traders need to be nimble and take profits appropriately. Keep in mind that I expect this leg of the bull market to gain 130-170% from this past fall's low, which is a lot for any sector in these market conditions.

For me, I hold physical gold as a core and trade the miners, so I will be exiting the gold mining sector in the April-May time frame for a while. The one exception is RGLD (Royal Gold), a gold royalty company, which I may or may not hold longer given its past tendency to ignore the seasonals (and the gold mining sector and stock market in general) at times.

Monday, March 16, 2009

50 year gold return greater than the stock market

It's official. The 50 year return on gold is greater than the 50 year return on the stock market! If this isn't a condemnation of buy and hold, I don't know what is. An investor has a finite lifetime, he or she doesn't live forever. For most people 50 years would be longer than they would want to stay in the market or at least longer than their earning years last.

WARNING: The following analysis will not be seen on CNBC or Bloomberg and may elevate your blood pressure.

Below is a table of the 50 year returns of the Dow Jones Industrial Average versus that of burying gold in the backyard as of today's (3/16/09) close:

If this doesn't piss you off and open your eyes wide with disbelief, congratulations because you must already be a gold bug! This isn't a better performance by gold, it is a freakin' trouncing. If you don't believe these numbers, I encourage you to do your own homework and verify this information for yourself. After all, why take the risk of owning stocks when gold has no risk other than theft? By the way, gold has also trounced hoarding paper pieces of fiat cash in any currency over the past 50 years by an even greater degree as of today's close.

Score board, bitches. And don't forget that stocks are going lower and gold is going much higher. A long-term (i.e. decades) "swing trade" that will work until we go back to a gold (or other hard-asset) backed currency is to stay out of stocks and in gold until the Dow to gold ratio gets back to one. Once that happens, switch back to stocks (and real estate).

I prefer to trade while Rome burns, so I'm holding a core of physical gold and trading with the rest. One more decent plunge to set up a good divergence in momentum in general markets, then I think we can get a good multi-month rally going.

Sunday, March 15, 2009

Levitating above the cesspool (somehow)

is Goldman Sachs (GS). I missed my last chance to short GS, as I was waiting for the century mark price point, which GS didn't reach. Lo and behold, it's there now.

Here's a 6 month daily chart with my thoughts:

And here's a ratio chart comparing GS to the Dow Jones US Financials Index ($DJUSFN):

Goldman Sachs is going down (again...). I am going to be watching this stock for a rise to around $103-$105/share and at that point, will be buying slightly out of the money July puts.

The window of opportunity continues to shrink

for retail investors looking to diversify into physical gold. The U.S. Mint has once again stopped producing some of the coins it is mandated to create to meet demand. The U.S. Mint keeps citing "unprecedented demand" as the reason to stop making coins in yet another stab at Orwellian rhetoric/logic.

I have ranted about this before - the window of opportunity for private physical gold ownership is closing a little more each day. Those who don't understand history won't care, they'll just invest in the GLD ETF only to wake up one day to find it is yet another Ponzi scheme.

Our government is playing chicken with the rest of the world right now. We are ramping up federal debt to compensate for shrinking debt creation in the private sector and at the state level. However, if the U.S. welches on its promises to pay or Asia and the Middle East decide they no longer want to buy our debt, the "music stops" as some asshole at Citibank said a while back.

This is why gold is a great hedge! It holds its value if deflation continues and the rest of the world yields/acquiesces to our aggressive federal deficit expansion. If a currency crisis hits, gold will explode to the upside. Staying in cash via the U.S. Dollar only works with the deflationary outcome and leaves one exposed to a currency dislocation event.

I don't think our government will do another gold confiscation like they did back in the 1930s when they made prudent Americans common criminals by decree. I do see a GLD confiscation and a heavy tax on gold sales potentially in the cards down the road, which would accomplish the same thing from the government's perspective. Gold will survive and thrive in the coming environment, just like it has for thousands of years. Just don't wait too long to buy some...

Saturday, March 14, 2009

No, I don't think we've bottomed

in general stocks. Some pretty reliable indicators tell me there's excessive bullishness. Now, we could still rally for another day or two, maybe a week at most, but then I think we're going to take another plunge. Now, I know a lot of people are saying there's excessive bearishness, but that's not what I'm seeing. Two easy indicators to follow the money that I use are the equities put to call ratio ($CPCE) and the Chicago Board of Exchange total put to call ratio ($CPC). I also follow the fear gauge or Volatility Index ($VIX).

