Treasury Inflation Protected Securities, or "TIPs", as they are popularly called, are U.S. Treasury Bonds that have a built-in mechanism to adjust returns for increases in the Consumer Price Index (CPI). For a more detailed explanation on how they work, click here: http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html.
Yesterday, the U.S. Treasury sold $10 billion worth of TIPs which had a NEGATIVE cash yield of 55 basis points, or -.55%, with a 50 year maturity. Huh? How can yields be negative? Does that mean that investors are so stupid that they would pay to lend money? No, the adjustment feature as described in the piece linked above, adds to total return. But, if the CPI were to come in at zero, then yes, investors would actually pay Uncle Sam for the privilege of lending him money.
Historically, cash yields on TIPs have tended to be in the positive 1-2% range. Not today!
So, what does this mean? Investors are so worried about inflation eating away at their cash yields, that they will pay handsomely for inflation protection.
What inflation? Latest figures for the CPI have come in at a scant 1.1%. That means that the total expected return for a TIP would be a positve .55% (the 1.1% inflation rate less the .55% negative cash yield). Before you howl, keep in mind that the adjustment feature means that TIPs have the risk of 6 month Treasury Bills, which yield something on the order of .25%. By comparison, a decent deal.
So, other than the fat half-percent yield, why should anyone buy these? Simple, hyper-inflation is not only likely, it is inevitable. Proof? A falling dollar, an accelerating commodities market and most significant of all, the now snorting bull market in precious metals. Oh, and let's not forget that none other than "Helicopter" Ben Bernanke's belief that inflation is TOO LOW!
The only reason we have NOT yet seen the explosion in inflation is something called monetary velocity. For a fuller explanation of this aspect of money supply, click here: http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
For investors, all roads lead to Gold, Silver and precious metals stocks. While it appears that we are in the midst of a sharp correction, this will only be a minor bump on the road to MUCH higher prices. For a review on where we are in the "Mother Of All Bull Markets", click here: http://markostake.blogspot.com/2010/10/correct-me-if-im-wrong.html.
The Federal Reserve, entrusted with controlling inflation, is actually the engine of inflation. For a more thorough explanation of the Fed, as it is known to its friends, check out this video as to how it is supposed to work, versus how it has actually fared: http://www.youtube.com/markostaketv#p/u/5/JiGA8XeZbUo.
With friends like these.....
Marko's Take
Showing posts with label Gold. Show all posts
Showing posts with label Gold. Show all posts
Tuesday, October 26, 2010
Thursday, October 21, 2010
Correct Me If I'm Wrong
The long-awaited, overly-predicted correction in Gold, Silver and mining stocks has now begun. After the smash on Tuesday for 30 bucks in Gold we have what appears to be a continuation pattern with today's further drop of additional drop of another $20. What's a "continuation pattern" you ask? A highly technical term? Nah, it means a top below a top followed by a new low beneath a low. That is the initial condition for establishing a new downtrend.
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
The correction ought to be sharp but not very deep. Gold's 200 Day Moving Average (DMA), which ought to contain the decline, is now at $1,200, suggesting additional downside of about 10%.
The Gold Bugs Index (HUI) has now dropped back below 500, after reaching a false breakout high of 535. In just a few short days, miners have dropped by nearly 10%. The HUI's 200DMA is above 450, which ought to cap further reactions to another 10%. Therefore, the correction is half over already. Get ready for a terrific entry point!
In recent news, as predicted in this column, China has suspended exports of rare earth metals. For a great play in rare earth metals, we have discussed the merits of Avalon Rare Earth (AVARF) http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
As far as the stock market goes, the surprisingly violent bear market rally that has taken place all summer continues, but ultimately all markets must obey "The Law of Gravity". http://markostake.blogspot.com/2010/10/markets-to-obey-law-of-gravity.html.
The downside leadership in the coming stock market crash will undoubtedly be the financial sector. The Philadelphia Banking Index (BKX) has continually under-performed every market sector and with economic conditions deteriorating, an inevitable banking crisis looms directly ahead. Despite all the efforts of our friends at the Federal Reserve to pump out money, it appears that this privately held group has now been relegated to "toothless tiger" status http://markostake.blogspot.com/2010/08/unusual-uncertainty-meets-qe2.html.
But what about those great earnings reports? What about the coming Republican take-over of Congress? Won't these matter? No! These are old news and already factored in and discounted. The markets are looking 6 months ahead and, believe me, they DON'T like what they see. Markets anticipate. Once news is understood by the masses, it's WAY too late to matter!
So while that dirigible known as Hindenburg continues to levitate on a cushion of hot air from politicians, it has sprung a whoppin' leak http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html. Of course, the Omen isn't always right, but why take a chance on getting wiped out?
What's an investor to do here? Easy. Hold cash and wait for the correction in commodities, metals and mining stocks. Then, get ready to get rich as the mother of all bull markets shifts into turbo-charged high gear.
Marko's Take
Wednesday, October 6, 2010
Gold And Precious Metals Miners Set To Explode
There are at least a dozen reasons why both Gold and the precious metals mining companies ought to correct, as outlined in this recent blog: http://markostake.blogspot.com/2010/10/die-hard-markets.html. But, at the end of the day, only market action itself matters, not "Marko's Take". (Gulp!)
In this morning's trading, the Gold Bugs Index (HUI) appears to have decisively broken the 525 zone that we outlined as the trigger point to begin its long awaited parabolic rise. The situation reminds me of late 1999 when the Nasdaq was severely overbought and overvalued and yet doubled in a period of just a couple of months. The difference, in this case, is that the mining sector is NOT OVERVALUED!
The kind of technical indicators discussed only handicap the race. None of them is flawless. It's important, therefore, to issue a mea culpa, accept reality as it is, not as we think it should be.
Given the increasing likelihood of an imminent upside explosion, what should investors do? Fortunately, a whole slew of junior miners are still at incredibly attractive levels. Among them are some favorites that we've written about in the past, such as ECU Silver Mining (ECUXF), Explor Resources (EXS.V), Seabridge Gold (SA), Hecla Mining Company (HL) and Avalon Rare Earth Metals (AVARF). We will update research on these firms, however, their merits can be reviewed by clicking the links, below:
http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
http://markostake.blogspot.com/2010/05/ecu-silver-mining-update-it-keeps.html.
http://markostake.blogspot.com/2010/04/exploring-explor-resources.html.
http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html.
http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html.
If you wish to do your own research, you may wish to review this piece, which outlines some of the key risk factors to consider in selecting any mining company: http://markostake.blogspot.com/2010/06/some-considerations-for-selecting.html.
In terms of resources, you may wish to review this piece, which outlines all the places that are available to access http://markostake.blogspot.com/2010/09/information-is-more-than-power-its-gold.html.
Honestly, there are times when one prefers to be wrong, and this is one of them.
Time to make a ton of money!
Marko's Take
In this morning's trading, the Gold Bugs Index (HUI) appears to have decisively broken the 525 zone that we outlined as the trigger point to begin its long awaited parabolic rise. The situation reminds me of late 1999 when the Nasdaq was severely overbought and overvalued and yet doubled in a period of just a couple of months. The difference, in this case, is that the mining sector is NOT OVERVALUED!
The kind of technical indicators discussed only handicap the race. None of them is flawless. It's important, therefore, to issue a mea culpa, accept reality as it is, not as we think it should be.
Given the increasing likelihood of an imminent upside explosion, what should investors do? Fortunately, a whole slew of junior miners are still at incredibly attractive levels. Among them are some favorites that we've written about in the past, such as ECU Silver Mining (ECUXF), Explor Resources (EXS.V), Seabridge Gold (SA), Hecla Mining Company (HL) and Avalon Rare Earth Metals (AVARF). We will update research on these firms, however, their merits can be reviewed by clicking the links, below:
http://markostake.blogspot.com/2010/06/avalon-rare-metals-inc-rare-opportunity.html.
http://markostake.blogspot.com/2010/05/ecu-silver-mining-update-it-keeps.html.
http://markostake.blogspot.com/2010/04/exploring-explor-resources.html.
http://markostake.blogspot.com/2010/03/hecla-mining-at-119-years-old-producing.html.
http://markostake.blogspot.com/2010/03/seabridge-gold-how-to-buy-gold-for.html.
If you wish to do your own research, you may wish to review this piece, which outlines some of the key risk factors to consider in selecting any mining company: http://markostake.blogspot.com/2010/06/some-considerations-for-selecting.html.
In terms of resources, you may wish to review this piece, which outlines all the places that are available to access http://markostake.blogspot.com/2010/09/information-is-more-than-power-its-gold.html.
Honestly, there are times when one prefers to be wrong, and this is one of them.
Time to make a ton of money!
Marko's Take
Monday, October 4, 2010
Die Hard: The Markets
Like Officer John McClane, they continue to expend all of their nine lives. Is this life number 9?
Without a doubt, my assessment of the state of the markets has got to be called into question. Two relevant issues to address are: (1) Has the Hindeburg Omen, become, as Dee Dee Myers used to say, non-operational?; and, (2) Is the Precious Metals arena about to explode? For more on the Hindenburg Omen, click here http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
If we do not begin to see a forceful decline commence by the end of this week, it is unlikely to build the kind of downside momentum that would be required to precipitate a crash. That said, as of this writing, I have not budged from the crash prediction one bit. The technical reasons were recently outlined in this piece http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
As far as the Gold and mining stocks sector go, I have some further technical thoughts. For the record, my position is that Gold is forming an intermediate top, before returning to the proximity of its 200 Day Moving Average (DMA), which currently stands at $1175. That makes downside exposure in the vicinity of 10%.
One thing that troubles me about Gold is that it has underperformed the weakness of the U.S. Dollar over the past several months. Since June, the Dollar Index is down 11%, while Gold has risen about 9%. Ideally, we'd like to see the reverse.
More troubling is just how extremely overbought Gold has become. It now has a Relative Strength Index of 83.46. The piece referred to above explains the use of the RSI and how it's derived.
An examination of the relative strength of precious metals mining companies, as represented by the Gold Bugs Index (HUI) to Gold itself is quite revealing. Ideally, we would desire the stocks to substantially outperform the metal. Since May, the companies have underperformed, although not substantially. The HUI continues to be unable to materially break out above the 500-525 zone despite daily new highs in Gold. Should the HUI return to its 200 DMA at 446, it would get smacked for 11%. Downside risk is very limited.
Ideally, the HUI ought to also do better than the broad stock market. We can measure this by comparing the performance of the HUI to the Standard & Poors 500 (SPX). The HUI has gained no ground since November, 2009. This isn't cause to worry long term, but it does tend to suggest that a modest correction is imminent.
Investors should remain cautious but ready to jump in!
