Sunday, October 12, 2008
Some Items to Consider
In my most recent comments on gold (ticker GLD) I had indicated I had hoped for a pullback into the 80-82 level. Well the action this week, as fast and furious as it was provided that opportunity. I chose to involve myself in this trade via gold equities rather than the gold ETF. In hindsight, the smarter play may just have been sticking with the ETF, see weekly chart 3rd from top.
For those interested in minutia, I bring your attention to the London Gold fix price, which is basically the physical market for gold. The Friday Oct 10 AM fix was $918/oz while the PM fix was $900.50. Now lets compare that to the Comex number (which is the paper market) which was $850.90. Now I am no missile engineer but even I think something is up with this and while I am not the black helicopter type I am also no ones fool. Given how little respect the banks and global monetary authorities have for disclosure and truth I am prepared to believe anything and am more inclined to trust the physical markets much more than paper ones. Just remember the physical market is for people paying for and taking the gold.
I have been squarely in the deflationary camp for some time, but like any good speculator I am not married to my stance or position. I am married to my wife and my beloved Detroit Lions but not my positions. That said, I am not oblivious to what is going on with the monetary aggregates. The tsunami of money the Fed and treasury are pumping into the financial system, which many are calling potentially Wiemar Germany hyper inflationary.
If you click on this link, The St. Louis Fed Adjusted Monetary Base you can see how the chart has spiked almost vertically since mid-September. I believe this monetary floodwater is in and of itself not inflationary but rather deflationary, because that is what cash is. The banks and lending institutions must lend this money out, via the fractional reserve system, for it to become inflationary. I am no monetary policy expert, but even I know that you cannot force people to lend and you most certainly cannot force people to borrow. I will repeat again, case study is Japan and it's called pushing on a string. Until this lending and borrowing starts these injections are not inflationary but rather deflationary. I am on full alert as they have a very high probability of becoming inflationary and is why I own gold.
The monetary aggregates have broken out but as of yet gold is still deciding. So I am early on gold but lets face it, and as I said before, with all these potential scenarios looming, hyper-inflation, deflation, equity markets closing, bank holidays looming, if I am gonna be long anything at this point it may as well be gold. I value my health and gold lets me sleep.
Gold Bug Index
I want to touch on the $HUI or the Amex Gold bug index. (weekly chart top of page) As my notes indicate we look to have a beautiful head and shoulder broken, which is a stark reminder that no matter how much you absolutely love, are enamored, think it's the magic ticket with a trade on a fundamental basis, the charts don't lie. To call shorting the golds given what was transpiring a tough trade is putting it mildly but it was the correct call. Again the tough trade is usually the right trade. The head to neckline on the $HUI about 520 to 380 for a value of 140, the break of the neckline occurred at about 390, so 390 less that 140 would give a speculator the target of 250. Well looky here we seem to have found some support of substance right there. Something to think about.
The equity markets have plummeted in almost straight line fashion. I have posted a weekly chart of the S&P (2nd from top). This decline looks to be the point of recognition by the short bus riding equity boyz waking up to the reality the credit markets have long known. What a hangover they must have. For those trading markets for any length of time can attest, markets, no matter which or what, can rise or fall much further than any of us dream possible with this recent acton yet further evidence of it.
That said, nothing falls or rises forever, but it can just long even to render many insolvent. I keep hearing this interviews, with traders on the floor of the NYSE who claim a "rip the face off the shorts" rally is coming, in the order of magnitude of a 1000 or so points. I do not disagree with this call as it would restore some technical health to a market that is severely oversold, but we know this matters little to the margin clerk. Which takes me to my next point. These "traders" on the floor, along with many in the markets, Vince Farrell and Mike Holland for sure, would dearly love to kill all the shorts, problem is, the shorts are not the reason for this decline. This decline is being fueled by the big boyz. The big pension funds, hedge funds, insurance companies who are facing major margin calls coupled with client redemption requests.
You are witnessing the selling of long stock. Stock that many of these funds have been holding for years, and while profitable for some time, is coming back on the market in waves. Sure there is some short selling going on, some black box trading happening but as an example, has this simple, run of the mill speculator/blogger recommended a short recently? No I haven't, and for good reason, this is not the time to be putting out lines of short stock. This is the time to enjoy your line that should be well in the money, insulated from market noise and the games the boyz try to play. This is precisely the time to get defensive, to be tightening up the proverbial leash on your positions, (re. stops).
I wonder how many heavily long or short traders slept this weekend with what may or may not transpire out of the G7 meetings ?
Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".
Long 1 unit of Ultrashort S&P ticker SDS @ 61.75 stops at $92.43
Long 1 unit of Ultrashort 20yr TBond ticker TBT @ $60.10 stop at $53.93
Long 1 unit of Goldcorp ticker GG @ $29.50 stop at $24.42
Long 1 unit of Kinross Gold ticker KGC @ $15.40 stop at $12.98
Long 1 unit of Anglogold ticker AU at $17.90 stop at $15.39
Long 1 unit of Goldfields ticker GFI at $8.60 stop at $6.14
Long 1 unit of Chicago Bridge/Iron ticker CBI @ $11.55 stop at $9.88
Short 1 unit Int'l Bus Machines ticker IBM @ $129.05 stop at $97.71
Short 1 units of Apple ticker AAPL @ $178.05 stop at $102.21
Short 1 units Salesforce.com ticker CRM @ $56.05 stop at $42.12