Precious Metals - General Discussion

Excerpted from the March 28th edition of Notes From the Rabbit Hole

As promised on the blog yesterday, NFTRH26 jumps right into the only sector that stands a reasonable chance of success during the current and ongoing economic contraction to end all contractions. That sector is of course the precious metals and in particular, gold.

The bounce in human spirits that NFTRH has dubbed ‘Hope ‘09’ appears to be nicely in progress. But this is actually a resetting of unsustainable negativity as the Obama administration initiates its change; they have changed the Bush/Paulson half measures and mixed messages to the Geithner/Bernanke ‘all in’ approach. Exponentially more of the same poison (debt) that killed the economy disguised as popular policy, will not work and therefore, as investors and traders our focus on the countercyclical gold miners continues. So too does the focus on gold itself, keeper of the stability of value that it is.

Before moving into technical and fundamental analysis of the gold miners and some of the all important gold-to-asset ratios, why don’t we take an objective look at the entire bull market thus far? On the weekly chart we find that the price of gold, in nominal USD did exactly what it is supposed to do in a time of crisis. It protected its owners’ wealth by appearing to rise strongly against other assets (really, this was those other assets crashing vs. gold’s stability) while maintaining its footing in the face of an impulsively strong USD that benefited, literally from a world full of de-leveraging referred to during the event as ‘Armageddon ‘08’ here at NFTRH.

Still, many gold bugs wonder why gold is not going ‘to da moon’ amidst the horrifying monetary policies being promoted by desperate authorities. With all the ‘rah rah sis boom bah!’ and flat out promotion that goes on in this sector, that is understandable.

For our own solitude from the noise, we go back to the chart. What we see here is a strong bull market in monetary sanity, but with the degree to which most people are nowhere near ‘getting it’ as far as the question ‘what is and what is not money?’ is concerned, this bull market likely has a lot longer and higher to run. For now however, we look for gold to hold the top black line and the all important weekly EMA 75 during any downside during the ‘Hope ‘09’ festivities.

A drop to the green line support should be considered as a gift from the money gods to anyone thinking about monetary insurance. Unfortunately, with all the noise that would accompany such a decline, I believe most people would await the ‘safer’ feeling of buying into rising prices. The price they will pay for comfort may be their status as part of a giant, panicked momentum driven herd all thinking the same thing as gold leaves the $1000 level in its wake for good when the next leg down in human hope arrives.

The lower chart panels measure gold’s corrective progress against some of the things that crashed during phase one of the crisis. While I do not want to micromanage this process, some Fib retrace levels are included for reference. Gold is declining against the things that benefit from positive correlation to human spirits and hopes for prosperity.

If you believe as I do that sentiment had to be reset and if you believe as I do that monetary policy is doomed to failure, you likely also believe that ‘Hope ‘09’ is sadly just an adjustment on the way to continued economic unraveling and ultimately the end of the current system.

Is it the end of the world? I doubt it. But the new system will be born of monetary education and fiscal sanity. Given the level of monetary and fiscal retardation still embedded in the current system, we can expect that it will take quite a while to be proposed and implemented. But on the way to that would-be nirvana, gold, the ancient money, will play a central role, whether it officially back bones the new system or not.

The Quiet Coup

If you are a regular reader of the blog, I would think it is not because you want to see a pure trader talking about TA and discussing profit opportunities in a sterile, all encompassing manner. Hopefully the reader has a sense of the underlying texture and substance behind what goes on here. I guess the frequent references to 'casino patrons' AKA convention following financial services professionals, and 'vampires' AKA Wall Street powerful and heretofore respected institutions and their leaders, has kind of made that point. Anyway, here is some recommended reading from Simon Johnson, former chief economist at the IMF and current professor at MIT's Sloan School of Management.

Quite simply, the grotesque excesses (in many cases, criminality) of the American financial services industry has brought us, and the entire world, kicking and screaming into major change; the dawn of the 'new normalcy' as I have been calling it. We are currently nowhere near the 'light at the end of the tunnel' part of the story, but we simply must do the hard work of interpreting and defining the new normalcy in an ongoing manner. In short, the financial services industry is not going to be the solution - they were and are a big part of the problem. I firmly believe that financial survivors going forward will be the ones who have decided to do the work themselves in a comprehensive manner, with open minds and a distrust of the conventions that have been embedded from the beginning of the Reagan era right on to today.

There is currently a lot of noise about socialism, but nationalization has been forced upon us by the dying system and its criminal elite. The 'taxpayer' has no choice and nor does the money printing Fed. A big problem here is that Ben Bernanke is one of the discredited policy makers, just like Alan Greenspan before him. To call the previous treasury secretary, former head of Goldman Sachs Paulson, tainted would be a gross understatement. Geithner, Summers, Rubin... we have seen this movie before, and it sucks.

The Quiet Coup



Excerpts:

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services...

In a primitive political system, power is transmitted through violence, or the threat of violence: military coups, private militias, and so on. In a less primitive system more typical of emerging markets, power is transmitted via money: bribes, kickbacks, and offshore bank accounts. Although lobbying and campaign contributions certainly play major roles in the American political system, old-fashioned corruption—envelopes stuffed with $100 bills—is probably a sideshow today, Jack Abramoff notwithstanding.

Instead, the American financial industry gained political power by amassing a kind of cultural capital—a belief system. Once, perhaps, what was good for General Motors was good for the country. Over the past decade, the attitude took hold that what was good for Wall Street was good for the country. The banking-and-securities industry has become one of the top contributors to political campaigns, but at the peak of its influence, it did not have to buy favors the way, for example, the tobacco companies or military contractors might have to. Instead, it benefited from the fact that Washington insiders already believed that large financial institutions and free-flowing capital markets were crucial to America’s position in the world...

Stanley O’Neal, the CEO of Merrill Lynch, pushed his firm heavily into the mortgage-backed-securities market at its peak in 2005 and 2006; in October 2007, he acknowledged, “The bottom line is, we—I—got it wrong by being overexposed to subprime, and we suffered as a result of impaired liquidity in that market. No one is more disappointed than I am in that result.” O’Neal took home a $14 million bonus in 2006; in 2007, he walked away from Merrill with a severance package worth $162 million, although it is presumably worth much less today...

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy “stress scenario” that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump “cannot be as bad as the Great Depression.” This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

NFTRH26 out now

I really tried to throw the kitchen sink at this one, with an intensive look into gold, gold miners and the dollar.

The metal: what it is and what it is not and how many people (and their advisers) get all screwed up over it with the result being frustration due to misperception (and a little promotion).

The miners: their current little picture and importantly, BIG picture status. The important indicators are fleshed out and used to illustrate the NFTRH stance, which is bullish. Very bullish.

The US dollar is shown in detail and I must say I think NFTRH26 really delivered some goods today. Some really worthwhile goods. Have a good weekend.

It is getting interesting

Not to say that there won't be some additional downside here for the gold miners, but in a slightly bigger picture, things are getting more clear technically, to go along with the already clear fundamentals. The dollar appears to be playing to a script, as is gold and da minahs.

Commodities and the stock market? No firm opinion on my part now that so much bullishness has started being expressed. Adam at INO has a video here http://www.biiwii.com/analysis.htm that does as good a job as I could at explaining the situation in the stock market. But my interest is elsewhere.

The dollar, gold and the gold miners will be looked at more closely than usual this weekend in NFTRH26. I am seeing too many things over too many time frames to give everything else equal weighting as usual. I guess this will be a sort of precious metals extravaganza.

HUI - Relax and learn to love the corrections

Well, even I will never learn to love them, but corrections - especially in this volatile sector - are what separate the holders who know why they hold from the weaklings and soulless hangers-on. Yes, you need to have a soul or substance about you to do the work of understanding something, trusting your work and believing in yourself.

The markets are filled with all kinds of noise that serves to distract the casual trader, the wacky quote in the previous post being a prime example. If you don't know who you are and are taking cues from the big box financial outlets, well... I guess that makes a market.

Happily, anecdotal evidence tells me that a huge proportion of people who read the blog and subscribe to NFTRH are already outside that big box. We have eternal patience as long as we feel we have found a major degree trend and we endure and even use the noise to our advantage. Markets are not easy, in fact they can be downright annoying. That quote below annoyed me yesterday, even though I have been awaiting such gibberish to begin to appear and I plan to use it to advantage. Markets can test your will, but ultimately if you have all your chops down pat, they can be very profitable.