Marko's Take
Without a doubt, my assessment of the state of the markets has got to be called into question. Two relevant issues to address are: (1) Has the Hindeburg Omen, become, as Dee Dee Myers used to say, non-operational?; and, (2) Is the Precious Metals arena about to explode? For more on the Hindenburg Omen, click here http://markostake.blogspot.com/2010/08/hindenburg-omen-all-over-financial.html.
If we do not begin to see a forceful decline commence by the end of this week, it is unlikely to build the kind of downside momentum that would be required to precipitate a crash. That said, as of this writing, I have not budged from the crash prediction one bit. The technical reasons were recently outlined in this piece http://markostake.blogspot.com/2010/09/lets-get-technical-part-2.html.
As far as the Gold and mining stocks sector go, I have some further technical thoughts. For the record, my position is that Gold is forming an intermediate top, before returning to the proximity of its 200 Day Moving Average (DMA), which currently stands at $1175. That makes downside exposure in the vicinity of 10%.
One thing that troubles me about Gold is that it has underperformed the weakness of the U.S. Dollar over the past several months. Since June, the Dollar Index is down 11%, while Gold has risen about 9%. Ideally, we'd like to see the reverse.
More troubling is just how extremely overbought Gold has become. It now has a Relative Strength Index of 83.46. The piece referred to above explains the use of the RSI and how it's derived.
An examination of the relative strength of precious metals mining companies, as represented by the Gold Bugs Index (HUI) to Gold itself is quite revealing. Ideally, we would desire the stocks to substantially outperform the metal. Since May, the companies have underperformed, although not substantially. The HUI continues to be unable to materially break out above the 500-525 zone despite daily new highs in Gold. Should the HUI return to its 200 DMA at 446, it would get smacked for 11%. Downside risk is very limited.
Ideally, the HUI ought to also do better than the broad stock market. We can measure this by comparing the performance of the HUI to the Standard & Poors 500 (SPX). The HUI has gained no ground since November, 2009. This isn't cause to worry long term, but it does tend to suggest that a modest correction is imminent.
Investors should remain cautious but ready to jump in!
Marko's Take
Tuesday, September 28, 2010
An Open Letter To Charlie Munger
Dear Mr. Munger:
I read, with interest, your recent interview as it was recapped in Yahoo Finance. I must say that I found it less provocative than that of your partner, Warren Buffett. To refresh yourself, click here: http://markostake.blogspot.com/2010/09/open-letter-to-warren-buffett.html. Nonetheless, I found this statement by you particularly troubling.
"I don't have the slightest interest in gold. I like understanding what works and what doesn't in human systems. To me that's not optional; that's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. And I don't see how you become rational hoarding gold. Even if it works, you're a jerk."
I guess that makes me and my fellow gold-philes jerks. Mr. Munger, doesn't that also make your partner a jerk, too? According to Silver Monthly: "Beginning in 1997, the Oracle of Omaha (Warren Buffett) saw the value of silver glinting in the dust of depressed prices. From 1997 until 2006, his investment fund-Berkshire Hathaway-accumulated over 37% of the world’s known silver supply-even more than the COMEX! During that time, he was not only an oracle but also the all-time silver bull". Say WHAT? I guess hoarding Gold is bad, while hoarding Silver is good? Please 'splain it to me.
Charlie, my lips are sealed. The last thing I want to see are two octogenerians in a cage match. Leave that to Vince McMahon, would ya?
Mr. Munger, you are a very educated man. Let's take out our notebooks as we review the history of Gold for a second. Gold is the only form of currency that has EVER endured. Surely, you would invest in currencies, wouldn't you? Oh, but then there's the old argument that you can't eat Gold. True enough. I'll bet those stock and bond certificates are particularly tasty. So is real estate. Hell, so is a Hundred Dollar bill with butter and garlic. And a barrel of crude...YUM!
You can eat bread and meat, but the problem is they don't keep very long. They go rotten, dude. Gold has a pretty decent shelf life of a few billion years, give or take an eon. Oh, and have you heard? There is a whole planet of jerks who will ACCEPT Gold as a form of paying for things that we DO eat.
I'm sure you were delighted by the ridiculous decisions to de-emphasize Gold. When the Gold window was closed at Bretton Woods in 1971 and we went totally to paper, boy did our financial system take off! Remember how fun and prosperous the 1970's were?
Now, I'm also confused by this quote from the Charlie Munger book of quotes: "Recognize reality even when you don't like it - especially when you don't like it."
Would I be correct that this particular statement was advice given to others, rather than a credo you live by?
Do I detect a wee bit of hypocrisy, here?
Charlie, the letter contained in the Berkshire Hathaway (BRKA, BRKB) annual report is legendary and read by millions of sycophantic investors everywhere. May I suggest that you at least include "Marko's Take"? After all, shouldn't you recognize reality, even when you don't like it?
Mr. Munger, TAKE ME ON!
Marko's Take
I read, with interest, your recent interview as it was recapped in Yahoo Finance. I must say that I found it less provocative than that of your partner, Warren Buffett. To refresh yourself, click here: http://markostake.blogspot.com/2010/09/open-letter-to-warren-buffett.html. Nonetheless, I found this statement by you particularly troubling.
"I don't have the slightest interest in gold. I like understanding what works and what doesn't in human systems. To me that's not optional; that's a moral obligation. If you're capable of understanding the world, you have a moral obligation to become rational. And I don't see how you become rational hoarding gold. Even if it works, you're a jerk."
I guess that makes me and my fellow gold-philes jerks. Mr. Munger, doesn't that also make your partner a jerk, too? According to Silver Monthly: "Beginning in 1997, the Oracle of Omaha (Warren Buffett) saw the value of silver glinting in the dust of depressed prices. From 1997 until 2006, his investment fund-Berkshire Hathaway-accumulated over 37% of the world’s known silver supply-even more than the COMEX! During that time, he was not only an oracle but also the all-time silver bull". Say WHAT? I guess hoarding Gold is bad, while hoarding Silver is good? Please 'splain it to me.
Charlie, my lips are sealed. The last thing I want to see are two octogenerians in a cage match. Leave that to Vince McMahon, would ya?
Mr. Munger, you are a very educated man. Let's take out our notebooks as we review the history of Gold for a second. Gold is the only form of currency that has EVER endured. Surely, you would invest in currencies, wouldn't you? Oh, but then there's the old argument that you can't eat Gold. True enough. I'll bet those stock and bond certificates are particularly tasty. So is real estate. Hell, so is a Hundred Dollar bill with butter and garlic. And a barrel of crude...YUM!
You can eat bread and meat, but the problem is they don't keep very long. They go rotten, dude. Gold has a pretty decent shelf life of a few billion years, give or take an eon. Oh, and have you heard? There is a whole planet of jerks who will ACCEPT Gold as a form of paying for things that we DO eat.
I'm sure you were delighted by the ridiculous decisions to de-emphasize Gold. When the Gold window was closed at Bretton Woods in 1971 and we went totally to paper, boy did our financial system take off! Remember how fun and prosperous the 1970's were?
Now, I'm also confused by this quote from the Charlie Munger book of quotes: "Recognize reality even when you don't like it - especially when you don't like it."
Would I be correct that this particular statement was advice given to others, rather than a credo you live by?
Do I detect a wee bit of hypocrisy, here?
Charlie, the letter contained in the Berkshire Hathaway (BRKA, BRKB) annual report is legendary and read by millions of sycophantic investors everywhere. May I suggest that you at least include "Marko's Take"? After all, shouldn't you recognize reality, even when you don't like it?
Mr. Munger, TAKE ME ON!
Marko's Take
Tuesday, September 21, 2010
Let's Get Technical (Part 2)
Yesterday, we built a case that the markets, despite a surprisingly strong Septemeber, were doing their best to prove Abe Lincoln right by "fooling most of the people, most of the time". There is much more evidence of that.
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Technical analysts often use an indicator called the RSI or (Relative Strength Index). According to Investopedia, the RSI is defined as follows:
"A technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of an asset. It is calculated using the following formula: RSI = 100 - 100/(1 + RS). RS = Average of x days' up closes / Average of x days' down closes."
"The RSI ranges from 0 to 100. An asset is deemed to be overbought once the RSI approaches the 70 level, meaning that it may be getting overvalued and is a good candidate for a pullback. Likewise, if the RSI approaches 30, it is an indication that the asset may be getting oversold and therefore likely to become undervalued."
To be sure, the RSI is far from perfect, but it has a pretty decent track record of at least measuring the condition of a market that is conducive to either an upside or downside reversal.
At the conclusion of trading yesterday, the Dow Jones Industrial Average (INDU) had an RSI of 66.60, the Nasdaq 100 (NDX) had one of 72.74, the Standard & Poors 500 registered 66.50, Gold came in at 72.50 and the HUI was 55.99 after hitting 68 several days earlier.
A good charting service from which one can review these numbers and other indicators is Stock Charts (http://www.stockcharts.com/).
If you pull these charts up, you can see that most intermediate term rallies crap out with an RSI in the mid-to upper-60's and bottoms hit 35 or below. Markets rarely rally much after crossing 70 on the upside or decline much if they penetrate 30 on the downside.
What makes the market seem so weak is not only the poor price action despite a long string of up days as highlighted in yesterday's piece http://markostake.blogspot.com/2010/09/lets-get-technical.html, but also in looking at how extended, or lack thereof, the market got.
A real lift-off will typically pull an index or stock well above its 200 Day Moving Average (200DMA). Historically, major Gold rallies have peaked in excess of 30% above is 200DMA. The HUI has historically peaked more than 50% above its 200DMA.
The bullion, despite a near-uninterrupted 10 week rally, has failed to get much in excess of 10% above its 200DMA, while the HUI has only gotten 15% above its DMA. One might argue that this means that they have further to go. True enough. But, in light of the various overbought conditions are measured by the RSIs, it would appear that what we are seeing is a series of markets losing momentum.
We continue, therefore, to urge extreme caution. Today's Federal Reserve meeting is a perfect occasion to provide the market with an excuse to begin its trek to lower, perhaps MUCH lower levels.
Once again, while we believe that caution should rule the day even in the precious metals sector, it is highly unlikely that we will see the type of smash that occured in 2008. And, it may even surprise everyone and rally. However, use the guidelines outlined in yesterday's piece before jumping in with both feet.
Marko's Take
Monday, September 20, 2010
Let's Get Technical
On the surface thus far, September has seemed to be a very normal month. Below the surface, it has been far from it. Coventional wisdom is aware that, historically, it is the weakest calendar month in terms of average stock market performance and, therefore, there was a decent level of angst about what would happen when traders and portfolio managers returned from their summer vacations in the Hamptons.
