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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Tuesday, July 31, 2012

Big Week Ahead in News

This week the Federal Reserve Board will announce policy changes (if any) in response to the US economic activity.   Most believe they will not announce any major changes.  The economy has not faltered enough to justify action. (intervention)

The European Union Central Bank announcing their own plans Thursday.  There is where the action will likely be.  It is widely recognized that the European union is having severe issues with certain members.  The ECB has demonstrated the worst attributes of communal leadership, that is lack of ability to make decisive decisions.  If history repeats lots of tough talk, zero actual material change in policy.  However, anything is possible.

And on Friday is the US employment report.  Historically this report can start a change in direction if the market is disappointed enough.

So there you have it.  I am in Gold miners as per my post Friday, and I have added positions.  But leaving room now to see what happens into next week.

Friday, July 27, 2012

Try number 2, Time to start buying gold miners

Back on September 1st, I posted know when to hold em, when to walk away.  It was a hard post to make, I have been soo bullish on the gold miners, its hard to make the call to get out.  I haven't been looking for a re-entry until recently.  The post Moving into Natural Resources on June 30th, was too early. I made that statement partly because Gary of SMT was bullish.  I am not blaming Gary, just when your getting close to a bottom your looking for others to confirm your own disposition. And bottoms are very hard to spot, it is pretty depressing to watch a ETF degrade for a year, trying to figure out when it will stop!

Below is a long term trend for GDX, Gold miner ETF.  You can clearly see that we may have formed a bottom after 1 year of losses.   buying here with a stop loss of 39 should keep risk low, with high potential profit.  A bounce up 48 bucks, hit only a few weeks ago, is definitely possible.  Getting in early helps psychologically later to add more if GDX breaks above 49.

The second chart shows GDX in the last few months how fast it has depreciated.  Also shows the recent down trend has been broken, while the longer down trend in the first chart has not.

So once again, I am mildly bullish and addition positions.  I'll be giddy when GDX closes ABOVE the longer term trend line in the first chart, with a pop to 49 seems very likely.  The next question will be can GDX close above 49.

Other plays are GDXJ (Junior miners), GLD (gold), and SLV (Silver).  Other resources are Oil companies (OIH), and food (DBA, RJA).  However precious metals does tend to operate on its own drum beat at times.  It is possible, although not highly likely, that gold miners rally in face of other resources falling.  I posted on 27th Commodity markets - is the bull back,  why overall I like commodities

The macro picture is still pretty grim as I posted in Economics Degrading, whats up with Oil?
This is another facter that dampens my excitement for gold miners.  But bottoms are formed when everything looks bad, not when everything looks perfect.  So that grim post, on July 22nd, aligns very well with GDX bottom on the second chart.  A good indicator that a bottom is there. (Economy looks grim, miners bottom).

So there ya have it, its up to you to see how giddy you get.  Stop loss of 39 should give enough room to not get accidentally pushed out for a "1 hour" dive of the ETF below 40.  Such games have been known to happen in the markets.

The question I have is if the USD resumes a rally above 84, can the miners hold their value or can they rise with it?  Also, can the USD rise for more than 1 year without a falling lower?  For the USD has been on an impressive March.

Back on July 22nd, 2011, I posted US Dollar headed for disaster.  The issues I called then still exist today.  The only thing that changed is the other countries are being beat up for their own issues.  Kinda like best house on a bad block.  I also quoted many times that USD crisis (not same as currency collapse) I expect in 2013-2017 range.  USD being THE global currency makes it impossible for anyone to guess if or when a crisis occurs.  That post was timed near the bottom for the USD for an entire year ahead, calling for USD to rise, not fall right then, right now or be prepared for worse conditions.  A gift of a good year was given to the USD.  Point is, how far can USD appreciate simply based on the rest of the world is also looking not great?  A USD top with elections ahead may be finally here for the next year or more. 

Thanks to John for the shout out email, and subsequently thanks to Gary for his insights on his blog.  I have been working long hours, and its been hard to keep the eye on this ball.

To the charts!

Sunday, July 22, 2012

Economics Degrading, what is up with Oil?

This post shows links to other blog posts news items as a basis for this view presented.
I encourage readers to click on links for detail on each macro item presented.

Trouble in the Eurozone as more countries come under citizen pressures.
Spain and Italy are both experiencing protests and a growing call to leave the Euro.
China unemployment higher than their government is reporting, china trade plunging.
Japans trade surplus drops a whopping sixty three percent.
Australia  real estate market collapse has begun.  Their collapse may be similar to US sub-prime repeat.
Euro-zone PMI steep rate of contraction, Germany signals steep slow down.
There are hints of a global collapse in auto-sales has begun.
The Germany is entering a legal gridlock in moving to a true fiat currency or participating in larger bail outs.
Twenty six states in US in severe drought, killing massive amount of food crops, a probable signal to higher prices.  Farmers slaughter cows in droves to avoid food price increase.
Oil prices are going parabolic, increased input costs in a slowing economy does not bode well.
France has increased their top tax rate up to 75% federal tax rate, rich flee in droves.  With the rich gone, finally France can prosper?