Below are some charts showing what I perceive to be too much bullishness to allow a solid bottom to form here. The first is a busy chart, as it has three plots on one chart using different colors. This 2 year chart shows the $VIX, the 5 day moving average of the $CPCE (daily plot too noisy) and S&P 500 ($SPX) since the bear market began:

Below is the 5 day moving average of the $CPCE (daily plot too noisy) versus the $SPX over the past 2 years:

The two charts above tell me we're closer to a top than a bottom! I don't think we'll make it through this next week without some downside pain getting started. Staying short KSS and AZO and short commercial real estate via a long position in SRS.

Friday, March 13, 2009

When times get REALLY tough

remember the end game. Central banks and governments hold gold. Many hold lots of gold. If the U.S. and/or other major country decided to re-value the value of gold relative to the value of their currency, which I think will happen once times get really tough, would the other countries who hold a lot of gold really be that pissed? By the time things get that bad (and they probably will, if history is any guide), people won't trust paper promises anyway.

California is already testing the waters. Outtakes from the linked article:

"Could marijuana be the answer to the economic misery facing California? Democratic state assemblyman Tom Ammiano... introduced legislation last month that would legalize pot and allow the state to regulate and tax its sale... Pot is, after all, California's biggest cash crop, responsible for $14 billion a year in sales, dwarfing the state's second largest agricultural commodity - milk and cream - which brings in $7.3 billion a year... tax collectors estimate the bill would bring in about $1.3 billion a year...

...With any revenue ideas, people say you have to think outside the box, you have to be creative, and I feel that the issue of the decriminalization, regulation and taxation of marijuana fits that bill...

Let me re-write the book when gold insurance is needed and can pay off:

"We have to re-value our currency to stay competitive in the global marketplace. By re-valuing our currency lower relative to gold, we actually benefit tremendously as a country. You see, gold is America's biggest cash crop. We have been selling it to the Chinese as they are no longer willing to buy our bonds. Besides, we need the tax revenue to pay for education, health care, jobs, stimulation, bailouts, social security, pensions, banks, auto companies, senatorial bribes (uh, "earmarks"), insurance companies, Wall Street, homeowners, state governments, offense (umm, "defense"), currency support, interest rate swaps, education, abortion, reproductive rights, stem cell bans, stem cell research, drug companies (I mean Medicare part "D" or was it "F"?), baseball steroid investigations, market stability, energy stability, farm subsidies, alternative energy subsidies, bridges to nowhere, home builder subsidies, Affordable Housing, the War on Terror, the War on Savings, blow job investigations, etc., etc."

This California thing is just a glimpse. Sentiment turns. The Drug War becomes the Drug Tax. Paper promises devalue. Gold retains value. When trust is high, the gold premium is low. Now flip the location of the words "high" and "low" in the previous sentence and you have our current situation. People who believe that things don't stay bearish forever are right. That's why when the Dow to Gold ratio hits 1, I'll be looking to turn my gold back into paper or perhaps harder assets like real estate. No biggie - it's just a long-term trade. I'm not a gold bug just for the sake of being a gold bug, although I understand people who are. I'd hoard cardboard if it were likely to be a better investment.

The advantage of realizing the secular turns in the market are simple: you know what not to do! I know to stay away from real estate (other than as a shorting opportunity now or before), stay out of the bullish general equities camp (other than as a swing trade to ride a bear market rally), and hold cash equivalents and gold miners as the bulk of my portfolio. This should easily be a 3 year cyclical bull market in gold miners and it just started with the fall 2008 lows.

Forget inflation. Think instead, how do gold miners make money? When gold is any price (though preferably rising), if costs (e.g., oil, labor) are dropping relative to the gold price, profit margins increase. Costs for digging money out of the ground have decreased, thus there's more money left over after paying expenses. Excuse me for stating the obvious, but when a corporation's profits increase, dividends and the stock price usually follow suit. Gold has been holding up better than other commodities because it has resorted to its role as a currency. The hardest currency known. Old school, barbarous-ass type hard money.

Corporations, whole governments and currencies are evaporating. The value of gold won't evaporate. Thus, gold will become the winner by default.