The market has been up 9 of the last 11 days. These extreme strings of near-consecutive days up or down are very often signs of exhaustion. Market tops tend to be rolling like an upside down arc or parabola. Significant bottoms, on the other hand, are very often V-shaped, characterized by panic selling.
If we put those two observations together we can form an educated opinion as to the technical health of the stock market. In the last 11 days, the Dow Jones Industrial Average has gone up a mere 6% the Standard & Poors 500 has risen 7%, the Russell 2000 8% and the Nasdaq 100 11%. If the market was firing its thrusters for a huge move up, we ought to have seen gains of about double those just experienced.
A 9 of 11 exhaustive string on the downside could potentially result in drops of 20% or more.
Somewhat disturbing is the behavior of the Gold Bugs Index (HUI), especially in light of the move in Gold itself. The HUI is up only 1% despite a 3% advance in Gold and a 10% gain in Silver. In addition, the Dollar index is down 2%, which should have provided a modest tailwind. This is NOT healthy action. The breakout of Gold above $1,250 was NOT accompanied by a breakout of the HUI above 500. For a true bull market to have begun, the twin conditions of Gold above $1,250 AND 500 on the HUI should have bene met. That a breakout didn't occur was quite surpising. I guess Gold 2K will have to be put on hold.
Therefore, while the likelihood of a MAJOR drop in Gold or the HUI is small, we ought to remain on alert that a correction of some sort has become highly probable. In combination with a waterfall decline in stocks, precious metals are better avoided than ridden-out except with long-term money. More importantly, whatever correction occurs will represent yet another low risk entry point.
The other key reason to argue for extreme caution at this time is the major headwind created by the plunging money supply. The most recent figures and the implications are covered here: (http://markostake.blogspot.com/2010/09/turning-economic-titanic.html).
The deflationary forces are confirmed by the action of the bond market which has made new highs after a nearly 30 year bull market. In addition, longer rates have come down much more than short-term rates flattening the yield curve. The slope of the yield curve is particularly critical to the financial sector as the bulk of borrowing is done on the short end, while lending tends to be longer term. The spread between the two creates the level of profitability.
So, it continues to make sense to stay liquid. There will be a better time to take risk.
Marko's Take
The market has been up 9 of the last 11 days. These extreme strings of near-consecutive days up or down are very often signs of exhaustion. Market tops tend to be rolling like an upside down arc or parabola. Significant bottoms, on the other hand, are very often V-shaped, characterized by panic selling.
If we put those two observations together we can form an educated opinion as to the technical health of the stock market. In the last 11 days, the Dow Jones Industrial Average has gone up a mere 6% the Standard & Poors 500 has risen 7%, the Russell 2000 8% and the Nasdaq 100 11%. If the market was firing its thrusters for a huge move up, we ought to have seen gains of about double those just experienced.
A 9 of 11 exhaustive string on the downside could potentially result in drops of 20% or more.
Somewhat disturbing is the behavior of the Gold Bugs Index (HUI), especially in light of the move in Gold itself. The HUI is up only 1% despite a 3% advance in Gold and a 10% gain in Silver. In addition, the Dollar index is down 2%, which should have provided a modest tailwind. This is NOT healthy action. The breakout of Gold above $1,250 was NOT accompanied by a breakout of the HUI above 500. For a true bull market to have begun, the twin conditions of Gold above $1,250 AND 500 on the HUI should have bene met. That a breakout didn't occur was quite surpising. I guess Gold 2K will have to be put on hold.
Therefore, while the likelihood of a MAJOR drop in Gold or the HUI is small, we ought to remain on alert that a correction of some sort has become highly probable. In combination with a waterfall decline in stocks, precious metals are better avoided than ridden-out except with long-term money. More importantly, whatever correction occurs will represent yet another low risk entry point.
The other key reason to argue for extreme caution at this time is the major headwind created by the plunging money supply. The most recent figures and the implications are covered here: (http://markostake.blogspot.com/2010/09/turning-economic-titanic.html).
The deflationary forces are confirmed by the action of the bond market which has made new highs after a nearly 30 year bull market. In addition, longer rates have come down much more than short-term rates flattening the yield curve. The slope of the yield curve is particularly critical to the financial sector as the bulk of borrowing is done on the short end, while lending tends to be longer term. The spread between the two creates the level of profitability.
So, it continues to make sense to stay liquid. There will be a better time to take risk.
Marko's Take
Tuesday, September 14, 2010
Gold 2K
Is on its way! With this morning's definitive breakout above the $1,270 per ounce level combined with Silver's vault above $20 per ounce, we can clearly view the entire precious metals complex as having reached a very low-risk entry point. The Gold Bugs Index (HUI) now needs to confirm this move by decisively breaking 500.
Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal. A very reasonable target for Gold itself would be on the order of $2,000 per ounce. If this is realized, the HUI could see a fairly quick doubling to 1000.
The HUI has historically traded at around one-half the metal itself. At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000.
The greatest opportunities, however, are among the quiet junior sector. Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.
Of course, you can expect the powers that be to attempt to manage the market lower. This will fail. You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners. They will be wrong. Jon, still looking for $800 per ounce?
Bubbles are NEVER supported by fundamentals. But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.
You can also expect a boom in mergers and acquisitions. Resource rich but cash poor juniors will be bid up quickly. With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage.
The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally. Look for the Dollar to plumb new lows. Look for virtually all currencies to lose value against tangibles,
As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality". Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!
As bullish as the situation is for Gold, the prospects for Silver are even better. Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory. For Silver to become fairly valued on a relative basis, it would have to double TODAY! If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.
The fundamental picture gets better. Production in former powerhouses like South Africa is falling rapidly. In fact, we appear to be past "Peak Gold". So, we have the combination of falling supply AND rising demand.
It still gets better. It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks. In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger. Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient. Can't show a fever, now can we?
Unlike Y2K, Gold 2K will NOT be a bust. Get your first class seats for the ride of your life! Your financial survival depends on it.
Marko's Take
Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal. A very reasonable target for Gold itself would be on the order of $2,000 per ounce. If this is realized, the HUI could see a fairly quick doubling to 1000.
The HUI has historically traded at around one-half the metal itself. At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000.
The greatest opportunities, however, are among the quiet junior sector. Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.
Of course, you can expect the powers that be to attempt to manage the market lower. This will fail. You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners. They will be wrong. Jon, still looking for $800 per ounce?
Bubbles are NEVER supported by fundamentals. But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.
You can also expect a boom in mergers and acquisitions. Resource rich but cash poor juniors will be bid up quickly. With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage.
The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally. Look for the Dollar to plumb new lows. Look for virtually all currencies to lose value against tangibles,
As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality". Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!
As bullish as the situation is for Gold, the prospects for Silver are even better. Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory. For Silver to become fairly valued on a relative basis, it would have to double TODAY! If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.
The fundamental picture gets better. Production in former powerhouses like South Africa is falling rapidly. In fact, we appear to be past "Peak Gold". So, we have the combination of falling supply AND rising demand.
It still gets better. It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks. In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger. Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient. Can't show a fever, now can we?
Unlike Y2K, Gold 2K will NOT be a bust. Get your first class seats for the ride of your life! Your financial survival depends on it.
Marko's Take
Monday, August 30, 2010
Is The Gold Mega-Bull Starting To Snort?
It may be time to go grab our red capes from the closet and dust them off. In the pen is an increasingly agitated bull, snorting and pawing at the dirt. He's been held back by a combination of natural and man made forces. He ain't happy.
Gold has had every reason to correct sharply. It appears that we are in the early stages of another deflation scare. The money supply is shrinking at unprecedented rates and the economy is going into free fall. These are NOT the best pre-conditions for a rally. But they are GREAT conditions to fool everyone, and that is how great moves get set in motion.
When any asset or stock ignores what is unequivocally bad news, it virtually always suggests that the information has already been factored into the market. I believe that's going on now.
The rally in Gold to near its all time highs has occurred very quietly and without much notice. So has the recent strength in Silver. The underlying mining stocks appear to be forming healthy base patterns which are ideal for a resumption of the strong advance that still has a very long way to go.
The key obstacle to an advance here is the tremendous liquidity in Gold. When the really nasty part of the upcoming market meltdown asserts itself, it will inevitably trigger margin calls among the hedge fund community. They may be FORCED to sell the most liquid assets they have, and Gold would be at the top of that list.
The key levels to watch for an upside move are $1,250 on Gold and 500 on the HUI. If these are both exceeded, the technical picture goes from neutral, where it sits now, to very bullish. Given the very small overall market capitalization of the mining sector, even a small re-allocation of investors' portfolios will lead to huge gains. Remember how those internet stocks were propelled by the combination of small market floats coupled with surging demand? You ain't seen nothin' yet!
But, I would highly urge that one does wait for the key levels cited above to be penetrated before diving in. This is a very tricky market which is actively being intervened in. A false breakout CANNOT BE RULED OUT!
To play this market in the event of the now growing more likely upside breakout, you can't go wrong with physical GOLD. But, the real profits will be made in junior precious metals mining stocks. We will update our analyses of which stocks are the most appealing at the appropriate time.
I would, however AVOID the various Gold ETFs, most notably GLD. These are built on derivatives and there is very credible information floating around that there is not enough bullion to honor scheduled deliveries. Thus far, this shortage has been met by the issuance of more paper, but the supply of GOLD is falling rapidly from existing mines. Imagine the move if future delivery obligations can not be met.
I can see the bull's breath steam in the cold air. Toro, Toro, Toro!
Marko's Take
Gold has had every reason to correct sharply. It appears that we are in the early stages of another deflation scare. The money supply is shrinking at unprecedented rates and the economy is going into free fall. These are NOT the best pre-conditions for a rally. But they are GREAT conditions to fool everyone, and that is how great moves get set in motion.
When any asset or stock ignores what is unequivocally bad news, it virtually always suggests that the information has already been factored into the market. I believe that's going on now.
The rally in Gold to near its all time highs has occurred very quietly and without much notice. So has the recent strength in Silver. The underlying mining stocks appear to be forming healthy base patterns which are ideal for a resumption of the strong advance that still has a very long way to go.
The key obstacle to an advance here is the tremendous liquidity in Gold. When the really nasty part of the upcoming market meltdown asserts itself, it will inevitably trigger margin calls among the hedge fund community. They may be FORCED to sell the most liquid assets they have, and Gold would be at the top of that list.
The key levels to watch for an upside move are $1,250 on Gold and 500 on the HUI. If these are both exceeded, the technical picture goes from neutral, where it sits now, to very bullish. Given the very small overall market capitalization of the mining sector, even a small re-allocation of investors' portfolios will lead to huge gains. Remember how those internet stocks were propelled by the combination of small market floats coupled with surging demand? You ain't seen nothin' yet!
