The kings is dead... long live the king!

George Bush rides off to the ranch, economy in a shambles (of course he inherited the seeds of this mess from Clinton and some of the same people garnering appointments in the Obama administration) and in his place comes hope and change.

Really? Change? Well, maybe in some ways like the ability to communicate and be more open than the sneaky Bush administration. There also certainly seems to be an upgrade in the presidential intelligence level. All good.

But CHANGE we can believe in, economically speaking? Give me a break. Despite the counsel of the man credited with taming inflation (providing Greenspan with the wellspring of sound policy off of which he feasted and self-aggrandized for years, Paul Volcker, Mr. Obama is set to 'stimulate' the economy using the textbook from Keynesian Economics 101.

As part of the plan, we have the recent infrastructure spending announcement. I remember the day CSCO got the Obama infrastructure pump and decided to watch the gap and thought I might tuck away a little bit of this tech giant if it filled. Since I am still bullish for a hope pump (AKA bear market rally) I added CSCO yesterday to go with my Mister Softie position. Here is the chart showing the target.

I totally disagree (master of the obvious strikes again) with macro policy, but that is nothing new. This mess is what it is and they are going to try to pump their way out of it. As investors, traders and/or speculators we make the best of it. I can envision getting short human hope one day down the road, but for now it may spring eternal. Happy new year!! At least until spring perhaps.

Canadian listed resource stocks - ready, set....

Weekly MACD could signal some upside hysterics after these things were destroyed in Armageddon '08. That is a long long way to the first retrace level. Yes it is.

HUI - at resistance again

Yesterday I sent out an email to subscribers as the gold stocks pushed higher on what is still 'holiday' volume. It's called a melt up and it is happening as the goons remain out on vacation. Supposedly this Middle East conflict is pumping the gold sector. If that is the case, then the worst kind of traders are coming aboard (momo's) and they will be gone before you know it.

My next significant upside target remains a break through the SMA 200 for Huey, but the index has not yet hit what I thought would be a shoe-in for a corrective retrace, 250.

HUI has doubled off the October bottom. Need more be said? This is not to say it will not keep right on rising, leaving many outside looking in. But the risk - especially given the holiday relative calm - has risen. I remain big picture bullish and I believe the HUI will go much higher over the next few months. But short term risk has increased, we have been rewarded for buying in the 150's and I have claimed some rewards. Edit (9:55) I neglected to mention that while 250 remains a pullback target if da goonz really come back hard from vacation, that blue line Huey surmounted with the EMA 20 confluence support could, repeat could contain any downside. Fundamentally and seasonally, HUI looks good, but it has doubled and it is a volatile sector.

We're only making plans...

for Nigel and anyone else who wants to view the markets in a rational manner:

We're Only Making Plans...

NFTRH13 (lucky 13) out now...

Notes From the Rabbit Hole's Q1 is in the books and with NFTRH 13, we wrap up an interesting first three months (after a launch into historically difficult markets) and begin refining plans for 2009. This is the last issue that will be made available for free on the website (time delayed).

Any pretense by policy makers of sound monetary policy has been thrown out in favor of a panicked all or nothing approach promoted honestly and in broad daylight for all to see. They are inflating and with LIBOR1, LIBOR3, TED and various money supply graphs gone to extreme, people had better be ready for the gyrations to come. It will not be all deflation all the time and indeed, the current deflation (impulse, scare, DISASTER?) may ultimately prove to be the springboard to a historic inflation problem one day.

Oil from a hysterical $147 to an equally hysterical $35 in a mere five months? Get ready for increasingly violent macro whipsaws going forward as policy makers resort to putting pure nitro in the tank of the economic dragster. The problem is, this is not a straight away race. There are hair pin turns ahead. This is the moral hazard being mainlined into the system and there will be a lot of (funny) munny to be made and lost in increasingly short time cycles.

I hope you will join me with a subscription to NFTRH. But if not, just be ready with an open mind and choose your information sources wisely. 2009 promises to be a year in which there will be distinct right moves and wrong moves, correct philosophies and incorrect ones. Gentlemen, start your engines.

And then again, some bears DO get it...

I could not recommend this piece on deflation by Rick Ackerman more highly: Trust One Asset in Killer Deflation. Once again, I will trot out the 2005 email exchange between Mr. Ackerman and yours truly for reference. The guy has been focused on deflation for years, long before it came to the fore. I do not necessarily agree with every word written here, but I do agree with the framework he lays out, especially with regard to treasury bonds. I also admire the true contrarian in Ackerman. He is a pro and he knows a hoodwink when he sees one, and the entire 'inflation bull' was a hoodwink.

Some bears just don't get it either...

I was somewhat surprised by something my friend (we never actually met but I consider him an internet friend nonetheless) Michael Nystrom ran on the Daily Paul, which is fed well, daily here on Biiwii.com. Now, I understand Michael is in the deflation camp along with people like Prechter, Panzner and Mish, and he is a very thoughtful person just as are these noted 'deflationistas'. One thing these people share is extremely high intelligence. When you go up against the deflationsts, you are going up against some raw brain power.

