Gold, Interest Rates, and Inflation

Here is an interesting chart comparison.

The conventional wisdom seems to be that gold does poorly in an environment of rising interest rates. My contention has been that interest rates lag inflation. ie, that interest rates only go up grudgingly after some level of inflation pushes them up.

These pictures seem to show that gold started it's historic (at the time) rise in the late '70's at the same time that interest rates started to go up. It was as interest rates were declining, from the early '80's to about 2002, that corresponded to the bear market in gold. This was a period of disinflation that roughly corresponds to the surge in low priced imports from China/Asia and a general deflationary trend in consumer prices.

Can't we expect the deflationary trend from cheap imports to abate? As China converts from a purely export economy to a more mixed economy I expect more purchase power parity in the Chinese currency. This should result in a general rise in the prices of our consumer imports. And IF the rise of the middle class is able to be sustained in China and in India (to a lesser degree) I would expect to see renewed support for the basic materials as well as food around the world. Next year may be the start of these trends.
And I haven't even mentioned the massive "money printing" that remains to be consummated as banks renew lending as consumer confidence grows, and as the US energy advantage creates more jobs.

My point from this historical data is that inflation leads interest rates. And gold matches inflation.

And furthermore I don't expect our Federal Reserve to be proactive in the inflation vigilance.

Control risk,
gh

Best Trade 2013

The concept of buying new highs is a hard concept to get used to. We are raised all of our lives being told to buy low and sell high. But, in speculating, we are concerned with the probability of a price movement in the direction that benefits us, in the timeframe we are comfortable with.

Personally, I am comfortable buying at any price as long as I get a quick profit at the start of a trade and therefore have some "wiggle room". I suppose it could be said that I prefer to put on a trade at that point where the price makes a decisive move and momentum is building rapidly. It is sort of like getting a free lottery ticket. The downside can be easily limited and the upside is unlimited.

I have been trading the dry bulk shippers for most of the last half of 2013. This is because I noticed the unusual volume in some of them last summer. It appeared to be caused by accumulation of the stocks. High volume on the rallies and low volume on the declines. As if someone were buying in quantity and then letting the price settle back down before buying again. I later saw that George Soros had put on a small position in the dry bulk shippers. Small for him, a few millions of dollars.

My best trades of 2013 were in getting good position in some of the dry bulkers and riding the eventual trade from about $2 to $4 in DRYS. Some of the others did almost as well. This was not as easy as it looks in retrospect. There were several times that it looked like a breakout was imminent but then the price fell back to near the bottom of the range. This necessitated selling some of my stock to limit my risk. I did not KNOW that the stock would not fall further. My goal is to have a maximum, or near maximum position on when the move takes off. And I only know for sure that it is going to take off after it has taken off.
In the past I would get discouraged after two or three small losses in a stock and quit looking at it. And then miss the move. I have learned a sort of persistence in controlling my risk at the same time I try to maximize my gains on the charts that look promising.
Here are some charts of DRYS. This companies stock price, and the earnings of the dry bulkers in general have been seeing some improvement due to the prices they can charge for their services. Those prices can be monitored in the Baltic Dry Index, which is an average of different dry bulk rates updated daily and can be seen in chart form. Those prices form some of the same chart patterns as traded securities.
But the point of this missive is to point out that it doesn't matter what price you may pay for a speculative stock, only what you can sell it for at some point after it is purchased. No price is too high to buy, and no price is too low to sell. (If you haven't, read "Reminiscences of a Stock Operator"!)

My goal is to find those points where the price makes a shift in direction and sustains that direction for a period of time. The easiest place to find these points is at "new" highs. And all prices are relative in time.

control risk,
And Merry Christmas,
gh

Happy Christmas!

Here is Frank and the boys with some smooooth Christmas tunes...

gh

another imminent breakout?

Will Dryships (DRYS) break out to a new recent high and confirm a change in the long term trend?
It looks likely.
I would characterize the previous run up as short covering rally. From here a rally should represent a change in the outlook for this company, and the sector in general, to a more positive one.

The Baltic dry index has changed trend. So the earnings of the dry bulkers should have substantially improved.