But, I would highly urge that one does wait for the key levels cited above to be penetrated before diving in. This is a very tricky market which is actively being intervened in. A false breakout CANNOT BE RULED OUT!
To play this market in the event of the now growing more likely upside breakout, you can't go wrong with physical GOLD. But, the real profits will be made in junior precious metals mining stocks. We will update our analyses of which stocks are the most appealing at the appropriate time.
I would, however AVOID the various Gold ETFs, most notably GLD. These are built on derivatives and there is very credible information floating around that there is not enough bullion to honor scheduled deliveries. Thus far, this shortage has been met by the issuance of more paper, but the supply of GOLD is falling rapidly from existing mines. Imagine the move if future delivery obligations can not be met.
I can see the bull's breath steam in the cold air. Toro, Toro, Toro!
Marko's Take
Friday, August 20, 2010
Fasten Your Seat Belts
The entire financial and business world has now learned the two most important words: Hindenburg Omen (HO). We have written about this indicator extensively, with trading floors, chat rooms and even the mainstream press doing articles. Until now, the confirmation of the indicator has been in dispute. That will now change.
In today's trading, which is also a triple witching day, the confirmation is now a done deal. Ironically, this is quite possibly the last time this indicator will be useful or viable. However, if you choose to ignore it, well then be prepared to take a major hit to your financial fortunes.
Prominent wall street analysts such as Joseph Battapaglia, have derided this indicator. Of course, Mr. Battapaglia is well know for beating the internet drum all the way to the top and then to the bottom of the crash in technology stocks. With all due respect Joe, haven't you learned your lesson?
Mr. Battapaglia is hardly alone in his disgust. In fact, the major brokerage houses rarely, if ever issue sell recommendations. Abby Joseph Cohen, a perma-bull if there ever was one, never met a stock or market she didn't like. Never has thought that any financial asset was overvalued. Dear Abby, perhaps you should write an advice column? Naw, it's been done. Never mind!
Now that the HO has made the Wall Street Journal, CNBC, The Drudge Report, Huffington Post and Wikipedia, it will become too well known to be useful ever again. That's how technical analysis works. The minute everyone knows is the very moment that no one can benefit.
For investors, the key here is survival. Safety can be found in very few places: Gold, the Greenback, high quality bonds, high quality utilities and oil companies. But, it would be far more prudent to let this impending waterfall decline fully express itself. There ought to FAR better entry points.
In the case of Gold, for example, consider the likelihood that the mega hedge funds are probably being hit with margin calls and will need to sell the only liquid assets they have. Thus, it is imperative that position sizes be kept fairly small, temporarily.
In addition, most people are long a variety of financial assets such as real estate and employment. These, too, will affected. If you're so inclined, a strategy of hedging your balance sheet is advisable. My personal preference is to place some portion of your portfolio in inverse ETFs such as FAZ and TWM. But, be aware that these are NOT for the feint of heart and will subject you to wild swings and increasing volatility.
Investors need to consider the emotional impact of watching their net asset values bounce around like a pinball machine. No point in subjecting yourself to what is sure to be a tremendous amount of angst.
Marko's Take
In today's trading, which is also a triple witching day, the confirmation is now a done deal. Ironically, this is quite possibly the last time this indicator will be useful or viable. However, if you choose to ignore it, well then be prepared to take a major hit to your financial fortunes.
Prominent wall street analysts such as Joseph Battapaglia, have derided this indicator. Of course, Mr. Battapaglia is well know for beating the internet drum all the way to the top and then to the bottom of the crash in technology stocks. With all due respect Joe, haven't you learned your lesson?
Mr. Battapaglia is hardly alone in his disgust. In fact, the major brokerage houses rarely, if ever issue sell recommendations. Abby Joseph Cohen, a perma-bull if there ever was one, never met a stock or market she didn't like. Never has thought that any financial asset was overvalued. Dear Abby, perhaps you should write an advice column? Naw, it's been done. Never mind!
Now that the HO has made the Wall Street Journal, CNBC, The Drudge Report, Huffington Post and Wikipedia, it will become too well known to be useful ever again. That's how technical analysis works. The minute everyone knows is the very moment that no one can benefit.
For investors, the key here is survival. Safety can be found in very few places: Gold, the Greenback, high quality bonds, high quality utilities and oil companies. But, it would be far more prudent to let this impending waterfall decline fully express itself. There ought to FAR better entry points.
In the case of Gold, for example, consider the likelihood that the mega hedge funds are probably being hit with margin calls and will need to sell the only liquid assets they have. Thus, it is imperative that position sizes be kept fairly small, temporarily.
In addition, most people are long a variety of financial assets such as real estate and employment. These, too, will affected. If you're so inclined, a strategy of hedging your balance sheet is advisable. My personal preference is to place some portion of your portfolio in inverse ETFs such as FAZ and TWM. But, be aware that these are NOT for the feint of heart and will subject you to wild swings and increasing volatility.
Investors need to consider the emotional impact of watching their net asset values bounce around like a pinball machine. No point in subjecting yourself to what is sure to be a tremendous amount of angst.
Marko's Take
Thursday, August 12, 2010
Hindenburg Omen: 3rd Time's The Charm
Recently, we've been covering a most off-the-run indicator called the Hindenburg Omen (HO). For some background, click here http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html. For the indicator to be confirmed, it must occur in clusters within an approximate 5 or 6 week window. Number 3 just occurred in this morning's trading.
The news gets worse. Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.
Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery. Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."
For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression. He must be a closet reader of "Marko's Take".
So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant. What's important is the outlook, which is mixed at best.
What's also mixed is the situation with Gold and precious metals stocks. On the one hand, Gold is holding up remarkably well and should continue to do so. Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009. On the other hand, it is a very liquid and salable asset. If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity. Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.
I continue to be short-term neutral on the precious metals sector. There ought to be a better entry point, but that is far from guaranteed. If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight. If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight. It could do both on consecutive days. I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.
The best play, in my mind continues to be certain inverse ETFs. These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least. Again, I would NOT recommend betting the farm on these, either.
If you don't like inverse ETFs, fine. Stay in cash, and be thankful you have some. Lot's of folks are about to be wiped out. Please don't let yourself be one of them.
Stay tuned.
Marko's Take
On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch: Fawntasia". If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here: http://cwcthewildbrunch12.eventbrite.com/.
The news gets worse. Last evening, Cisco Systems' (CSCO) John Chambers, always the optimist, gave a somewhat pessimisstic outlook for the economy on the conference call following the release of Cisco's earnings.
Revenue for the latest quarter fell short of analyst expectations at Cisco Systems Inc., and Chambers said customers were expecting a slowdown in the economic recovery. Chambers goes on "In terms of the economy, it's mixed signals. ... The majority of my customers believe the economy is going to continue just going slowly going up, but very slowly. Not what they would have said even just three to four months ago in terms of their expectations."
For Chambers, this is tantamount to calling for a Double-Dip Hyperinflationary Depression. He must be a closet reader of "Marko's Take".
So, while corporate earnings for the 2nd quarter came in at pretty decent levels, they are irrelevant. What's important is the outlook, which is mixed at best.
What's also mixed is the situation with Gold and precious metals stocks. On the one hand, Gold is holding up remarkably well and should continue to do so. Even in the oncoming deflationary freight train, Gold may continue to get a major crisis bid as it did at times in the meltdown of 2008-2009. On the other hand, it is a very liquid and salable asset. If hedge funds and other investors get margin calls, it is the easiest way to raise liquidity. Ultimately, as hyper-inflation rules the day, Gold will absolutely sky-rocket.
I continue to be short-term neutral on the precious metals sector. There ought to be a better entry point, but that is far from guaranteed. If missiles fly in the Middle East, Gold could jump by $100 per ounce overnight. If the stock market meltsdown, as we expect, Gold could fall by $100 per ounce overnight. It could do both on consecutive days. I would still recommend maintaining some position, just in case, but would be cautious about betting the farm...yet.
The best play, in my mind continues to be certain inverse ETFs. These are highly volatile, not for the feint of heart, but a great way to hedge, at the very least. Again, I would NOT recommend betting the farm on these, either.
If you don't like inverse ETFs, fine. Stay in cash, and be thankful you have some. Lot's of folks are about to be wiped out. Please don't let yourself be one of them.
Stay tuned.
Marko's Take
On Sunday, August 22nd, the California Wildlife Center will have it's annual fundraiser called "The Wild Brunch: Fawntasia". If you're in the Southern California area, and wish to come down and support this fabulous cause, tickets can be purchased by clicking here: http://cwcthewildbrunch12.eventbrite.com/.
Wednesday, July 21, 2010
Has The Crash Sequence Begun?
All the necessary conditions are in place. After Tuesday's trading, both the Dow Jones Industrial Average ( DJIA) and the Standard & Poor's 500 (SPX) had posted gains in 10 of the last 11 trading days. Such strings are very, very rare. They indicate panic. In this case, all the short-sellers who had gotten aggressive, have been sent running for cover.
Market sentiment, which had gotten quite bearish, is now pretty bullish especially on the back of a slew of earnings reports which have deluded investors into believing that the economic "recovery" is gaining momentum. It isn't. Apple is not enough to save the economy.
Earnings are backward looking. They have absolutely NO predictive value. In fact, market bubbles peak when the news is great. Market bottoms occur when the sky is falling. In 1929, economists believed that the market had achieved a new plateau. They were wrong. In 2000, investment analysts talked about a new investment paradigm of valuation not mattering. They were wrong. All those hot internet stocks went bankrupt by the dozens.
The important thing to note is that it is not too late to protect your remaining assets. Down 50%? Fine. You want to lose another 50%?
The most important goal for any investor here should be survival. There will be other times to participate in stocks and other investments. There will be lower risk entry points. Better that you preserve your liquid assets to enter when everyone else has been wiped out.
If you're new to this column, you may wish to read two recent pieces on why the current situation is so damn dangerous: http://markostake.blogspot.com/2010/07/8-more-reasons-to-avoid-stocks.html and http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
You can also profit from the coming market meltdown, but be aware that short-selling and the use of inverse ETFs is very treacherous and not for the feint of heart or risk-averse. I do, however, recommend at least a small position as a hedge to offset losses in your other assets.
Should you load up on Gold here or precious metals mining stocks? Probably not yet, even though Gold may perform well in a crisis situation. If we're in the middle of another deflation scare, they are unlikely to be unscathed. That said, Gold will probably be the best asset to hold value even in the worst scenario. However, as investors seek liquidity to meet margin calls or redemptions, they will be forced to sell the most liquid assets. Be patient. There will be a much better time to load the truck.
It's also time to review all your assets and exposures. Very few will escape the imminent market meltdown.