All of the above and more point to a global economic slow down and we are in a global recession.
I for one believe that we are.  Food and Oil may continue to rally, but I wait to see what precious metals do.
In a deflationary collapse any rally could overnight turn into a full out collapse, so any longs are riskier than normal.

The main question is will global central banks plan a monetary assault in an attempt to stop the deflationary collapse.  Even that is not a solution, for our debt based government system as a built in time bomb called bonds.

As for Oil, it is disturbing AS The economy slows down, the price is leaping higher.  If it collapses shortly, then not a big deal, just a short term rally.  If it is rising due to politics, or supply, we may have a real issue at hand.

For now, its wait and see.

Sunday, July 15, 2012

Waiting for Central Banks Reactions

There is pressure on all sides right now in the global economy. Europe is teetering on an economic deflationary event not seen since the Great Depression. In 2008, it was a deflationary event, but quite short lived compared to most. The US changing laws to stop valuating companies using Accounting standards since the great depression helped, as well as 1.5 trillion annual deficit spending.
Food prices, gas prices, and some other resources are not even close to their 2008 lows. US unemployment/under employment is at 8.5% to as high as 25% depending on what statistics you believe. US Federal bonds at near record interest rate lows. China experiencing a credit collapse, with Australia at minimum experiencing an economic cool down. There are many other signs such as manufacturing slowing, etc.
 Since 2008 NOTHING has been fixed. As a global society we pissed away 4 years, trillions in debt spending, as well as encouraged companies to be reckless and remain insolvent. So its back to the central banks, what is the response going to be? Watch another 2008 unfold? Or pre-emptive strike? If history is any tale, pre-emptive strike is a shoe in.
 But there is a fly in the ointment. Natural resource prices have not yet collapsed like they did in 2008. If the Central Banks come out guns a blazing with more free cash, it will cause resources to move UP from here. I won't call for skyrocket by any means. But a higher low between economic issues does not bode well for the next few years.
 So I remain mildy bullish resources, with a toe in the waters, waiting to hear the other shoe drop, a "new deal" of printing to further flame the global currency war.

Friday, July 6, 2012

Dollar Rising

The US dollar is rising today, which does NOT bode well for resources.
Just earlier in the week I was calling for resource bottom, mainly due to how badly the sector was beat up.  Then Gary got bullish, and I was already starting to get bullish, pushed me over the edge.
But looking at the chart below, it could be a snap back rally that fails next week, or what it looks like, the dollar is not rolling over.

When in doubt, caution is best.

I am going to LIGHTEN positions, but not exit.  I am taking down my bull/bear image for now.

But the US Dollar looking to continue to make new highs wont play well for resources.

Thursday, July 5, 2012

US Federal Debt

Just wanted to take a quick moment to post about US Government debt.
Back in 2008, I posted about US debt, and linked to a movie called I.O.U USA.
That movie projected a scary budget debt for 2008 at 410 billion. (ended up 460 Billion).
In 2009, the final year for George Bush budgets, the debt was 1.4 Trillion.
Since then, Obama has managed to keep the deficit each about  1.3-1.5 Trillion.
This chart shows 2010,11,12 each one about 1.3 trillion per year.

So at end of 2009, US total debt was at 11.9 trillion.  the projected debt at end of 2012 is 16.4 trillion, a run rate of about 1.5 trillion per year.  I am confused why the site that I used doesn't align with the 1.3 trillion figure.  So lets go with 1.5 trillion per year for Obama, 100 billion more than final year of Bush.

That is a WHOPPING 41% gain in debt in 3 years!!

One can clearly see this is not sustainable.  Matter of fact, if the chart was a stock chart, many would call for stock collapse as it can't continue to be a parabolic rise. See below.

The key element to keep in mind is a DEBT BASED system with the chart above CANNOT continue forever.  However, there are many ways to morph this system.
One is to eliminate debt based system.  If US simply printed money or the Federal reserve bank bought 100% of US bonds, debt magically becomes irrelevant.

This of course can bring on new problems, one of which could be currency collapse.
But theoretically, it could solve the parabola above.

As for blame, well, there is blame for each political party.  Using the chart below, clearly every president since WW 2 was fiscally responsible, until Reaganomics.  Since then Reagan the big W clearly did much to blow up the debt.  If Reagan and Bush where fiscally responsible, we would have been debt free by the time Obama rolled in.   I hear much about how horrible Obama is, I am not a fan.  But he isn't any different than Reagan or Bush for budget responsibility.

I would love to see deficits of 460 billion, seems so reasonable now.....and I am sure in a few years 1.5 trillion will seem like the "fiscally responsible days".  Republican or Democrat, the outcome is the same, pander and kick the can, it is only a matter of the packaging.