Biiwii (but... it is what it is)

A Value Proposition

2009-11-10T15:09:00.003-05:00

This was written almost exactly 2 years ago. I am dredging it up again because I turn on CNBC and it's 'gold this and gold that' and all the inflation experts getting everybody discombobulated once again with inflation fears... the 'silver is undervalued vs. gold' story getting pumped now 24/7... gold bugs are on full froth.

Gold is simply about value, but we are so far removed from that concept in the age where supposed financial advisers are again touting 'take the longest mortgage you can and use the extra money to buy stocks for better return' (my friend actually told me he heard this uttered by a CFA on a supposedly serious financial radio show last weekend).

If you are confused or emotional about gold, take some time and read this. I am not trying to sell you anything, other than piece of mind.

A Value Proposition

GG trade over

2009-11-10T10:50:00.002-05:00

I must kiss pretty pretty Gigi goodbye once again. Trade is done off of this buy and I have plenty of smaller miners with more value embedded, in the event that Gigi wants to go for the top line of the trend channel, because then HUI would do the same and the smaller miners and explorers would absolutely go mental.

Gold & Gold Ratios - Where's the bull market?

2009-11-10T07:31:00.008-05:00

GSR not buying G-20 jam

2009-11-09T16:04:00.002-05:00

The gold-silver ratio is not buying it, yet. Shorts went scurrying to cover into the close but silver has thus far failed to confirm by outperforming gold.

NFTRH identified the short term support level noted by the green line and as long as it holds, there is hope for bears. Well, the ones who are market neutral like myself anyway. Anyone net short had to rush for the exits today, just as the bullshit coming out of G-20 intended.

Going to fight the pig a bit longer...

2009-11-09T13:59:00.005-05:00

Recall this post from last Thursday and the baby inverted H&S? Well, G-20 pumped it up to target. Also, check out the chart at left of Chinese etf FXI. Is this exhaustion or will this time be different?

Don't get me wrong, I have no intention of playing hero. But the parameters are stretched but not yet broken.

'Stocks jump on renewed risk-taking after G-20' --Reuters

2009-11-09T11:56:00.004-05:00

Oh my this is not going to end well.

A late stage system comes to its ending stages with the most myopic bureaucrats at the controls, blindly feeding the system with what their forebears have done before them. Inviting, or rather compelling an inflation problem of epic proportions to manifest.

I understand that most people don't really know what these clowns are up to and don't really care as long as we get our hoped-for recovery. But not enough people ask 'at what cost?'. They are the unquestioning masses that will buy stocks from the financial services industry that is at this moment enabling their re-entry into the markets. They will think they are doing okay, while anyone aware of the dow-gold ratio just cleans up in real gains.

But in an unraveling system, are there any real winners? Are there?

So, regardless of how well I may personally do in this environment I am going to just say this sucks, and leave it at that.

Have a great day. Casino patrons the world over sure are.

KGN

2009-11-09T10:30:00.005-05:00

Not sold yet, but thinking... Edit (10:41) I don't seem to be selling. Hmmm... I guess if you have shares designated as investment, you can sit through it and see where the investment lands. Decisions... and bubble dynamics?

NFTRH 1 Year Ago

2009-11-08T10:54:00.003-05:00

NFTRH58 was just mailed to subscribers and uploaded to the archive. It was a laborious piece of work that considers the intermediate term from several different angles. It was difficult to write but leaves me with a feeling that I am ultimately honing in on the right track for what is to unfold.

Meanwhile, today we continue our 'NFTRH 1 Year Ago' theme of putting the letter's actual real world analysis where its mouth is... and was:

Deflation or Inflation? (Excerpted from NFTRH7, dated 11/8/08)

I would like to call your attention to an email exchange I once had with Rick Ackerman regarding a provocative article written by Rick on the subject that is now foremost in the financial and economic community’s consciousness. Talk of deflation is everywhere now, but in this little corner of the internet it was going on 3-1/2 years ago: [copy of email exchange - link now broken - between Rick Ackerman and myself].

The reason I dug this up is that all too often, subjects like inflation and deflation are batted around and discussed in abstract, almost cartoon-like fashion. Inflation and deflation are buzz words in a system that creates money out of thin air in ever less successful attempts to stimulate economic growth and prosperity. It is also relevant now because if I am known for something other than a generally negative attitude toward the Ponzinomic edifice that so many have taken for granted as a financial system, it is my current bullishness on the gold miners, a sector that most people would not associate positively with deflation.

