As of 11/14/2008, the CPI adjusted 2000 dollar is worth 76.23¢, and the CPI + lies adjusted dollar is worth 50.74¢. The world purchasing power value has dropped by 10-20% more (based on other measures of dollar value), for a drop of 45-65% (otherwise known as inflation) since 2000, and more since 2002 when the dollar value peaked.
Our comments & predictions...
... as things change and develop
Grey, and getting darker...12/28/2008
The situations in Gaza & Pakistan take another turn for the worse, and the precious metals respond as the protection items that they are. Platinum has made a huge $38 move as we write.
Cattle, corn & soybean longs also look good on any decent reaction too.
Happy Holidays to all!12/21/2008
Light trading week, its unlikely we'll do any trading.
Updated gold price targets, per Jim Sinclair's initial algorithm (from our miscellaneous page)
Thanks to all the new visitors this year, we're glad to have been of help and are also pleased about the almost 300% growth rate too.
We're back to a short term bullish bias on US stock markets, and precious metal miners too. 10:56 PM PT - put on a tiny long S&P position with a fairly wide stop.
Per the Fed's H4.1 report, they have 11,041 tonnes of gold which is carried at a value of $42.22/oz. Doing the math and assuming a gold price of $1,000 per ounce, its value would be about $350 billion - for what its worth.
Update 12/15/2008 - quite a jump in the last 5 months in the TIC balance from Caribbean banks, an add of over $110 billion. Added gold & silver longs, tight stops.
Update 12/16/2008 - 'Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.'
Added to S&P long position (duh).
Update 12/17/2008 - 7:41 AM PST, stopped out of gold and half of silver longs added Monday at a profit. Quad witching tomorrow... tightened all remaining stops. 11:56 PM PST, exited S&P longs via stops.
Monetization officially starts...12/7/2008
The Fed's first POMO (permanent open market operation) in many months, with one minor exception, occured last Friday thereby sending an unquestionable message about inflation ahead. We're still slightly biased towards the long side on the S&P 500, and looking for entry points.
Update 12/9/2008 - Three new charts Monetary & fiscal stat comparisons, 1929 and now
Update 12/11/2008 - we expect tomorrow and probably Monday to be down days. Still long gold and added a bit - short term target $853 basis US spot.
About the same...11/29/2008
Structural Changes in Banking
An exercise and theory showing deflation in 'total money supply'.
For what its worth, if you're in the market for web site hosting services, one business to positively avoid is Bluehost.com in Orem Utah. Do not use Bluehost,com for web site hosting - see iTulip's bad experiences with Bluehost.com to see what we're talking about.
We're still slightly biased towards the long side on the S&P 500, and are looking at either the 5th or 8th as an ideal turn or change of momentum date.
Update 11/30/2008 - unexpected drop and momentum reversal this morning, we're again on the side.
A possible shorter term head & shoulders formation is completing in the VIX volatility index, and our slight bias is on the long side for this week for both the US stock market and precious metals, although we remain skittish on gold due to the possibility of ECB paper gold manipulation/control. An additional observation - the long term support trend line on oil is in the $34-43 area. And one last note - this week includes the first notice day for deliveries on COMEX.
Deflation, an alternate look
What banks, academics, the media and politicians don't tell you about money (truly excellent, but quite long)
Update 11/26/2008 - Happy Thanksgiving, and may you completely forget about the markets and world and have a wonderful time with family & friends.
Update 11/28/2008 - A thought on when the official recession might end
And from the other side: Gold Standard Does Not Always Bring Credibility
We've taken profits on another 20% of our inflation hedges, and are now about 40% unhedged.
Momentum still low, volatility still high...11/16/2008
The G20 meeting didn't apparently produce much except optimistic press releases... and that makes our contrary opinion spidey sense tingle quite a bit. Our hunch is that a lot more happened than is apparent or public in the currency devaluation area... and no, we have no inside data. We're still looking for another ECB sale to push gold down, especially if it breaks above $800 or $850, or also to worry those looking at taking delivery in Dec '08 COMEX contracts...
Only a small bearish bias on next week's US stock markets, while being wary of TIO activity and options expiration.
Update 11/21/2008 - We're in the range for a probable bounce between today and the middle of next week. 5:58 AM PT - added to gold long position. 10:07 AM PT, we will be taking profits on most positions before the close.