As an aside, but in a related topic, the 10 year weekly chart of gold royalty company Royal Gold (ticker: RGLD) is a work of art to me:

Thursday, March 12, 2009

My itchy trading trigger finger

couldn't resist picking up some SRS today as a short-term trade when I saw it dip into the low 60s. These double inverse/double levered ETFs are crazy, volatile and fun when they go your way. I probably won't be in this trade more than 2 weeks.

Log-scale 60 minute-intraday chart of the last 8 months on SRS shown below with my thoughts:

I don't trust this now multi-day general stock rally as far as I can kick it. Without a capitulation, a re-test of the prior lows in the general stock indices is the MOST bullish scenario and a drop below these recent lows is more likely. The other thing to remember when the lows hit is this: gold stocks are going to explode higher with the general market when the rally finally comes, outperforming most sectors by a wide margin. I am still looking for at least a 50% gain in the major gold stock indices from the March bottom, which I suspect is still to come in the next 1-2 weeks.

For those that like high-risk speculative plays, I love the chart of Novagold (NG) and think this one is an easy double from current levels:

Wednesday, March 11, 2009


is what gold functions as in times of stress, uncertainty and paper asset evaporation. Gold can't evaporate. The value of promises can. Yes, it is true that other things like land and oil have some similar properties, but there are storage, liquidity and universality issues. Gold has functioned in its role as money, with some "time out" periods to be sure, for the last few thousand years.

How does money come into existence and from where does it derive its value? These are questions related to the current secular cycle turn that need to be asked and will be by an increasing number of people. During such periods, which recur throughout history, people turn to gold. If you lived in the U.K. and were watching your paper money devalue by 30% or so over a year, and wanted to do some diversification, why would you choose the U.S. Dollar over gold after seeing the events of the past year? I'm damn sure not going to choose the Pound Sterling to store my wealth in, nor the Swiss franc.

You see the way I look at it, I'm already heavily invested in the U.S. Dollar. I get paid in it, pay my bills in it, have saving in the bank in it, and use it to assess costs and value. So, if I need to diversify my cash holdings in a fiat world, why not just switch into the anchor of the monetary system itself?

If gold is not the anchor, why do the central banks and governments of the world hold more of it than anyone and why are many clamoring to buy more gold these days? When trillions of dollars of make believe money can be created and put on someone else's magic tab with no effort (excluding the admittedly tedious effort of bribing enough Congress members to get a bill passed), why show restraint? There apparently are no consequences to spending endless amounts of make believe money because we can. Oh, except for the eventual unavoidable currency devaluation that should be a doozy this time.

Now, the timing is everything, some appropriately argue. Deficits explode, deficits are gone, the clock keeps ticking. Well, I know that gold was in a 20 year bear market from 1980-2000 and I know that it is just now back-testing its old all-time high of $850-$875 in the middle of its secular bull market after blasting thru this old high. I also know the Dow to Gold ratio has a long way to go until it reaches parity (or even less than one). Below, a log chart of the gold price since 1968:

Chart above taken from Approximity and scribbled on. Much respect, mon.

So I do trade the gold bull some via gold miners and try to time my entries and exits when speculating. But for those who are not battle-tested veteran traders, gold is an easy choice to protect capital during a wicked secular general stock bear market, especially since a corresponding gold price bull market is not over by a long-shot. I don't even think the intermediate-term bottom is in yet for general stocks!

Still holding puts on KSS and AZO while getting my face ripped off, as I believe in these trades. Full-in RGLD and did a partial buy on GG near the lows yesterday. Hoping for GG to come back down a little to buy more (23-26 range). Waiting patiently for a lower low in physical gold to buy more.

Tuesday, March 10, 2009

All in on RGLD

Though I may be a little early, the risk to reward ratio has me all in on Royal Gold (RGLD) as of now via long 2010 LEAP calls.

I am waiting perhaps another day or two on GG for the 26 level (think it will bottom at the 23-26 range but will buy as soon as 26 is reached as I would rather be a week early than a day late on this one - it may explode out of the gate on day one of the rally).

Gold dipped under $900/ounce but I am waiting patiently. Remember that the gold miners usually bottom before the gold price so you typically get a day when the gold price goes down but the miners (using major indices like GDX/$GDM, $HUI or $XAU) are flat or up for the day as a signal. Since I already own physical gold, I am not in a hurry to get back in, but will be buying more in the next week or so. With gold miners, I am impatient to get back in so I don't miss the coming spring rally as my core miner holdings are light and I am primarily trading this bull via the miners.