So Gary, where's the HUI chart analysis now that you wind bagged us to death? It's right there on the chart.

Another NFTRH bull stock gone

Last week I showed the sale of TGB at the 'conservative' target (get a load of it today - it's breaking out). Also sold from the bull holdings are things like URZ, PBW and ERF. Today, NFTRH's China exposure met the profit axe in the form of TDF being sold a little below target (+17%). That leaves a couple commodity ETFs, a couple uranium stocks and a commodity royalty company among a bunch of precious metals stocks. I hold most of the PM's strongly, but this other stuff is for profit taking. This is profit earned by stepping up and buying when the slap happy bulls were too afraid to. Now they feel they have license and courage because it is beginning to feel OKAY to buy.

Silly bulls. The rally probably has a while to run, but looking at various gold ratio indicators, I think it is time to focus on the real analysis as opposed to bull speculation. I love looking at the casino from the outside. The air is fresher out here.

Edit (2:05) Oh man, they are serving this up on a platter. As I was skimming through the MSM looking for the latest rationalizations to justify the bullish activity, I came across this absolutely wonderful nugget.

"One thing that many people are beginning to believe is that the market is going to bottom in 2009," said David Waddell, senior investment strategist and chief executive of Waddell & Associates. He said he's starting to see some "seller's remorse" among his clients. That can move people into buying mode, he said. --AP

I have been expecting this kind of idiocy as a signal for caution and here is the first astoundingly excellent example.

Yet another scenario for the dollar

Last week the current daily bear flag on the dollar was just a twinkle in NFTRH's eye. Now, we look at the weekly and see the 'potential' for a longer weekly bearish flag to form. That would grind the USD higher and most likely contain or correct recently bullish markets, gold miners included, before the dollar ultimately dumps hard once again.

These are all just scenarios to be aware of here in no crystal ball land.

S&P 500 - 'Hope 09' kicks in

Enjoy dear readers. Enjoy the market's rally. You, me... all of us who are active in the financial markets have had a uhmm, difficult last half a year. So enjoy the relief as desperate politicians the world over try to whoop up some hope and hype.

When this chart comes into the bear market retrace target zones and when the major media tell you it is okay to begin to invest again, well, I never tell you what to do. But I tell you what I will do... F.A.D.E. and keep profits.

The bear will be back, because this particularly insane and angry bear was born of policy that was a pale version of what is happening now in Washington.

Edit (11:15) BTW, Robert Prechter checks in this morning with a short but excellent read on how you've got to be as a trader Key to Trading Success: Ignore Nature's Laws? He hits it on the head. Do you think I felt okay buying HUI 150's? Well, I did, but only while clicking my heels and saying 'you are a contrarian Gary... there's no place like home... you are a contrarian Gary... there's no place like home.' You will always be uncomfortable selling big rallies and buying terrible declines. The absolute key to being a successful trader is that if you can employ this twisted logic and make it work, it's gold Jerry, GOLD! That is my point in the above post. The media will tell sellers and shorts all they need to know about when hope is about to run out.

Denninger - The End Game Approaches

With the self-imposed mandate to 'get the markets right much more often than not', I use a lot of technical analysis, ratios and indicators. All the boring stuff you have to do to tune out the noise.

Every so often as you know, I burp up an article talking about the Fed's incestuous debt ponzi schemes, the inflation/deflation struggle, futile monetary policy and the like. But mostly, I am here to navigate this mess with a smile on my face, while warning about the dangers of conventionally remaining in the world many people think they know, or knew. It has ended.

Thanks to the same subscriber who alerted me to the Taibbi article, here is one from Karl Denninger. Some will think he wears a tin foil hat and watches out for black helicopters. I don't. I think he knows the credit markets, or what used to be credit markets. I agree with an awful lot of what Denninger says here in The End Game Approaches.

Get your houses in order on this false economic dawn, if that is indeed what we are lucky enough to experience here as part of the 'Hope 09' fesitivities.

US dollar rally... real or Memorex?

From NFTRH25: "I would not be surprised to see last week's euphoria in the precious metals worked off a bit with continued modest USD upside within a bearish flag."

At that point a would-be bearish flag for Uncle Buck was just a twinkle in the newsletter's eye, but as I told subscribers in an email update this morning, it was a concern that the dollar had been slammed so violently down to near the short to intermediate target (SMA 200) that we have been following as the lower limit of a rising wedge, still early in its formation.

Yes, a USD bear flag would be just what the [rally] doctor ordered for the gold miners and probably commodities and the stock market as well. Now of course, things do not often stay as neat and clean as we would like, so we must allow for the buck to test the SMA 50 breakdown area, where it should encounter a world full of resistance.

NFTRH25 also noted the rising risk of an HUI correction for subscribers last weekend: "While I believe these stocks are going much higher in 2009, the same caution for traders holds true as the last time HUI was at this level in February. If the short term target is 350 and we are at 325, don't hold out for the last few percentage points. Investors (NFTRH is primarily an investor here, with some minor trading) would look to add on weakness only or hold and await higher levels down the road. But remember, the corrections in this sector are never fun and they are never quiet."

So here we are... the markets are all about probabilities. Not having been issued a guru's ball, I can only go with the probabilities and make sure that NFTRH subscribers are comprehensively aware of them. Blog readers too, at least to the extent that I don't compromise the premium on the newsletter.

Probabilities go both ways. Last week it was appropriate to brace for correction. This week it is appropriate to look forward to continued bullish potential. Pullback targets have been set for HUI and let's just say many gold stocks have a technical condition, born of post-Fed euphoria that should be 'filled'. ;-) Edit (10:45) Well, maybe the flag is all the dollar is going to get after all (no push up to the SMA 50). At least that is how the markets are acting.

VIX... still hanging around

The VIX has not been broken down, but it sure has consolidated since historic events that changed everything, pummeled the markets. Meanwhile the S&P 500 continues to look good even as it has banged its head up against the first level of overhead resistance. It will be wise to watch the VIX going forward to see how it does at support. People who do not buy the 'worst is over' story in the big picture should not be greedy. SPX has produced a strong rally off of the ongoing grind of bullish divergence over months of pain. I would not look a gift horse, or pig, in the face. Edit (11:33) ...or the mouth :-)

All hail the inflators!

The name of the game has been to fade convention, fade the major media and fade what you think normal should be, because my friends we are surely in some kind of Oz here. A new land of wonderment and magic where things are not the way they are 'supposed' to be.

I have people in my personal life who have totally capitulated to the market and sold out and when asked my opinion, I have said the market is going to rally, and it could be a good one. But it will be a rally that will be just strong enough to get the media touting a different, more optimistic tune and to get an awful lot of capitulators to begin doubting themselves. Then, the rally born of disgusting policy will end. The big suck in, as it were.

I was out for most of the day and just returned to see that the goldies, in need of a breather, have taken the back seat to a reflating pig that is in full bullish regalia. I have some longs (commodities & China), but I am a trader. What is happening in the markets is probably the false economic dawn play, when policy makers may eventually be celebrated or at least not reviled quite so soundly. In my opinion, this should NOT be bought by 'buy and holders'. That is because policy makers' policy is destructive as it mainlines more of what killed the economy to begin with, right into its veins.

Anyway, gold pooped out but we expected that did we not? Gold underperforms positive correlation when optimism is rising. However, somebody forgot to give the memo to the HUI-Gold ratio, which has just ticked up yet again as a result of today's activity.

Matt Taibbi gets it... big time

I am on the email list of one of NFTRH's subscribers. He sends out trade ideas and information to clients, friends and associates. This morning's heads up is the article The Big Takeover, by Matt Taibbi in Rolling Stone of all places. This kid gets it and tells it like no one else I know of in the MSM. I am particularly taken by his use of the word 'casino' so often. :-)

Illustration by Victor Juhasz

NFTRH25 out now...

NFTRH25 takes a look at the interplay between inflation and deflation, how one needs the other and how one begets the other. Cookie cutter explanations are of no value as it is the combination of these two forces that must be dealt with. Excerpt: Inflation and Deflation

We then transition to potential upsides for both the stock market and various commodities, pending short term corrective activity, along with some thoughts about the nature of the bullish potential. In other words, is it real or is it...?