The Daily Paul ran this bit entitled Martin Weiss on Gold. It is actually an interview with Jack Crooks, the currency analyst. Here it is in its entirety, the Gala Issue: Biggest Sea Change of Our Lifetime!

Is this not the same publication that earlier in 2008 sent out reports with pictures of angry looking Arab men with 'death to America' looks on their faces in service to Weiss' (or his analysts') view about how high oil was going as they pitched the resources trade? I know that Weiss has also long advocated T-bills, which I agreed with and held all along. But there is a patina of sensationalism on the surface here. I see it as further institutionalization of deflation. Money & Markets is on the case 24/7, pounding out the emails and scaring the public (a friend in town has been sending these reports around lately).

Here is a quote from Mr. Crooks:

Jack: Currencies are measured against each other. When one is going up, the other is going down, like a seesaw. Therefore, there’s always at least one currency going up. There’s always a bull market in currencies.

Yes, until the system breaks, I suppose there is. Mr. Crooks sees the dollar going higher (he could be right). But there is absolutely no concept of value in dollar bullish analysis. Then again, I suppose FOREX jocks don't care much about value anyway.

They also riff along on gold, which many deflationistas just cannot resist:

Jack: Gold is holding its value the best compared to the much larger percentages you cited earlier for other commodities. But I believe it’s only a matter of time before gold succumbs to the deflation as well. What do you think?

Martin: This is hard for a lot of people to accept, but it’s also hard to envision a situation in which gold defies gravity for much longer. It’s still a good insurance policy against governments that could run amuck. But I suggest you reduce your holdings to a bare minimum.

Marty is all about price I guess. Just like the bullish casino patrons were to the upside in the inflation trade, again if memory serves included a few of Martin's own analysts in Money and Markets. Why is it so difficult to get the middle voices heard? What is so difficult about the concept of value as opposed to price? Are we so brainwashed that all the markets are to us are just a bunch of digital red and green Christmas tree bulbs with numbers on them?

What the heck, here is one of Weiss' analysts, Sean Broderick waxing hysterical about $200 oil and war with Iran. Here is another one pumping energy stocks and talking about the dollar going even lower. Meanwhile, Larry Edelson checks in with Oil and Gas Prices Peaking? and offers 5 reasons why they are "headed even higher."

These things are all from the summer of 2008, at the height of the oil mania and they are all from Money and Markets, who now bring us the dollar bullish deflation analysis. Some trend following going on here or what? I was so bearish on oil last summer I could taste it, if not profit from it (dohhhh!!).

In the previous post, I noted that I have been neglecting the price of gold because it really does not mean that much to me. That is the truth. I understand that it is a volatile, ancient and storied monetary metal that gets people way too emotional. The concept of deflation, which most people do not understand beyond a cartoon format, is now becoming rooted. Just as inflation hype did. A world full of casino patrons begins to take note. The world turns. Same shit different day.

Understand value. In the case of my investment stance, value is found in the metal that cares not about all the intellectual masturbating on deflation. It is a world in disarray that is changing, not a heavy lump of monetary stability. Value baby... value. Gold's price certainly can decline, as noted here forever. But it will decline less than positively correlated commodities and cost inputs. Did we nail that or what?

Meanwhile, some deflationists sit around waiting for it to succumb. As for the gold miners, here is the latest snapshot of the gold-oil ratio (GOR) with the other notable gold ratios in the lower panels.

Gold

Having spent the last 3 months twittling my gold ratio charts in service to the bullish gold miner stance, I have really neglected the nominal price of gold. Actually, I haven't. I know it is there, old yeller, patiently sitting around like a shiny and pretty lump on a log. But it's nominal price has not been important to me as has been its outrageous outperformance to the likes of oil, industrial metals and those wonderful meters of human hope, US Treasury bond yields.

So here is the relic having made a nice push back above the monthly EMA 18 which you may recall was our indicator of the big picture health of the previous massive leg of the bull market from the 200's up to a frothy and unreasonable 1000+. By the way, it was only unreasonable because of the quality - or lack thereof - of its 'investor' base, which was made up of a high proportion of river boat gamblers, show-offs, whiz kids and common street hookers (I should probably drop that metaphor because I don't want to sully the relative reputation of these hard working girls by comparing them to certain members of the financial management/advice herd).

While gold's nominal price is not out of the woods yet, its fundamentals are going ballistic in the face of governments' - led by the US' sublime debt monetization schemes - willful assault on their currencies as Armageddon '08 morphs into Bailout Bonanza '09. It will fail. Gold will still be there after it does, sitting like a lump on a log holding value. As for those interested in the 'price' end of things, if EMA 18 holds and the series of declining monthly highs is broken to the upside, gold will be fun as well as secure.

Merry Christmas and/or happy holidays to you and let's have a great new year!