Monday, March 9, 2009

What our creditors are thinking part 2

This article says it all. These are not random spouted opinions like in the U.S. press. The government controls media and statements like these, when made, are sanctioned by "the powers that be" in China. By the way, the "foreign reserves" referred to in the article are primarily U.S. Dollars. The Chinese recognize it is better to sell high rather than low and the U.S. Dollar looks like it is in the early stages of topping out.

This is not the first shot across the bow from China. Contrary to current federal opinion, there is not an unlimited appetite for our debt/bonds. Domestic demand is robust right now as everyone flees the stock market for safety, but this also has limits. If Asia decides we are no longer a good investment and turns inward to concentrate on "stimulating" domestic growth, the United States is in big trouble.

We live in interesting times, which is why I hold physical gold...

Royal Gold - time to buy

Ticker (RGLD) is one of my favorite gold stocks as it combines banking with gold and is essentially a gold royalty company. The stock broke out of a long-term consolidation pattern and is now re-testing the breakout, which will serve as support.

This stock started its current short-term consolidation before other gold stocks and will likely finish its consolidation first. I started nibbling today via 2010 call options and will buy more over the next few days. This stock will be taking a shot towards the moon soon and I intend to go along for the ride. Here's a 6 month daily chart:

I have covered the long-term breakout of this stock before for those interested and have previously drawn my anticipated road map for this correction, which the stock is following like a script. This stock has been acting absolutely textbook and, while investing carries no guarantees, RGLD is a lock for massive profits in my opinion. Patience has paid off and now it's time to start buying. I am waiting a little longer to buy Goldcorp (GG), as I think its' consolidation has a little further to go.

Gold has started its' last leg down for this short-term correction and I don't know where it will end but the $800-$880 range seems like a good bet. Panic plunges are common at the end of gold price corrections, so a dip briefly under $800 would not be shocking.

I have given up trading the gold price (I use the mining stocks instead for trading) and simply look to accumulate more physical gold using my savings and trading profits on price dips. Some day I will trade my gold in for real estate and paper assets like stocks, but that day is nowhere near. Once the Dow to gold ratio gets to one, then I will start looking to unload my gold as opportunities present themselves. Until then, gold is my cash equivalent holding and cash is king during a deflationary crash.

Gold is money, has been for thousands of years, and is a better deflation hedge than inflation hedge. Gold miners are the best stock sector to put money into if you want to play the long/bullish side during a secular credit contraction, which is now well established and cannot be stopped by our bankstas or governments.

Sunday, March 8, 2009

Deep recession, my ass

A 1-2 decade economic depression has started. Looking for the bottom in general stocks is a trader's game, not an investors game. Investors should already be out of the stock market if they want to maintain capital. Massive debt deflations/credit contractions do not end in a year or two, they end in a decade or two. This is a secular turn for the United States and global economy, not a cyclical turn.

The only real question mark in my mind is how the currency "game" will play out. It is important to realize how important this game is to one's financial health. Conventional wisdom holds that cash is king during a deflationary credit contraction and I do not dispute this. However, I believe gold will outperform every paper fiat currency on the planet, including the senior reserve currency of the world, the U.S. Dollar.

Our government and unconstitutional central bankstas are doing everything in their power to ignore the will of their people, maintain secrecy and distort the truth. From the artificial War on Terror to the untruths regarding financial bailouts and policies, trust in "the powers that be" to fix the problems we face as a nation is eroding quickly. And so it should, but the point is that fiat currency is a confidence game.

If confidence is lost in the U.S. government and its central bank, a currency dislocation will occur that could completely change the dynamics of the global game. This dislocation would harm the value of the U.S. Dollar and start a stampede into gold. Smaller countries have seen their currencies implode, and now larger countries like England are at risk of having currency crises. While the U.S. Dollar is at the top of the heap, the heap is flattening out.

As economic despair and malaise deepen, more and more paper tigers will implode and more and more investments will fail. The "might" of the U.S. is lately based largely on its ability to borrow money and provide strong consumers to the global marketplace. We are at risk of losing both of these things simultaneously and have abandoned many free market principles in our slow slide toward socialism and/or fascism (still not sure which will win, but Obama and Bush provide respective glimpses of these paths). Our financial markets can no longer be seen as a bright beacon to the world given the events of the past year.