We haven't been doing many trades lately due to the lack of momentum - choppy and dangerous markets across the board. Our bias has also changed to the short side in US stock markets for the next week, perhaps two weeks - "ideal" top on the 11th although it could drag on until the 14th. We won't trade without a trend break, and not being in a trade is an actual position too.
New very long term chart of M3, credit and all government debt
eBay approx. PM prices, updated daily - a forming 'black' market?
Update 11/12/2008 - A partial answer for those thinking that monetary base is either inflationary or deflationary - note that the definition and composition of it changed in 1984.
Update 11/13/2008 - Saudi Arabia buys $3.5bn of gold in two weeks
Highly recommended, even though we don't see eye to eye on Austrian economics: Pater Tenebrarum's Blog on the Economy and Markets. Added to our links page a while back too.
Update 11/14/2008 - no TIOs all week, a very unusual occurrence.
GATA - Gold and silver market manipulation update
Choppy & still volatile...11/2/2008
Still holding TBond short. Will be watching for S&P 500 long opportunities again. Down week expected in gold, but willing to be corrected by the market.
Good thoughts & view: If we only had a financial system...
Getting the IMF’s groove back
Update 11/3/2008 - Historically, Democratic administrations have higher performing stock markets.
Update 11/4/2008 - long S&P, probably just for the day due to general market volatility. Stopped out of TBond shorts at a profit. Closed S&P longs at a profit.
Top 50 CDS holders by gross notional total (from DTCC data)
We're still contrary and looking for a temporary US stock market tradeable bottom, and also keeping a very close eye on anything about the G-20 "Bretton Woods III" meetings. Added very slightly to our gold long today, based on TOCOM short composition & trends (GS is net long again, for one), and the UDSDX having hit a Fib 76.4% target. Still watching for a good entry point on a 10 year TBond short, but suspect it won't be a trade that will last over a week.
Update 10/27/2008 - duh...
Update 10/28/2008 - 4:02 PM PT, added more gold longs and a tiny TBond short. May add a USDX short and another S&P or new Nikkei long... 11:07 PM PT, tightened stop on new gold positions to above entry point, added S&P long around 930 with wide stop below 900.
Update 10/29/2008 - 8:01 AM PT, exited last night's new S&P longs at a small profit, prefer not to have a position when FOMC results are published. Moved gold long stops up to lock in profit. 9:06 AM PT, unusually low TIO accept rate - $26 billion submit, $2.2 billion accept on a 4 day operation - 1.25% rate. This is not bullish. 10:04 AM PT, stopped out of 1/2 our gold long position from yesterday afternoon. USDX up trend not broken in our opinion - yet. 12:11 PM PT, back in with S&P longs... 12:51 PM PT, and stopped out with a small profit.
Update 10/30/2008 - 9:49 AM PT, stopped out of remainder of gold longs from 26th & 28th. Tightened short TBond stop. On the side S&P & USDX wise, risk/reward too high.
(space intentionally left blank again)...10/19/2008
One thing we haven't seen or heard anyone mention so far is the SFP (Supplememntal Financing Program) financing consequences. One month ago it didn't exist and the current Fed "loans" now total about $600 billion. The Treasury can only delay paying the bills for running the government for so long... and not many options are left before straight monetizing of US debt, which is likely to be quite inflationary.
ECB's Nowotny Sees Global `Tri-Polar' Currency System Evolving - quite the possibilities being run up the flagpole...
We're still lightly biased to an up week in US & many world stock markets. $64.75 TIO pool balance minimum through Wednesday. Still watching for a good entry point on a 10 year TBond short.
Update 10/22/2008 - added a tiny silver long.
AlertThe real story on interbank loans, data directly from the Fed
Same data, but long term
(late 10/10 - although we may change our minds based on further study or weekend events, we're over 50% on at least a temporary bottom in US stock markets being in. Note that it takes over 70% for us to act.)
DJIA, bear market sizes since 1900
S&P 500, bear market sizes since 1900 (Shiller data prior to 1950)
6:00 PM PT - Dow up over 250, S&P 500 up over 30 in the futures market. We have a tiny long S&P position with a broad stop. 10:00 AM PT - our metals positions are back to fully hedged. 2:25 PM PT - considering initial 10 year TBond short.