Inflation - early in the cycle

It will take a while to show up in prices but we are inflating. The manic price rises of the coming decade have got to come from somewhere. Here are some pictures (also see MZM & M2 pdf's linked below) of where they will come from. Unfortunately, most people will be too terrified of deflation to make the right moves in preparation. It is time now to have a plan for the future.

From Mises.org:

The True Money Supply (TMS) was formulated by Murray Rothbard and represents the amount of money in the economy that is available for immediate use in exchange. It has been referred to in the past as the Austrian Money Supply, the Rothbard Money Supply and the True Money Supply. The benefits of TMS over conventional measures calculated by the Federal Reserve are that it counts only immediately available money for exchange and does not double count. MMMF shares are excluded from TMS precisely because they represent equity shares in a portfolio of highly liquid, short-term investments which must be sold in exchange for money before such shares can be redeemed. For a detailed description and explanation of the TMS aggregate, see Salerno (1987) and Shostak (2000). The TMS consists of the following: Currency Component of M1, Total Checkable Deposits, Savings Deposits, U.S. Government Demand Deposits and Note Balances, Demand Deposits Due to Foreign Commercial Banks, and Demand Deposits Due to Foreign Official Institutions.

MZM from St. Louis Fed (pdf)
M2 from St. Louis Fed (pdf)

Make way for Uncle Buck!

Self-explanatory - albeit busy - chart of the day. Ladies and gentlemen... your US Dollar! Let's have a big round of applause. Edit (10:24) Another 18% taken courtesy of FTEK. Thank you sir. Still holding Mister Softie in bull stance. Proceeds cycled back into one of the gold stocks that I mentioned I had sold in the mid week NFTRH email update. Perhaps a bit soon as I still think HUI has a date with 250. But plenty of cash is retained for said target. Edit (1:15) Not to come off like 'look at me, super trader' or anything, but I just sold the remaining shares in the Ecuadorian gold company from NFTRH11 and Otto's NOBS. 90% gain in a week or so. Me like. And me like Otto's NOBS. Now that I have sold all shares I will disclose the stock. It is Dynasty Metals (DMM.to). Seasoned readers would not chase it here and please don't anyone else even think of doing so. The easy money has been made. We always look for good entry remember?

Otto's NOBS report gave us at NFTRH a good look into the company and its unique position, risks included. I recommend this stock analyst 'on demand' wholeheartedly.

Huey - buying op coming?

If HUI gets down to 250 as I expect, will the herd be too awestruck by the deflationistas' omnipresent genius or the media's 24/7 pounding of the Armageddon story to do anything about it? I will reload ousted gold stock positions (still holding significant exposure) at that no brainer level. You do as you must do, after all it is your money.

In a nod to the bullish side, I reestablished a position in FTEK (in which I had taken a 50% profit off the bottom) and bought old economy stalwart MSFT for a trade yesterday. But it is the gold stocks that represent the real action.

The dollar has been used like a $2 whore and tossed aside, is now looking for support and will likely resume its downward trend soon enough. Your monetary authorities are at the controls of a stock car spinning out on a hair pin turn. It is a joke in the extreme, but it is a joke that can make us 'munny' if we remain calm and analytical instead of emotional and skittish.

Edit (10:40) Dear subscribers, just a heads up... that Ecuadorian gold miner highlighted in NFTRH11 is up 47% today on a pullback day in the sector. I don't see any news other than yesterday's mine commissioning announcement. Tip of the hat to Otto Rock for this one. I am not sure whether I am going to sell here or not, but if you bought and if you are a profit taker, well... ;-) Edit (3:44) Sold 30% of my shares at an 80% profit and holding the rest for now. Thank you Otto. PS: HUI is coming in nicely toward our 250 target. A subscriber remarked at how quickly this is happening. I say, would we expect anything different in a manic casino where officialdom is pulling very dangerous levers (monetizing the long bond and lurching toward the USA as global debt deadbeat)? Dollar manic up... dollar manic down. Just as we watched for a dollar decline we watch for an upward correction. The dollar however is sickly for the intermediate term and even its previously pristine (to a we bottom feeders) monthly chart has incurred some damage, throwing some doubt upon the deflationistas longer term.

I want to suck your blood

We are living like vampires off of our childrens' future. Our currency is nothing more than a confidence game that we play with the rest of the world and many believe in the illusion that the great monetary wizards can engineer their way out of this mess with no moral hazard and no horrible price to pay in the future.

I am not just talking about Bernanke and the knuckleheads at the controls of the current crisis. Greenspan... ahhh Greenspan. What an exquisite evil genius he was. With the sounds of our cheering and adulation ringing in his ears he (and we) devoured the Volcker interest rate seed corn like pigs at a trough. Oh yes, many can claim ignorance; claim that the evil cabals, bankers and manipulators did this to us. But they didn't. We did this to us and a huge chunk of the developed world did this to itself too.

No matter how bullish I may or may not be, no matter how much fun I may or may not be having (I am), no matter how good life seems, there are truths that are going to be reflected in things like the USD and all paper currencies. People can buy all the long term treasuries they want and in fact, I am refinancing the fairly modest balance on my mortgage at today's lock-in compliments of the wizard. But I remain under no illusion that this doesn't suck big time for anyone willing to take an honest look.