This is a weekly chart and as such represents a longer term outlook.

control risk,
gh

Yes, Taper

Last Wednesday the US Fed came out with a masterful massage of expectations when they stated they would indeed start to taper their purchases of US Treasury bills and bonds BUT they expected to keep interest rates low for years to come. They changed the trigger events for raising rates again, from the unemployment rate, to the need for GDP to rise along with inflation. In all, it seemed a masterful manipulation of financial market expectations. There was an hour of very volatile price movement in interest rate sensitive securities as the market participants digested the news. And then the charts went back to looking more in tune with the trends they have established.

Of note, regarding the intent of the Fed to keep interest rates low for a LONG time, are the housing stocks. They had been in a pullback for the last few months and have seemed to be forming a bottom in that pullback. DHI looks to make a move from here.

In regard to that previous post about "NO Taper".   I spend my trading time looking at charts and price movement and trying to deduce what "the market" actually expects, by what has happened. Most changes occur over time. Rarely is there a single event or news item that changes the trends or the general outlook for any single security, or the markets or the economy in general. So I deduced "no taper" from the way the market was acting ahead of the Fed meeting. They did indeed announce a taper, but the way the market acted was the same as no taper. With the exception of gold and silver, although the charts and price action seems to suggest that those markets may be getting ready to change direction also. Low interest rates for an extended period, and a dedicated Fed with the intent to induce some inflation will eventually induce some inflation. The risk would be a Fed that loses the ability to take on more balance sheet debt, or a reduction in demand for risk in the economy in general. And those don't seem to be an immediate risk.

We'll see. Gotta go.

Control risk,
gh

phrase for 2014

I think the topic of the velocity of money is going to become an increasing subject of debate in the coming year. The time is ripe for baby boomers to start throwing in the towel and retiring and for the younger people to move out of their parents houses, take over the jobs of their grandparents and start families. Coupled with the energy boom this country is going to see over the next few years or decade this should increase the demand for basic materials. This phenomenon will not be confined to just the U.S., but China and particularly Japan will see the same demographic shift. Emerging markets in general will resume their growth.

These developments, should they come to pass, will increase the lending that the banks do and the wall of money parked on the bank balance sheets will be brought into the general economy. The Fed will finally win this one.....

Here is an treatise on "The Velocity of Money"