The only assets likely to perform here are very safe bonds. In a deflation scare, interest rates are likely to either stay very low or go even lower. The deservedly much-maligned U.S. Dollar ought to continue to see "flight-to-safety" interest.
If I'm right about what's coming down the pike, life as we know it will turn into life as we KNEW it.
Marko's Take
Market sentiment, which had gotten quite bearish, is now pretty bullish especially on the back of a slew of earnings reports which have deluded investors into believing that the economic "recovery" is gaining momentum. It isn't. Apple is not enough to save the economy.
Earnings are backward looking. They have absolutely NO predictive value. In fact, market bubbles peak when the news is great. Market bottoms occur when the sky is falling. In 1929, economists believed that the market had achieved a new plateau. They were wrong. In 2000, investment analysts talked about a new investment paradigm of valuation not mattering. They were wrong. All those hot internet stocks went bankrupt by the dozens.
The important thing to note is that it is not too late to protect your remaining assets. Down 50%? Fine. You want to lose another 50%?
The most important goal for any investor here should be survival. There will be other times to participate in stocks and other investments. There will be lower risk entry points. Better that you preserve your liquid assets to enter when everyone else has been wiped out.
If you're new to this column, you may wish to read two recent pieces on why the current situation is so damn dangerous: http://markostake.blogspot.com/2010/07/8-more-reasons-to-avoid-stocks.html and http://markostake.blogspot.com/2010/07/hindenburg-omen-confirmed-or-was-it.html.
You can also profit from the coming market meltdown, but be aware that short-selling and the use of inverse ETFs is very treacherous and not for the feint of heart or risk-averse. I do, however, recommend at least a small position as a hedge to offset losses in your other assets.
Should you load up on Gold here or precious metals mining stocks? Probably not yet, even though Gold may perform well in a crisis situation. If we're in the middle of another deflation scare, they are unlikely to be unscathed. That said, Gold will probably be the best asset to hold value even in the worst scenario. However, as investors seek liquidity to meet margin calls or redemptions, they will be forced to sell the most liquid assets. Be patient. There will be a much better time to load the truck.
It's also time to review all your assets and exposures. Very few will escape the imminent market meltdown.
The only assets likely to perform here are very safe bonds. In a deflation scare, interest rates are likely to either stay very low or go even lower. The deservedly much-maligned U.S. Dollar ought to continue to see "flight-to-safety" interest.
If I'm right about what's coming down the pike, life as we know it will turn into life as we KNEW it.
Marko's Take
Monday, July 12, 2010
Bullion or Mining Stocks?
All of us Gold Bugs wonder how best to allocate resources. It's no secret that mining stocks have proved to be a MAJOR disappointment for several years.
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Over the last two years, the table below demonstrates how poorly mining stocks have performed relative to the metal itself. The HUI Gold Bugs Index,is the key benchmark for publicly traded Gold and Silver miners.
Time Frame HUI Peak Gold Peak
March, 2008 515 $1,025
December, 2009 510 $1.225
June, 2010 500 $1,250
As is clear, mining stocks have failed to keep pace with the metal itself in a very major way.
The basic argument for investing in mining companies, as opposed to bullion, is that they have leverage relative to the metal. This has not been the case in recent years. In fact, despite accelerating earnings, they've performed rather dismally.
Gold, in my opinion, is, for the time being, the better bet. Its use as an alternative currency during a period of extreme worldwide monetary debasement is proving far more valuable. Mining stocks are still equities and subject to the extremely bearish winds now in motion for the stock market. There will be better opportunities to re-enter.
If we are entering another deflation scare, it's important to be aware that even the metal itself may be subject to some temporary pressure. There will probably be a better entry point for the metal itself, although, at this time, its chart still looks VERY constructive.
Federal Reserve chairman Ben Bernanke is a student of the Great Depression and is very aware of the relationships between money supply growth, economic activity and asset performance. Undoubtedly, as this new market smash fully expresses itself, the FED will be forced to undertake even more drastic measures to re-liquify the economy than it already has. Bernanke earned the nickname "Helicopter Ben" for proclaiming, on numerous occasions, that he would be prepared to drop money out of helicopters if that's what it took to get money circulating again. He may have to make good on that one.
In its desperation, the FED wil probably over shoot and, in so doing, sow the seeds of hyper-inflation. Then, all the ingredients for Gold to achieve vastly higher levels will be in place.
This is one of the reasons that successful investing is so damn tough. You can be completely correct in a forecast and STILL lose money. All of us precious metals mining stock investors have stood back, watched the bullion advance and have been totally unable to cash in.
Extreme caution continues to be warranted here.
Marko's Take
Wednesday, June 30, 2010
Gold Or Precious Metals Stocks?
Recently, I proudly and confidently proclaimed that GOLD was ready to head for $2,000. As Bill Clinton's former press secretary, Dee Dee Myers, used to saying when Billy was caught lying, that forecast is "no longer operational".
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
An interesting dynamic has put itself into motion. As GOLD continues to hover near its highs, the equity market is rapidly falling apart. Precious metals mining companies are battling a tug-of-war between higher metals prices versus a vastly more difficult environment for equities.
This sets up a very difficult question: how does one play the market volatility? Carefully.
During the financial meltdown of 2008-09, GOLD held up pretty well, gaining a "flight to safety" bid. Despite the very good action in GOLD, however, mining stocks got blasted for losses of up to 90%. Any one of a number of events could trigger an explosion in the metal: war in Iran, a breakdown of the Euro-Zone, more quantitative easing or more problems in the financial system. This list is hardly exhaustive.
The above notwithstanding, many signs have emerged that another DEFLATION scare is imminent. The money supply is plunging at un-precedented rates. DEFLATION. Bond yields have broken to new multi-generational lows. DEFLATION. Bank loans and credit are contracting at historic rates. DEFLATION. The dollar, despite all the government spending and low interest rates keeps rallying. DEFLATION.
The "Gold Bugs" index, also known as the HUI, has been carving out an ascending wedge pattern. These are normally, but not always, bearish. The HUI has also approached the 500 level on several occasions, and can't seem to break through. A material violation of either 475 on the downside or 500 on the upside would provide a pretty good indication of what to do.
It's possible that GOLD itself could rally while precious metals stocks could decline. So, for now, the best bet is the metal itself. I would be VERY cautious about the equities at this juncture. I tend to think there will be a better buying opportunity down the road.
As to the metal, I would use $1,225 as a stop level. If it breaks below, chances are that we will see some decent downside and there will be a much better entry point. For now, the amber light is flashing.
Warning Will Robinson!
So, what to do here? If you're going to stick with your portfolio of miners, I would at least add a hedge to insulate against equity pressure. Personally, I like the inverse ETFs FAZ, SKF and TWM. There are plenty of others you can use. I would NOT recommend purchasing a GOLD inverse ETF. What's the point of being both long AND short?
As investors, it is ever so important to not get wedded to a particular point of view or to stay either perma-bull or perma-bear. The easiest way to lose money in the world is to be stubborn and insist that your pre-conceived notions must be correct. Minimize your losses and wait until a better opportunity presents itself.
Marko's Take
Friday, June 18, 2010
Gold Begins Historic March To $2000
Major fortunes are about to be made and lost. As Gold gapped through the $1,250 level this morning, the final hurdle to the imminent hyper-bolic growth phase was crossed.
Many investors find it psychologically intimidating to purchase an asset making all-time highs, but history is full of examples of huge wealth creation from doing exactly that. When the Dow Jones Industrial Average (Dow) crossed the seemingly insurmountable 1,000 barrier in 1982, it was met with widespread disbelief. Yet, that proved to be one of the greatest buying opportunities ever for stocks. Oops!
The primary reason for this stumbling block is that investors are told to "buy low" and "sell high". Kinda hard to do when an asset has never been higher. Of course, following that logic, one would have missed every single bull market in history. Oops!
Former Federal Reserve chairman Alan Greenspan warned about "irrational exuberance" in 1996 with the Dow at about 6,500 and Nasdaq at 1,000. A few short years later, the Dow doubled and the Nasdaq rose 5-fold! Despite issuing that warning, Mr. Greenspan embarked on reckless monetary policy which led to the twin bubbles of tech stocks and real estate. Oops!
You can expect a drumbeat of "experts" telling you that Gold is in a bubble, that the fundamentals don't warrant higher prices and the regurgitation of that idiotic argument that the yellow metal has no intrinsic value. But, instead of hating the nay-sayers, like Kitco's Jon Nadler, we should stop and tip our hats to them. Their mindless drivel serves to keep sentiment from getting too bullish too quickly and, in so doing, adds life to the market. Hey Jon, how's that $800 per ounce forecast looking? Oops!
And of course, let's send some thanks to good old Robert Prechter, chief proponent of the completely useless Elliot Wave Theory, for his ongoing prediction of a crash to $400 dollar per ounce, or so. Prechter, as far as I can tell, has made ONE and only one, correct prediction in his entire life. He did warn of the 1987 market crash, which got him major notoriety. He hasn't been right since. Oops!
Bull markets are famous for extending far longer than anyone possibly believes. Who'd have thought that dot coms, with barely any revenues, let alone profits, would ultimately achieve multi-billion dollar market capitalizations only to be followed by a round-trip to zero? Oops!
Let's not forget current FED chairman, Ben Bernanke. Time and time again, he has said that he doesn't understand why Gold is so high given tame inflation. Psst, Ben, markets ANTICIPATE!
Looking forward, here's what every investor needs to know:
1. Prognosticators and technicians will be calling market tops all the way. They will be repeatedly wrong.
2. Gold's role as the "canary in the coal mine" will be talked down by all the financial geniuses of the Obama Administration. They will be repeatedly wrong.
3. Efforts to suppress the price the Gold will be increased in variety of market-interfering ways. They will be repeatedly wrong.
4. "Experts" will increasingly tell us that Gold is in a bubble and that investors are risking the type of wipe-outs that occurred in both real estate and tech stocks. The comparisons to tech stocks are completely invalid, since mining companies are producing record profits. They will be repeatedly wrong.
We have long maintained the posture that Gold is heading for $2,000 an ounce later this year on its way to an ultimate top of $5,000 or so. Investors smart enough, lucky enough or brave enough to place a substantial portion of their assets in either the bullion itself, or in junior precious metals mining stocks, will be in a far better position to ride out the coming financial storm.
It's not too late. In fact, the party is just about to begin.
Marko's Take
Many investors find it psychologically intimidating to purchase an asset making all-time highs, but history is full of examples of huge wealth creation from doing exactly that. When the Dow Jones Industrial Average (Dow) crossed the seemingly insurmountable 1,000 barrier in 1982, it was met with widespread disbelief. Yet, that proved to be one of the greatest buying opportunities ever for stocks. Oops!