Our real estate market is in shambles. Our insurance companies and banks are insolvent. Our auto industry can no longer function without government support. Our stock market is in the middle of a bear market that is already on course to be similar in ferocity and intensity compared with the 1929-1932 bear market, which caused the Dow Jones Industrial Average to lose 89% of its value.

The funny thing is that the U.S. is in better shape than a lot of countries. Everything is relative. Much of the distaste Americans are beginning to experience and will experience a lot more of in the coming years is due to how good we as a country had it these past few decades.

If stocks suck, you can't trust your financial advisor, banks are insolvent and real estate has just started a Rip Van Winkle type plunge (i.e. wake me in 5-10 years), what do you do with your money? The government would like you to invest in U.S. Treasuries, for sure. And in a way, it would be patriotic to do so, as it will help fund all the programs now needing cash to continue and/or get started.

However, to get a 1-2% yield on U.S. short-term bonds entails a no-longer negligible risk of having principle attacked via a currency crisis. Hold some physical gold as insurance against this risk.

I am looking for a bottom in the stock market in the next 1-2 weeks. Don't ask me what the trigger will be, as the market is getting oversold to the point where it could be something that seems ridiculous. It will be a bear market bounce or sucker's rally and nothing more, but it has the potential to last several months. I am waiting patiently for a lower price in RGLD, GG, and physical gold to establish more long positions in the only sector that makes sense to me from an investing standpoint.

Saturday, March 7, 2009

Waiting for goldot...

Not convinced gold or gold stocks have completed their correction, so I am "sitting on my hands" waiting for a buying opportunity in both. Gold seasonals are such that a bottom is often seen in Mid-March or so before the final spring rally and I do not believe a spring top is in for gold or gold mining stock indices. Gold can move quickly and a rapid $100/oz price plunge would certainly not be unusual relative to gold's recent price action. I will not be buying more physical metal until gold gets under $880-900/oz. Gold stocks are also subject to fall quickly and I don't think yesterday's action (gold up, GDX and $HUI down) is encouraging.

I am being patient, something I am learning the importance of more and more when it comes to trading. Martin Armstrong's cycle work has always been interesting to me given some of its' uncanny turning point calls and he has an intermediate term cycle high/peak date of 3/19/09.

It is interesting to try to discern what the peak is in, since stock markets are nearer to a low than a high and I am starting to wonder if it's old Uncle Buck that's getting ready to head down. The dollar certainly looks as though it's near the end of it's strong rally and I think it needs a rest that may well start in the next few weeks:

So that we don't forget where we are in the forest because of the current 1 year "tree" the chart above presents, here's a 25-year monthly chart of the US Dollar Index:

This long-term chart is not bullish and the trend line break of 80 on this index was quite meaningful psychologically. Time will tell, but a high in the dollar would correspond nicely with a low in the stock market. In the global context of things/big picture, a long-term top in the U.S. Dollar would be quite a meaningful event and could cause quite a bit of trouble in various markets.

If the U.S. Dollar begins to deteriorate meaningfully, this would certainly begin to feed the gold price bull market and help keep its' nominal price afloat. A dollar decline would also help trigger an overdue commodities and U.S. stock market rally.

I still believe at least one major panic day with a $VIX spike at least to the 58-60 range is necessary before the S&P 500 can form a meaningful intermediate-term bottom here. I suspect it won't take more than 1-2 weeks to find the stock market bottom and the final rinse may be pretty ugly for a day or two. I remain short KSS and AZO. KSS is hanging onto the edge of a small cliff with one finger and AZO is proving to me that at times markets can remain irrational longer than an investor can remain solvent.

Thursday, March 5, 2009

Paper implosions

Occur in deflationary crashes, the ongoing global depression being the first historic example that finds every country in the world on a paper/fiat currency standard. If you understand history and you understand how all paper money experiments fail, then you understand that gold is the best form of money for a reason.

Humans are not as smart as we like to think we are and our greed and sloth are legendary. Digging gold out of the ground is hard, dangerous work. Printing pieces of paper or creating digital entries on a computer - well, that's a wee bit easier. But paper backed by nothing but the hot, foul air coming from the mouths of bankstas and government apparatchiks can deteriorate in value quickly.