The Velocity of Money For more information on this and other related topics, please contact: Patrick Barron President PMG Consulting, LLC West Chester, PA (610) 793-3605 PatrickBarron@msn.com The velocity of money is the one of the factors that determines GDP. The well-known formula is GDP = M x V; that is, Gross Domestic Product equals the quantity of Money times its Velocity. Velocity refers to how many times a given quantity of money is spent during the period under consideration, usually one year. Less understood is how changes to money’s velocity come about. The formula makes clear that a decrease in velocity can adversely affect GDP and vice versa. But, that just begs the question, what causes changes in monetary velocity? The primary determinant of how often a given quantity of money is spent is the desire of the public to hold money; that is, the public’s demand for money. When demand for money is high, meaning that the public wishes to hold more money in the form of cash balances, the velocity of money decreases. Likewise, when the public’s demand for money is low, velocity accelerates. Therefore, we have entered the realm of perception, which is not an exact science in the sense that one can establish a formula of the magnitude and time frame for changes in perception. Nevertheless, it is possible to establish the factors that eventually will change perception and, therefore, will cause the demand for money to increase or decrease. The demand for money is influenced primarily by the quantity of money. This simple statement reveals something very important—that if the quantity of money changes very little, then the demand for money will change very little and the economy will experience stable conditions. Commodity money—that is, gold and silver—experiences very small changes in its quantity; therefore, one would expect that commodity money velocity would change very little. But even in the days of the gold standard, the demand for money varied. The reason was that the money supply was not backed one hundred percent by gold but, rather, only a fraction of the money supply was backed by gold. The rest of the money supply was anchored in bank loans instead. As banks increased lending during temporary boom times, the quantity of the fiduciary media, as Ludwig von Mises called this money not backed by gold, increased, which caused the demand for money to decrease and money’s velocity to rise. This is the very definition of a boom. However, eventually this increase in the money supply causes prices to rise, among other evils, revealing that the boom is unsustainable. There does not exist any new, real capital to fund it. When bank loans become uncollectable, the quantity of fiduciary media decreases. Now the demand for money increases dramatically, as the public scrambles to convert their fiduciary media—bank checking accounts now of questionable value—into currency. This increase in the demand for money causes a decrease in money’s velocity, exacerbating the bust. The only way out of this predicament is for prices to fall, so that the remaining, smaller supply of money will be sufficient to allow the market of goods and services to clear. All this can take quite some time. In today’s fiat money, central bank monetary system the bust phase can be papered over for quite some time with increases in fiduciary media. But the demand for money detects subtle changes, thusly precipitating changes in money’s velocity. For instance, rising prices are a signal to money holders to reduce their demand for money. A reduction in money demand causes its velocity to increase, putting further upward pressure on prices. If there exist other assets in which the public can easily invest, then one would expect to see upward price movements. Stock market and commodity price increases are symptoms of such movements out of money, reflecting reduced demand for money, furthering an increase in money’s velocity. It is typical of such boom periods that credit is readily available. Businesses, then, are more prone to reduce cash holdings in the certainty that bank loans can be used as a substitute for ready cash to meet business needs. This drop in business demand for holding money is a further spur to an increase in money’s velocity. Furthermore, since central bank manipulation of the interest rate in a downward direction was the precipitous cause of the temporary boom, business has even less incentive to moderate its borrowing in lieu of holding cash. Better to invest in inventories that may rise in value than hold cash, especially when loans not only are easy to obtain but are cheap, too. Therefore, what economists see as an increase in money’s velocity is actually a rational decision by market participants to reduce their demand for money following central bank intervention to lower the interest rate and ignite a temporary boom. But, when the boom turns to bust, the reverse happens. Now the market demands more cash at a time when fiduciary media is being wiped out by bank loan losses. Prices fall, making it wise to hold cash in the expectation of even further price reductions. Businesses begin to hoard cash when bank lending dries up in the face of falling bank capital ratios due to loan losses. And they stop investing in inventories that become less valuable each day. Finally, the public bails out of a falling stock and commodity market in favor of the comfort of cash holdings. Money velocity drops even more. In a free market, capitalist economy marked by little government intervention and the existence of sound—that is, commodity—money, the demand for money and its inverse, the velocity of money, are of little interest to economists let alone the public. The demand for money reflects real choices based upon market forces rather than opportunistic or defensive choices based upon wild, temporary swings in economic fortunes based upon government and central bank intervention. Prices change very slowly. Banks are institutions of probity and practice good asset-liability management; that is, they match loan maturities to deposit maturities. This may sound dull to some, but it beats the wild boom/bust cycles that create millionaires one day and paupers the next.

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Enjoy,
gh 　

No Fed Taper

This just in. No Taper. No Taper.
No taper in the Federal reserve bond buying program until well into next year.

gh

Silver

Here is a busy, busy chart of SLV as representative of silver.

For various technical reasons I expect a bounce in silver here.

A few months back I predicted a bottom in silver off of support at the breakout from August of  2010 at about $19. We have had that and have retraced back to where we started. The character of that retracement leads me to believe we are in a range and can expect to go  back to the top of that range. If we return to the top of this range the price will break another downtrend line as time goes by with sideways price movement. Time is an important element in trading.
I notice that silver and most commodity prices backfill price gaps. We still haven't filled the price gap down from $25.....

This qualifies as bottom picking. Always an exercise fraught with frustration and risk.

Control risk,
gh

Pan American SLV

Here is another example of a bottom trying to form.

gh

No Bounce in the Buck

Heavy day down on the stock averages. Usually there is some buying in the USD in these situations.
Not today. Weak UUP. Strong FXE. (Euro)
Are they buying the Euro as a safe haven?
Odd.
gh

Dollar Trend on the Farthest Horizon

Here are a couple of charts of long term USD and Euro. The Euro looks set to resume the long term trend. And by inference the USD should commence another leg down in it's long term decline.
USD weakness has probably been overshadowed by the recent weakness in the JPY as that country tries to get the advantage in the export markets.
The demise of the USD may be more related to the rise of China as a world power and the decline of the USD as a medium of exchange for oil.

The BDI

The Baltic Dry index is in an uptrend with a recent break above the prior high a couple months ago.

Baltic Dry Index Chart

gh

More Wishful Thinking?

Silver, and gold have been quiet lately as they drift down in price. I noticed one of the silver producers in an interesting technical pattern.
Coeur d'Alene is a city in Idaho. It is also a mining company in the area. It is pronounced Kor' de Lane.
The ticker for this chart and stock is CDE.

