Gold vs. stock market, big picture

A couple years ago, during a period of goldbug high anxiety, I wrote this little blurb and included a yearly chart of gold that showed absolutely nothing wrong with the bull market. It is these times of fear mongering and anxiety that you either preserve your wealth or do stupid things and lose it. It is during these times of anxiety that you set up to make money (well, funny munny anyway) by letting the herd be the herd and getting separation from them.

It became obvious that the precious metals were getting a little too frothy recently but here is a chart showing gold vs. the S&P 500 along with some interesting big picture momentum stuff comparing what happened in 1980 to now. My interpretation? Much higher to go in gold, pending the bearish blow horns, alarmists and guru swami's making the not-so-difficult call that gold needed to correct.

I am looking for a bottom in the stock market. But with the gold-silver ratio doing what it is doing, I am not prepared to say it has arrived yet. The investment and trading landscape is rich with opportunity right now, however.

Edit (11:21) Qualification time... this is big picture. Corrective targets 925, 840 and 650 remain in play, but those targets will only bother uncommitted casino patrons.

Have a great Friday.

GSR, TLT and the next round of liquidation...

The gold-silver ratio (GSR), when rising, as we well know is a sign of impending stress in the system. It is a sign of impending liquidation. What asset stands to benefit from frightened speculators piling out headlong from the speculation game? US Treasuries (represented on the chart by TLT), worthless broken promises that they are.

The GSR is an early warning indicator and while nothing is definitive here, it is hinting at a bottom, either now or after a near term decline to new lows and 62% retrace to a pretty clear support shelf.

This fits with the idea that any rally that ignites now is not likely to be sustainable because the GSR among other sentiment indicators is not red lined, not extreme.

In NFTRH21, I outlined two potential scenarios involving the US dollar. One is near term bullish for the dollar and longer term very bearish. The other is near term bearish and longer term bullish (FOREX is a price and confidence game, after all).

One could envision the dollar breaking to the upside now, gold outperforming silver, the TLT rebounding as the next deflationary panic kicks in. This scenario has its own distinct set of implications (and requisite actions by investors).

Then there is the other scenario, which involves a near term declining dollar, a stock market rebound and then holy hell unleashed perhaps within weeks or a very few months. Edit (9:45) and of course the alternate scenario has its own unique set of implications and requisite actions. Edit (12:07) PS, to subscribers... I have covered the silver short by selling the ZSL 200% inverse tool. Now I can be a one way gold bug again, having added to a couple positions on this correction and looking to add more.

Denninger rebuts windbag Obermann

An NFTRH subscriber, who's email list I am on (yeh, that sounds odd but let me just say that starting a newsletter service has allowed me to interact with some pretty serious investors) sent out a mail today highlighting Karl Denninger. Here is his YouTube page and you know, watching this video, it occurs to me that I am a webmaster, blogger and newsletter writer and I have some tools to help get the word out, much as I tried to do with Chris Martenson. So, here ya go.

I try very hard to keep politics out of my financial world view, but sometimes I get Obermann up to here. Same goes for the smarmy woman that follows him on MSNBC, what's her name? Anyway, Mr. Denninger is a voice from the decidedly NON lunatic fringe. Please consider his views.

HUI - 60 min. self-explanatory chart

Paul Volcker speaks, we should all listen...

I am not sure why or how I got on the list, but I receive occasional emails from investment manager Monty Guild. This morning was an interesting one, which quotes a recent speech by the extremely intelligent and forthright former Fed chief, Paul Volcker, shown here towering over little Ben Bernanke, in more ways than one.

I really feel a sense of profound disappointment coming up here. We are having a great financial problem around the world. And finance doesn't work without some sense of trust and confidence and people meaning what they say. You take their oral word and their written word as a sign that their intentions will be carried out.

The letter of invitation I had to this affair indicated that there would be about 40 people here, people with whom I could have an intimate conversation. So I feel a bit betrayed this evening. Forty has swelled to I don't know how many, and I don't know how intimate our conversation can be. But I will, at the very least, be informal.

There is a certain interest in what's going on in the financial world. And I will disappoint you by saying I don't know all the answers. But I know something about the problem. Let me just sketch it out a little bit and suggest where we may be going. There is a lot of talk about how we get out of this, but I think it's worth remembering, or analyzing, how this all started.