The dollar will provide a looking glass into the state of the mess going forward. It is on the verge of making some weekly signals now that are not at all bullish. However, the casino patrons are piling into the euro again making that piece of garbage flash short term over bought. The dollar has fibbed to nearly 62%. The dollar is bearish now potentially in the intermediate time frame given this chart and the compliant Fed that did what the 0% t-bills told them to do. Watch the MACD trigger.

This sucks but we move forward, under no illusions. At least not on this blog. This ain't the place for standard 'look at me, super trader!' type bloggery.

Dollar & Euro

Edit 8:45 Euro chart added

I did a daily chart of the euro but something glitched, crashed Firefox and the chart was lost. With dial up, I just don't have the patience to go back and re-do it. I may add it later when I am at an alternate location with cable.

The USD has already in essence hit my first down target of the 38% fib level and I believe it will try to find support there. With the impulsiveness of the decline and the break down through the SMA 50, I think the dollar has lower to go. But first it will look to screw the momos jumping aboard the Santa Express. Likewise, the euro looks to have bottomed but is now hitting resistance by the daily chart and needs a correction.

As usual, global casino patrons (and really, is there any better illustration of the supposedly buttoned down financial services industry as crack whore than the degree to which these lazy thinkers mindlessly parked other peoples' money with the likes of this Madoff criminal?) are aligned for the wrong reasons against the USD.

Our gold miners could take a correction at any point as a result although I expect that, given the gold to miner cost input ratios which were driven higher by the same forces that drove the dollar higher, the gold miner / anti-USD tie in will become less pronounced going forward (he parroted for the howmanyth time?).

Technical analysis is now back in play as times become more normal or at least less abnormal and TA is where I am comfortable. We all know the macro fundamentals. I for one am glad to be able to get this tool back in my tool box.

NFTRH notes...

Well, the power outage continues... and the gold miner rally continues as well. All doubts about a bottom should be long since erased. I have done some pretty decent profit taking this morning to get cash levels back up to normal and am extremely pleased that both portfolios are either near or above 'baseline' for the first time since NFTRH's first week. I feel as though my trading intuition is coming back in line. I guess 'normal' is the word. However...

The gold stocks are getting a bit pumpy to the upside and Uncle Buck's decline is sharper than I anticipated. This, to me, bodes longer term bearish for the Dollar but a reaction UP can happen at any time. Momos are doing what they do and getting excited about the gold miners and that usually ends badly as they are uncommitted to begin with and when the reaction comes, they are weaklings to the extreme. I plan to buy any volatility that may be upcoming.

It may be Wednesday or so before I am able to publish so what I think I will do is send out a very detailed email update this week instead of NFTRH as it will be a more streamlined way of hitting the important points once I get access to all my resources. But I did want to make the note here that HUI is flirting in that HUI 300 area and profit taking is never a bad thing. Everyone's goals and methods are different but we should all know that HUI has nearly doubled in the short amount of time since it bottomed. I do remain intermediate bearish the Dollar, UN-bearish the stock market and very bullish the gold miners however, any near term USD inspired reactions nothwithstanding. Good luck.

Bullish

Quick post since I am still without the capability of publishing NFTRH effectively (thank you for your ongoing patience with this situation!)...

Since the Dollar's rise went hand in hand with asset declines, I have been watching USD and its topping pattern from strenuously over bought levels. The projections from last week's charts are playing out beautifully and the break of the neck line and SMA50 imply some significant downside for the Dollar to the targets noted on the charts lower on the page.

Bears implore that there is more liquidation to come, 'BEWARE' they say, lower stock market lows are in the offing. Gold stocks will get sucked down too.

Well, we continue to get confirmations to the contrary. The stock market maintains its bottoming stance and the HUI has had a weekly close above significant resistance at 250. The short term target could reach 300. But if Huey holds above 250 over the next few days then the 340 area comes into play as more significant resistance. If 250 fails, we will look for support at 225 to do the trick.

Of utmost importance is the MACD, which has finally risen above zero. Seasonally, the end of year tax selling season will be winding down and at some point pre-announcements of improved gold mining fundamentals should be leaking out. I currently hold all the favorite miners mentioned in NFTRH11 along with several others. I will look to take some profit along the way but expect a nice run for several months, which is why I personally plan to ride this thing for a while. Pure traders will be doing what they do.

I still lean heavily toward the idea that we caught a significant multi-year bottom at HUI 150.27 and I will not give up those positions lightly. It was not easy to be buying then and it is not easy to release those positions since they remain very far below what I think will come to be known as fair value over the next couple or few years. My very preliminary gameplan however calls for lower lows in the market later in 2009 and that could drive gold miners down to a higher low in any round 2 liquidation frenzy. So, some profit taking is in play until the broad market view becomes more clear.

As a side note to NFTRH subscribers, I did end up buying the Equadorian gold stock that was featured in Otto's NOBS report with NFTRH11. Got a really nice price too. Never chase gold stocks. Wait for 'em to come to you.