Of interest is the declining price on quieter volume forming a declining wedge. In an uptrend a rising wedge pattern on declining volume means the buying is running out of momentum and is usually punctuated by a sharp drop.

I wonder if the reverse is true regarding this silver company and silver and precious metals in general. Isn't it about time we started seriously considering the prospect of inflation again? What would be the trigger? The Fed? The CPI? I don't know!
But here is that chart:

OOPs, looks like I ended up with a SLV chart in that screenshot.

Don't get greedy now!

gh

Glass Ceiling?

Another stock chart:

Use discretion and judgment.

But above all, for God's sake, DONT LOSE MONEY!!

LOL
gh

The BDI redux

I am keeping an anticipatory eye one the BDI.
The price of dry bulk shipping has had a recent upturn. Look for a breakout above the recent highs that caused such a storm in the shippers stocks.

BDI

control risk,
gh

Trading Reality

One of my favorite lines is from the movie "Platoon". "I am reality".

And the part that pertains to trading is learning to recognize reality. In speculation reality is what the price and volume is doing. That is reality.

"There's the way it ought to be. And there's the way it is!"

gh

This Economy is Top Heavy

Could it be fact that the attempts by the worlds central banks to lower interest rates, weaken their home currencies, and print money only provides more supply into the supply chain, making production cheaper, and CAUSES deflation.

Low interest rates only cause inflation if the consumers can use the money to bid up prices. And labor has no power due to the attack on unions for 40 years.

And the consumers are the ones who have a job. And business is about increasing the profit margin by the use of labor saving devices. Robots, software, and as a last resort actual cheap labor. Whether in S. Carolina or in India.

The inflation that almost took ahold in 2006 did not have a chance because by that time the consumer debt was way too large.

The workers need a raise.

How about a single payer health care system in this country. Let the central bank give the money to the govt. to pay for it until the economy picks up. That puts money into the base of the economy.

Then we make the workweek 32 hours. 20% more workers needed. Business must pay out the money they previously spent on healthcare into wages. Money into the base of the economy.

And finally, some protectionist policies in this country. Let's make things we use HERE.

We can pay some higher prices if needed because we are working. And the workers that have been set free from the bondage of healthcare can look for work in something they actually excel at, instead of keeping a "job" that they don't like. That is workforce flexibility.

Just thinkin'

gh

Shipping

There is a nice little site over at http://gcaptain.com/

And that is where this on the shipping trade came from.

http://gcaptain.com/things-cant-get-worse-shipping/

So that strength in those things was from Mr. Soros doing some buying....

It was fun to watch those bases form. And the price would shoot up on heavy volume and just drift down on tiny volume. Then do it again. They were my best trade of the year.

DRYS is forming a tight triangle. Which way it goes is any ones guess.

gh

Sometimes a Great Notion

No charts. No opinion.
Just this from Jesse's Café Americain.

Thursday Evening. We are Slow to master the truth

Every once in awhile I am reminded of what happened to me about four years ago now.

God talked to me. And I asked "him" questions and received answers immediately.

There was a unique dream during that time. 

And I came to realize the truth.

That God IS love.

Love is God.

And wherever two or more gather in his name. Love. There is God.

Love is the mystery that is God.

After I understood this my life changed. I became much more emotionally secure and stable.

And from a trading standpoint, not to make this vulgar but trading is my passion, my trading and my profitability increased significantly.

It was uncanny. Almost from that week I became able to see what would happen.

To say it makes it sound like some sort of "line".  But this happened to me.

And thanks to Jesse for bringing this message to his readers on a regular basis.

http://jessescrossroadscafe.blogspot.com/

An Acorn?

Alon:

gh

One Good Chart

It has been difficult to find good looking charts lately. Most of the breakouts have happened and the challenge has been to stick with the trend.

Here is a chart of AMX.   America Movil..... cell phones etc in S. America

EEM the emerging markets look strong from all time frames.

AMX:

Control risk,
gh

Long Term Optimism

For quite some time it has been my belief from observation and the study of history that the basic requirement for a vibrant and growing economy is a cheap source of energy. If indeed the world has discovered a way to obtain cheap and plentiful natural gas and oil from shale, and if indeed the U.S. is poised to become the largest producer of oil and nat gas in a couple of years as reported recently, then the U.S. and the world has the basic fundamental driver of growth.