This is not an ordinary recession. I have never, in my lifetime, seen a financial problem of this sort. It has the makings of something much more serious than an ordinary recession where you go down for a while and then you bounce up and it's partly a monetary - but a self-correcting - phenomenon. The ordinary recession does not bring into question the stability and the solidity of the whole financial system. Why is it that this is so much more profound a crisis? I'm not saying it's going to get anywhere as serious as the Great Depression, but that was not an ordinary business cycle either.

This phenomenon can be traced back at least five or six years. We had, at that time, a major underlying imbalance in the world economy. The American proclivity to consume was in full force. Our consumption rate was about 5% higher, relative to our GNP or what our production normally is. Our spending - consumption, investment, government -- was running about 5% or more above our production, even though we were more or less at full employment.

You had the opposite in China and Asia, generally, where the Chinese were consuming maybe 40% of their GNP - we consumed 70% of our GNP. They had a lot of surplus dollars because they had a lot of exports. Their exports were feeding our consumption and they were financing it very nicely with very cheap money. That was a very convenient but unsustainable situation. The money was so easy, funds were so easily available that there was, in effect, a kind of incentive to finding ways to spend it.

When we finished with the ordinary ways of spending it - with the help of our new profession of financial engineering - we developed ways of making weaker and weaker mortgages. The biggest investment in the economy was residential housing. And we developed a technique of manufacturing class D mortgages but putting them in packages which the financial engineers said were class A.

So there was an enormous incentive to take advantage of this bit of arbitrage - cheap money, poor mortgages but saleable mortgages. A lot of people made money through this process. I won't go over all the details, but you had then a normal business cycle on top of it. It was a period of enthusiasm. Everybody was feeling exuberant. They wanted to invest and spend.

You had a bubble first in the stock market and then in the housing market. You had a big increase in housing prices in the United States, held up by these new mortgages. It was true in other countries as well, but particularly in the United States. It was all fine for a while, but of course, eventually, the house prices levelled off and began going down. At some point people began getting nervous and the whole process stopped because they realized these mortgages were no good.

You might ask how it went on as long as it did. The grading agencies didn't do their job and the banks didn't do their job and the accountants went haywire. I have my own take on this. There were two things that were particularly contributory and very simple. Compensation practices had gotten totally out of hand and spurred financial people to aim for a lot of short-term money without worrying about the eventual consequences. And then there was this obscure financial engineering that none of them understood, but all their mathematical experts were telling them to trust. These two things carried us over the brink.

One of the saddest days of my life was when my grandson - and he's a particularly brilliant grandson - went to college. He was good at mathematics. And after he had been at college for a year or two I asked him what he wanted to do when he grew up. He said, "I want to be a financial engineer." My heart sank. Why was he going to waste his life on this profession?

A year or so ago, my daughter had seen something in the paper, some disparaging remarks I had made about financial engineering. She sent it to my grandson, who normally didn't communicate with me very much. He sent me an email, "Grandpa, don't blame it on us! We were just following the orders we were getting from our bosses." The only thing I could do was send him back an email, "I will not accept the Nuremberg excuse."

There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis.

So I think we have a problem which is not an ordinary business cycle problem. It is much more difficult to get out of and it has shaken the foundations of our financial institutions. The system is broken. I'm not going to linger over what to do about it. It is very difficult. It is going to take a lot of money and a lot of losses in the banking system. It is not unique to the United States. It is probably worse in the UK and it is just about as bad in Europe and it has infected other economies as well. Canada is relatively less infected, for reasons that are consistent with the direction in which I think the financial markets and financial institutions should go.

So I'll jump over the short-term process, which is how we get out of the mess, and consider what we should be aiming for when we get out of the mess. That, in turn, might help instruct the kind of action we should be taking in the interim to get out of it.

In the United States, in the UK, as well - and potentially elsewhere - things are partly being held together by totally extraordinary actions by a central bank. In the United States, it's the Federal Reserve, in London, the Bank of England. They are providing direct credit to markets in massive volume, in a way that contradicts all the traditions and laws that have governed central banking behaviour for a hundred years.

So what are we aiming for? I mention this because I recently chaired a report on this. It was part of the so-called Group of 30, which has got some attention. It's a long and rather turgid report but let me simplify what the conclusion is, which I will state more boldly than the report itself does.

In the future, we are going to need a financial system which is not going to be so prone to crisis and certainly will not be prone to the severity of a crisis of this sort. Financial systems always fluctuate and go up and down and have crises, but let's not have a big crisis that undermines the whole economy. And if that's the kind of financial system we want and should have, it's going to be different from the financial system that has developed in the last 20 years.