To NFTRH subscribers

There will likely be a delay in publishing next week's NFTRH (12). We have had a severe ice storm in my area and power, phone and internet are out. I am using a laptop w/ cell phone as a modem from a remote location for this post. Where I live there is not even reliable cell coverage. This is basically a local disaster area and it could be a few days before we are up and running again.

Thank you for your understanding in the likely event that NFTRH is not sent out by the usual Saturday afternoon. It will be written and sent out just as soon as possible. Edit (12/14 @ 9:47 AM) Picture from Boston Globe uploaded that does not even come close to the problems in my neighborhood. Living on generator and wood stoves and using dial up. It could be several more days without power. Not fun but is what it is...

KGC - a leader

Of the major gold stocks, KGC has been a leader showing relative strength and making breaks above trend, resistance and moving averages before others. Here is the current status of Kinross, which I have no doubts has higher to go but in the short term is getting kind of gappy up toward the SMA 200 as gold bugs get excited once again.

Shorter term indicators like CCI & STO say KGC could take a rest. MACD, TRIX and RSI are super healthy however, above zero. And then there's that measured inverted H&S target up around 20. KGC and GG are doing me well and what makes it better is the fundamentals on gold producers which, in my opinion are better than the metal itself right now.

HUI - Gold Ratio bullish

I am not a soothsayer or swami. The HUI-Gold ratio is bullish. That does not mean I am predicting anything. It means my capital is deployed in alignment with the risk/reward odds implied by this and other gold sector charts.

I am asking readers to get past the stage of guru worship (especially in the gold sector) and use concepts like risk v. reward and their own two eyes. And a b/s detector too. I am asking readers who have not yet done so to elevate their game. We are late in the 4th quarter and it is 4th and long to get into range for the field goal that will win it.

I have received feedback lately that I do not write in a manner that is understandable by the masses. But judging by the level of monthly re-ups by NFTRH subscribers and from many of the emails they have sent, there are people in tune with my approach. I am asking general readers out there in cyberspace to consider the concept of risk v. reward and the idea that nobody knows exactly what is going to happen. Take charge of YOUR financial fate. Take responsibility and do not submit to know-it-alls.

So, preamble complete, we turn to the HUI-Gold ratio chart. It is bullish for a bottom feeder like me. MACD and TRIX are within a whisker of doing something very bullish by getting above zero. At the same time, if the downtrend line is broken this will be some very nice confirmation. Of course, the closer we get to major signals the greater the chances of a shakeout reaction as traders become more excited.

One scenario - just pure speculation - that I can see happening is an eventual rise to the noted red dotted line and then a decline as broad stocks resume their bear market and liquidation round 2 hits the economy later in '09. I could see HUI-Gold and nominal gold stocks making a higher low at that time, given what should be readily obvious positive fundamentals. But first we will watch for a bullish near to intermediate term to play out.

This is a bullish chart. Now let's see what reality has in store for us.

So normal it's scary

The stock market is now acting 'normal'. So normal I find myself wondering 'what's up?'

What's up is people's doubt, fear and anxiety after a historic throttling and 24/7 negative reinforcement compliments of the major media that was more interested in what, I don't know... Britney Spears? Is she still around? What other trash were they obsessing on? I don't know. I do know they were scaring the bejeezus out of peak oil-o-phobes just last summer. Anyway, the point is they slept through the economic Armageddon story until it was time for maximum sensationalization and until it was too late for viewers, readers and listeners to effectively prepare, other than to buy t-bills down to 0% in a knee jerk.

But, as often is the case when I am just trying to show an interesting chart, I digress. SPX sports an actualized mini inverted Head & Shoulders bottom pattern within a larger potential H&S. You see the targets. The little feller has broken the downtrend line and made its first attempt at the SMA 50 as was speculated would happen in this week's NFTRH. It would be totally normal - and healthy - for the index to drop back and fill the gap there but that is not necessary because until any rally proves itself as more than a bear market variety, I expect lower prices to come later in 2009 and the gap could be filled months from now. Right now the SPX is trying to find support at the broken neck line. The optimum play would be a gap fill and immediate reversal because the longer the index stays below a neck line, the more negative voodoo would be cast upon its bullish prospects.

The near term target off of this little H&S is 1080. That is locked and loaded until our parameters are negated. It would be nice to make a high at the projected neck line of the bigger guy (blue dotted line) and decline, giving traders another scare before the real rally that ultimately takes SPX potentially to the 1200's in Q1 2009. Indicators all look solid as well and we await confirmed trend change by AROON, which still shows daily down.

Regardless of whether or not the above scenario plays out, it is good to be able to use technical analysis again on normal looking markets, and many of them are making sense right now.

Uncle Buck - In for a checkup

http://www.biiwii.com
http://www.biiwii.blogspot.com

Click to expand chart

Uncle Buck looks sickly from these panic fueled levels. The debt note that was the dirty little secret (along with pal Johnny Yen) of an entire global financial apparatus pretending that the 2003-2007 bull market was real (and pretending to know what it was doing with other peoples' money) is now showing exhaustion.

