Sunday, November 22, 2009

Gold Going Parabolic

I think Gold is going parabolic. We're likely to get a price spike like we saw in oil two summers ago. I'm thinking $1300-$1500. Maybe higher. I strongly recommend you either buy gold immediately with the idea of reselling it in pretty short order and realizing some profits, or else waiting to buy until after it corrects (and it will be a nasty correction.) If you want to buy and resell quickly, I recommend you consider using the exchange traded fund, GLD. Physical gold has some costs associated with selling that paper gold doesn't have.

I also strongly recommend if you currently own gold that you sell it when you see the chart go vertical. Don't try to call the top or squeeze the last 5% out of it. Be happy with the profits you've got.

The correction is liable to take a year or two. It will come on fast and furious, knocking off 10% or more within a day or two. Gold and silver are both prone to extreme behavior that would absolutely freak the stock markets out if it happened there. There are wild and volatile swings.

Silver is behaving in an interesting fashion. It's finally getting warmed up. I think it will make a run at its old high. I think it will beat its old high and rise in sympathy with gold.

I think I'll be a seller of both gold and silver when and if we see the flagpole formation on the charts.

The stock markets are still looking toppy. The spike in gold could indicate a further sympathy rise in the stock markets driven by inflationary fears. This is not, repeat not, a new bull market in stocks.

Thursday, November 19, 2009

Société Générale tells clients how to prepare for potential 'global collapse'
Société Générale has advised clients to be ready for a possible "global economic collapse" over the next two years, mapping a strategy of defensive investments to avoid wealth destruction.
by Ambrose Evans-Pritchard

In a report entitled "Worst-case debt scenario", the bank's asset team said state rescue packages over the last year have merely transferred private liabilities onto sagging sovereign shoulders, creating a fresh set of problems.
Overall debt is still far too high in almost all rich economies as a share of GDP (350pc in the US), whether public or private. It must be reduced by the hard slog of "deleveraging", for years.

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'Debt levels risk another crisis'
"As yet, nobody can say with any certainty whether we have in fact escaped the prospect of a global economic collapse," said the 68-page report, headed by asset chief Daniel Fermon. It is an exploration of the dangers, not a forecast.
Under the French bank's "Bear Case" scenario (the gloomiest of three possible outcomes), the dollar would slide further and global equities would retest the March lows. Property prices would tumble again. Oil would fall back to $50 in 2010.
Governments have already shot their fiscal bolts. Even without fresh spending, public debt would explode within two years to 105pc of GDP in the UK, 125pc in the US and the eurozone, and 270pc in Japan. Worldwide state debt would reach $45 trillion, up two-and-a-half times in a decade.
(UK figures look low because debt started from a low base. Mr Ferman said the UK would converge with Europe at 130pc of GDP by 2015 under the bear case).
The underlying debt burden is greater than it was after the Second World War, when nominal levels looked similar. Ageing populations will make it harder to erode debt through growth. "High public debt looks entirely unsustainable in the long run. We have almost reached a point of no return for government debt," it said.
Inflating debt away might be seen by some governments as a lesser of evils.
If so, gold would go "up, and up, and up" as the only safe haven from fiat paper money. Private debt is also crippling. Even if the US savings rate stabilises at 7pc, and all of it is used to pay down debt, it will still take nine years for households to reduce debt/income ratios to the safe levels of the 1980s.
The bank said the current crisis displays "compelling similarities" with Japan during its Lost Decade (or two), with a big difference: Japan was able to stay afloat by exporting into a robust global economy and by letting the yen fall. It is not possible for half the world to pursue this strategy at the same time.
SocGen advises bears to sell the dollar and to "short" cyclical equities such as technology, auto, and travel to avoid being caught in the "inherent deflationary spiral". Emerging markets would not be spared. Paradoxically, they are more leveraged to the US growth than Wall Street itself. Farm commodities would hold up well, led by sugar.
Mr Fermon said junk bonds would lose 31pc of their value in 2010 alone. However, sovereign bonds would "generate turbo-charged returns" mimicking the secular slide in yields seen in Japan as the slump ground on. At one point Japan's 10-year yield dropped to 0.40pc. The Fed would hold down yields by purchasing more bonds. The European Central Bank would do less, for political reasons.
SocGen's case for buying sovereign bonds is controversial. A number of funds doubt whether the Japan scenario will be repeated, not least because Tokyo itself may be on the cusp of a debt compound crisis.
Mr Fermon said his report had electrified clients on both sides of the Atlantic. "Everybody wants to know what the impact will be. A lot of hedge funds and bankers are worried," he said.

Monday, November 16, 2009

What's Causing the Stock Market to Rise?

In my opinion, the stock market rise is not connected with reality.... the so-called fundamentals. The fundamentals are terrible. Unemployment keeps rising, retail sales are extremely uneven, and would be terrible if you took away the artificial sugar high of the government's stimulus, like Cash for Clunkers and the $8000 tax credit for first time home buyers. The real numbers are very bad. Worse than they've been since the Great Depression. Look at sales tax receipts, for example. That's a pretty accurate summary of the buying and selling activity. Consumer credit is down and continues to trend down. People aren't borrowing money to buy things. They're scared to. They're retrenching and paying off debt (or defaulting on it.) That is deflationary, not inflationary.

I thinkt he mechanism behind the stock market's rise is fairly straightforward. It is due to three factors.