The US dollar has now morphed from scenarios 1 & 2 to a third scenario with the potential to form a large rising wedge that creates frustration for both 'inflationistas' and deflationists alike. The dollar will of course be central to events in many markets going forward.

Some precious metals indicators formed bullish candles after Ben 'the Hammer' Bernanke capitulated on Wednesday and the sector looks in better shape than it did a week ago. The HUI is charted for near to intermediate term support and resistance levels as well.

A full fundamental NOBS research report is provided along with my technical analysis on one of NFTRH's favored 'holds', a gold and uranium exploration stock that is a rarity in that group... impeccable management and a strong cash position. Incidentally, each time NFTRH presents a NOBS report, subscribers are getting a $100 report (Otto's regular fee, which is well worth it when considering the value of having a sharp fundamental analyst get under the hood and really vet any stock in which you may have an interest) as a bonus.

Finally, both capital preservation and speculative portfolios are illustrated with holdings and cash percentage levels.

Enjoy the rest of your weekend and give a thought to trying out NFTRH for a month to see how it works for you.

Two markets, two directions... SPX & Crude

As noted recently, INO's MarketClub did a masterful job in selling crude near the top and patiently remaining out of the thing until they got a green buy triangle. If I were a trading system user, it would have saved me some ill fated bottom fishing exercise. They are bullish on crude now and correlating that with a bearish S&P view. I am still leaning bullish on the broad market (not with any active positions however, just commodities and a bit of China) but I think Adam's analysis is interesting none the less and heck, maybe he's right. As I write in NFTRH, it is a bear market and you do not give the market the benefit of the doubt in a bear. You make it prove itself.

Anyway, here is Adam's latest video on the subject of crude and the stock market and here is INO's description:

In our new video we are going to be looking at two different markets that are headed in two different directions.

We recently looked at the equity markets and alerted you to some very important levels that we thought the markets would have problems with. Those levels have now been reached and it remains to be seen if we are going to see the kind of market action that we were looking for.

The second market were looking at is the crude oil market. This market has recently come alive to the upside and bear watching.

This is a short video, but it may contain the blueprint for these two markets. No registration is required to watch this video.

Enjoy,

Adam Hewison
President of INO.com
Co-creator of MarketClub.com

Gold sector - up to the minute, literally

A 60 minute chart that does all the splainin' I could do here with a bunch of words. Reflect upon it and realize that panicked hot money is always punished for the greater health of the sector.

The Fed not only blinked the other day, they flat out made in their pants. So too, it seems, did a world full of casino patrons who wanted 'proof' before taking a chance on gold stocks. The very gold stocks we got our proof on in October at a half price sale.

Wash, rinse...

This is a 60 minute chart remember. The daily chart is not nearly so stretched and this weekend in NFTRH we will begin to target the upside on both a daily and weekly basis, using the HUI as usual.

TGB - NFTRH trading stock

TGB is one of my favorite trading stocks because a) I think copper is getting the infrastructure/make-work pump in here and b) I like the charts it paints and the way it moves so predictably. Other than that, I could not care less about it.

I find the need to have pure trading vehicles so that the things I feel more fundamentally sure about can be held with stronger hands after profit-taking the traders. Here is the current status of TGB, with potential way up to 1.85. I however, settled for the 30% right here on this latest trade.

Gold-Silver ratio

We have been following this oh so important indicator all along in NFTRH. Right now it says 'go ahead bulls, have some fun, but your shelf life may be limited, and that means you too gold stock bulls... it will not all be clear sailing.'

GSR is one of those outliers, one of those ominous things that most people find inconvenient to look at, if they even know it exists. GSR will one day signal the next contraction impulse - despite the heroic Fed - and we will be ready, won't we?

Using GLD-SLV here as a proxy. It should be repeated that gold miners are in a bull market, fundamentally if not yet technically. So, you know the whole spiel about risk management and opportunity.

Fed panics, charts respond...

Gold? Ho hum

Speaking of 'the most frightening gold chart in the world', I will show you the real one. Right there to the left. This chart is scaring the crap out of anyone who capitulated on the b/s today or dumped their gold miners because they believed the garbage flying around the internet. A-B-C this, deflation that.

The entire precious metals complex gets too hot and bothered on the upside and mirrors this with too much noise and doomsaying on the downside. It seems there are lots of precious metals and/or deflation experts out there. They sound authoritative as they render their word from on high. Then the whole effin' thing launches in the other direction as the Fed inflates. Why can't people be more calm when investing or trading in the only 'value' sector left on the planet at the moment?

The debate is over. Deflation is a temporary phenomenon required once in a great while to blow out the excesses of the previous inflationary boom. The Fed and the government are proving that to you right before your eyes. Think about this; the news media are all over the deflationary depression angle. That alone should give the deflationists and cash hoarders pause.

Gold not about price, gold about value. Repeat after me...

Gaiety! Glory! Glamour! It's the Wizard of Oz!

Loosely translated: We just panicked big time. But then, what choice did we have? Pay no attention to what we're doing behind the curtain. Go about your lives... click your heels... do whatever it is you do and we will do what it is we do.

Release Date: March 18, 2009

For immediate release

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract. Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending. Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment. U.S. exports have slumped as a number of major trading partners have also fallen into recession. Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued. Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets. The Committee will continue to carefully monitor the size and composition of the Federal Reserve's balance sheet in light of evolving financial and economic developments

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Fed day

It appears all the players are in character as the Fed pretends to make a decision on some kind of policy. For weeks now the dreaded ABC in gold has been going around the internet, featuring the self-proclaimed 'most frightening gold chart in the world' and its target below 400 (to fill a gap).

In reality of course, the gold sector got too bullish and was weighed down by the very worst of holders; the kind that watch Kudlow & Cramer, have no financial soul or compass of their own and are the ultimate sheep to the slaughter - every time. The public bought gold in a knee jerk response to panic (and major media hysterics). That money must be drained, and it is being drained. Wash, rinse, repeat. Over and over and over.

Here is gold proxy GLD sporting another pattern that has been going around lately, the dreaded H&S top. A break of the neck line targets 79.

USD - down but not out (yet)

The dollar is down again today, but recall the daily support noted around the SMA 50. Scenario #2 has now split into two scenarios within itself. One is that it aborted sooner than the original 92.5 (weekly lateral resistance) target, fell below important support in the low 88's, and is now in the process of declining to the low 80's. The other however is the original scenario up to that target at 92.50.

I believe the USD is headed lower after a test of the 88 breakdown and this will become more firm if the weekly MACD triggers down and STO moves below 80. As is however, the buck still has some benefit of the doubt to the upside.

NXG - What has been and what may be...

NFTRH identified rising risks in gold stocks well in advance, and readers were prepared in an environment of intense bullishness. Well into the ensuing correction NFTRH22 (Feb. 28) pointed out potential for additional downside and noted low risk buying opportunities on four gold stocks: "I believe these have lower to go, and low risk 'bottom feeder' opportunities are noted for future reference... I do not want you chasing. I want you ready for future opportunities."

Two of these stock have hit the downside targets, while two others have, as yet, not done so. Note that NFTRH still holds all four and barely feels a blip during the gold stock correction, has managed risk, is well aboard the 'hope' trade (infrastructure trade, make-work trade or whatever you want to call it) and is enjoying the moment as a bull, while waiting for the alternately fearful and greedy counter party to show up. It's just a trade. Gold miners are the only sector that stands to see margins consistently improve in the current environment, for all the reasons noted repeatedly when it was time to be bullish.

As for NXG, NFTRH's measured target off of the bottom was hit (and exceeded) before a healthy pullback began. As MACD triggered down, confirmation came in and it was time to look for opportunities. These things can take weeks, and patience is required. NXG is not out of the woods as the support could be tested again and there is of course the ever present possibility of new lows for the move. But this is a game of risk management and opportunity. They will never ring a bell for you at the exact correct moment. On the plus side, that could be a cup (although I like to see the right side rim slightly higher than the left) and that could be a handle. And that could be a target way up there at 2.50, conveniently right at visual lateral resistance.