This is just a routine (daily) checkup on the USD. We will evaluate upside or downside potentials after the Dollar breaks the Head and Shoulders neck line shown on the chart and approaches the initial target at the 38% Fib retrace.

Upside momentum has been waning for some time now and as MACD triggered down and was confirmed by the slower TRIX indicator, it became apparent that at a very minimum the Dollar was losing steam and markets, which feasted off of Dollar weakness and got decimated due to its impulsive strength, would catch a breather.

But what remains critical is the look of the topping pattern in USD and corresponding bottoming patterns in most markets. We have been watching these patterns in Notes From the Rabbit Hole (NFTRH) and following money supply and other non-USD supportive data in support of a bullish gold miner and decidedly UN-bearish stock market stance.

Simply put, the Dollar benefited from a global panic back to prudence. This deleveraging may not be over, but the time is right for an extended rally and return of hope to global casino patrons. As the rally gets long in the tooth perhaps in a few months, it will be time to evaluate the Dollar's fate from that point. Remember, its paper competition is just a lesser version of intrinsically valueless.

NFTRH11 out now...

NFTRH11 stakes out views contrary to those of some of its own subscribers and a bearish majority, illustrates a decidedly 'not bearish' stance on the stock market, a decidedly bullish stance on gold miners and shows why deflationists may be taking the bait with the alarming news in the treasury markets as the Fed goes all in. The Dollar, money supply data and interbank rates are also reviewed and current portfolio composition is discussed. Finally, a professional (NOBS) research report is included on a promising Ecuadorian gold company.

NFTRH11 is out now. Check it out with a one month subscription. Don't like NFTRH? Don't renew next month. Like it? Stay on! I'd love to have you.

Feel free to fade but I am buying gold miners

Inflation or Deflation? You decide...

I have uploaded a PDF file of the MZM and M2 money supply graphs hot off the presses to the main website, courtesy of the St. Louis Fed. I don't bother with the hockey stick known as 'Monetary Base' that you see everywhere out there in support of hyperinflation theories because that stick has been sporting wood since September and has not indicated anything but the opposite of what hopeful 'inflationistas' would have wanted.

MZM (zero maturity) especially is looked at closely by economists because it supposedly represents money more readily available for spending. So, you see all those money base graphs out there and you hear the hyperbole about hyperinflation? Realize that the money has to get out into the system first and as the latest Fed data shows, it is getting there slowly but surely as MZM breaks into blue sky territory.

Anyone worried about structural deflation taking root might give some thought to the inflation problem brewing down the road. Anyone worried that hyperinflation is going to eat us alive immediately might also temper themselves (although this proposed monetizing of treasury debt is alarming). I think it is very possible we will get an extended period where some semblance of normalcy can be hyped by policy makers. Then perhaps, 'el hyper' enters the picture. I realize inflation is expanding money supply, but inflation 'expectations' are at historic lows and you need those 'expectations' frothing for the inflation problem to become acute.

I am providing this PDF link on the blog because I want to reserve space in NFTRH11 for other things. I think subscribers have gotten my basic point on the inflation/deflation debate to this point.

Meanwhile, juxtaposed against the money supply data, here are the ISM's data for manufacturing and non-manufacturing. Historically nasty economic events combined with historic reflation attempts. We are getting inflation against the backdrop of deflation. Most of us are in pain to one degree or another. But if you like a good drama, you are engaged and you are enjoying this in a perverse way as well. We live in interesting times.

MANUFACTURING AT A GLANCE NOVEMBER 2008
Index	Series Index November	Series Index October	Percentage Point Change	Direction	Rate of Change	Trend* (Months)
PMI	36.2	38.9	-2.7	Contracting	Faster	4
New Orders	27.9	32.2	-4.3	Contracting	Faster	12
Production	31.5	34.1	-2.6	Contracting	Faster	3
Employment	34.2	34.6	-0.4	Contracting	Faster	4
Supplier Deliveries	48.4	49.2	-0.8	Faster	Faster	2
Inventories	39.1	44.3	-5.2	Contracting	Faster	5
Customers' Inventories	55.0	55.0	0	Too High	Same	4
Prices	25.5	37.0	-11.5	Decreasing	Faster	2
Backlog of Orders	27.0	29.5	-2.5	Contracting	Faster	7
Exports	41.0	41.0	0	Contracting	Same	2
Imports	37.5	41.0	-3.5	Contracting	Faster	10
OVERALL ECONOMY				Contracting	Faster	2
Manufacturing Sector				Contracting	Faster	4