1. Foreigners with American dollars in their pockets are expecting inflation. I think those foreigners are wrong, but what they expect rules the roost for now. In an inflationary environment, you want to be out of cash and cash equivalents, like bonds, and into "things." Rather than repatriate their dollars or buy bonds (which are bad to buy in an inflationary environment, since the depreciation of the currency eats up the gain of the interest accrued), they are choosing to trade their dollars for "things" in anticipation of a steady devaluation in the purchasing power of the dollar. One of the "things" they can buy is stocks. In an inflationary environment, stocks generally do pretty well. Foreigners are buying stocks, thus driving up the market. They are also buying gold, thus driving up the market. Thus inflationary expectations create a rise both in gold and stocks. We saw my prophesied correction in gold, or at least the first part of it. Gold went from $1120 to $1100 before rocketing to new highs on Sunday night. I confess I am stunned. This is a powerful upward move. More powerful than I anticipated. Gold is still ripe for a correction, but the price of gold indicates stocks will continue to rise for the near term as well. I need to rethink my Elliott Wave count concerning gold a little bit. It's still ripe for correction. It's still a buy when it corrects. Silver hasn't matched gold's new highs, but if you look at silver's performance in the last 12 months, percentage-wise it has actually outperformed gold. It was at about $8.50 in November of 2008. It's now sitting close to $17.80. It has more than doubled. Gold, on the other hand, went from $710 to $1120+, approximately a 60% increase. Though silver has yet to make new highs, $1000 invested in silver in November of 2008 would be more than $2000 today. $1000 invested in gold at the same time would be a little more than $1600 today.

2. Banks and institutional investors are taking government money, loand through the Fed via the TARP program and similar programs, at essentially no interest, and investing it for a return. One of the places they are investing it is the Treasury bond market. In other words, they are borrowing money from the government and less than 1% and then reloaning it to the government at about 4%. Nice, huh? I wish I was a banker.

But they are also speculating in stocks with it, and that drives up the price of stocks.

3. Joe Six Pack, or what some investors call "Dumb Money" sees the rise in the markets and chases it. He throws his cash in, but is usually a "late adopter" and ends up buying just as the move is finished. The "Dumb Money" is in with both feet right now and is uber-bullish. The "Smart Money" is turning bearish, but is not there yet. The markets generally operate in such a way as to fleece the Dumb Money and give the proceeds to the Smart Money. That is, after all, why they call them the Smart Money. When the Dumb Money jumps in with both feet (and they have) then the end is nigh.

Topping is a process. We are getting there. We are not there yet, I think.

This is still a bear market. This is still a Depression, not a recession. This is still a cyclical bull market in a secular bear. This is still a nice and useful rise in confidence in the midst of a terrible economic situation. Enjoy it while it lasts, profit from it if you can. I still am expecting deflation, and not inflation. This market rally will end, and it will end sooner rather than later.

Get out of debt. Save money. Live frugally. Buy a little gold and a little silver. Don't buy the "Green Shoots" lie to your own harm. The green shoots are just weeds.


Wednesday, November 11, 2009

More Up

The stock market correction since March is not over. More upward movement at least in the near term. My bad. Sorry.

Gold has completer five waves up from the apex of the triangle, which was the start of this latest bull market move over $1000. With today's new highs it is starting to look like it will be an extended fifth wave. Once that exhausts itself, gold will correct and take a breather. A drop back below $1000 is a real possibility. This is a buying opportunity in my opinion. Gold is still in a bull market.

Tuesday, November 10, 2009

Gold and Silver Correction Imminent

Gold and silver are ready for one of their periodic nasty corrections where 10-20% is knocked off the price in a matter of a few days. If you want to sell and rebuy at lower levels, this would be a good time to think about it.

I'm not sure what's up with the stock markets. The new post crash high in the Dow was not confirmed by the S&P or the Nasdaq. Today's action should tell us more, but I think it means my gut was wrong last week. More up for awhile.

I'll post more after I've thought about it more.

Wednesday, November 4, 2009

Free Week at EWI

Please drop by Elliott Wave International ( and check out their resources this week during free week. You have to register, but they don't do anything funny with your information. I was a paying customer for several years and have been a club member for even longer. Prechter is not inerrant, but he is very astute.

The wave correcting last week's decline is unfolding slower than I had anticipated, but I think it's now over. I have to do a little chart work to confirm my opinion, but it "feels" right just watching today's action on TV.

We should start heading down again tomorrow or Friday.


Monday, November 2, 2009

Markets and UNG

UNG looks ready to bounce. I think last month's low will hold.

The stock market action today, which looked like a bunch of see-sawing, was actually instructive. The downward moves unfolded in five clear waves and the upward moves were in three-wave corrective sets. Tomorrow should be a down day unless we move quickly through a first wave and have a second wave correction all in one day.

The primary direction is down for now. There will be rallies, of course. Probably sharp ones, but they should be relatively quick. If my Elliott Count is correct, we've got the fifth wave to go in this first downward series, and then should come a pretty healthy rally which could even retrace 100% of the previous move, but should retrace at least 62% of it. Then we will hit the third wave, which is usually the longest and strongest wave.

A crash is quite possible within the next 4-6 weeks.

If you haven't gotten out yet, and still want to, I think I'd wait until this next downward move completes and we get our larger Wave II bounce. You do your own due diligence and make your own decisions, of course.