The primary reason for this stumbling block is that investors are told to "buy low" and "sell high". Kinda hard to do when an asset has never been higher. Of course, following that logic, one would have missed every single bull market in history. Oops!
Former Federal Reserve chairman Alan Greenspan warned about "irrational exuberance" in 1996 with the Dow at about 6,500 and Nasdaq at 1,000. A few short years later, the Dow doubled and the Nasdaq rose 5-fold! Despite issuing that warning, Mr. Greenspan embarked on reckless monetary policy which led to the twin bubbles of tech stocks and real estate. Oops!
You can expect a drumbeat of "experts" telling you that Gold is in a bubble, that the fundamentals don't warrant higher prices and the regurgitation of that idiotic argument that the yellow metal has no intrinsic value. But, instead of hating the nay-sayers, like Kitco's Jon Nadler, we should stop and tip our hats to them. Their mindless drivel serves to keep sentiment from getting too bullish too quickly and, in so doing, adds life to the market. Hey Jon, how's that $800 per ounce forecast looking? Oops!
And of course, let's send some thanks to good old Robert Prechter, chief proponent of the completely useless Elliot Wave Theory, for his ongoing prediction of a crash to $400 dollar per ounce, or so. Prechter, as far as I can tell, has made ONE and only one, correct prediction in his entire life. He did warn of the 1987 market crash, which got him major notoriety. He hasn't been right since. Oops!
Bull markets are famous for extending far longer than anyone possibly believes. Who'd have thought that dot coms, with barely any revenues, let alone profits, would ultimately achieve multi-billion dollar market capitalizations only to be followed by a round-trip to zero? Oops!
Let's not forget current FED chairman, Ben Bernanke. Time and time again, he has said that he doesn't understand why Gold is so high given tame inflation. Psst, Ben, markets ANTICIPATE!
Looking forward, here's what every investor needs to know:
1. Prognosticators and technicians will be calling market tops all the way. They will be repeatedly wrong.
2. Gold's role as the "canary in the coal mine" will be talked down by all the financial geniuses of the Obama Administration. They will be repeatedly wrong.
3. Efforts to suppress the price the Gold will be increased in variety of market-interfering ways. They will be repeatedly wrong.
4. "Experts" will increasingly tell us that Gold is in a bubble and that investors are risking the type of wipe-outs that occurred in both real estate and tech stocks. The comparisons to tech stocks are completely invalid, since mining companies are producing record profits. They will be repeatedly wrong.
We have long maintained the posture that Gold is heading for $2,000 an ounce later this year on its way to an ultimate top of $5,000 or so. Investors smart enough, lucky enough or brave enough to place a substantial portion of their assets in either the bullion itself, or in junior precious metals mining stocks, will be in a far better position to ride out the coming financial storm.
It's not too late. In fact, the party is just about to begin.
Marko's Take
Monday, May 24, 2010
Has The Rally In Gold Been Short-Circuited?
While there may be legitimate reasons to think so, Marko's Take is an unequivocal NO!
First, let's review the case against Gold, which has merit. After peaking near $1,250 per ounce, the yellow metal hit an air pocket which took it down a swift $80 per ounce in a matter of a few days in sympathy with the sudden meltdown in Global stock markets. The "Gold Bugs" Index (HUI) suffered a steeper decline of approximately 16% from peak to trough.
In addition, the recent strength in the U.S. Dollar has given rise to speculation that, rather than inflating, our economy is DE-flating. Given the unprecedented drop in money supply aggregates, such as M-2 and M-3, it makes sense to believe that a deflationary meltdown is at hand.
Market technicals, however, do NOT support that position. The situation in the precious metals and commodity markets appears analogous to that which characterized the NASDAQ in late 1998. At that time, the internet bubble was well into its mania. However, the blow-up of Russian debt, the RUBLE and ensuing multi-billion dollar losses of hedge fund Long-Term Capital Management, threatened to throw the entire Global financial system into complete disarray.
The NASDAQ lost 25% in a matter of weeks before suddenly reversing and tacking on about 300% in the next 16 months. It appears that Gold and other commodity markets are following a similar trajectory.
The graph of Gold below demonstrates that the recent correction still qualifies as no more than a temporary "blip".
http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=2&mn=0&dy=0&id=p43086601386&a=191194388&listNum=1
There have been no technical violations of the uptrend in force since the bottom of the financial crisis in late 2008. The chart still looks quite healthy.
The recent decline in GOLD has been virtually entirely dollar related. To show that, we can divide the price of Gold by the USD, or dollar index. Ideally, it is optimal to see this ratio rise, which would indicate that Gold is outpacing the Dollar. The converse would show intrinsic weakness in Gold.
http://stockcharts.com/h-sc/ui?s=$GOLD:$USD&p=D&yr=2&mn=0&dy=0&id=p97275561041&a=200986161&listNum=1
Recent trading illustrates that relative to the Dollar, Gold has been in a holding pattern. This is directly opposite to the period from November 2008 to December 2009, when the ratio rose during the rally from $700 per ounce to $1,200 per ounce. If we should see this ratio decline, as we did from the summer of 2008 through the November, 2008 lows, we'd have reason to believe that a MAJOR correction might be at hand.
Finally, and more auspicious, is the relationship between Gold and the S & P 500. Ideally, we want to see this ratio rise as Gold outperforms other financial assets such as stocks. The chart below shows that the ratio is at its highest level in more than a year and is on the cusp of moving to new highs.
http://stockcharts.com/h-sc/ui?s=$GOLD:$SPX&p=D&yr=2&mn=0&dy=0&id=p52824535369&listNum=1&a=199516559
All in all, GOLD remains on a solid footing. As the imminent mania in precious metals continues to unfold, investors will need to be prepared for substantial intra-day volatility and violent weekly swings.
We expect there to be huge profits in the ensuing weeks, especially in the junior sector, but investors will need to not get thrown off the bucking bull. The market is at another ideal entry point.
Marko's Take
For some videos with a political flavor, check out our You Tube video blogs. They can be accessed by clicking here http://www.youtube.com/markostaketv.
First, let's review the case against Gold, which has merit. After peaking near $1,250 per ounce, the yellow metal hit an air pocket which took it down a swift $80 per ounce in a matter of a few days in sympathy with the sudden meltdown in Global stock markets. The "Gold Bugs" Index (HUI) suffered a steeper decline of approximately 16% from peak to trough.
In addition, the recent strength in the U.S. Dollar has given rise to speculation that, rather than inflating, our economy is DE-flating. Given the unprecedented drop in money supply aggregates, such as M-2 and M-3, it makes sense to believe that a deflationary meltdown is at hand.
Market technicals, however, do NOT support that position. The situation in the precious metals and commodity markets appears analogous to that which characterized the NASDAQ in late 1998. At that time, the internet bubble was well into its mania. However, the blow-up of Russian debt, the RUBLE and ensuing multi-billion dollar losses of hedge fund Long-Term Capital Management, threatened to throw the entire Global financial system into complete disarray.
The NASDAQ lost 25% in a matter of weeks before suddenly reversing and tacking on about 300% in the next 16 months. It appears that Gold and other commodity markets are following a similar trajectory.
The graph of Gold below demonstrates that the recent correction still qualifies as no more than a temporary "blip".
http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=2&mn=0&dy=0&id=p43086601386&a=191194388&listNum=1
There have been no technical violations of the uptrend in force since the bottom of the financial crisis in late 2008. The chart still looks quite healthy.
The recent decline in GOLD has been virtually entirely dollar related. To show that, we can divide the price of Gold by the USD, or dollar index. Ideally, it is optimal to see this ratio rise, which would indicate that Gold is outpacing the Dollar. The converse would show intrinsic weakness in Gold.
http://stockcharts.com/h-sc/ui?s=$GOLD:$USD&p=D&yr=2&mn=0&dy=0&id=p97275561041&a=200986161&listNum=1
Recent trading illustrates that relative to the Dollar, Gold has been in a holding pattern. This is directly opposite to the period from November 2008 to December 2009, when the ratio rose during the rally from $700 per ounce to $1,200 per ounce. If we should see this ratio decline, as we did from the summer of 2008 through the November, 2008 lows, we'd have reason to believe that a MAJOR correction might be at hand.
Finally, and more auspicious, is the relationship between Gold and the S & P 500. Ideally, we want to see this ratio rise as Gold outperforms other financial assets such as stocks. The chart below shows that the ratio is at its highest level in more than a year and is on the cusp of moving to new highs.
http://stockcharts.com/h-sc/ui?s=$GOLD:$SPX&p=D&yr=2&mn=0&dy=0&id=p52824535369&listNum=1&a=199516559
All in all, GOLD remains on a solid footing. As the imminent mania in precious metals continues to unfold, investors will need to be prepared for substantial intra-day volatility and violent weekly swings.
We expect there to be huge profits in the ensuing weeks, especially in the junior sector, but investors will need to not get thrown off the bucking bull. The market is at another ideal entry point.
Marko's Take
For some videos with a political flavor, check out our You Tube video blogs. They can be accessed by clicking here http://www.youtube.com/markostaketv.
Wednesday, May 5, 2010
Excellent Entry Point For Gold?
I believe it is! While the stock markets and GOLD market have been rocked by the situation in Greece, which this morning turned into riots, behind the scenes, the precious metals market has demonstrated a certain resiliency that is only demonstrable by looking at some relative analysis.
In order for GOLD, and the underlying precious metals miners, to really take off, as we have been predicting, they must both divorce themselves from the stock market AND the dollar. That has already begun.
The dollar index, or DXY, as it is often referred to, bottomed in December, 2009 at a reading of 74. The index is computed by comparing the U.S. Dollar to a basket of 10 currencies. Unfortunately, the computation of the index is highly skewed towards the EURO, which represents nearly 60% of the weighting, followed by the YEN and POUND.
The EURO has been incredibly weak and speculation has begun that it will lose its regional reserve-currency status. As the DXY is relative, the weakness in the EURO shows up as STRENGTH in the DOLLAR. So, the DXY is a rather poorly constructed gauge.
Nonetheless, the DXY currently stands at about 84 - a roughly 15% increase in the last 4 months. GOLD's most recent interim top of $1,200 per ounce coincided with the bottom in the DXY.
However, GOLD, which bottomed in February at around $1,050 per ounce, has since climbed in a stair-step fashion reaching nearly $1,200 a couple of days ago, despite the ongoing strength in the DOLLAR.
So, we now have a clear and consistent pattern of a rising DOLLAR and rising GOLD.
As to the stock market, a better way to measure relative strength is to review the ratio of precious metals miners to the Standard & Poors 500 (SPX). The preferred index of miners is the "HUI", or the "Gold Bugs Index".