What do I mean by different? I think a primary characteristic of the system ought to be a strong, traditional, commercial banking-type system. Probably we ought to have some very large institutions - or at least that's the way the market is going - whose primary purpose is a kind of fiduciary responsibility to service consumers, individuals, businesses and governments by providing outlets for their money and by providing credit. They ought to be the core of the credit and financial system.

This kind of system was in place in the United States thirty years ago and is still in place in Canada, and may have provided support for the Canadian system during this particularly difficult time. I'm not arguing that you need an oligopoly to the extent you have one in Canada, but you do know by experience that these big commercial banking institutions will be protected by the government, de facto. No government has been willing to permit these institutions, or the creditors and depositors to these institutions, to be damaged. They recognize that the damage to the economy would be too great.

What has happened recently just underscores that. And I think we're at the point where we can no longer fool ourselves by saying that is not the case. The government will support these institutions, which in turn implies a closer supervision and regulation of those institutions, a more effective regulation than we've had, at least in the United States, in the recent past. And that may involve a lot of different agencies and so forth. I won't get into that.

But I think it does say that those institutions should not engage in highly risky entrepreneurial activity. That's not their job because it brings into question the stability of the institution. They may make a lot of money and they may have a lot of fun, in the short run. It may encourage pursuit of a profit in the short run. But it is not consistent with the stability that those institutions should be about. It's not consistent at all with avoiding conflict of interest.

These institutions that have arisen in the United States and the UK that combine hedge funds, equity funds, large proprietary trading with commercial banks, have enormous conflicts of interest. And I think the conflicts of interest contribute to their instability. So I would say let's get rid of that. Let's have big and small commercial banks and protect them - it's the service part of the financial system.

And then we have the other part, which I'll call the capital market system, which by and large isn't directly dealing with customers. They're dealing with each other. They're trading. They're about hedge funds and equity funds. And they have a function in providing fluid markets and innovating and providing some flexibility, and I don't think they need to be so highly regulated. They're not at the core of the system, unless they get really big. If they get really big then you have to regulate them, too. But I don't think we need to have close regulation of every peewee hedge fund in the world.

So you have this bifurcated - in a sense - financial system that implies a lot about regulation and national governments. If you're going to have an open system, you have got to get much more cooperation and coordination from different countries. I think that's possible, given what we're going through. You've got to do something about the infrastructure of the system and you have to worry about the credit rating agencies.

These banks were relying on credit rating agencies while putting these big packages of securities together and selling them. They had practically - they would never admit this - given up credit departments in their own institutions that were sophisticated and well-developed. That was a cost centre - why do we need it, they thought. Obviously that hasn't worked out very well.

We have to look at the accounting system. We have to look at the system for dealing with derivatives and how they're settled. So there are a lot of systemic issues. The main point I'm making is that we want to emerge from this with a more stable system. It will be less exciting for many people, but it will not warrant - I don't think the present system does, either -- $50 million dollar paydays in that central part of the system. Or even $25 or $100 million dollar paydays. If somebody can go out and gamble and make that money, okay. But don't gamble with the public's money. And that's an important distinction.

It's interesting that what I'm arguing for looks more like the Canadian system than the American system. When we delivered this report in a press conference, people said, "Oh you mean, banks won't be able to have hedge funds? What are you talking about?" That same day, Citigroup announced, "We want to get rid of all that stuff. We now realize it was a mistake. We want to go back to our roots and be a real commercial bank." I don't know whether they'll do that or not. But the fact that one of the leading proponents of the other system basically said, "We give up. It's not the right system," is interesting.

So let me just leave it at that. We've got more than 40 people here but they're permitted to ask questions, is that the deal?

HUI, up to the minute

The markets are doing their thing. Everybody's playing their part. Politicians are hoping and imploring, the bulls and hopers are bulling and hoping. The gold bugs are fleeing and somehow all seems right with an incredibly dysfunctional financial world.

Here is Huey, making a pretense to what I have been cautioning about lately. Subscribers, please use this chart to go with this morning's email update. Parameters are pretty well laid out here. The day is young and thus, we have not even definitively lost the first support around 307. Meanwhile, lower targets are drawn for a correction. It would be ideal for this to arrest at the SMA 50.