Update 10/14/2008 - lightened up on S&P long position.
Update 10/15/2008 - 7:16 AM PT, stopped out of all but the original tiny S&P long position with good profits. 12:29 PM PT, back on the side in the S&P.
Update 10/16/2008 - 3 day $40 billion TIO today, fully subscribed, interest rate at just over 1/4 of 1%. SFP balance now $500 billion, will be $600 billion next Monday, $630 billion on Wednesday. The Treasury's Magical Mystery Money Bus has it afterburners full on.
The ball seems to have been passed to Europe, at least for a short time. Not a pretty sight last week in the US, especially the negative market reaction to the passage of the bailout. The tentative message being sent seems to be "not enough", sad to say.
We're still officially mostly on the side and given the increasing emotionalism of the country and world, we have elected not to post any "politically incorrect" trades for a while, whether we do them or not. We did jump from the 1974-75 track to the 2001-2 track on our S&P 500 chart as of a couple of weeks ago, and we hope some have been watching and were able to take advantage of it.
The gap between paper and physical metal prices continues, and seems to be widening. Our crisis prediction model's early warning feature has also fired (the shorter term moving average). M3 has reversed trend dramatically, going from a 13% annual change rate back up to about 17% last week (about $280 billion up in one week), and the M3 data includes nothing from the bailout yet.
Our extremely rough estimate of money lost in credit & derivatives so far in the US since last August is about $3.6 trillion, and our Fed Total Money continues parabolic and at an all time high by far. The total adds to the Fed only portion of FTM since last August is about $1.3 trillion and about $2.3 trillion in total. In other words, the "not enough" message seems to be true... but that $3.6 trillion loss so far is only a best guess and also does include probable over reactions from the market. Note that our best guess on the eventual total US credit & derivatives loss is $5-7 trillion, and that we believe that the US share of the total world wide derivatives loss is 30-40%.
One last item - we expect a Fed Funds rate cut this week, perhaps as much as 75 or 100 points.
Update 10/7/2008 - CNBC airs prediction of default in paper gold. Hat tip to GATA. Our take - a definite possibility... and all it means is that the gold futures market will switch to settling in cash instead of metals, like most other futures contracts do already and as expected... and as Jim Sinclair has noted many times over the years, it will be a "religious experience" for the shorts. Minor update - GS is only lightly short gold on the TOCOM. Another warning sign: our crisis prediction chart is showing a very similar pattern to what it showed pre LTCM and pre Asian crisis in the 1990's. Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut
Update 10/8/2008 - Paulson to do G7 press briefing at 3PM EST, reversal possibility? Hat tip
Update 10/10/2008 - only tiny position left (1 long gold). Lightened up for an expected very unusual weekend - we believe having extra cash on hand is wise, just in case, and no harm done if nothing unusual happens.
... in the sense of a football game last minute desperation pass. We don't pretend to know which way things will fall or skyrocket or even do almost nothing this coming week (as of 2:30 PM PT - USDX up 36, gold up $3, silver up .14), and are still mostly on the side in our trading accounts. 3:40 PM PT - USDX up 37, gold down $7, silver down .21, Dow down 9... seems under "control"... 6:30 PM PT - USDX up over 50, gold down $5, silver down .18, Dow up 30.
Update 9/29/2008 - TIO auction results, bad. A $30 billion 1 day TIO auction only got $2 billion accepted, and with an interest rate of about .5%. Long gold. 8:41 PM PT - GS is now net long gold on the TOCOM.
Update 9/30/2008 - 6:14 AM PT, back to small gold long.
Update 10/3/2008 - New velocity chart on our Fed watch page.
Wild thing, part deux...9/21/2008
The pump is on (duh) - even without the $180 billion Fed swap line addition last week, our Fed Total Money (FTM) chart shows an all time record money creation effort, far outdistancing even post 9/11. We almost jumped from the 1974-75 track to the 2001-2 track on our S&P 500 chart, but the various injections thwarted it.
We're watching the ag complex again - we think both crop damage and early frost issues are signifcant factors that are under weighted. We also believe, barring massive intervention, that gold & silver have much more room ahead on the upside.