This is my most direct point from the Ackerman exchange and indeed its premise is being tested today: “In my view, the inflation game is played against the deflationary impulse or need to correct. It is the Fed and other forces pushing on a string, and one day they will find the string simply goes limp and all the inflated chickens will then come home to roost.”

Cluck cluck… they reside at the national doorstep. Having been lectured recently about deflation by a gentleman commenting on a recent article and having noticed legions of ‘deflationists’ appear on the scene after the market began eating credit for breakfast, lunch and dinner, I think it is time to at least look into the subject a little more closely now that the lonely few, led by Robert Prechter , have gotten reinforcements en mass.

Don’t get me wrong, people concerned about deflation are some of the smartest I know of; thoughtful people who understand the components of what an unsound economy is built on. The great post-9/11, post-recession inflation bull market in commodities and to a lesser extent, stocks, was actually the result of successful inflation policy from the preceding crisis. The actual inflation occurred during the depths of the economic downturn early in the decade. The effects of the inflation were apparent for years after, with the punctuation taking the form of oil at $147 a barrel back in those relatively carefree days of summer, 2008.

Things are indeed more dicey this time around and global central banks are pushing on that string as hard as they can. The deflation argument holds that their attempts will fail as the gaping maw of many $Trillions in liabilities just yawns wider with each attempt and says ‘gimme more’. The inflation argument however – at least the proper inflation argument - holds that it is the act of money creation that will lead to higher prices one day and the associated rising inflation fears that will crest into the next cycle.

But first of course, there is the current and very brutal cycle to deal with. Which is why we watch things like what deflationists call ‘the velocity of money’ in an attempt to gauge how well our official would-be inflators are doing. This week our often watched M2 and MZM have each hitched down a notch. On the other side of the mixed bag, the 1 and 3 month LIBOR rates have plummeted to new depths implying that somebody gave a big official cattle prod to the banks to ‘get it in gear’. All we can do is to keep watching these and other indicators closely in trying to determine whether policy is successful (success defined as a new inflation cycle).

No matter whether or not official policy ultimately proves ‘successful’, the global economy is likely to experience a prolonged downturn as authorities feed the beast at one end and then deal with the – how can I put this… by-product at the other. At the moment systems are breaking down and inflation effects, if policy makers are ‘successful’, will likely have to wait quite a while before taking root.

This is why I find it troubling as a gold stock trader/investor when this asset class moves in tandem with the widely touted ‘resources’ trade and even the stock market. Raging inflation bulls want you to protect yourself from a coming inflation but do not discriminate between the monetary (currency, bonds and sometimes gold) and the economically positively correlated (commodities, stock markets and sometimes gold).

As blog readers know, throughout the most recent inflation bull cycle, I awaited the contraction, which would be the time the gold miners become distinguished as a unique asset class. The title of this article should actually be Deflation AND Inflation because that is what we currently have; deflationary destruction of credit/liquidity and global authorities pushing on that string. We were never going to get active inflation policy until a well rooted deflation impulse took hold. It is here, it is monetary and gold is outperforming, which is all the gold miner investment stance needs.

RUT roh

2009-11-06T16:46:00.003-05:00

The small cap Russell 2000 ($RUT) is not bullish. Nuh uh. Here's the chart, updating along since originally shown. It recovered back into the wedge and then pooped out of it again. MACD bearish divergence and below zero. No, me no like.

A good weekend to you. I have got a newsletter to write, soccer to coach, wood to chainsaw, football to watch and a Les Paul to crank.

Another week ends with things making just a bit more sense in the markets.

VIX Updated

2009-11-06T10:25:00.002-05:00

VIX comes to the SMA 50, all is right with the world, for now.

KGN - Another love story

2009-11-06T10:21:00.001-05:00

Geithner Summons the Blog Squad

2009-11-06T07:49:00.001-05:00

I think this is pretty cool: Geithner Summons the Blog Squad

Thanks to a subscriber who sent me the link.

The Long Bond

2009-11-05T18:01:00.003-05:00

Here is a most important long term sign post, the long bond and its EMA 100.

Against the backdrop of the long bond's uninterrupted rise from the 1980's, Alan Greenspan was able to portray himself as the great Maestro, always at the ready with inflationary policy when the market and economy needed it most. This is what I have viewed as a wellspring, compliments of Paul Volcker's tough inflation-fighting policy of the late 1970's and early 1980's. This policy sprung a new bull market in paper stock and bond certificates as confidence was restored in a secular way.