ElliottWave Theorist mind blower

There was a time I felt almost apologetic about having the EWI banners, links and articles posted on the blog and website. After all, Prechter was so wrong for so long, wasn't he? Well, the bear market that began in 2000 never was interrupted by a supposed cyclical bull. Why else would I have been harping on the Dow-Gold ratio throughout all those years? The 'inflation' bull was an illusion, plain and simple and Prechter was right, but in not initially accounting for the effects of inflation he was also wrong.

But that does not diminish his overall work and again, I count 'Conquer the Crash' as one of my big time motivators toward financial sanity. As you may remember, a 45% 3 month discount to EWI's premium services was offered here on the blog. I for one took advantage (and yes, I had to pay up) because, as I mentioned at the time, these few months looked to be very important in reckoning the life span of the deflation impulse and its transition to a coming inflation problem.

A half hour ago I got the latest EW Theorist, hot off the press. Any readers who are also signed up, you know why I am making a big deal about this. I cannot go into detail because for no other reason, it would be improper for me to divulge information that I pay for and is not freely accessible. I only gave it a fast skim and will read it slowly tonight. But Prechter is bringing the goods and making me proud to display EWI's stuff. The guy is not a contrary indicator, nor will he allow himself to become one. I am also surprised as to how in alignment we are in viewpoints, not that I would compare myself to Prechter. I am just a blogger with a subscription service after all. ;-)

After seeing this Theorist in particular, I am going to come right out and highly recommend EWI, whether it is for just the monthly Theorist, or the bundle along with monthly Financial Forecast and three times weekly Short Term Update. You can click the EWI banner in this post to check out EWI or click the big banner at the top of the page to join Club EWI. If you do sign up for premium services, of which I recommend the Theorist at the least, I think I will make a commission if you use that little text link. I know I will make one if you enter the site through the banner.

Anyway, this is not just a pitch. I really do value the Theorist and increasingly Hochberg's Short Term Update. And I believe Prechter is going to be very right for a long time because he is showing me something here with regard to his thoughts on trading, real money and risk management. This is not some canned ad promo. It just came out of me after seeing the latest Theorist.

Gold & smart money

There is currently stress everywhere in many different forms. Stress in financial markets, institutions, society and in the fantastic construct that thinks the United States is what it thinks it is, or used to think it was. Come to think of it, there is stress in any reader trying to make sense of that sentence.

There is stress among 401k holders helplessly watching their financial professionals lose them chunks of their future every month. There is stress among gold bugs because well, there just always is. And then there is stress among the people who want to buy gold but are afraid to chase.

To that last group I would say take a look at this chart, analyze what happened at the turn of the century when the buying opportunity of a lifetime presented itself, and realize that things do not happen over night. Stress only gets you unhappiness in your daily life and does not help anything. Otto rags on us chart guys but man, I simply don't know how any investor gets along without them. This one, for example tells the story of how the smart money went about being smart by buying in 2000 and 2001. It watched for things like downside price activity and bullish divergence. Then it waited around and if it had not already done so on the first op, bought on the 'higher low' and 3rd TRIX signal. Stuff like that.

Smart money does not panic and is sure as hell does not get stressed out, because that would be emotional. Smart money is never emotional. It uses logic and tools to make informed decisions with higher probabilities for success.

Dow chart to ponder on a Monday morning

Now on to other stuff

Pally Otto just sent me a link to an awesome Red Hot Chili Peppers YouTube video. I thought 'hmmm, how can I return the favor?'. Launched this his way as I know he loves this album.

This, ah... ROCKS

NFTRH21 out now

...and an important one it is.

The bearish case is outlined for the broad stock market in light of the Dow Theory confirmation now in place. This is not a big deal to me in and of itself, but it is to many traders. The DT signal gives market participants a warning about a half a year too late (all one really had to do was watch the gold-silver ratio) but still, it is what it is. Of more importance are the indicators to watch regarding sentiment, and they are not lined up well for the bulls either. Targets are set on the indicators for when they will be, however.

NFTRH is moving ahead, with its rough plans gaining focus as we navigate through historically complex times, and some possible scenarios coming into view with regard to deflation, inflation and the US Dollar. Of course, the only real bull market, gold is looked at in detail.

I feel the letter is hitting its stride and it is just way more fun to do while showing profits, which are now being guarded through sound risk management as we await the time to again lever up a bit with more exposure to certain sectors, first and foremost, the gold sector.

Okay, so enough of the tickler. Give NFTRH a try if you have a mind to. 26 bucks a month and you can cancel any time if you think I suck. I remain amazed at the percentage of subscribers who have remained aboard month after month.