Against the above premise is the backdrop of a private debt overhang that is being slowly liquidated. A long decline in the real earnings of working people in the middle classes. And a demographic challenge of an aging population and the entitlement problem.

Given the advancements in productivity of the last several decades and the ability of manufacturing to produce goods with low labor requirements it seems logical that we don't need a large workforce to manufacture to export. In fact if this country has the cheapest energy around we should have enough of an advantage to support our elderly AND provide employment to our younger and smaller workforce. As our older workers move into retirement they will begin to spend what they have been saving. (They are saving frantically now) And the jobs they vacate will go to the next generation. That smaller workforce will gain political influence as the demand for their labors goes up due to labor supply constraints. I see the workers in a country with an export advantage gaining a bigger piece of the productivity pie as they support themselves and their parents.

The medical system will evolve, due to the coming properity and the fact of a much larger geriatric population, into a single payer system. Would you stand by and watch your parents get substandard care? The hopes of todays Tea Party to turn the young against the elderly will fail. As it must.

So the stock market may be vulnerable to short term shocks from the prospect of higher interest rates, but rates will lag the economy for quite some time. Energy sufficiency typically produces a strong currency that will be able to stand a relatively low interest rate with low domestic inflation. If we can export cheaper does that not mean that WE will be exporting deflation? For a change......

Lots of "If's" there. Just sayin'.

gh

Indigestion and intraday clues?

Well, the short thing hasn't worked out so well. The markets, so far do not seem particularly worried.
I closed out my short positions over the last couple days.

I guess Satanta has some indigestion....

Intraday today: the dollar falls, gold sits still, and the indexes rally from a lower day that is quiet. And long bonds are up.

We must be getting another announcement of continued QE!

gh

How is the Dr. doing?

The copper market is often referred to as "Dr. Copper" due to the central nature of copper as a metal in the world economy. Increased economic activity, particularly in construction, usually shows up in a higher price for copper. There are speculators in copper as well and if the speculators on balance think things are picking up they will bid up the price of copper....
Perhaps it is just a supply problem.


Copper has not gone anywhere in years. Even with the latest worldwide rounds of QE and interest rate cuts.

Charts of JJC, the copper ETF.

gh

update....

Satanta. Also known as Sitting Bear.....

gh

Time to buy some Volatility

Volatility is poised to pick up. I don't see how it can avoid increasing.

Their is a rotation going on. The QQQ  and IWM have been weak for days. DIA stronger as big investors rotate from small and tech to the "safe haven" stocks in the Dow. P&G, GE, etc....

VXX is the ETF for volatility

gh

Race to the Bottom

The headline out of Europe last night:

ECB Cuts Key Rate to Record Low to Fight Deflation Threat


"Both traditional and unconventional monetary-policy tools have become impotent to kick-start the euro-zone economy," said Carsten Brzeski, senior economist at ING Groep NV in Brussels. "Nevertheless, there is little worse for a central bank than having to admit that it has reached the limits of its zone of influence."

The race to the bottom continues. There is little hope for recovery in the western world if the Eurozone is still cutting rates. If the U.S. was recovering it's buying power Europe would have no need to cut rates. Interest rates and thus currencies around the world are being cut/devalued in an ongoing effort to stimulate domestic industry and exports. But one countries exports are another countries imports. And after a couple of decades of China manipulation of currency values and the unfair advantage they gained by that strategy the rest of the world is trying the same thing.

I believe this is the reason the Fed is keeping easing in place. They are trying to devalue the USD in order to stimulate US exports. Japan is doing the same thing for the same reason. And China is reluctantly and very slowly allowing their currency to rise. Attempting to retain their export advantage while growing their middle class, who they hope will buy domestic goods.

Japan, China, Europe, and North America. All attempting to devalue their money. This is not the "comparative advantage" that makes economies efficient. This is mercantilism. The blatant effort to artificially stimulate economies by currency manipulation.

So the race to the bottom in currencies and the all out effort to avoid any deflation. Why so scared of deflation? It must be that assets are still our claim to solvency. And we must avoid asset deflation at all costs. What those costs will be may be more than we willingly pay or are able to avoid.