The ratio created by dividing the HUI by the SPX is an excellent measure of the relative strength of miners to the overall stock market. This ratio also peaked in December, 2009 at a reading of about 0.45. It then fell to a low of about 0.33 in late March.
Since then, the HUI/SPX ratio has risen to 0.38 and has broken above its 200 day moving average. Yesterday's onslaught only brought it down slightly. It has also completed what appears to be a "head and shoulders" bottom - a pretty reliable chart formation often signalling a low of major importance.
Like any chart pattern, an H and S top or bottom is only a method for improving the odds and far from "inflammable", as Archie Bunker might say. Nevertheless, it, in conjunction with the strength of GOLD relative to the DXY, suggests that a major shift is taking place in the underlying technicals of this market.
Add to that, the excellent fundamentals of record revenues and earnings being reported by the miners, and you have all you need to see the precious metals market embark on the hyperbolic growth phase we have repeatedly called for.
The couple-day meltdown is extremely common for this phase of a mania. Everytime it looks like GOLD is taking off and investor sentiment gets too bullish or confident, an extreme shock keeps everyone on their toes. It's also the reason I have consistently warned about the dangers of overtrading a market like this. Even "per"fessionals learn the folly in trying to time every turn. It's a great way to NOT make money even in a rising trend.
Thus, we are now set up for what I believe ought to be an excellent entry point. In no way do I believe that the last couple of days negated the bullish prospects.
Marko's Take
Our newest YouTube video entitled "Social In-Security: The Problem" will be available sometime today. You can access it by clicking http://www.youtube.com/markostaketv. I would also like to thank Bill Murphy's excellent LeMetropoleCafe newsletter. For all you GOLD-philes, it remains the best value for a newsletter out there. You can access it by clicking here http://www.lemetropolecafe.com/.
In order for GOLD, and the underlying precious metals miners, to really take off, as we have been predicting, they must both divorce themselves from the stock market AND the dollar. That has already begun.
The dollar index, or DXY, as it is often referred to, bottomed in December, 2009 at a reading of 74. The index is computed by comparing the U.S. Dollar to a basket of 10 currencies. Unfortunately, the computation of the index is highly skewed towards the EURO, which represents nearly 60% of the weighting, followed by the YEN and POUND.
The EURO has been incredibly weak and speculation has begun that it will lose its regional reserve-currency status. As the DXY is relative, the weakness in the EURO shows up as STRENGTH in the DOLLAR. So, the DXY is a rather poorly constructed gauge.
Nonetheless, the DXY currently stands at about 84 - a roughly 15% increase in the last 4 months. GOLD's most recent interim top of $1,200 per ounce coincided with the bottom in the DXY.
However, GOLD, which bottomed in February at around $1,050 per ounce, has since climbed in a stair-step fashion reaching nearly $1,200 a couple of days ago, despite the ongoing strength in the DOLLAR.
So, we now have a clear and consistent pattern of a rising DOLLAR and rising GOLD.
As to the stock market, a better way to measure relative strength is to review the ratio of precious metals miners to the Standard & Poors 500 (SPX). The preferred index of miners is the "HUI", or the "Gold Bugs Index".
The ratio created by dividing the HUI by the SPX is an excellent measure of the relative strength of miners to the overall stock market. This ratio also peaked in December, 2009 at a reading of about 0.45. It then fell to a low of about 0.33 in late March.
Since then, the HUI/SPX ratio has risen to 0.38 and has broken above its 200 day moving average. Yesterday's onslaught only brought it down slightly. It has also completed what appears to be a "head and shoulders" bottom - a pretty reliable chart formation often signalling a low of major importance.
Like any chart pattern, an H and S top or bottom is only a method for improving the odds and far from "inflammable", as Archie Bunker might say. Nevertheless, it, in conjunction with the strength of GOLD relative to the DXY, suggests that a major shift is taking place in the underlying technicals of this market.
Add to that, the excellent fundamentals of record revenues and earnings being reported by the miners, and you have all you need to see the precious metals market embark on the hyperbolic growth phase we have repeatedly called for.
The couple-day meltdown is extremely common for this phase of a mania. Everytime it looks like GOLD is taking off and investor sentiment gets too bullish or confident, an extreme shock keeps everyone on their toes. It's also the reason I have consistently warned about the dangers of overtrading a market like this. Even "per"fessionals learn the folly in trying to time every turn. It's a great way to NOT make money even in a rising trend.
Thus, we are now set up for what I believe ought to be an excellent entry point. In no way do I believe that the last couple of days negated the bullish prospects.
Marko's Take
Our newest YouTube video entitled "Social In-Security: The Problem" will be available sometime today. You can access it by clicking http://www.youtube.com/markostaketv. I would also like to thank Bill Murphy's excellent LeMetropoleCafe newsletter. For all you GOLD-philes, it remains the best value for a newsletter out there. You can access it by clicking here http://www.lemetropolecafe.com/.
Monday, April 19, 2010
What Does 'GOLD'man Sachs Have To Do With Gold?
Nothing's easier than hopping on board a consistent and trending market. A Buy and Hold strategy is the most effective. However, the precious metals market continues to trade within the confines of a fairly narrow range.
After peaking briefly just above $1,200 in early December, Gold has traded in a $100 range for the last 4 months, primarily oscillating between $1,050 and $1,150. After slighty piercing the upside part of the range several days ago and giving signs that it was ready to resume its bull market, the yellow metal has once again given faithfull investors a temporary heart attack - dropping about $25 on Friday.
The benchmark index for precious metals stocks, HUI or "Gold Bugs Index", has also traded within a fairly narrow range despite a great deal of intra-day volatility. After reaching a high of about 500 in early December, the HUI lost a quick 25% to the 375 level in February and has been gently climbing in a stair-step fashion.
Trading a market is always virtually impossible except for the extra-ordinarily skilled or lucky. In the case of GOLD, or the underlying HUI, the pattern has demonstrated very little momentum or continuity in either direction. So, trading has resulted in whip-saws, unnecessary transaction costs and frustration.
The question remains as to what to do now, especially in light of the Friday smackdown ostensibly driven by the SEC allegations levied against Goldman Sachs (GS), aka "Government Sachs". It would seem that these allegations are specific only to the company and not a market event. It's even more difficult to comprehend how the "GOLD"man Sachs situation would cause the smashing of GOLD itself.
The answer is quite simple. They aren't related! The reaction in the overall market and the precious metals space was purely coincidental. The S & P 500 was already tremendously overbought and overdue for a sharp correction. On some dimensions, so was GOLD and the precious metals market. Traders often use significant news events as a reason to go to cash, especially in advance of a weekend, so as not to get caught in an adverse situation while the markets are closed.
This led to the significant broad market selloff which took other financial assets with it. GOLD and the underlying precious metals stocks weren't nearly as stretched as the general market, but there had been a decent rally in the last several weeks and nimble traders used the news as an opportunity to take profits.
From a technical perspective, the charts of GOLD and HUI remain in a bullish configuration. Neither has experienced a downward penetration of their respective 200 day moving averages. If that should occur, it might justify taking a closer look.
None of the underlying fundamental factors suggest that any change in outlook is warranted. Physical supplies of GOLD and SILVER remain tight and precious metals mining companies continue to deliver record revenues and profits.
The effects of record stimulus spending remain to filter through the economy. We've witnessed some, but not much, good news on retail sales, GDP and corporate profits. Yet, without much benefit to employment. Economists refer to that initial reaction as the "output effect".
Historically, the "output effect" is followed, with a time lag, by the "price effect". The price effect, or an increase in reported and un-reported inflation, is still simmering beneath the surface. The inevitable price effect will prove to be an excellent underpinning toward the continuation and acceleration of real assets such as GOLD and SILVER. As that occurs, the precious metals companies will continue to spit out even better profits and will be leading market participants.
One should view these temporary one- or two-day selloffs in precious metals stocks as gifts. Once the mining sector is clearly into gear, it will be very difficult to board the train. The character of the market will change and short-term selloffs will become fewer and shorter.
During the great NASDAQ bubble, as the tech-market accelerated, many experienced investors became skeptical of the move and missed the opportunity to generate incredible wealth. I should know. I was one of them!
The GOLD and miners market have all the hallmarks of being on the cusp of entering a hyperbolic growth phase. Letting the day-to-day noise affect our emotions and investment strategies is a mistake that even the most experienced investors make. No one has a crystal ball. However, until demonstrated to the contrary, Marko's Take says stay long and stay patient.
Marko's Take
Please visit our new YouTube video on the Legality Of The Personal Income Tax at (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
After peaking briefly just above $1,200 in early December, Gold has traded in a $100 range for the last 4 months, primarily oscillating between $1,050 and $1,150. After slighty piercing the upside part of the range several days ago and giving signs that it was ready to resume its bull market, the yellow metal has once again given faithfull investors a temporary heart attack - dropping about $25 on Friday.
The benchmark index for precious metals stocks, HUI or "Gold Bugs Index", has also traded within a fairly narrow range despite a great deal of intra-day volatility. After reaching a high of about 500 in early December, the HUI lost a quick 25% to the 375 level in February and has been gently climbing in a stair-step fashion.
Trading a market is always virtually impossible except for the extra-ordinarily skilled or lucky. In the case of GOLD, or the underlying HUI, the pattern has demonstrated very little momentum or continuity in either direction. So, trading has resulted in whip-saws, unnecessary transaction costs and frustration.
The question remains as to what to do now, especially in light of the Friday smackdown ostensibly driven by the SEC allegations levied against Goldman Sachs (GS), aka "Government Sachs". It would seem that these allegations are specific only to the company and not a market event. It's even more difficult to comprehend how the "GOLD"man Sachs situation would cause the smashing of GOLD itself.
The answer is quite simple. They aren't related! The reaction in the overall market and the precious metals space was purely coincidental. The S & P 500 was already tremendously overbought and overdue for a sharp correction. On some dimensions, so was GOLD and the precious metals market. Traders often use significant news events as a reason to go to cash, especially in advance of a weekend, so as not to get caught in an adverse situation while the markets are closed.
This led to the significant broad market selloff which took other financial assets with it. GOLD and the underlying precious metals stocks weren't nearly as stretched as the general market, but there had been a decent rally in the last several weeks and nimble traders used the news as an opportunity to take profits.
From a technical perspective, the charts of GOLD and HUI remain in a bullish configuration. Neither has experienced a downward penetration of their respective 200 day moving averages. If that should occur, it might justify taking a closer look.
None of the underlying fundamental factors suggest that any change in outlook is warranted. Physical supplies of GOLD and SILVER remain tight and precious metals mining companies continue to deliver record revenues and profits.
The effects of record stimulus spending remain to filter through the economy. We've witnessed some, but not much, good news on retail sales, GDP and corporate profits. Yet, without much benefit to employment. Economists refer to that initial reaction as the "output effect".