Dow downside targets

Subscriber Steve asked for some downside targets on the Dow, so here they are. Whatever rally comes from this should be a humdinger. The question then is, from which level will it ignite? Dow has not yet lost support but this week's proceedings are, err, concerning.

The monthly chart now comes into play to give us some perspective. It's a ship of fools, yeh, but it may also bring some opportunity. Patience.

Edit (2:03) To be clear, whatever low lay ahead, it will most likely not end the bear market. It will just be a trade. I have a feeling that whatever the ultimate low ends up being, it is a number that right now would sound like it was forecast by a lunatic. Just like most people would have thought a total meltdown of the credit and financial systems leading into socialism was a lunatic forecast a couple years ago.

The End of Money

I remember one Saturday night four or five years ago, half asleep, I got a phone call from Chris Martenson in which we discussed everything that we all see happening right now in the imploding construct that was once a functioning financial system. Yes, we were both seeing a lot of the same things as to the fate of the United States. But even I would take a Saturday night off and try to live in the matrix a bit on weekends.

Not Chris. The guy had a mission and little did I know how far he would take it. I have posted all the chapters of his 'Crash Course' on Biiwii.com and if you have not seen them, use the link above (the one linked to Chris' name) and do so. Whereas someone like me uses intuitive gut instinct to distill the truth, Chris actually confirms it through hard scientific work. He got on a progression and just would not quit until its logical conclusion.

Chris has broken through to a local PBS affiliate and it was a huge success. In his wife Becca's words: Thank you so much for your support during Chris's PBS Crash Course fundraiser on Feb 10. The fundraiser was a huge success and raised over 40% more than their targeted fundraising goal. Go team! People called from all over the country (we had one call from overseas) and the operators were a little confused about how this was all happening, since the show was only broadcast in the Springfield MA viewing area.

If you are so inclined, please contact your local PBS affiliate station and request that they air the Crash Course in your viewing area. Call or email the station, direct them to the link above and express your enthusiasm for the message and that you feel it would be relevant for audiences in your area.

Here’s a link to find a PBS affiliate in your area: http://www.pbs.org/stationfinder/index.html

Our goal is to get the short Crash Course episode showing on PBS stations around the country and to create a real demand that the truth of this message be told.

View the podcast here, mid-way down the page on the WGBY website.

USD

Just noodling around on a Thursday morning, I came up with this look at the dollar. Assuming it tops here, one could envision the stock market gaining a bit of life in conjunction with the terribly misguided hope pump coming out of Washington. These vampires spin a story of doing what is necessary to get the economy moving again when all they are really doing is hoping to devalue the currency and re-neg on a large portion of our debts. It will not work, at least not as they would hope.

Under this scenario, the markets find an excuse to bottom (USD topping), hope gains a bid and the dollar corrects to around the SMA 200, bottoms there and rises to the top of the triangle.

At that point we would have two taps of the lower line and three hits on the upper, which is enough to fulfill the ascending triangle, lock and load its target of 98, and piss off the hopers.

If things play out in our little scenario, policy makers and indeed the entire ship of fools will begin sucking on the story, sucking the blood out of the last story available, dollar devaluation. Then the sun will shine once again on the vampires.

The dollar represents liquidity and safety in an intrinsically worthless instrument. Gold represents liquidity and safety in an ancient and enduring hunk of value. It is really not much more complicated than that. The country is like an elderly person slowly succumbing to dementia in the years immediately pre-death. Reality is ever more out of reach with each passing day.

Edit (7:36) Then of course, there is the other scenario, which holds that there will be no new round of deflationary liquidation, we do not pass go, do not collect $200 and proceed directly to hyperinflation. That scenario involves the USD making a higher 'C' leg right now. This seems counter-intuitive, but it would be healthier for the price of USD and the impending (and final) deflationary liquidation story if the dollar reversed lower now.

i Curmudgeon

Sometimes I forget to give the NFTRH letter the ole' toot; forget to honk the horn. Actually, being hype-averse and personally not particularly outgoing, self-promotion does not come easy and I think there is a fine line between healthy promo and the sleazy stuff that is all over the internet.

But after reading an interview with a gold stock picker who does not advocate owning bullion but instead owning gold stocks as investments (okay, no comment) I went to the gentleman's website and there was a flashing ad telling about the gains his picks have made recently. I thought 'hey frumpy, don't you think you should put up such ticklers to entice the casual reader who wants to make some money?'