NFTRH is not primarily a stock picking letter. Note however, that a new NOBS report on a highly cashed up gold/uranium exploration company will be out with this weekend's NFTRH25. It is a stock that NFTRH has patiently held for months now based on its risk profile, substantial cash levels - resulting from the combination of the gold and uranium assets/operations - and of course, the chart, which has been in one of those oh so painful (they can be the best kind, long and drawn out) bottoming stances for months now. But of course stocks are part of the equation as we go about defining the 'new normalcy'.

Steve Dore: Tax the Rich

I have mentioned that I am satisfied with the level of subscribership to NFTRH (not TOO satisfied mind you, in case you're considering it! ;-) but what really blows me away is the QUALITY of the subscriber base. Everyone from owners of Wall Street firms to regular, clear thinking folks to this gentleman, Steve. It's funny, I wish I could play like Steve and I think he wishes he could trade like me. I think he's got the better virtue. Check out SteveDoreSongs.com if you get a chance.

A look at the FOREX casino...

You know my thoughts here. Just as you have probably gotten a bitter taste from this blog every time the global 'inflation trade' casino was mentioned over the last couple years, you might have also had a thought like 'what the hell does he have against FOREX?'... Throw in the supposed financial adviser herd, Wall Street's legal criminals and the overwhelming majorities of the world's industrialized populations, who sat on their unquestioning and uncritical ass[ets] until it was too late, and you get an idea of some of the things I have no respect for.

FOREX makes and loses trading jocks a lot of money. It affects whole societies and their standing in the world. But the fact that FOREX is still intact and taken very seriously probably means that we are still years away from any real blow off in gold and that the financial world is many years away from any sort of rational capitulation to the idea that the system of inflate-deflate-inflate-deflation-inflate..., with its ever increasing moral hazards, is near an end. In short, the game goes on because the majority are still living in the old world; what has been.

Here are some weekly currency charts for consideration. The lower panel shows their potential to correct upward vs. gold while the main chart shows just how far they have fallen vs. USD. There is plenty of room for upward correction against the dollar, but if/when the idea is peddled once again that these things are any kind of safe haven from the dollar, it will be time for Uncle Buck's correction to end. Uncle Buck stinks to high heaven, but he plays in a very bad neighborhood.

USD using proxy UUP

The dollar has done some very unhealthy things in the last several days, all the while fitting into its role in the NFTRH 'gameplan'. This morning I sent out an email alert to subscribers about the market's potential for a 'pop and drop', with the idea of this support cluster in the USD coming into play. The dollar will probably rise to test the breakdown, and again these levels are accounted for in the gameplan.

The market did not exactly pop and drop in the classic sense, but given its nice run, and given the 60 minute charts that look stretched, it could be ready to take a break in here soon as Uncle Buck retests. All in a week's work my friends. Nothing goes straight to where it is going, and I expect any dollar rebound to fail before too long. I did sell a couple positively correlated things just to be ready.

NFTRH24 out now

This week we look at the stock rally and lay out reasons why it is most likely not real, at least for the people still buying the stale old lines issued by the financial advice herd and waiting for it to come back in a long term way. I suspect however, that the rally has a chance to be just real enough for traders to position just long enough for those that sold out of revulsion to begin to question whether they dumped 'THE' bottom.

The market must ultimately prove itself through arduous bottom-making before financially sane people would buy into this as anything more than a trade on hope and the infrastructure 'make-work' pump. NFTRH24 uses 60 minute charts to look at the immediate term and going forward, will continue laying out parameters for the short and long term.

We have positioned for a would-be burst of 'the worst is over' hope by adding some positively correlated sectors that look to have made short term bottoms. Important leading indicators like the gold-silver ratio are as usual, discussed as is the precious metals sector and the gold/dollar relationship. Finally, portfolios are illustrated as is current market stance.

I have gotten really good feedback from subscribers and quite frankly, while not yet having conquered the world, I am very pleased with the progress thus far as the number of subscribers - and retention of same - tells me NFTRH is doing something right. Remember, you can check it out and if you like it, you can easily stay aboard through automatic renewal or cancel the monthly subscription at any time. If you are considering alternative financial and economic research, realize that NFTRH is honestly produced and the result of hard work, with a mandate to do this the right way. In short, I believe in it.

Crude oil & the bull game...

From NFTRH23's snippet A Brief Look at Commodities: 'In what is likely to one day degenerate into a global war for resources and capital, the time has come to begin watching these commodities closely, now that the former commodity bull herd is obsessed with deflation. This is how the markets work my friends.'

By the way, I wrote this a long time ago about deflation and it is so painfully true today:

'..."deflation" has long since become a malignant potential outcome (as opposed to the backbone of progress it had been) due to policy makers' inability to leave well enough alone. The well-spring of productivity has been drained by ever larger government and spending. Not only has productive value been drained, but the spending has continued right off the balance sheet and into mind boggling debt. Thus, a deflationary spiral could only be painful now. The same entities that have told us they will defend us against it are the ones who made it malignant to begin with. I can't help thinking of the Jungian "shadow"; the longer it is denied, [the] more fierce it will ultimately be in exacting revenge for that denial.'

Dialing back to the micro subject of this post, understand two things... 1) Oil is still in the bottoming process. It is a classic looking bottom with a higher low, bullish divergence, a break above resistive moving averages and in the last two days, a healthy looking back test of those averages (EMA 20 and SMA 50). 2) This is A bottom, not necessarily THE bottom.

The United States will likely attempt to devalue its way out of its obligations, with the full support of the public, now that we have all seen the ugly face of deflation. An NFTRH subscriber sent along some information from one of his clients that among other things paralleled Bernanke's (he is a scholar of the Great Depression after all) situation today with that of the Fed during the Great Depression. Hint: Not bearish for gold... and not likely bearish for any precious resource, oil and other commodities included.

Still, dialing yet again back to the micro, we want to ride the waves, and my personal working plan holds that if we are able to rip a hole in the deflationary depression shroud that has so completely settled over the populace, it may only represent a false or temporary economic revival. But then again, with the intensity of this once in a lifetime meltdown and resultant monetary fire hoses spraying out funny munny 24/7, you never know. At some point we are going to get a progression that goes like this: Deflationary depression is all but a given ---> economic micro-managers work overtime to battle this ---> a brief goldilocks period as it looks like our heroic policy makers have saved us ---> increasingly intense inflation issues begin cropping up. Things like oil will surely be right there.

I just can't seem to stay on the micro this morning, can I? On the micro, the chart of oil maintains its healthy bottoming stance. The stock market is bolstered by the fact that no sooner has it produced an impressive three days in a row of upward mobility that the mainstream financial media and its chosen pundits are fretting 'too much too soon' and 'the VIX is still elevated!'. I actually read that last night and it's bullish. That is not to say that markets - including oil - will not grind in here; they probably will. But in the near term, it looks like we could rip a hole in the deflationary death shroud. Some day it will become a long term thing. In three years, don't be asking 'what happened to the deflationary depression (there I go again... I guess that this is just destined to become a macroeconomic article as opposed to the short piece on the status of oil that it originally began life as).

As a final note, I want to give kudos to Adam Hewison at INO.com regarding oil. Check out this video where his MarketClub 'system' generated a sell signal way up near the top and then stubbornly refused to issue a 'buy' until a bottom was built. This allowed him to confendently state something like 'any decline is to be bought' once the buy signal was generated. We then had the classic retest two days ago and rebound yesterday. I just thought it was masterful. Of course, I am one of the stubborn holdouts who insists on doing his own trading with macro views and instinct mixed in there with all the technical stuff. Unlike the precious metals market and miners, my personal record on crude oil is a good arguement for a 'system' like Mr. Hewison's.

Have a great day and let's see what develops. I am looking forward to this weekend's NFTRH.

Bull

I do believe the market is telling us that the USD will fail the [back] test. If today finishes positive, this tells us that Hope '09 may finally be kicking off and the pump is on. How long it will last is another question. I have picked up a couple bull equities in the last couple days in sectors/markets I think can gain a bid in the current environment. More on these in this weekend's NFTRH24.

BTW, a quick note to subscribers: NFTRH will likely be out on Sunday as opposed to the usual Saturday. That is because Saturday morning we have a Karate tournament to go to that my daughters are participating in. It's the coolest thing. At the last one (their first), my younger daughter, who is normally pretty shy, got a 2nd place trophy in sparring. Quite aggressive I must say.