Greenspan used this sound policy as a lever with which to self-aggrandize and inject moral hazard into a global economy ever more dependent on debt and leverage to keep itself afloat. The new bureaucrats in charge, Bernanke, Geithner and Summers, have taken Greenspan's play book and run with it.

But they will run as far as the long bond says they will run.

It turned out that Q4, 2008 was merely an opportunity to push the mother of all panic buttons and introduce inflation policy into the system like never before. This was a lay up as Larry Summers implored the public to buy treasuries right into an inflationary impulse that has been nearly equal to last year's deflationary one. This trade has been like taking candy from a baby.

And the game of hide the cheese will continue to frustrate both the 'inflationists' and 'deflationists' at important turning points, as long as the secular trend remains intact. I am of the opinion that there will never be outright deflation as long as the public maintains its...... I can't call it confidence... as long as the public maintains its penchant for thinking in conventional terms.

Because as the public does so, it makes no effort to stop the ongoing and official gaming the long bond, which sees policy makers ramp the money supply every time treasuries rise strongly, giving them license if not imperative, to do so.

The game will end if and when the EMA 100, the secular backbone of the trend, is broken. Then we are in uncharted inflationary waters. I am looking for another test of the 100 as per the daily chart of 30 year yields shown in this post. At that point, I will have to say the risk is substantial for the inflationists as another deflationary liquidation is probable. From this event would come future inflationary policies in a continuation of the wash, rinse, repeat cycle.

Either that or the game ends and a new era begins. That would be the era of hyperinflation. We should be hoping the current trend in the long bond holds.

SPX still on message

2009-11-05T17:17:00.006-05:00

Now, this is just a script drawn up in a fit of chart geek fancy, but why should I become irritated with this pig? It is simply doing what it is supposed to do if the H&S top scenario will come to be.

A baby inverted H&S-like object has formed with an upside target of 1090, and this must be factored. Although I would prefer that the bump terminate at the noted 62% Fib retrace, which coincides with a nice cluster of lateral resistance.

Again, new highs mean the pig man lives on, and I guess I'll get pissed off at that. But it is hard to be too upset when your gold stocks keep your portfolios at new highs and the market is only doing what the charts said it might.

This is the most patient I have ever been in holding bearish positions against floating hope. Maybe it will even pay off one day if we can begin rounding into a right shoulder next week.

Zzzzzzzz....

2009-11-05T11:37:00.002-05:00

VIX Updated

2009-11-05T10:31:00.006-05:00

Well, we knew the bullies would have something up their sleeve. How did we know? For one thing, the VIX went too far too soon and the megaphone shouted the news.

Now, the VIX declines in an orderly manner down to the SMA 50. That level should hold or else the bear case goes poof.

Interesting markets, but a nice set up taking place as many indicators converge to say bully's days are numbered... for this rally leg at least.

Slope guest spot - SPX 60 minute H&S?

2009-11-05T09:55:00.002-05:00

This is a post on the Slope from yesterday. The theme originally appeared in NFTRH last weekend.

30 Year Yields - Here we go!

2009-11-04T15:28:00.003-05:00

Want to see a bullish inverted head & shoulders? Take a look at the 30 year yield. It appears that if officials can't take the ball, the global US treasury market might do it for them.

That inverted H&S targets right up to a zone that denotes NFTRH's most vital and big picture pivot point. Let's hope the target holds as resistance, because much higher than that and the whole game changes. Yes it does kids.

It will be at that point where the dangers to adherents of both deflation and hyperinflation will have the most dramatic risks and potential rewards, depending on the outcome.

US Dollar

2009-11-04T15:06:00.003-05:00

The chart shows what these creeps did to the dollar today. We have supposed economic growth in the works (don't panic the people) yet we will keep inflationary policy in place indefinitely and as we see fit (actually, as the t-bill sees fit). Meanwhile, the dollar tanks (okay really, who are the jokers that immediately begin buying and selling stocks, currencies and whatever else is not nailed down immediately upon the release of the totally predictable FOMC?).

Anyway, predictably these myopic bureaucrats did not support their currency because its continued devaluation is critical to their economic recovery. Maybe we have to wait for Bob Hoye's Mother Nature to intervene and drive the casino patrons back to Jesus. Or maybe India's buying of gold, a serious rejection of US policy toward its 'world reserve currency', is the loudest message yet to the dunderheads in high place attempting to engineer their way out of systemic and fatal problems. The world cannot be happy about the continued denial under which the US continues to operate and manage its recovery.

Gary & Otto, a love story

2009-11-04T13:55:00.003-05:00

Go check out Otto at IKN.

Another Fed day...