The dollar may be up today, but the heads are already talking about what the US Federal Reserves next move will be and what ammunition the Fed has to counter this move in the Eurozone.

Gold will come back as the goldbugs have been saying all along......

Tread carefully,
gh

US $

Head for the exit.

gh

This is what I mean

Ran across this from Bill Gross the head of PIMCO.

He is the bond guru that I listen to for macro-economic wisdom.

And so should you....

Mr. Gross

margin debt at record high

Barry Ritholz had this on "The Big Picture" a few days ago on the record margin debt in the stock market.
Today was another quiet day as the averages held near record highs.

And all the talking heads could do was tell us why it is still a good time to buy.

New rumors of Fed support for the next several YEARS!

And the market just sat there.......

Lots of bubble talk, that is why the discussion on CNBC. Of course everybody is a contrarian nowadays and everybody wants to be the first one to spot the next bubble. A bubble being defined as a self reinforcing sustained rise in prices that have no connection to fundamental reality.

What is the fundamental reality of the stock market?
If one talks of corporate earnings they are at record levels. About 12% of U.S. GDP. Also a record.
But what of the underlying economy? Isn't that a fundamental? Unemployment levels remain high. Wages remain unchanged and have lost ground to inflation for how many years?
Personal and household debt levels remain high. Not at record levels due to the declines in the housing enthusiasm, but still high.
The economy is increasingly concentrated. Companies marketing to those who still have purchasing power. But across the board the word is that no companies have intentions to hire people. They make their profits by increased productivity....
A couple days ago Kellogg said they saw trouble on the earnings front, but when they announced a plan to decrease their workforce by 7% the stock went up....

Eventually the leveraged crowd will become pensive, and then wary, and then afraid of the economy that does not improve fast enough to justify the leveraged positions. That means there is some sort of "bubble". An sustained rise in prices unjustified by fundamentals. But it ain't a bubble 'till it pops!

The chart from the Big Pic:

waiting.....
gh

Rising wedge revisited

Here is a follow up from yesterdays IWM chart.

There was another rising wedge on the chart that I hadn't noticed yesterday...

Weakness in small caps??  Maybe.

gh

Never short a quiet market?

There is a saying in the speculation trade that one should "never short a dull market". This refers to the distinct probability of a short covering rally caused by the bears themselves.

There also is in technical analysis a probability of a rising wedge price formation to have a sharp selloff. Particularly if the rise is on below average or declining
g volume. I suppose the saying for the broader market could be "never be leveraged long in a dull market".

Today is a very dull market. The Russell in particular, although up, the volume is low. So far.
One hour to go....
Chart below

 
disregard the silver chart....
 
gh

How to smooth out the bumps

I ran across this article over on Business Insider.

I always have trouble getting logged in to comment so here is my comment on this:

Former Obama advisor has suggestion

I would say that all of the benefits that the Federal govt. provides for all of it's citizens are a form of economic insurance. That includes Social Security, Medicare, SNAP, Unemployment insurance, etc.

These programs only apply to certain groups. Mostly the retired or the poor/unemployed. So a limited impact.
What is missing is single payer coverage for medical care for all of the people. Having medical coverage takes away the single largest cause of personal bankruptcy. Having medical "insurance" through broad taxes distributes wealth through the base of society. And that wealth is there when needed. Money is a fungible item, meaning that what we don't spend in one place can be spent elsewhere. Social Security allows people to work and consume and not obsess with surviving in retirement. The same could be said of single payer medical. This kind of benefit is something that all of society has to agree on, and that is a stretch in this country today. But the gap between the haves and the have nots continues to widen with dire social consequences if not addressed. The wealth must be spread around.
And of course, if labor in general had more power the wages/benefits would be a larger part of the pie in this country and that provides resilience in an economic downturn. Contrary to modern conventional "Chicago wisdom".

Along that line.... Would this country have ratified NAFTA if labor was strong??
Would we be as accommodating to China???

just thinkin'
gh

Mr. Hyde?

Warren Buffet has made the market analogy of Mr. Market being a bipolar entity.  An over exuberant personality who then changes to overly depressed and pessimistic.
Another analogy would be of Dr. Jekyll and Mr. Hyde. In a market that most agree is the product of low interest rates and easy money I would contend that the momentum and thus the outlook of the markets in general can change on a dime if Dr. Jekyll thinks for a moment that he will not get his fix.