USD backtests breakdown...

Regarding the Mining Journal piece...

This from professional analyst Otto, who received an email update I sent regarding the matter. The original mail to subscribers, copied below is meant more as a highlight to the risks involved in mining and their status as equities in companies, NOT safe gold. I am certainly not advocating panic, as stated. Just to make sure the record is clear. I do not see why we should not be aware of issues like this, especially given the changes at all the highest levels of government.

In any case I think it is good and healthy that we have this discussion, in all its aspects.

Edit (12:08) A great 'last word' on the subject from an NFTRH subscriber:

Gary, I work for a national environmental organization and so spend a lot of time tracking HR 699 and related legislation. Frankly, something has to be done to reform current mining law because it's left - and continues to leave - a legacy of toxic devastation across the West, including in my own home state of New Mexico. But, as an economic realist and investor, I agree with you that this one goes too far. Fear not. While this bill will likely pass the House, largely intact, as it did last year, it's chances of passing the Senate are about as good as Bernie Madoff winning the Nobel Peace Prize. Harry Reid runs the show in the Senate, and his commitment to industrial-scale mining is no secret. Nothing that threatens Nevada-based mining will survive in this bill. There will be change around the edges, especially relating to scatter-shot patenting. Not that you shouldn't be mobilizing your troops. That's democracy at its best. Just letting you know what the reality is on Capitol Hill.

Best, Stephen

gimme a break, gary. They couldn't even push thru the 8% royalty rule last year, how the hell is this law ever going to pass? I mean...seriously. This is Jxx Sxxxxxxx 'scare the sheep' fodder, not NFTRH material.

Edit (11:32) Otto posted his thoughts here. Baahhhhhh.

My response:

No seriously, how do you really feel about it [Otto]?
I am not advocating getting scared. I am just advocating the realization that mining has inherent risks and gold stocks are not gold. I didn't think I had a tin foil hat on there dood. Maybe aluminum though.

********************
Original Mail:

Some subscribers may have already seen the Mining Journal article on a proposed legislation that would basically end mining as we know it in the US, if passed. If nothing else, this highlights the potential risks that owning mining firms in any country carry.

http://www.icmj.com/article.php?opt=1&id=56&keywords=Rahall_Proposes_Bill_to_End_All_Mining_in_the_U.S.

Be aware of the risks at all times.

NFTRH's X, X and X (through potential ownership of California's X) are among the smaller miners or explorers affected. X and X also have interests in the United States. X is predominantly exploring in Canada and Mexico. These are the sorts of distinctions I will be looking for.

I am not proposing panic, but am definitely proposing that investors know where their operations are located and understand that there are risks in the 'new normalcy' no matter where the location. Examples are NFTRH's X (Brazil) and X (Mexico), which certainly carry their own risks as well.

In short, even gold stocks are not gold and hence, they are not safety. They are speculations. Risk has not been the primary reason I do not usually identify NFTRH's most speculative 'little fellers'. The main reason has been their illiquidity and speculative nature. But this makes me even more firm in not highlighting certain operations.

US Dollar

Uncle Buck, after consolidating his unhealthy breakout above the would-be ascending triangle (now defunct as the price never made a 2nd reaction low to the bottom, ascending line and the rise and hold for several days has morphed the pattern into more of a wedge) has dropped back below the breakout line, as expected but as yet without the blow off hysterics that were possible as part of scenario #2.

I should note that if the dollar is forming a rising wedge, it will be a massive one and can still bounce off the support of the area surrounding the 62% fib retrace, ascending bottom line and SMA 200. Then it could resume the arduous task of grinding higher, over time, in a long and painful wedge as the deflationary death grip struggles with fledgling inflationary forces being mainlined into the global system 24/7. This would ultimately be bearish for the dollar, but could underscore many months of grinding agony for deflationists and inflationists alike. In other words, for everybody.

Now, this is just the chartist micro-managing to an extreme degree as scenario #1 (the healthiest for the buck) is eliminated and scenario #2 potentially morphs. For scenario #2 (least healthy for the buck) to regain footing, the dollar must get back above the top line and catch us all off guard with a short term blow off to 92 +/-. Confusing? Yes. But the entire crazy process, with all its twists, turns and implications will be watched weekly in NFTRH.

Two other FOREX notables; Johnny Yen is no longer pals with Uncle Buck. The Yen has gone contrary to the dollar and now it seems to be USD against the world. Point #2? The euro now looks bullish for a potential double bottom, which of course will likely be simply a short term reaction to the decline brought on by this currency's lousy fundamentals (and weakening ECB). But it argues that the USD will at least test the SMA 200 area downside in the not too distant future.

The dollar has broken down and closed below the top line. Another close down there would pretty much seal the deal for a correction as the bearish divergence implies it is due for.

Think we aren't in a new world?

The government is attempting to get its hands into everything and what do they say about everything the government touches? I have no problem with environmental concern, but at the moment we need as many industries as possible operating in a healthy manner, do we not? With things like this and the proposed takeovers of peoples 401k's, one has to wonder about a radical element in Congress supported by a sympathetic President. Oh but wait, they will allow panning for gold. This could be a bonanza for the little guy. Power to the people!

Rahall Proposes Bill to End All Mining in the U.S.
by Scott Harn -- Mining Journal

Nick Rahall, chairman of the House Resources Committee, reintroduced mining reform legislation in the House of Representatives on January 27, 2009. The Congressman has obviously been away from real work for far too long. H.R. 699, the Hardrock Mining and Reclamation Act of 2009, should be labeled H.R. 666 because it appears to have been written by the Devil himself. If it passes as written, it will completely destroy an entire industry.

Here are a few “highlights” from H.R. 699:

• Casual use would be redefined to allow only those activities that do not cause “any disturbance of public lands and resources.” The collection of samples, use of gold pans and non-motorized sluices would be the only activities allowed without a Notice or Plan. Taking a vehicle off-road would also require a Notice or Plan. Any extraction of minerals for sale or use would require a Notice or Plan.
• H.R. 699 would be retroactive. Existing mining that is not already operating under a Notice of Plan would require proof of a valuable discovery to retain a mining claim, and those operating under a Notice or Plan would have ten years to bring their operation under compliance with the new regulations.
• The patenting of mining claims, which has been suspended by yearly legislation since 1994, would be permanently discontinued.
• The federal government would be entitled to an 8 percent gross royalty for all locatable minerals for any new mining operation. Even if the miner is unable to make a reasonable profit at current commodity prices, he would have to give 8 percent to the federal government. Existing operations at the time the bill is passed would be subject to a 4 percent gross royalty, and any federal lands added to the operation after enactment of the bill would be subject to the 8 percent royalty.
• The reporting requirements are absurd. Anyone transporting a locatable mineral, concentrate or product derived from a locatable mineral shall carry documentation declaring the amount, origin and intended destination. Miners shall create and maintain reports relating to the quantity, quality, composition, volume, weight and assay value of all minerals extracted from a mining claim. Failure to produce these reports when requested by any officer or employee designated by the federal government may result in involuntary forfeiture of the mining claim.
• The federal government would be authorized to conduct audits of all claim holders, operators, transporters, purchasers, processors, or other persons directly or indirectly involved in the production or sales of locatable minerals.
• Mining claim maintenance fees would be raised to $150 per claim, and would be adjusted at least every five years based on the Consumer Price Index. The location fee would be increased to $50 per claim.
• Tens of millions of acres would be added to existing areas that are already off-limits to mining, including Wilderness Study Areas; areas of critical environmental concern; areas designated for inclusion in the National Wild and Scenic Rivers System; areas designated for potential addition, or eligible for inclusion; and any area identified in the set of inventoried roadless maps contained in the Forest Service Roadless Area Conservation Final Environmental Impact Statement, Volume 2, dated November 2000.
• Any State, political subdivision of a State, or Indian tribe could petition the Secretary of Interior to withdraw areas based on drinking water supplies, wildlife habitat, cultural or historic resources, scenic vistas or other similar values. Indian tribes could also petition for the withdrawal of areas for religious or cultural value.
• The bill would give the Secretary the authority to deny any operation that may cause undue degradation.
• To get an approved Plan, the operator would have to be able to show that no treatment of discharged water will be necessary 10 years after mine closure, and any Plan could be changed or halted if additional information about scientific, cultural or biological resources becomes available.
• The miner would have to submit an application to the federal government to request any cessation of operations greater than 180 days. A miner would have to obtain consent of the federal government to transfer ownership of any operation, and the transfer would require a fee to be paid to cover the government’s administrative costs.
• Financial assurance (bonding) would be required for any operation—presumably this would also apply to suction gold dredging—and the amount would be evaluated and adjusted every 3 years. Where water treatment is necessary, financial assurance funds would not be released until there is 5 full years where treatment is not necessary.
• States would be allowed to implement regulations that exceed the regulations in this bill.
• The federal government would be allowed to collect administrative fees to cover expenses incurred while regulating mining operations.
• Mining operations would be subjected to a minimum of one complete inspection per year.
• The bill would provide environmental lawyers an unending source of income. Any citizen would be allowed to file a civil lawsuit against the miner or the federal government to force compliance with the mining laws after giving sixty days written notice. The court would be allowed to award the costs of litigation, including attorney and witness fees, as the court deems appropriate.
• Any miner who fails to comply with any portion of a permit would be subjected to a fine of $25,000 per day.
• Any citizen who believes they are being adversely affected by a mining operation could request an inspection. If the Secretary agrees that an inspection is warranted, the complainant would be allowed to join in the inspection. Complainants could remain anonymous if desired.
• Any person who engages in mineral activities without the required permit, if convicted, would be punished by a fine of not less than $5,000 per day or by imprisonment for up to 3 years or both.
• Designated employees of the Department of Interior and Department of Agriculture would be given full law enforcement powers over permitted miners, including the power to subpoena miners to force attendance, testimony, and disclosure of all paperwork, and warrantless searches of vehicles and buildings expected to contain locatable minerals or products derived from them would be allowed.
• The Secretary would be forced to prevent mineral activities that could have an adverse impact on the resources and values of National Conservation System Units.