ISM NON-MANUFACTURING SURVEY RESULTS AT A GLANCE COMPARISON OF ISM NON-MANUFACTURING AND ISM MANUFACTURING SURVEYS* NOVEMBER 2008
	Non-Manufacturing						Manufacturing
Index	Series Index Nov.	Series Index Oct.	Percent Point Change	Direction	Rate of Change	Trend** (Months)	Series Index Nov.	Series Index Oct.	Percent Point Change
NMI/PMI	37.3	44.4	-7.1	Contracting	Faster	2	36.2	38.9	-2.7
Business Activity/Production	33.0	44.2	-11.2	Contracting	Faster	2	31.5	34.1	-2.6
New Orders	35.4	44.0	-8.6	Contracting	Faster	2	27.9	32.2	-4.3
Employment	31.3	41.5	-10.2	Contracting	Faster	7	34.2	34.6	-0.4
Supplier Deliveries	49.5	48.0	+1.5	Faster	Slower	2	48.4	49.2	-0.8
Inventories	46.0	48.0	-2.0	Contracting	Faster	3	39.1	44.3	-5.2
Prices	36.6	53.4	-16.8	Decreasing	From Increasing	1	25.5	37.0	-11.5
Backlog of Orders	39.5	44.0	-4.5	Contracting	Faster	4	27.0	29.5	-2.5
New Export Orders	34.5	50.0	-15.5	Contracting	From Unchanged	1	41.0	41.0	0.0
Imports	40.0	52.0	-12.0	Contracting	From Growing	1	37.5	41.0	-3.5
Inventory Sentiment	65.0	67.5	-2.5	Too High	Slower	138	N/A	N/A	N/A
Customers' Inventories	N/A	N/A	N/A	N/A	N/A	N/A	55.0	55.0	0.0

Gold stocks - current status

Look, this is the stock market. You are not supposed to feel good. At least you are not supposed to feel good when it is time to be bullish (said the momo-phobic bottom feeder). I read daily of deflation but I see the Fed pathetically planning to monetize the country's long term debt obligations by incestuously buying long dated treasuries. Do you think that is inflationary or are you buying the 'bond market sees deflation' argument? Again, more to write on Bernanke's 'tools' this weekend in NFTRH11, but for now, I want to look at a chart of GDX instead of the usual HUI because it shows more detailed activity, like gaps and volume.

Like I wrote, you are not supposed to feel good. Many readers sit sidelines and I say good for you. As I consistently produce those gold to miner cost ratio charts, I remain bullish even as market activity tries to bum me out. But that is me. Yes, I have shaken off the cobwebs and traded a bit lately (thank you TDF, AUY and SLW) but mostly hold in a comfort zone where I have enough cash to buy the downers, like KGC yesterday.

The GDX itself shows a fledgling daily uptrend, and some very nice divergence and momentum activity. I mentioned the other day that Monday's action got gold stocks filling some gaps and that is not a bad thing. But there is another gap down below and folks, it will not feel good to fill it but fill it we may, given a tax loss season in which investors may hope to one day make a claim against profits. Then of course there is the 24/7 fear factor and perhaps plain and simple end of year exhaustion to think about.

Another factor that I always consider is what I interpret as the collective psychological makeup of that market segment we call 'gold bugs'. These are different creatures than the normal market participants I guess because they are on the side of what is right (in their minds) and they have a strong tier of leaders (from the generals on down to the captains, buglers and finally messenger boys) who continually reinforce their convictions. So when they finally give up in disgust and self-hatred, it can get ugly for all of us. At least in short term price terms.

Bottoming is not fun. Just as topping can take an excruciatingly long time. The markets do not care what you think, how your gut feels or whether you are destined to win or lose. The markets flip you the bird and say "we are the markets and we is what we is... deal with it (or not)". I have been dealing with it and given that many people do not use charts but rather rely on hyperbole in the media, I can see why emotion holds sway and that is also why I can see us filling those lower gaps before the bottom process completes - or not. ;-)

US Dollar - current status

It's the world against poor old Uncle Buck. In July he crashed the party, global casino patrons stampeded to the exits and now he just wanders around aimlessly inside, from table to table wondering what it would be like to have friends, to be a player. He will never know because he is a repository of fear and loathing and his holders have been forced to hold him.

The USD has been losing upside momentum and in fact displays a potential Head & Shoulders topping pattern which fits into a confluence of downside targets per the chart. I have also included the usual gold ratios, which are my fundamental underpinnings (by the way, I HIGHLY recommend you read this Gold Sector Report by Bob Hoye) for the gold miners, and the IRX in the lower panels. IRX is a suitable representation for the 3rd ratio, 'human hopes for prosperity', and at 0% it is safe to say they are nearly non-existent. Again, the same forces that drove up the Dollar have driven these ratios up. You will not hear that from the 'death to the Dollar, gold to da moon!' crowd.

If we get a top in USD, and it does indeed drop to our target in the 80-82 area, it is likely that the bull horns of the Dollar's death will again sound loudly amid talk of 100 year treasury bonds and the Fed monetizing the debt (buying long term treasuries). That will be the time to once again look for the Dollar' s next very possilbe leg up to the 95 area. But that may be many months off. It is time first for a breather, but just as it took oil seemingly forever to top out, so too could the Dollar cling here for a while. A close below the EMA 20 could be a hint.

