Thursday, February 11, 2010

Not Much Happening...

It's good to be back.  While the conversation was good, the lake hut was toasty, and the peace was a welcome gift, we could have done with more fish.  It seemed that the biggest biting day of the week was the day before we set up, as many of the locals informed us.

So not too much happened on the ice fishing trip - not nearly as much as we would have liked, anyway. 

It seems the markets were up to about the same while we were gone, and may be up to the same for a while yet. 

As is often the case in bear markets, prices plummet rapidly, as short-term panic sets in with a side of negativity.  Then, a sharp rebound, or - what we are watching right now; a period of lesser conviction and sideways meandering as the collective of market participants build up courage for their next big buy and succumb to the call of the market.

This is about the time where a small upward thrust in the markets occurs before a resumption of the bear mood.

We are most likely in the middle of that sideways consolidation.  The short term EMA's on the major indexes have been allowed the opportunity to close in and tighten up, so we are definitely in the latter half of a consolidation period that should see a large break in prices - most likely first to the upside and then to the downside even harder.

We should probably see the S&P 500 move toward the right side of the downtrend channel, possibly break through for a short duration in a rush of euphoric buying, and then finally resume the downtrend.

The precious metals should continue to mirror the stock market (despite the repeated calls that they are NOT a speculative  investment) - if the markets make a pop, so should PMs, and when the markets turn, the PMs should turn with them.

The primary trend is still down, and therefore we are simply looking for points of exhaustion and ideal trade entries.  I know that you, dear readers, are probably tired of hearing about this trend (although it is only 2 months old in PM terms and 3 weeks old in stocks).  Despite that, this is the trend to focus on now, because all other assets are going to be affected by it across the board.

We will continue to sniff out areas of extreme sentiment using a laundry-list of methods, and are feverishly in the process of developing our website to offer you the best services possible.

Enjoy the day, dear readers.  We'll be back soon.

Derek Blain.

Monday, February 8, 2010

Jumping the Gun.

It seemed the gold bugs are out in full force over the weekend, calling "the bottom" on the gold price.  We posted a follow-up chart at the end of the day to all those saying that the "high volume" toward Friday's close was indicative of a major turning point.

However, when the rest of the week is put into context, one can clearly see that this is a weak argument at best, and one based on hope.  Gold may experience an upward move from this point on - it was a pretty major psychological barrier that was smashed to get below 1050 in 2 trading days, and a retracement of such a huge move is to be expected.

The fact that so many of the "I'm not sure anymore" crowd is clamoring for the best seats on the bull-wagon after a few hours of high volume and a quick bounce off the bottom tells us that the decline in the price of gold is still young.

There's also been a lot of perma-bear accusations thrown our way regarding gold - when we've only been bearish for a few months and our warning flag was up as gold popped through its old record price with ease (in a deflationary environment).  We aren't perma bearish on anything, just as we aren't perma bullish on anything either.  Our job is to take what information the market gives and look at it as a non-participant, scientifically, before making a decision and becoming a participant.

Being fully committed to either side of the trade for long will eventually have serious consequences.  Those who have been committed to gold for the past 30 years are still down 50% in inflation adjusted terms.  Those who have been committed to stocks for the past 10 years are down 45% in inflation adjusted terms.  And now everyone who is short the USD is going to be hurting too.

The USD is going up for two reasons - sentiment towards it was never lower for longer, indicating a major reversal, and that this is a net deflationary environment, where total money and demand destruction join forces to do a vicious dance. 

But its days are numbered too - all fiat currencies are.  It just so happens that there are others who have been given a less jovial bill of health by the doctor in recent weeks.  We are long the USD because it still stands the strongest chance of survival compared to its peers - most of the world's debt is still denominated in USDs, and the courts will only hear the case if you bring in a contract in USDs - they certainly won't hear you if it is denominated in gold and silver.

This might change in the coming decades - we can only hope ourselves, however in the meantime you invest for what is, not for what you hope to be

We are short the markets and some individual stocks because there is a double gain to be had - you are essentially a lender who has loaned out shares at an inflated value, and repurchases them at a deflated value. you get the benefit of pre-deflation dollars by going short and having that same amount after the asset value has crashed.  Not only are you a net-gainer in strict digits, you are a net gainer in the purchasing power of those gains as well.

There will be a time to go short the USD once again, and long gold once again - just not when over 90% of everyone in the trade is on the same side you are, and believes they only have one way to go.  There will be a time to go long stocks again too - but there is a generation or more of psychological unwinding that must take place before they will be a good buy again.

Have a great week everyone! 

Stops will be in place for full close-outs if hit for the rest of Today through Thursday as I am leaving my
"modern electronic technology" at home to enjoy some ice-fishing for a few days.  Please submit any questions, suggestions, etc to, and I will get back to you by the end of the week.

The website is coming along nicely, and we are excited to be able to offer several subscriptions in the near future - we are also excited at the number of requests by people waking up to the real function of markets and wanting to see things through an objective lens.  We'll be happy to offer one, coming soon to a computer screen near you!