H.R. 699 would completely wipe out all small-scale mining in the United States. Small-scale miners do not have the time and resources to handle the fees, lawsuits and reporting requirements.

Large-scale mining would be also phased out as mining companies would be unable to deal with the unattainable requirements of these regulations, citizen lawsuits, thin profit margins, reporting requirements, and the uncertainty that comes with the federal government’s new authority to halt a mining operation when “undue degradation” is occurring or a scientific, biological or cultural resource is discovered. Many areas that may have potential would be inaccessible. No one in their right mind would provide funding for exploration or operations under the proposed conditions.

The most likely outcome would be that the environment would suffer as mining companies move all operations to countries with little or no regulations.

Like the current situation with oil, Americans would be forced to obtain natural resources overseas, sending money to countries that don’t like Americans and would love to control our prices.

The legislation is co-sponsored by Reps. George Miller (D-CA), Henry Waxman (D-CA), Ed Markey (D-MA), Howard Berman (D-CA), Raúl Grijalva (D-AZ), Rush Holt (D-NJ), Jim Costa (D-CA), Donna Christensen (D-VI), Pete Stark (D-CA), Dale Kildee (D-MI), Maurice Hinchey (D-NY), Earl Blumenauer (D-OR), Patrick Kennedy (D-RI), Ron Kind (D-WI), Lois Capps (D-CA), Adam Schiff (D-CA), Mike Honda (D-CA), John Salazar (D-CO), Anna Eshoo (D-CA), Niki Tsongas (D-MA), and Gerry Connolly (D-VA).

The legislators who have sponsored this bill should be labeled as un-American, voted out of office, and sent packing for attempting to decimate one of the few industries that has managed to stay afloat and provide an honest paycheck during these tough economic times.

Please take a minute to contact your Representative and Senator to let them know your stance on H.R. 699. Better yet, why not start a recall effort if one of the bill’s sponsors is in your area, or stop by their local office for a bigger impact?

Contact information for each of the bill sponsors:

• Nick Rahall (D-WV) phone 202 225-3452
• George Miller (D-CA) phone 202 225-2095
• Henry Waxman (D-CA) phone 202 225-3976
• Ed Markey (D-MA) phone 202 225-2836
• Howard Berman (D-CA) phone 202 225-4695
• Raúl Grijalva (D-AZ) phone 202 225-2435
• Rush Holt (D-NJ) phone 202 225-5801
• Jim Costa (D-CA) phone 202 225-3341
• Donna Christensen (D-VI) phone 202 225-1790
• Dale Kildee (D-MI) phone 202 225-3611
• Maurice Hinchey (D-NY) phone 202 225-6335
• Earl Blumenauer (D-OR) phone 202 225-4811
• Patrick Kennedy (D-RI) phone 202 225-4911
• Ron Kind (D-WI) phone 202 225-5506
• Lois Capps (D-CA) phone 202 225-3601
• Adam Schiff (D-CA) phone 202 225-4176
• Mike Honda (D-CA) phone 202 225-2631
• John Salazar (D-CO) phone 202 225-4761
• Anna Eshoo (D-CA) phone 202 225-8104
• Niki Tsongas (D-MA) phone 202 225-3411
• Gerry Connolly (D-VA) phone 202 225-1492

HUI & gold ratios

The main points here are:

a) The HUI remains in a downtrend, possibly within a bullish wedge that may be forming down to support.

b) The miners are doing a good job of following one of their cost input ratios, gold-oil (GOR). Gold-GYX is similar.

It used to be a red flag watching the GOR decline and gold stocks rise with the commodity bubble. I like that now the HUI is doing the 'right' thing and tracking its cost ratios.

I have also thrown the TLT in here because treasury bonds, and thus long term interest rates have been stuck in a lateral consolidation, the eventual breakout from which will have major implications on investment stances far and wide.

Tomorrow morning, a look at Uncle Buck... if I don't forget. :-)

U three Oh 8

While waiting for the gold sector to finish bleeding the weaklings, as noted I have begun looking into commodities. I bought one little uranium company that has been flying a similar flag to this one here on DNN, which I do not own and probably won't. Variations of this flag are showing up across the sector and CCJ, the uranium big daddy looks to be hammering out a double bottom. NFTRH also holds a hybrid gold and uranium exploration stock that is way cashed up and technically continues to form what I think is a long, rounding bottom.

Again, commodities are probably not turning up here for real, because I do not believe that the economy is turning up for real any time soon. But the hope trade could finally be getting off the ground led by the China reflation story and helped out by the happy talking Citigroup CEO and Mr. 'the President will do whatever is necessary to fix the economy' Geithner. I am watching energy and base metals, and uranium is sort of a hybrid of those two sectors. Here is the DNN flag for your review.

HUI current status

The HUI needs to make a higher high from the January low or the downside potential shifts to the 220 area.

The weekly chart gives a pretty clear view of what looks to be pretty strong lateral support. Of course, this support looked strong in October too. But that was an environment when everything was being blown out, even the gold miners, whose fundamentals were in the nascent stages of improving.

Commodities

Here is a quick look at commodities, many of which stand to gain, at least temporarily, from global inflation policy and a release of hopeful spirit from its deflationary shackles.

Now, will that release come today, compliments of Citigroup's pumping CEO or the reassuring Geithner? Markets usually do not do anything sustainable in response to media pumping. But either way, things like oil and copper are making good looking potential bottoms.

This is another extract from last weekend's NFTRH23.

Gold downside targets

These have all been shown before, but for people worried about the downside for gold, the targets are roughly 900, 850 and 650. As I have written, I don't think gold will go much below 850 because I do not believe the dollar has sustainability to the upside now that Scenario #1 has been eliminated.

Regardless of how well the ship of fools is able to spin a global growth story - and I added a uranium company yesterday in another tiny step toward being bullish the commodities - we are in a mega counter-cycle. Gold, which has been flocked to by the frightened hordes, may decline with the US dollar if/when hope finally gets a bid. See this excellent look at gold sentiment by Steve Saville. With Cramer aboard and Bullish sentiment at an extreme, well, you know the drill.

So yes, gold may not hold the first level of 900, but it is in a legitimate bull market - maybe the only one out there. The usual blow horns will sound about manipulation this and that, but in reality gold currently has way too many unhealthy holders. Gold is not about price and the value it embodies is not affected by short term emotional markets.