Today the US Fed released it's statement. They said nothing new and reiterated their intent to keep on doing what they have been doing for months. Buying govt. treasuries in the same amounts.....

The knee jerk reaction of the stock market was up.  "Yippee! The easy money will continue".
And then selling came in.
My impression of the situation was that some big stock holders were looking for an opportunity to unload some long stock and the heavy buy volume was just what the Dr. ordered.
A market doesn't reverse on bad news. It reverses on good news. The Fed statement should have been good news. But the market got weak.
We will probably start to obsess over the "taper" again. "When will the Fed take away the easy narcotic?"

Markets rarely turn on a dime. A change in trend is a process..


gh

Mo?.... Mo?....

Here is more skepticism along the lines of the last post:

And here is a cute pic of a baby bear.....

gh

Conventional Wisdom

The "wisdom" for some time now, perhaps a year or so, has been to get out of the bond funds because interest rates were going up. Well, interest rates did go up. The ten year T rate went from 1.6% to almost 3%. But lately the long term interest rate has slid back to the 2.5 % range. Even as the stock market continues to melt up. As recent as Sept. 5th the rate was at 2.90%.

Time and again in the markets I see shifts in what individual markets do in direct contradiction to the "wisdom" that is put forth in most of the financial journals and on the electronic media. Until a catharsis occurs and the wisdom changes suddenly.

Right now the wisdom is that the stock market is the place to be. This has been a terrific year and has surprised many with the strong and resilient moves higher. Which seems to be based on an expectation of continued easy money from the U.S. Federal Reserve. The worse the unemployment rate, the higher the stock market.

But a strange thing is going on in the bond market. It is going up in price at the long end. Interest rates are declining.

I thought inflation was just around the corner. The industrial metals have been acting strong recently. At least they seem to have broken some long downtrends. Will it prove to be just shorts covering, temporarily?

The reason some will give is that Janet Yellen has been tapped to be the new head of the Fed. And she supposedly has a rep for being a dove towards inflation and interest rates. Perhaps. Usually the macro-economy rules the interest rate markets.

The recent strength in the long bond may prove to be short covering there.....

The reason I am pursuing this line of thought is the pattern that prices have formed in the Pimco Real Return Fund.

I see an inverse/ upside down head and shoulder pattern. A pattern sometimes the sign of a bottom. but in this instance a very weak right shoulder. As if the normal sentiment that makes such a price pattern is abbreviated and the market is taking a hurried shortcut to the upside.

I have regained a heightened sense of risk in stocks.

 gh

Low interest auto loan revisit

Here is the answer to my wonder at the low interest on my latest auto loan:

ABS

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Lithia Auto Dealers

This will teach them to mess with ghickey!

LOL

Stall Speed

The S&P feels like it just hit stall speed.... It is high noon here....1200pst

Maybe.
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Gold and the Yen

For some time I have noticed what appears to be a correlation in the way gold trades and the Japanese Yen trades intraday. As well as a looser correlation with the daily prices of the two.
In the charts below I illustrate a recent example of the intraday similarity in the price movements and then a longer term Yen chart.

The long term Yen has the look of  bottom being formed and with a move coming soon. A move up in the yen should push the USD down further and faster. Maybe.
At any rate, if the Yen goes up I expect Gold to do the same.
The charts:

 gh

my car loan

My old vehicle

 

So I bought a vehicle from a Lithia auto dealer the other day. The saleswoman mentioned the skyrocketing prices of her LAD shares that she held through the lows of '09. That stock has gone from $1 to $75 over 4 years. Not bad.

And then I got to thinking why the stock has done so well. The company is making money off of schmucks like me. I don't like buying cars and this experience was no exception. It took extraordinary measures to get them to budge on the price. And after the fact I found out that I paid too much for the vehicle. Of course. I always do.....they are the pros. (Pun INTENDED!)

But the reason for this post is the interest rate I obtained with financing. (yes, financing)

1.62% for 5 years from Wells Fargo. I don't know how they can make any money at that rate.

Borrow the money on the short end and lend it longer I suppose. What happens when interest rates on the short end rise?

And even thoough I have good credit I dread to see what happens to the car industry if and when interest rates go up.

the maid and the new car;)

Just thinkin'

again

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The Best Gold Stock?