Update 9/22/2008 - Breaking our no politics rule - please write, call or fax your Congressional reps and urge that the bailout not go through as is. See the Hussman article on the bailout and Why You Should Hate the Treasury Bailout Proposal.
Long silver and gold (duh), USDX support broken (beware U.S. currency or exchange controls, probabilities are not low between now and mid 2009, just our opinion as always). Small wheat and corn longs. Note that we do have other positions that are less "politically correct". 10:31 AM PT - considering the "bond vigilante" set of trades. 4:14 PM PT, tightened up half the precious metal stops a lot.
Update 9/23/2008 - 8:25 PM PT (9/22/2008), expecting a stock market bounce but haven't bought... yet. 12:51 PM PT, got stopped out of half the PM positions early this morning. $12 billion 7 day TIO today, will be active tomorrow. No position changes otherwise.
Update 9/24/2008 - lightened up on PM positions on today's mild strength, too much perceived political risk. Out of wheat and corn trades at a medium sized loss. 11:04 PM PT, added back onto PM positions, plus some.
Update 9/25/2008 - 7:22 AM PT, stopped out of all but a tiny PM position at a loss. Note that LBMA lease rates are very late, still not public... (found that not all pages were being updated properly)
As of 5:30 PM PT, LEH appears to be headed toward liquidation. Gold had a delayed reaction and is up $17 while the USDX is down about 60, and the S&P 500 is about -33, up from -37. We did open a tiny gold long, and expect lots of volatility (duh).
Update 9/15/2008 - closed gold and silver long postions, all at small losses. Huge TIO and TOMOs today.
Update 9/16/2008 - pre FOMC meeting. Expect minimum 25 point cut, probable rally - and we won't argue with what the market actually does. 11:24 AM PT, we were wrong about the cut... 11:49 PM PT, and now we know why - a likely AIG loan. Opened a small S&P long for the bounce and it beings options week. 12:22 PM PT, added. 12:44 PM PT, added. 2:53 PM PT, took half of profits.
Note that our feeling is that the failure to bail out Lehman Brothers was a mistake due to the issues in their derivatives book. We have not heard the full story or realized all the implications of LEH not being bailed out.
Update 9/17/2008 - 5:39 AM PT, exited rest of S&P longs at dead even. 7:14 AM PT, long gold & silver... 7:42 AM PT, added to gold long & S&P shorts. 7:58 AM PT, removed gold longs just added - at small loss (oil got smacked). 12:32 PM PT, may take 1/3 of gold profits this afternoon.
Note that our own internal and proprietary US stock market "crash alert" fired earlier today - fair warning.
Update 9/18/2008 - stopped out earlier on everything, flu bug.
Crash alert was bogus - caused by a bad data feed.
"Frannie", and spike up...9/7/2008
As we write at about 8:30 PM PT, the Dow is up over 275 points based on the Fannie Mae and Freddie Mac bailout plan from the U.S. Treasury. It will be inflationary, so both gold & silver are up too. We expect the spike to last 1-2 weeks and perhaps more. Refer to our S&P 500 parallels to the '73-74 markets chart for a picture of our expectations.
Update 9/9/2008 - TIO auction accept ratio was not 100% today - the vote seems to be that the rally will be short lived.
Update 9/11/2008 - added LBMA lease rate tracking charts for gold & silver on our 'daily' page.
About the same...8/31/2008
The gold uptrend is still in place and we expect to add back to our positions when the markets open later today. We're still watching for an S&P short entry point but it will likely not be on Tuesday, due to the $20 billion TIO. Stock markets are still on the '70s track although its far from impossible that they could switch to the 2000-2 track.
Update 9/2/2008 - 5:36 AM PT, so much for the best laid plans, exited remainder of gold & silver longs.
Steady & ready...8/24/2008
We believe that we're still on the way towards another challenge of $1000+ gold, and if the market or intervention says no, our stops will hopefully take us out a a profit. Arguing with the market as a trader is both pointless and potentially quite expensive.
Nominal GDP this coming Thursday is expected to come in around 2.7%... and the difference between CPI-U (containing many lies itself) and the GDP deflator continues to be "special"
The ag and meat commodity picture is unclear for us and we continue on the side.
Update 8/25/2008 - 6:22 AM PT, $5 billion 1 day TIO on deck... 9:32 AM PT, $4.87 billion accepted. Note, as usual, that the money isn't fully available until tomorrow.