Here are the daily and weekly charts, illustrating the downside targets. We are working 900 now. The lower targets are no sure things, but at least readers will not be surprised if they come about. The weekly shows the potential ABC correction that is buzzing all around the internet, including the chart billing itself 'the most frightening gold chart in the world' with its target under 400.

I have also added a weekly gold to euro ratio (GER) chart. I have little doubt things are going to get worse before they better in the global economy and in global markets. What we are dealing with now are sentiment and technical extremes. GER is technically extended and argues that people buying gold now with euros should get ready for a potentially big downside reaction while USD gold buyers should be called into action sooner.

Blog feed back to normal

A quick note to let feed subscribers know that I fooled around with Google ads for feeds, but upon seeing how it looked, I just dumped it. So, from here on your feed will go back to being nice and neat with NO ads. It was pretty bogus seeing those sensationalized things competing with my beautiful charts. :-) Edit (7:01) At least I think it will be back to normal shortly. Ads are still showing up but maybe they are disembodied FrankenAds out there in cyber space not yet realizing they are deactivated. Edit (3/10 @ 7:25) Okay, I spent too much time on this. Either the feed ads are going to go away, be much less intrusive or stay there and taunt us. But I must move on now.

NFTRH23 out now

Edit (3/9 @ 8:41) Excerpted from NFTRH23: Sociocide

NFTRH23 was sent out yesterday afternoon and includes a look at an insane society versus a sane one, as illustrated in Erich Fromm's book, 'The Sane Society' (1955). In fact, we take a look at some of the components of a society systematically going about killing itself. Fun stuff it is not.

Well, NFTRH's imperative is to understand these dynamics, financially survive them and preferably, harsh as it sounds, capitalize on them. In that regard, NFTRH23 transitions right into the status of the broad market and a look at the indicators that have kept us well out of trouble since the market triggered our 'early warning' indicators by losing the SMA 50 and EMA 20 back in January.

But certain themes are beginning to emerge and I look forward to fleshing these themes out, especially in certain commodities. NFTRH23 begins the process ever so cautiously. Then of course there is the gold sector which is looked at as always from a technical standpoint, without the emotion and cacophony often present in this sector.

Finally, I want to share this email from a subscriber. As I have noted before, one of the best things about starting NFTRH has been the opportunity to interact with some really smart and thoughtful people.

This gentleman, from the very beginning back in October made it clear in no uncertain terms that NFTRH was being evaluated with a critical nature as in [paraphrasing] "if I am going to continue with my subscription you will need to show me something". It is really just the word 'something' that is paraphrased and I can't remember what his actual words were, but I am very happy that here it is, March 8th and he is not only still aboard, he often shares his thoughts.

Hey Gary,

Great post [NFTRH] this week!

The last few days I have been trying to figure things out and have come to a few realizations.

1) I know a little but understand next to nothing about investing ( but somehow managed to do OK)

2) I can only speculate, but don't have a clue why the people in power do what they do

3) My only "chance" is to listen to various people who earn my trust and respect

4) I have been extremely lucky to have had the financial success I had to date and to have "dodged many bullets" ( I had no less than 3 opportunities with 3 different asset managers to invest with madoff alone!)

5) My primary objective is to preserve the worth of what I have.

The last few years have exposed the fact that most people in position of power didn't even have

the minimal knowledge in their area of responsibility, and the few with varying degrees of knowledge didn't have the wisdom to put that knowledge to work.

Thanks again for giving your well thought out and written perspectives!

Bob

Daily Show - CNBC, hilarious

I finally got around to looking at the Daily Show send up of CNBC and just cracked up. I am probably the last person in the financial world to see this and this is probably the last blog to put it up. But it is so funny, I just have to post it.

Laughter, what wonderful therapy.

USD at critical support

If the dollar loses 88, then scenario #2 will have ended up being much less spectacular than envisioned. But it got high enough to negate the bullish ascending triangle (#1). This potentially reduces the bearishness to the downside again, IF the dollar breaks down here. That is because a blow off to the low 90's and reversal would have really extended sentiment and technicals against the buck for the intermediate term.

Let's see how it plays out. It is very interesting to see the continued correlation between the dollar and gold (and silver) as the bi-polar herd whipsaws itself all over the place.

SPX daily companion to previous post

The venerable S&P 500 is sinking like a lead balloon. The previous post illustrated the big picture for the SPX as it relates to the USD. This market has the potential to drop down to the target of 660 today and it has the potential to make a bottom that will last for a while and even generate a good rally; a total suck in rally, but at this point the hopers and hand holders in the financial services industry will take anything that will allow them to sooth say their clients for a while.

This has been psychologically draining for everybody and relief has to come sooner or later... doesn't it? Well, no, it does not. But I think it will. The daily chart shows bullish divergence in tandem with the USD bearish divergence shown previously.

This entire mess makes me sad personally because if you have been reading for a few years, you know I have been one of those doom and gloomers warning about a fake (inflation-fueled, see dow or spx-gold ratio) bull market, about misperceptions in the dot.com, I mean commodity trade and generally going on about how people have subscribed too heavily to convention - the kind of convention that a 20 year bull market in paper can breed - with the troubadours on Wall Street always at the ready to reinforce perceptions.

Regardless, forward we go, making the best of it.

Scenario #2 as applied to stock market

It is simple really, America and indeed a functional global economy are all done unless this mess finds support at the 62% fib of the entire previous bull from 1981. We will not come back from a significant further decline.

I think we will rally soon and I think we will rally hard. Not coincidentally, it should be in tandem with Scenario #2's coming top and hard decline in Uncle Buck.

Any market rally however, no matter how strong and how convincing, is a deep bear market one.

Scenario #1 is cooked. That is because #1 was very bullish for the dollar as long as it remained in the ascending triangle and declined for a reaction low near the daily SMA 200. That is all negated. Scenario #3 would simply be that Scenario #2 is wrong and the dollar will not top out as projected. The overwhelming odds however argue there will be no such thing as scenario #3.

...and they're OFF!

Here come the deflation, recession, depression blow horns:

US Stocks Retreat as China Signals No Additional Stimulus - Bloomberg

U.S. stocks fell, extending the fourth straight weekly slump in the Standard & Poor’s 500 Index, as China quelled speculation the government will add to its stimulus plan and Goldman Sachs Group Inc. said the global recession is worsening.

General Motors Corp. retreated 15 percent after its auditor said there’s doubt the automaker will survive. JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. dropped more than 4.3 percent on concern the biggest U.S. banks by market value will have their credit ratings cut. The market extended its decline as Goldman Sachs forecast that the world economy will shrink 0.6 percent this year.

And while we're at it, here are the dollar bullish blow horns:

Trichet Indicates ECB May Cut Rates Further in Next Months - Bloomberg

European Central Bank President Jean-Claude Trichet indicated policy makers will reduce their benchmark interest rate further to combat a deepening recession after cutting it to a record low of 1.5 percent today.

“We didn’t decide ex-ante that this was the lowest point that we could attain,” Trichet said during a press conference in Frankfurt today after the ECB lowered its main rate by half a point. “Further decisions will depend on the judgment of the governing council discussion.”

The economy of the 16 euro nations is shrinking faster than the ECB expected just three months ago as the global slowdown curbs export demand and companies lay off workers. Trichet said today the central bank has cut its economic forecasts again and expects inflation to stay “well below” its 2 percent ceiling this year and next.

USD Scenario #2 locks and loads and it is being mapped out every step of the way in NFTRH. It appears that the next round of readily apparent inflation will come sooner, rather than later. Counter Intuitive, given the strong dollar? I think not.

And speaking of gold stocks...

HUI should not make a lower close than the January drop to the SMA 50. That would be unhealthy technically.

Edit (1:47) I just got the 2nd of two (so far) bearish subscriber emails today. Hey guys, I hope you don't take offense and your gold bearish stuff may win out. But I am getting a lot of 'bearish ABC' stuff - in fact now that I think of it, another subscriber sent one on Monday. All with a bearish ABC in gold. A couple point to a bearish 600's and the latest one, billing itself as 'the most frightening gold chart in the world' is talking about under 400. All I know is that this stuff crops up periodically in the gold sector, conveniently when the CoTs are bearish (as I have been pointing out for weeks in NFTRH). Make of it what you will. But fear always rides shotgun in the crazy gold bug sector.