The answer is no. I guess I will go on as is, and when I have something to say I'll say it, like now. And right now I want to say here are a few of the stocks that have been highlighted in NFTRH, all of which I own or trade in one or both featured portfolios (capital preservation or speculation). This is just a partial list of NFTRH's gold stock highlights. With NFTRH you get my technical analysis and some fundamental basics and often a full blown fundamental write up from IKN's super fundamental analyst, 'Otto Rock' (his day job is professionally doing this for fund managers and the like).

Unlike some services that are great at picking these things and telling you where they are going, eventually, I am going to remind you to consider taking profits per technical targets and goldbug sentiment or if you are buy and hold for the big picture, at least you will be prepared for the oncoming corrections.

Anyway, on to da picks... here are some of the charts shown from September 28 (NFTRH1) until today. The downside from the acute panic phase is included and yes I was bullish, buying and then buying again lower. In other words, I did not 'call' the bottom, but was buying the panic much of the way down, including HUI in the 150's. This was not catching a falling knife. This was buying a no brainer in the face of F&F, fear & fundamentals.

I cannot recommend buying any of these now, especially since I see a lot of 'buy junior gold stocks' hysteria whooping up out there about 2 months too late. That is what you will get with NFTRH, my honest assesment, right or wrong. Not a set it and forget it stock picker genius letter.

Gold-Oil Ratio (GOR) using proxies GLD & USO

A look at the GOR and one is compelled to wonder what ever became of all those herds believing in all those misperceptions? Whatever happened to peak oil? Whatever happened to all the rampaging commodity and resource bull gurus insisting that gold, oil, grains and pork bellies were all part of the same inflation fueled market and that resource companies were the way to protect oneself from the evil inflators? Whatever happened to the huge crowd of casino patrons on the way to commodity riches, geniuses all? Well, they are all impaled on the tip of this chart.

'Gold may decline in a deflation episode, but it will decline less than all the positively correlated stuff, thereby adding fuel directly to the bottom lines of the counter-cyclical gold miners.' I might add gold will also be seen as money and a store of value and fiscal sanity. So you know, regardless of corrections going forward - and I can see one over there in the distance - dis be da place ta be. It's a bull market you know.

Bulls' shelf life limited

At this point there is scant evidence that the next leg down can be avoided in broad global markets in the short term, but if it is, it will be accompanied by a still declining gold-silver ratio. The problem for bulls is that they have gone nowhere even while the GSR has come way off its panic highs and in fact is a good amount of the way towards target. The GSR turning back up will signal the next round of liquidation, the next stock market leg lower and most likely some issues for the gold stocks as gold declines but again does so less than everything else.

The GSR is in alignment with our gold miner upside targets that we have been following in NFTRH since November so, it's all good. I personally look forward to a real buying opportunity in gold and gold miners as a result of the next liquidation. There is only one bull market out there that I can see.

Anyway, here is the chart of GSR that shows bulls' near term chances to remain on life support in conjunction with gold miner and silver's chances of upside blow offs (while gold merely tests its highs). Ominously, the VIX is creeping out of the wedge (shown last weekend in NFTRH20) and this must be reversed immediately. This is a very difficult time for most people and at some point I expect the gold bugs to get dinged as well. The difference is that gold and gold miners would likely provide a great buying opportunity while the rest of this mess sorely underperforms.

HUI - Gold Ratio (HGR) - current status

This chart of the HGR was produced as part of an email update going out to subscribers this morning on the state of the precious metals sector rally, but I wanted to put it up on the blog as well for the general readership.

This chart says a lot to me, in light of yesterday's continued strength of the gold stocks. Specifically, as with other conflicting signs I see in the relationship of gold to silver and the relationship of the gold-silver ratio to the broad markets (I know it sounds confusing, but there are indicators or strong hints buried in these ratios, especially when cross referencing them with sentiment indicators like VIX, CPC, etc.) the HGR could be looked at as non-confirming the current gold stock rally as the miners fail to outperform the metal. Is that any wonder, considering the stock market's precarious state?

So yes, we have a non-confirmation of gold stocks to gold. But the pattern or structure of the HGR is still bullish, as per the chart. In an illustration of 'it's what makes a market', there is something for gold stock bulls and bears. This is what makes markets interesting, isn't it? Important supports for the HGR are noted on the chart.

Silver - approaching target

NFTRH20 out now

In NFTRH20 we have a look at futile policy being promoted by Keynesian economists as everybody from Goldman's chief economist to the house speaker break out the pom poms. The precarious state of US and global markets are reviewed and the precious metals are looked at in detail as the road map for the near and longer term continues to take shape.