Historically, the "output effect" is followed, with a time lag, by the "price effect". The price effect, or an increase in reported and un-reported inflation, is still simmering beneath the surface. The inevitable price effect will prove to be an excellent underpinning toward the continuation and acceleration of real assets such as GOLD and SILVER. As that occurs, the precious metals companies will continue to spit out even better profits and will be leading market participants.
One should view these temporary one- or two-day selloffs in precious metals stocks as gifts. Once the mining sector is clearly into gear, it will be very difficult to board the train. The character of the market will change and short-term selloffs will become fewer and shorter.
During the great NASDAQ bubble, as the tech-market accelerated, many experienced investors became skeptical of the move and missed the opportunity to generate incredible wealth. I should know. I was one of them!
The GOLD and miners market have all the hallmarks of being on the cusp of entering a hyperbolic growth phase. Letting the day-to-day noise affect our emotions and investment strategies is a mistake that even the most experienced investors make. No one has a crystal ball. However, until demonstrated to the contrary, Marko's Take says stay long and stay patient.
Marko's Take
Please visit our new YouTube video on the Legality Of The Personal Income Tax at (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg).
Monday, March 22, 2010
Gold Market Update: Time To Go To Cash!
Boy I hate being wrong! For the last week, we've mentioned a number of companies in anticipation of "the new leg" launch upward. Get your eggs and tomatoes ready if you plunged your hard-earned cash in. Gulp! I think it may be best to go to cash. (Ducking!)
What changed? Friday's action was horrible! Monday morning's action, so far, has been horrible! The Dollar, which looked cooked, now seems to have gotten a second wind. Not that it's in great shape mind you. The EURO and POUND are in WORSE shape!
So, what's spooking me? Not the fundamentals, but the technicals. If we were really ready to launch into a new bull run, the GOLD market would absolutely NOT have gotten smacked for $20 Friday and another $15 this morning as we went to print.
I learned the hard way that it's best NOT to fall in love with either a particular viewpoint nor a particular position. I love the viewpoint that GOLD is going sky-high, but the evidence, AT THIS TIME, does not support that it's imminent.
Markets often telegraph as to what's coming, whether we listen or not is up to us. The action of the last couple of days is suggesting that all is not right in the USA.
U.S. Treasuries now yield MORE than Berkshire Hathaway, Proctor & Gamble, Johnson & Johnson and Lowe's corporate debt of the same maturity. I believe this is unprecedented.
Banks are continuing to fail in near-record numbers. Regulators on Friday shut down 7 more banks in 5 states, bringing the number to 37 so far this year. This follows the 140 that were closed or sold last year.
Banks that are surviving, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5% from 2008, the FDIC reported recently.
These signs add credence to the notion that the "second dip" of the "Double-Dip Hyperinflationary Depression" is just around the corner. Stocks are in trouble. Gold is in trouble. All financial assets and commodities are in trouble.
One key, if not THE key to surviving financial markets is being flexible. Since no one has a crystal ball, it's vital to factor in new information as it comes and, if necessary, abandon old viewpoints in favor of new ones.
Marko's Take? Bad time to be stubborn. Time to go to cash! However, please be aware that this is a SHORT-TERM viewpoint only. I maintain my LONG-TERM view that Gold will head to $5,000 per ounce.
If you want to castigate me for imploring a bum short-term investment in the Gold market, TAKE ME ON!
Marko's Take
Please check us out on YouTube http://www.youtube.com/markostaketv.
What changed? Friday's action was horrible! Monday morning's action, so far, has been horrible! The Dollar, which looked cooked, now seems to have gotten a second wind. Not that it's in great shape mind you. The EURO and POUND are in WORSE shape!
So, what's spooking me? Not the fundamentals, but the technicals. If we were really ready to launch into a new bull run, the GOLD market would absolutely NOT have gotten smacked for $20 Friday and another $15 this morning as we went to print.
I learned the hard way that it's best NOT to fall in love with either a particular viewpoint nor a particular position. I love the viewpoint that GOLD is going sky-high, but the evidence, AT THIS TIME, does not support that it's imminent.
Markets often telegraph as to what's coming, whether we listen or not is up to us. The action of the last couple of days is suggesting that all is not right in the USA.
U.S. Treasuries now yield MORE than Berkshire Hathaway, Proctor & Gamble, Johnson & Johnson and Lowe's corporate debt of the same maturity. I believe this is unprecedented.
Banks are continuing to fail in near-record numbers. Regulators on Friday shut down 7 more banks in 5 states, bringing the number to 37 so far this year. This follows the 140 that were closed or sold last year.
Banks that are surviving, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5% from 2008, the FDIC reported recently.
These signs add credence to the notion that the "second dip" of the "Double-Dip Hyperinflationary Depression" is just around the corner. Stocks are in trouble. Gold is in trouble. All financial assets and commodities are in trouble.
One key, if not THE key to surviving financial markets is being flexible. Since no one has a crystal ball, it's vital to factor in new information as it comes and, if necessary, abandon old viewpoints in favor of new ones.
Marko's Take? Bad time to be stubborn. Time to go to cash! However, please be aware that this is a SHORT-TERM viewpoint only. I maintain my LONG-TERM view that Gold will head to $5,000 per ounce.
If you want to castigate me for imploring a bum short-term investment in the Gold market, TAKE ME ON!
Marko's Take
Please check us out on YouTube http://www.youtube.com/markostaketv.
Tuesday, February 23, 2010
Last Stop On The Gold Train... All Aboard!
After a strong burst last week, Gold has done what would be expected: pull back before launching with a vengeance. The charts look great! As far as the metal itself goes, it is merely pausing and gathering strength after a huge break-out last week.
Gold and Silver mining stocks still appear sluggish. However, a look at their charts indicates a VERY bullish pattern known as a "declining pennant". Such a pattern is formed when an index, in this case the HUI or "Gold Bugs" index, makes a series of lower highs and lower lows forming a channel with a negative slope. Once the HUI breaks above the upper channel, we will be off and running! The upper bounds of the channel were tested last week and it is typical to bounce back a bit before bursting through. That's where we are today.
Once this channel is broken, which I expect in no more than 3 days, GOLD WILL NEVER LOOK BACK!
If, for some reason, you've STILL not gotten in, this may be your last ideal entry point. Once the market goes parabolic, it will be impossible to find a good spot to get in without being whipsawed. I know, since I witnessed the internet bubble in 1998-2000 as a hedge fund manager. I saw how it wreaked havoc with me and others trying to ride the bronco bull.
I will re-iterate a few things about investing in Gold.
1. Avoid the Exchange Traded Fund (ETF) with the symbol GLD. If you want a bona-fide metals backed fund, try CEF, which is roughly comprised of 55% Gold and 45% Silver.
2. If you have to buy ONE stock, make it GDXJ, another ETF, which is a basket of 40 individual Gold and Silver mining companies and will get you instant diversification. I've mentioned ECU Mining in a prior essay, and if you're looking for a real potential home run, check it out (http://markostake.blogspot.com/2010/02/ecu-silver-mining-as-good-as-it-gets_7745.html).
3. Expect increasing volatility on the way up. As the public enters, the day-to-day swings will turn your stomach.
4. Employ the trading strategy I recommended in an earlier blog to preserve your profits and reduce your stress (http://markostake.blogspot.com/2009/12/safe-way-to-trade-tricky-gold-market.html).
5. Be aware that the upcoming mania will last AT LEAST a year and possibly as long as 5 more years. Take profits from time to time as suggested in point 4, but hang on until Gold AT LEAST crosses $2,000. It may even rise to $5,000, which is the ultimate target of "Marko's Take".
6 Employ other inflation-proofing techniques in the context of your lifestyle and other investing(http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html).
This may prove to be a life-changing event for anyone poised to take advantage of it. I expect to see a whole new class of millionaires created from the upcoming mania. Let's be smart about it and not suffer the fate of the dotcom millionaires who made and then LOST EVERYTHING!
Good luck! Comments? TAKE ME ON!
Marko's Take
Our second segment on YouTube will be posted sometime today, Tuesday, February 23rd, 2009. To access the site click here: http://www.youtube.com/markostaketv
Gold and Silver mining stocks still appear sluggish. However, a look at their charts indicates a VERY bullish pattern known as a "declining pennant". Such a pattern is formed when an index, in this case the HUI or "Gold Bugs" index, makes a series of lower highs and lower lows forming a channel with a negative slope. Once the HUI breaks above the upper channel, we will be off and running! The upper bounds of the channel were tested last week and it is typical to bounce back a bit before bursting through. That's where we are today.
Once this channel is broken, which I expect in no more than 3 days, GOLD WILL NEVER LOOK BACK!
If, for some reason, you've STILL not gotten in, this may be your last ideal entry point. Once the market goes parabolic, it will be impossible to find a good spot to get in without being whipsawed. I know, since I witnessed the internet bubble in 1998-2000 as a hedge fund manager. I saw how it wreaked havoc with me and others trying to ride the bronco bull.
I will re-iterate a few things about investing in Gold.
1. Avoid the Exchange Traded Fund (ETF) with the symbol GLD. If you want a bona-fide metals backed fund, try CEF, which is roughly comprised of 55% Gold and 45% Silver.
2. If you have to buy ONE stock, make it GDXJ, another ETF, which is a basket of 40 individual Gold and Silver mining companies and will get you instant diversification. I've mentioned ECU Mining in a prior essay, and if you're looking for a real potential home run, check it out (http://markostake.blogspot.com/2010/02/ecu-silver-mining-as-good-as-it-gets_7745.html).
3. Expect increasing volatility on the way up. As the public enters, the day-to-day swings will turn your stomach.
4. Employ the trading strategy I recommended in an earlier blog to preserve your profits and reduce your stress (http://markostake.blogspot.com/2009/12/safe-way-to-trade-tricky-gold-market.html).
5. Be aware that the upcoming mania will last AT LEAST a year and possibly as long as 5 more years. Take profits from time to time as suggested in point 4, but hang on until Gold AT LEAST crosses $2,000. It may even rise to $5,000, which is the ultimate target of "Marko's Take".
6 Employ other inflation-proofing techniques in the context of your lifestyle and other investing(http://markostake.blogspot.com/2009/12/tips-on-grabbing-higher-yields.html).
This may prove to be a life-changing event for anyone poised to take advantage of it. I expect to see a whole new class of millionaires created from the upcoming mania. Let's be smart about it and not suffer the fate of the dotcom millionaires who made and then LOST EVERYTHING!
Good luck! Comments? TAKE ME ON!
Marko's Take
Our second segment on YouTube will be posted sometime today, Tuesday, February 23rd, 2009. To access the site click here: http://www.youtube.com/markostaketv
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