A few days ago I was looking through my list of gold company stocks. One that jumped out at me was the chart of AngloGold/Ashanti (AU).

It has the look of a stock that is trying to go up. There is that triple top that I look for and a rounded bottom. As I have said before I prefer rounded bottoms....;)

Wait and see.....

Just looking at this chart I would set a price target of about $18.

don't get greedy....
Control risk always.
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To the Sun, Edith

In the interest of bragging I mention that FSLR is going up, and fast. I had recommended it a few post back due to the strength I was seeing in the intraday trading. Chart below.

GOL is starting another move today. Time will tell.

control risk, the price will tell you when you are wrong......

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DHT Holdings

I ran across this chart awhile ago. It is of DHT Holdings company, which is an operator of crude oil tanker ships. They are losing money. The chart looks about the same as GNK did 2-3 months ago.
Intraday the volume is on the buy side. Not much volume. Yet. But the volume will come later if the stock gets underway to the upside.

I was intrigued by this link in which the author points out that if the company were liquidated the stock holders would see a gain of about $2/share. In other words the physical holdings of the company are worth more than the stock. If I remember right that is the kind of thing that Benjamin Graham liked.

control your risk,
gh

CU later

Copper prices look set to initiate an upward trend. Time will tell of course.

The stock indexes feel strong. There may be some "trading" around a debt limit decision today if one actually comes to fruition, but the action of the markets in the face of a potential default tells me that the economy is picking up and the markets want to be there when it does.

Industrial metals stocks have been on a tear.

And emerging markets may resume their march to the future. The world is full of people who want some of the good life. The last few years of financial difficulties has not stopped the will of common people in the poorer areas of the world to keep working to improve their lot. And many of those countries have governments that will constructively work for the benefit of their people. This growth will be positive for basic materials around the globe. And the energy situation will allow it to happen as debts will become easier to repay by the flexibility of business to expand made possible by affordable energy sources. The push to "green" will continue with the increased affordability of solar and wind, and natural gas will be a tremendous boon.

We may be at the start of another commodities boom. Time will tell.

Trade with the trend.
Cut your losers.
Let your winners run.
and you will have controlled your risk!

gh

Don't argue with the tape

The stock indexes, in particular the small cap stocks look good. This market can't wait to get this debt ceiling nonsense behind it.

This chart says a lot about the future of this country. I am not sure if it is prosperity or inflation. But things are looking up.

 

Act accordingly.

 

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Gold hammered??

The reports from the Chicago Mercantile Exchange (CME) this morning of are one large sell order that caused a large drop in gold price such that the electronic trading was halted for several seconds.

Some of the gold bugs have been alleging manipulation of the gold price for some time and I take those accusations with a grain of salt. However, from a trading perspective it is suspicious that anyone, particularly a large concern with a large amount of gold to sell would just place an order so large that it moved the price $25. It makes no sense. A large holder expects to unwind a long position of weeks or months. And an order so large as to move the market is counterproductive to an orderly unwind.

This happens at a time when the US Dollar is WEAK. And by weak I mean nearing  lows. This should be a cause for gold to rise in price.

Is the price of gold being manipulated to mask the decline in the dollar? That is the question I ask myself this morning.

The article is here:
http://www.businessinsider.com/gold-halted-on-cme-for-stop-logic-event-2013-10
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After I posted this above I got to thinking. Not something that I do often enough it seems.

I found a chart of long term US Dollar index. It looks significantly different from the charts that I usually use of UUP, the dollar bull ETF.
On the actual DXY chart the USD is in the middle of a historical range and can go either way from here. Although it looks set to go down to me.
But not the calamity I had been expecting.

This event, my lack of accurate information, speaks volumes to the importance of money management. Money management is the key to making money in the markets.

Meaning: Add to your winners. Cut your losers. Never average down.
That way even an idiot like me can make money.

gh

Belly Up, Mr. Boehner

Pressure cooker

The averages are down. But the intraday action says that this market wants to go UP!

Particularly the materials. X.... 

FSLR....

GOL....  So. American Airline....

Things are looking up.  Unless the lunatics persist in destabilizing the world economy.

Santelli, can you think of another cause? This one must be costing you money.

right now I'm eating biscuits with my next door neighbors bee's honey on them... Yum!

gh