And then there is old lumpy

For an asset that doesn't do anything - sitting there like a lump on a log, not paying risk premiums and really just remaining stable while the casino burns all around it, gold sure does stir up some anxiety among some of its supposed true believers. Why is that?

As you know, one of our potential targets is around 650. But the word 'potential' is what it is because it means something. It means, well, potential. More likely however is that the 850 area of weekly EMA 75 (monthly EMA 18) will hold. The difference would probably mean I would need to back off on my gold miner stance, but again, where is 650 Jerry... show me 650!!

Okay, you can go back to sleep now old lumpy. Sorry for the interruption.

Scenario #2 illustrated

Once again, here is the weekly view of #2, this time with some added parallels to 2005. Just a guy twittling a chart yeh, but I am getting the distinct flavor of fear cropping up in the gold bug community and we know the slap happy stock market bulls think the world is ending.

Again if... and it is not yet conclusive, but if #2 is preparing to bust a move, we should expect a lot of talk about deflation to resume in the very short term.

I for one will be fading it. You are welcome to do whatever you do in emotional and scary markets.

'Scenario #2' steps forward

'HEAD FOR THE HILLS... THE DOLLAR IS BREAKING OUT!!!' will blare the blow horns. Do you know the implications of this??? DO you?!? 'Deflationary depression... see we told you'.

Well, hold on just a minute. There may be another interpretation amidst the uproar. That interpretation would be NFTRH's 'Scenario #2' where we would actually become much less bullish the dollar upon an upside break out of this incomplete ascending triangle. Here is the breakdown, again for your review. Check the weekly chart and have a look at 'C'. That could about do it for any USD bullishness for a good, long while. Scenario #2 is not yet definitive, but it is stepping forward.

If the dollar does continue with the daily breakout shown in this chart, with bearish divergence, stock markets in the tank, and frightened investors wondering just how bad it can get, the deflationary depression angle should get a lot of air play. I believe this would be the 'gateway' to the next round of inflation, AKA the FINAL deflation impulse. This is the working theme.

Now, in our financial markets, long micro-managed by people in high places, a new strain of moral hazard has been created whereby, with each panic and each reaction to panic, moral hazard replicates itself, builds another layer and renders itself all but impervious to plain old inflationary policy. This is moral hazard on steroids and it is being applied 24/7 as official policy.

So... the next inflation cycle is not going to be very normal. You know, normal as in the kind of cycle where oil goes to 140 and the majority of people believe the official reasoning that it is the doing of speculators or the market tout of the dreaded peak oil. This, as with the previous inflation cycle, will be monetary. The difference is that this time, more people will understand it for what it is. Which of course means gold will move first and it will move most.

What is likely to come from the inflation cycle currently being promoted is the dollar's eventual decline in the FOREX casino and some really funky stuff going on in the US Treasury market. Make or break time is upcoming and due to wrong perceptions, most people will end up as the always necessary counter-party. It is just the way it works.

Let the blow horns sound.

Let's review...

Yes, NFTRH was guardedly bullish coming out of November and into the new year. But if you know anything about me, you know I am not a one-way anything. I am open to revision and in fact, I depend on the ability to revise and refine using many data points in the macro picture, a little gut instinct, and most importantly, technical and sentiment indicators.

Back in early January, NFTRH went to full caution mode due to the loss of the moving averages (an early warning system) noted on this chart. But it did so in conjunction with other bearish indicators like the 20 day exponential moving average on the CBOE put/call ratio and eventually an increasingly bullish looking (bearish for markets) gold-silver ratio, among other things. The work was in progress, and indeed it did progress. Right to where we are today. This was despite the relative bullishness of some analysts that I supremely respect. TA tells you what you may not want to hear.

It was not just the broad market. NFTRH has been laying out the increasing risks in the precious metals for weeks now. NFTRH20, now available for free review here, stated back in mid February:

"The gold-silver ratio is running out of room to the downside and this, combined with the bearish EMA 20 on the CBOE Put/Call Ratio and the VIX in a large falling wedge (see chart later in the report in 'Wrap Up') says the shelf life of any broad market rally and potentially the current rally in gold miners , is limited. It also implies that if gold is going to get hit in the next round of deflationary liquidation, silver is going to get blown up [NFTRH shorted silver via ZSL].

Again, the rough draft holds that gold may top out in the coming weeks amid much gold bug eurphoria, long term treasuries will turn back up (rates down), the VIX will break the wedge to the upside, stock markets will make new, and significant, lows and gold miners will make a significantly higher low, perhaps in the 250-275 range on HUI."

NFTRH strives to make sense of things in an ongoing manner, not to reinforce its perceptions or viewpoint. In other words, I am not afraid to be wrong. Any market stance will eventually be wrong. What I am afraid of is to have my subscribers on the wrong side of the markets at any given time.

More funny munny for AIG...

Government unveils revamped aid package to AIG

Some readers may know that I am the owner of a physical 'brick and mortar' business, as well as the web-based financial market enterprise, biiwii.com. Six years ago I was simply a business person trying to use all his instincts to navigate a company through what had been for many years rough going for American manufacturers. Hence our little niche within the medical equipment industry, which is more stable than say, the semiconductors. This has worked out well; we stay on the cutting edge of automation and productivity and, as a reward, we get to survive, despite our location in a country that seems intent on eating the rest of its productive seed corn.

Enter AIG, giant emblem of excess and downright immoral greed. One of our finest financial institutions, charged with insuring peoples' futures. In 2004, not coincidentally the year I was activated to start biiwii.com, I was in the midst of a furious effort to pay off my company's capital equipment debt due to the unsustainable and growing toxins built into the financial system, including those at AIG. My company had a large (and non-vital) insurance policy with AIG that was tying up significant principle dollars that I could have used to take a big chunk out of the company's debt.

I made the decision to pull out the overwhelming majority of this principle to service debt, while leaving enough intact to give the policy several years of life - a sort of FrankenPolicy - in case it turned out that I was not what I thought I was, brutally honest about the financial system, and was instead a card carrying member of the lunatic fringe.

Okay, we all must stand by our decisions and this was a good one, regardless of whether or not all the funny government munny actually acts to save this awful and pathetic mega corporation. But I had to fight the financial adviser who put us into this thing, tooth and nail to get my company's principle out of AIG's clutches. After all, he was on the side of convention and normalcy in 2004. I was crazy. That was the old world and that was the way it used to be. Not any more.

I eventually paid off every penny of the company's debt (before taking on some new debt aimed at productivity and on very favorable terms). But the story here is about all the people, all the companies that are either a) going to be blown up when AIG ultimately fails or b) going to get a free ride when this mess is eventually swept under the rug through the creation of infinite government dollars (and associated debt) and the illusion that economies can be micro managed successfully by bureaucrats, lurches forward.

Even if 'they' are able to keep the illusion intact for a while, I would prefer to have done things the honest way and not have any markers in with today's financial immorality, which will one day come to be seen as the final nail in the coffin of future generations' ability to enjoy the relative prosperity that we, and those who came before us, were able to enjoy. The USA is being brought back into the pack. It feels like the world is ending, but in reality it is just changing. A US centric viewpoint will no longer apply.

You cannot fight fire with fire, credit bubbles are not cured by going further into debt and more inflationary policy cannot do anything but amplify the terrible effects of inflationary policy come before. The Obama administration is carrying forward the illusion that was kicked off by the Bush administration. This will end badly, but then again that is what I was saying back in 2004.

NFTRH22 out now

Here is a short excerpt from NFTRH22, which was mailed to subscribers Saturday afternoon: USD Scenarios 1&2

The USD dynamic provides us with a starting point; an anchor for our orientation. What is so interesting about the potential outcomes for the dollar is how different the actions we need to take in response are likely to be. Ultimately, these actions (and non actions) could be as different as deflation is from hyper-inflation.

NFTRH22 also looks at the gold-silver ratio and its near term implications and relation to the VIX, the dollar and a possible 'crash upon a crash' scenario. Of course, the only sector on which I am very bullish - the gold sector - is looked at in great detail, including its own risks. Several gold stocks are charted with 'no brainer' buy levels and portfolio status is illustrated.

Insert sales pitch here: Give NFTRH a try. All you have to lose is $26 for a month if you think it stinks. The question is, what might you have to gain?