2009-11-04T12:54:00.002-05:00

Therefore it must be time for another look at the IRX (t-bill yield)

Edit (2:22) In other words, 'the committee sees no need to do squat because the economy sucks at its core and the t-bill rate has not decided we should talk tough yet'.

UGL - Time to sell

2009-11-04T12:27:00.001-05:00

For me at least. The noise from the hype of a world full of sudden gold experts is hurting my ears.

Gold, Silver, HUI... from NFTRH57

2009-11-03T17:19:00.007-05:00

I am not going to pretend I had the answer. In fact, the excerpt from #57 below tells the story of an analyst not really knowing which way the thing was going to go in the near term.

The best I could definitively tell subscribers was that the risk vs. reward was now (as of last weekend) much better than it was two weeks earlier, when the hype was intense and the pressure was great to be aboard. It turns out to have been a buying opportunity. The HUI chart from #57 is at left.

Precious Metals

[Charts of gold, silver, Gold-HUI ratio, two premium gold stocks and summary omitted]

Let’s look at a weekly chart of gold and silver. Despite the still-bearish CoT data for both gold and silver, as a chart analyst I cannot be bearish. Not unless I wish to impose my will on the charts, and that I do not.

Gold says ho hum to recent events and holds its upside breakout. I would dearly love to see this morph into a false breakout with a break back down into the symmetrical triangle. But each week that gold holds above the highs of early 2008, the technical picture gets stronger. Can technicals do a head fake? They often do, but for now they must be factored, along with fundamental analysis and gut feel.

It occurs to me that there are a lot of people in this world who do not hold this particular insurance policy against official monetary perversion. That is a bid in waiting, and a big reason why I repeat here that gold is not about price. It is about getting access to value in an increasingly valueless monetary system. You expect to pay a premium for insurance. You buy insurance hoping you never need it. The new compelling buy level for gold is around 800. Last year it was 700. One day in the future it may be 1300.

Silver has come down nicely. I am still bearish on silver in relation to gold in the near term, but going strictly by the chart, there is no real damage done in nominal terms. Where I have a problem is in how strongly silver leads to the downside in a deflationary impulse environment. Since I favor that scenario in the short term, I do not like silver in the short term.

But where silver goes, so too do the gold miners. Both have hit what looks like possible short-term support. But again, if the GSR does its job in punishing speculation, then these supports will not hold in all likelihood.

The [above] weekly chart of HUI shows the gold stocks at a logical support point, just like silver. In fact the weekly charts of HUI and silver look wonderfully well aligned. This is why I use bearish silver positions to hedge gold stocks.

HUI has done a lot of good work in relieving the dangerously over bought (too far above EMA 75) condition of two weeks ago. But again, given the macro backdrop I once again repeat that the compelling buy of 250 is still in play. Think it can’t happen? The gold bugs don’t, and it may not. But confidence can turn to terror over night. This sector packs a lot of emotion, and it cuts both ways.

But taking out the noise of what I think I know, the HUI weekly chart shows nothing more than the expected pull back to what should prove a support area – of some kind. And again, I can state most assuredly that the risk vs. reward in the gold miners is now significantly less than when people were champing at the bit to buy two weeks ago.

UGL updated 60 min. chart

2009-11-03T13:06:00.008-05:00

Last week UGL was bought for a gap fill at support. Gap never filled and it is a good lesson on why I do not worry about the last few percent when selling or getting absolute bottom when buying.

Most everything I do has a reason beyond the nominal looks of the trade anyway. I want the right things long against certain things short. As a portfolio manager, I am sort of a mad scientist. All sorts of different concoctions designed to play off each other and manifest in good performance.

Anyway, here's the updated UGL (2x the gold price) 60 minute chart. A sweet day where many of my shorts are green and my gold stuff is ass launching. Just the way I concocted it. Yeh, that's right.

Edit (2:08) The silver spam post was removed. It was making my own blog look too spammy. Anyway, today I did buy and then sell ZSL as I looked into the maniacal eyes of the silver bugs and got scared. I can hold the other shorts through what I think may be a mini piggie reversal, but with HUI negating some bearish things today I think I can let the miners run for a bit sans silver short.

KGN

2009-11-03T12:13:00.004-05:00

This chart was done on the day of the breakout from the ascending triangle. I took my profit (from the low 3's) near the first target of 5. Bought back again, got shaken out of trading shares but hold an investment position to see if we can't get to the higher target or beyond.

I think I am going to hold these for many months, regardless of what the price does. At least that's the current plan, given the now small position size.

KGN has come a long way from the back up the truck days of .50