I do not value the USD and I do take very seriously the schemes in the works in the treasuries market and will have more to write about that in upcoming NFTRH. But price is price and value is value and in a world of financial misperceptions, often times they are not in alignment.

A new article by Robert Prechter

Yes, I am bullish at the moment... on gold mining companies first and foremost and on the broad market for a 'hope' rally. But given my 'potential' Dow target of 4000 by mid/late 2009, I guess you would know that I am not going against Prechter in the big picture. Nor should you. At the very least take in his thoughts and allow for the potential of worse yet to come.

Anyway, Bob has a new article I wanted to post here and it is depressing indeed because it is so true it makes a prudent person want to wretch:

The Government Doesn’t Want You to Read This Article About the Financial Crisis
December 2, 2008

Editor’s Note: This article has been excerpted from a free issue of Robert Prechter’s monthly market letter, The Elliott Wave Theorist.

The full 10-page market letter, Be One of the Few The Government Hasn’t Fooled, can be downloaded free from Elliott Wave International.

By Robert Prechter, CMT

“Who Will Benefit From The Housing Act?”

This question is an actual headline from a national daily paper. The real answer is: mortgage lending corporations, developers, real estate agents, speculators and politicians. The government is also pledging tax money to providers of “financial counseling” and grants for speculators who want to “buy and renovate foreclosed housing”; in other words, it will hand tax money to charlatans and unfunded wheeler-dealers. But a far better headline would have been, “Whom Will the Housing Act Hurt?” The answer to that question is: (1) prudent people, i.e. savers, earners, renters and people who have waited to buy a house at a reasonable price; and (2) innocent people, i.e. taxpayers.

Government action (unless it is aimed at destruction) always causes the opposite of its stated effect. If taxpayers ultimately have to shoulder the burden for all the bad mortgage debt, those who are on the edge of being able to make their mortgage payments will be forced over the edge, causing more missed mortgage payments and more foreclosures.

There is never any need for a law granting privilege except when the goal is to reward the undeserving and to punish the innocent. If the goal were otherwise, there would be no need for a statutory law, because the natural laws of economics, when unencumbered, serve to reward the deserving and punish the imprudent and the guilty. Populists loudly challenge this idea, but they are wrong.

I thought the Fed was created to “help manage the economy.”

After a secret meeting on Jekyll Island (GA), Congress and a handful of bankers created the Federal Reserve System for two purposes. The first one was to allow the government to counterfeit money, thereby letting it steal value from savers through inflation. The second was to allow bankers to make profits through debt creation, also at the expense of savers. Any other claim is a smokescreen.

So shouldn’t we blame the Fed for the country’s financial problems?

That’s like blaming the collapse of your house on the biggest termite. The Fed is only one of the monsters that Congress has created. In the financial realm, others include Fannie Mae, Freddie Mac, Ginnie Mae, Sallie Mae, the FDIC, the FHA, the FHLBs and the income tax. But there are also a hundred other havoc-wreaking agencies of the federal government. Congress is to blame for ruining America. The Fed is only one of the mechanisms it created along the way. It’s a big one, and it’s fine to campaign against it, but to blame it for everything is to give its creator a free pass.

This is an important distinction, because many people seem to think that abolishing the Fed will cure America’s money woes. They seem to think that once the Fed is abolished, Congress will behave responsibly. One website even calls for abolishing the Fed in favor of giving money-printing power directly to the federal government! Abolishing the Fed is a worthy goal, but Congress will work tirelessly to create one disastrous institution after another, because that’s what campaign donors pay for.

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For more information on the government’s role in the financial crisis, download Robert Prechter’s free 10-page market letter, Be One of the Few the Government Hasn’t Fooled.

Bull?

Well, we got the correction and we got it right to the first target noted. Next up is HUI 200, which is not a given of course as we are filling some gaps right here on the gold miners. My bullishness on these stocks (quality producing gold miners) is not tarnished one bit. As grizzly as these corrections can seem, yesterday was just another agonizing step in right direction of establishing a bottom.

For reasons gone over here on the blog and weekly in NFTRH, I can be nothing other than bullish on the gold miners because it is inarguable that their fundamentals have already received a shot in the arm even as most companies in most other industries are getting the opposite. Even there, I remain bullish for the near to intermediate term on the global stock markets as well. Down the road (mid-late 2009?), there is a really nasty potential for the Dow as noted here: Bull?

Silver - daily technical status

Let's take a look at silver. This metal is usually the recipient of wildly bullish upside action during the frequent manic phases of precious metals runs. I have not looked at silver much because I have been very bearish the metal and in fact my ultimate downside targets have not yet been hit.

But the way the scenario is setting up, this wild man could again lead to the upside for a while before any serious downside gets underway next year. In fact, when the silver bulls once again start frothing all over the internet, it maybe be time to take some profits in what I expect to be a nice precious metals rally over the next several months. But again, as noted in NFTRH, we will let things play out instead of trying to impose our will on the proceedings.

Here is a daily of silver showing the potential for a none too severe pullback along with the HUI, which is indeed due to catch a breath.