The opportunities to preserve and grow capital lay before us. But it takes a willingness to get out of the mainstream feedback loop and carry forward a consistent yet revisable plan.

NFTRH20 out now. Edit (2/16 @ 8:35 AM) Here is an excerpt: They Said It

SEC, your government at work

Aside from the sensational video below, which really does make good theater, here are the dry facts and studied analysis that Mr. Markopolos attempted to spoon feed to the SEC in 2005, lest one think it was just a couple whistle blowing phone calls.

'You Can't Fool Gold'

As mentioned a couple weeks ago, Biiwii.com received permission to pull and publish relevant material from Mish's excellent Global Economic Trend Analysis blog. Here is the latest, called You Can't Fool Gold. It is an examination of the implications of the current 'global' credit meltdown and gold's relative (to virtually everything, just as we expected and planned for) strength in USD and its upside breakouts in most other currencies.

Now, I am playing devil's advocate here and reproducing Mish's charts with a technical read and am depending on you not to get nervous about them. They just are what they are, and what they are are (nice English, eh?) monthly charts, which are notoriously ill suited for short term decision making. In fact, gold has already broken to the UPSIDE, in British Pounds, from a supposed reverse symmetrical triangle (bearish reversal pattern).

So why post these charts? I don't really know. I guess I see chart, I see pattern, I post to blog. Sort of a Pavlovian thing.

A powerfully bullish thought is that gold is now in 'blue sky' territory vs. many currencies and if gold bugs are to finally see their endgame - and I am talking about THE endgame - it will surely take place with gold going parabolic vs. these pieces of paper with broken promises written all over them.

High tight flag - alert

Look, I am just one of those crazy chart guys that thinks he sees things in these pictures. One of my best internet and financial market pals, Otto Rock, thinks we charty geeks are peddling hocus pocus. He damns me with faint praise as being among the best of a bad lot :-).

But I was twittling around with a monthly Gold-Silver ratio (GSR) and there it was; a high and tight BULL flag. The pullback target is noted at which point I plan to buy the 2X short silver ZSL to protect gold miner holdings. May sell a few more things outright as well. I am back in the mode of protecting significant gains off the puke fest in October. Ya gotta be just crazy enough to look for hints as to coming events in charts like this.

Don't know whether or not the broad markets are going to succeed in pumping short term, but I do know I would not be long with my worst enemy's money when that flag turns back up.

EWI - Free Week - Commodities

It's free, it's EWI and it's all about commodities. Click the banner to join and remember, EWI is not one of those services that bug you with spam or unwanted pitches. They are what they are and their services are of value.

HUI-Gold ratio

The HUI-Gold ratio has still gone nowhere as it continues to consolidate the 'handle' of the lovely 'W' bottom, the top of which continues to provide support. Now, consolidations are beautiful things because they give us time to examine their nature, feel and look. They also provide plenty of time to drain the spirits of people who do not use charts effectively. I have no doubt that some gold bugs, renowned for their ability to swing from over bullish to over bearish, sold this handle before yesterday's upside.

Now of course, nothing is settled here. My target for HUI remains 350+/- and HUI-Gold .41 in the near term. But if it were as easy as just looking at a chart for 100% accuracy you would not be coming to this blog, because it would not exist. I would be too busy playing rock music and jetting around the world with my family looking for a nice 2nd home in the likely event the domestic mess comes unglued. No, there is sentiment to consider, and it is being led by the always ready to chomp the bit silver bugs. Then there are the gold bugs beginning to feel that oh so sweet sense of validation again... these are signs of a mature rally which has now been in progress for 3.5 months.

Still, charty say 'stay on track Gary, stay on track NFTRH'. But charty also say keep reminding subscribers that taking profits is always a good idea. You got 'em? You met your goals? Remember that the market will at some point taketh away.

All that said, the HUI-Gold ratio still looks good considering it has not yet gone anywhere. But at such time as it may hit .41, I will not just hint at taking profits or the ZSL silver short for hedging. I will pound the table, at least as much as I ever do. In other words I will simply state that this is what I am doing and why. This is because an HUI-Gold ratio at .41 is very likely to coincide with an upside blowoff of short or more likely, intermediate significance.

Let's illustrate the HUI target zone...

HUI locks and loads...