People talk about the U.S. Dollar, the Yen, the Swiss Franc and the Euro and argue over which will do the best. The fact of the matter is that they are all sinking now and will be for some time. Yes, the dollar may do better than the Pound and the Yen may do better than the Euro, but gold has been money for a few thousand years. As our economy goes deeper and deeper into this depression, do you honestly believe deep down in your gut that government has the ability to turn the economy around? Can you point to a single example in history where the government "stimulated" its way to a strong economy and sound currency (and I'm not talking about a brief unstable bubble like the one we just had in housing)?

The currency storms and instability are just beginning. We have watched Iceland, Russia, Latvia and Britain experience harsh currency swings recently. Just look at this two year weekly chart of the British pound:

Now, it is true that gold bugs are always pointing to hyperinflation right around the corner. I think it's still a ways off for the U.S., though the risk is elevating every day and has gotten much higher for countries in Eastern Europe. Swift traders who can identify trends and use appropriate risk management can hop from currency to currency and make money and/or retain purchasing power. I think it's a workable idea if you have the time, skills, and stomach for the increasing counterparty risk due to banking instability and government interventionism.

But without exploring the hyperinflation route, one must understand that in times of economic depression and credit contraction/debt deflation, gold is a good long term investment to anchor your portfolio and acts as valuable insurance. Physical gold is not a get rich quick scheme (at least I hope not, as that means we're all screwed), it is an anchor in a time of global monetary instability.

I think we are very close to another buying opportunity in gold and I will be starting to accumulate more physical metal once the price gets under $900/ounce. Since I know that the Dow to gold ratio is on its way back to parity or even less than one over the next few years, I believe the minimum upside potential for gold is $1500-$2000/ounce. General stocks, on the other hand, are going much, much lower from here over the next few years. Real estate is going significantly lower from here. Long-term U.S. Treasury bonds are going lower from here using a multi-year time horizon.

Once you accept that the "Greater Depression" (as Doug Casey calls it) has begun, your investment alternatives are limited unless you are a trader or like shorting the market. Gold or other solid cash equivalent kept in an arrangement that minimizes counterparty risk is your best no brainer investment and I think gold will significantly outperform the U.S. Dollar. Gold mining stocks, which thrive more than any sector of the economy in a credit-contraction induced depression, are your best and essentially only reasonable speculative long-term investment option when playing from the long/bullish side.

Can you believe it? If you can't, get ready for some pain dead ahead. This message is not related to trading, but to investing. Those looking to bottom fish general stocks or real estate better understand that we are setting up for an INTERMEDIATE-term bottom, not THE bottom of this secular bear market in stocks and real estate.

From the trading side, I am looking to buy gold miners GG and RGLD right now and have put low-ball bids on July call options for both. I won't go full in until I see how bad the final plunge/rinse in the general markets is, as a panic bottom will drag gold stocks with it to a certain extent. I remain short KSS and AZO and think the retail sector (I follow $RLX) is about to go cliff diving and make new lows.

Tuesday, March 3, 2009

Forget conventional wisdom

Today ,the gold mining indices ($HUI, $XAU, and GDX/$GDM) were up on a day gold was down and the general stock indices ($NYA, $SPX and $INDU) were also down. This is a clue not to be dismissed. This indicates the gold miner correction is completing and the gold price will stop declining soon (miners bottom before gold price). I believe new all time highs for the gold price are coming and I don't think there's a chance in hell that this spring rally is over for gold or gold mining equities.

I will give you some conventional wisdom that you will read about gold that is either partially or completely false:

1. Gold goes up when the dollar goes down.
2. Gold is an inflation hedge and is a lousy investment during deflation.
3. If gold can't do well when stocks crash, wait until stocks do well and then it will really fall.

I submit to you that all of these things are based on conventional wisdom espoused by JP Morgan, Goldman Sachs, and standard sheeple financial analysts. They are all overly simplistic and/or outright wrong. Here are my rebuttals to these arguments:

1. Gold is a currency that competes with the U.S Dollar, much like it competes with all fiat paper currencies that exist around the globe (e.g. Euro, Yen). Some days it moves the same direction as the U.S. Dollar (as in recent movements) but more often it moves in the opposite direction. The U.S. Dollar index is a deceptive index that compares Uncle Buck to all other worthless paper promises/fiat currencies, so what happens if they are all sinking together but the U.S. Dollar is the strongest of the worthless bunch? In this case, gold will rise relative to all currencies. This is what has started and will continue.

