Tuesday, May 4, 2010

Gold Heresy?


My decision to short gold via a long position in GLL (daily chart above) was not made lightly. I also realize that doing so will be considered heresy by the many out there who adore the shiny metal. I even badgered myself with insults before putting on the trade. It is said the hardest trade is the right trade and right now, given all transpiring around the globe both political and economic, being short gold feels that way.

The GDX and HUI continue to lag gold itself. This is a negative divergence and demands your attention. I realize the inflation/hyperinflation and hence gold bulls out there will disagree but they continue to overlook increasing unemployment, bankruptcies, and yes foreclosures.

Okay here goes. I believe that the markets have turned into one giant casino. The financial tail is attempting to wag the broader economic dog so to speak.

The financial institutions we have come to know are masquerading as traditionsl sound banks of yesteryear. Having gambled away all they had and what they didn't have, they have used taxpayer money, not to clean up and solidify their balance sheets but rather to propriety trade (mainly via algorithm robots) for their own account energy, precious metals, and stock markets, and anything else they think they can 'win it back' in.

One big orgy of double down to get back to even so to speak with gold, crude and S&P futures leading the way.

The massive deflationary de-leveraging is still underway, as a result of the mother of all credit bubbles, despite temporary surges in these and other various asset classes.

Quick side note on deflation. My wife and I called Sirius to advise them we would not be renewing service in my vehicle. They said they were sorry to hear and would connect us to the cancellation department. The cat there was nice enough and asked us if we would renew the service if we could get it at half price to which we decided yes.50% off without haggling. This is just one small anecdote but I think it does reflect the current environ. Hardly inflationary.

Pay attention to what gold, oil, equities and bonds all did back in 2008. Speaking of bonds.....

I have received some e-mail regarding my long bond position (ticker TLT). Most of it along the lines of "how can you buy long bonds with government finances in the shape they are in" alongside the "we have record deficits and debt to GDP numbers that would make a 3rd world dictator cringe." Also noted was the bubble in bonds (in my opinion the junk and muni bond market is where you should be scared witless) noted by many a market luminary predicting an utter demise in our bond market.

I disagree for many of the same reasons noted above with gold. I would counter the luminaries who predict a debacle in the bond market with a reminder that the same arguments and warnings were shouted from the rooftops about the Japanese government bond markets (JGB's) for years yet yields continued to plunge and bond prices to rise as deflation continued its death grip on the land of the rising sun.

Note today's possible break away gap on TLT.


Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $42.45
Long 1 unit Ultrashort Real Estate ticker SRS @ $49.10
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Long 1 unit ishares Barclays 20yr Treas ticker TLT @ 92.15 stop @ $89.68
Long 1 unit Ultrashort Gold ticker GLL @ $43.05 stop @ $41.74

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