I am not going to pump you, hype you or 'I told you so' you. But me being me, I am merely going to put up a chart of silver surrogate SLV, which is approaching our target with all the, shall we say enthusiasm germane to the silver bugs. So, a chart of 200% short silver vehicle ZSL is provided as well. One might think about how far the silver gold ratio has come off the bottom and silver's proximity to the same resistance levels the HUI is facing and one might consider our target of 350+/- and think, 'hmmm, might I consider hedging my gold miners a bit at some point?' Edit (12:11) A subscriber has asked me to be more clear on defining time frames, so the 350 HUI target is just near term before the risk of significant corrective activity crops up. On a more intermediate basis, the target remains 450.

Geithner's 'comprehensive' attack

Excerpts from Tim Geithner's "comprehensive" attack were released this morning per this Bloomberg article.

TG: will "cost money, involve risk and take time.”

Me: ...and ultimately fail.

TG: “The financial system is working against recovery, and that’s the dangerous dynamic we need to change,”

Me: The financial system is repudiating the decades of ill-conceived monetary and credit policy that your predecessors have stuffed down its gullet. Do you really think more of the same will work for anything but short term gain, mostly political?

TG: “Without credit, economies cannot grow, and right now, critical parts of our financial system are damaged.”

Me: Keynes' playbook predates West Coast offense. The best players see it coming a mile away.

TG: “It is essential for every American to understand that the battle for economic recovery must be fought on two fronts,” Geithner said in the excerpted remarks. “We have to both jumpstart job creation and private investment, and we must get credit flowing again to businesses and families.”

Me: What I understand is that you guys screwed up my country, which used to depend on things called productivity and value added. What I understand is that recessions were once upon a time very necessary corrective mechanisms for healthy economies that got overheated, but are now, due to economic meddling and remote management and the moral hazards therein, time bombs that we must do "battle" with. You may well engineer a recovery of some sort, but at what cost? Hyperinflation? Great.

TG: “The American people have lost faith in the leaders of our financial institutions”

Me: Yup, and that ain't all they've lost faith in.

TG: “In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them,” Geithner said. “Because this vital source of lending has frozen up, no plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses -- large and small.”

Me: See how complex micro-management can be? Used to be a time company A made widget B and sold it to consumer C who, himself had the money to buy because of his productive job supplying necessary service D to...

Mr. Obama: “We don’t know yet whether we’re going to need additional money or how much additional money we’ll need until we’ve seen how successful we are at restoring a sense of confidence in the marketplace,”

Me: Mr. President, I like you a lot. I really do. You are dignified and charismatic and I have confidence in your ability to discern and delegate in search of the truth. But you are aligning your economic policy with what we call Keynesian economists like Paul Krugman and Robert Reich, and what these people are selling, the financial system is not buying. At least not in the long term. Then again, 'in the long term, we're all dead', right? Good luck Mr. President; to all of us.

MTO.v at target

Target range per previous post hit, trading shares sold. Simple. Nice bottom it was.

DIG - Ultra oil & gas...

I just did this chart for my friend, and NFTRH subscriber, Steve. He owns DIG from 27 and is trying to get comfortable with the idea of selling, of profit taking and asked my thoughts. The chart includes those thoughts.

I figured I would pop it up on the blog as well for anyone interested.

Gold, Silver, USD CoTs & Silver-Gold Ratio

Below are the current structures of the Commitments of Traders for gold, silver & USD, along with a daily chart of the silver-gold ratio and a chart of gold with correlation to USD. As you know, the SGR is a positive leading indicator to the markets and what we're calling 'Hope 09'. Silver remains constructive, with the upside target noted on the chart. Gold and USD are encountering some turbulence at resistance.

You may have noticed gold often going in the same direction as the USD recently. That is due to the fact that both markets were the recipients of scared money at varying times throughout Armageddon '08 and when said scared money gets a little braver, it thinks about chasing other stories. So to me, there is no real surprise in the correlation.

The CoTs seem to suggest this as well. All three markets are creeping toward bearish, but silver looks to be in the best shape which is a bullish sign for hope and for markets in the short term. Remember that gold got hugely over bought vs. everything else as the upside blow offs in its ratio charts show. Whether or not gold corrects in nominal terms, it is due to underperform many other things in the short term if we are indeed to have respite from the pain, as the SGR implies.

Deflation Survival eBook - Final installment

The complete eBook is now online for free download. In NFTRH19, a rough road map of when and how the next deflation impulse might arrive has begun to take shape. My work tells me this will be deflation's dying gasp for the cycle, but we must be prepared for it none the less.

Per EWI:

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