2. We are in the midst of the most deflationary impulse the U.S. economy has seen in decades, yet gold is close to its all-time high. Period. End of story and stop ignoring current facts. The same people that say gold is an inflation hedge want to say that gold is up because of fear and the market being down? Well, which is it? Because if it's the latter, and gold is only up due to fear, then we have a conundrum. If we are up during inflation and up when fear runs high, we have a perpetual well of support for rising gold prices, don't we? History teaches us that the "real" price of gold goes up much more consistently during deflation than inflation, but everyone seems to want to ignore deflation and focus on the 1971-1980 gold run as if that's the only time gold and gold miners have done well in the United States! I'll admit that having a fixed gold price makes it hard to do apples to apples comparisons in our history, but just like this stock market bear is crying out that this is more than just another cyclical recession, gold is also screaming that this is more than just another recession.

3. Just like#2, people who don't like gold want to have their cake and eat it too. So gold is supposed to rise with an inflationary stock market bull (e.g., 2003 to early 2008) and when stocks go down?

More importantly, gold miners' profit margins are increasing on a daily basis and gold miners proved themselves not just during the awful range-bound inflationary burn of the 1970s, but during the last depression in the 1930s.

History also shows that gold stocks do well during secular bear markets in the U.S., so why fight the trend?

Besides, gold has no counterparty risk. That is worth a hell of a lot in this environment. Anyone worth their salt would tell you that cash is king during deflation and gold is the purest and most accepted form of cash equivalent available on the planet for the past 2000 years. Yes, I know you can't spend gold at a 7-11, but that argument ignores the obvious: you can't spend a 90-day T-Bill, Swiss franc or CD (certificate of deposit) at 7-11 in the U.S. either - duh!

I predict gold moves to new highs this spring, along with the pending stock market rally that should begin before the month is over. Haters can hate on me if I'm wrong, but if I'm right, the haters must agree to be ignored when it comes to all things gold forever. PERIOD.

Monday, March 2, 2009

Out of gold mining shorts

Closed my NEM and GFI puts today. They may both go lower but I'm taking the money and running and getting ready for my next moves. I'll be looking to start scaling into long call option plays on RGLD as early as tomorrow morning (already at target levels) and possibly GG tomorrow if it gets clobbered.

I don't think the S&P 500 is done going down, I am holding my KSS and AZO puts, and I am still looking for a $VIX spike to at least the 58-60 range to help stop this brutal 2nd panic leg down in the general markets. Gold miners will bottom before gold price, so this will also help time my next purchase of physical gold.

The next part of the war

The war against gold, whether thought of as conspiracy or simply a group of unorganized people and organizations trying to maintain a lucrative status quo, is a serious war. This is particularly true for the United States, as it is the reserve currency of the world. If the U.S. Dollar is replaced by another global currency, particularly one backed by gold, it could crash in value overnight by 50% or more.

Now that gold is on the radar of institutional and retail investors, albeit still at the early stages for the retail side, the war will escalate against gold. This will happen predominantly via fraud. Paper gold, such as the GLD ETF and others like it around the globe, can actually be used to swindle people quite easily.

Offshore gold accounts also offer opportunity for fraud, as a recent example attests (not the first).

Now come reports of significant coin counterfeiting out of China (also, not a new phenomenon).

Between these stories and what I suspect will be massive fraud exposed someday soon in the GLD and SLV ETFs, there are fewer and fewer options available to retail investors. I also noticed a curious and abrupt end to the shortages in retail gold and silver coins with 2009 minted versions. Call me a paranoid skeptic, I know, but I think I'll be trying to find 2008 or older coins for my next physical gold order. Diversification is also important. Capital controls are also ratcheting tighter and even Swiss banking secrecy is under attack.

In the end, we have to be nimble sheep to stay ahead of the herd as more and more options are taken away. Don't be faked out, like most of the herd will be, when fraudulent gold scams come to light. You see, a GLD ETF scandal could drop the price of paper gold by a few hundred dollars in a day, and yet, it would only be another head fake on the road to a 1:1 (or less) Dow to Gold ratio.

Remember the end game: central bankers and their governments around the world all hold lots of gold. When things get really bad, expect their gold to be mysteriously re-valued. With the stroke of a pen, central bankers and their governments can make their gold worth a lot more pieces of paper fiat money. It happened in the last depression and it will happen during this one.

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