Update 8/27/2008 - 6:37 AM PT, $22 billion 1 day TIO on deck... 8:34 AM PT, $14.49 billion accepted. Quite a move in coffee underway, volatility in sugar is outrageous, hogs close to bottoming, big weather move in natural gas.
Update 8/28/2008 - on today's GDP release, please view the large differences between the GDP deflator and the CPI-U if there's any doubt about large statistical problems with GDP reporting.
Update 8/29/2008 - $20 billion 1 day TIO for Tuesday. Closed 1/2 our gold & silver positions at a profit.
ESF dollar intervention article...8/17/2008
Dollar intervention details, dubious journalism, a new article.
Trades we're considering are soybean shorts, hog shorts and of course watching for bottom signals in the precious metals. 5:46 PM PT - took profits and closed all dollar longs. Also established small gold and silver longs.
Update 8/18/2008 - 1:04 PM PT - don't like the price action & patterns in gold & silver, exiting 2/3 of the trade & tightened stops on the rest.
Update 8/20/2008 - added to all positions. Lifted half of our PM related puts, but expect to put them back on later.
Update 8/22/2008 - 7:21 AM PT, welcome to a short covering rally - have taken a tiny long position that we don't expect to hold through the weekend. 1:02 PM PT, closed S&P long position at a profit.
Dollar intervention, other changes...8/10/2008
Our FTM (Fed Total Money) chart has turned to the upside - big time. U.S. inflation will bottom sometime between Oct 2008 and March 2009 at the latest on a best guess basis. We expect a precious metals bottom within 2-5 weeks, and are watching our various daily charts closely, and also expect a general sideways to slightly up US stock market for another 1-3 weeks. We continue to believe that any stock market up moves remain a bull trap.
Major dollar intervention via the ESF is under way currently (new data has been unavailable for 2 weeks, just like when the $10 billion dollar buy / Euro sale was done in mid June - see the blue line on the chart link).
Update 8/12/2008 - $26 billion TIO auction submits, we're standing by to see how much is accepted and at what interest rate. 8:49 AM PT - tentatively, it just looks like a support operation as opposed to a pump. We're still in a trading range.
Out of corn short with nice profits, tightened up stops on dollar longs.
Update 8/14/2008 - Limit up 4 days in a row on pork bellies, hogs also almost parabolic, corn & soybeans on verge of breaking their major down trend, wheat already has, sugar still in intermediate term trading range, lumber up almost 10% in last 3 weeks or so, cattle likely basing for a run at new highs, natgas still basing, gold & silver still in down trend. We urge a look at the last hard asset bull comparisons page - just for perspective.
Update 8/15/2008 - $7 billion 1 day TIO on deck.
It appears that we're still on the 1973-74 track and if so, we expect the next few weeks to generally go sideways in stocks. Precious metals will tend to be slightly bullish over the same period, barring huge intervention by the ECB and others. We're mostly on the side, although tempted by some commodity shorts.
Update 8/8/2008 - we did play with some tiny ag short trades and a dollar long trade (duh) this week but didn't do any adding or pyramiding, and all but the dollar long and a corn short were closed on Friday.
Still choppy & treacherous...7/27/2008
Looking at corn, soybean or even cattle longs as well as TBond shorts and gold longs.
GDP 2nd quarter report Thursday morning, 2.4% growth expected.
Reminder - please read our disclaimer at the bottom of the page.
Update 7/28/2008 - very weak TIO today, opened tiny corn, cattle & bean longs. Frozen pork bellies have made a huge up move in the last three days.
Update 7/29/2008 - huge $30 billion 1 day TIO offered. 8:37 AM PT - the full $30 billion was accepted at an interest rate of 1.901%, and the pump is on. We added a tiny S&P long, and were stopped out of the tiny corn, cattle & bean longs at a loss. CCI down again so far today. 9:47 AM PT, added to S&P long position. 10:44 PM PT, added again. 12:59 PM PT, took profits on 1/3 of the now large position.
Update 7/30/2008 - 9:17 AM PT, lifted another half of the S&P longs - too uncertain about the rally having legs and the position had too much leverage. Four day $2 billion TIO today was not fully subscribed too.
Update 7/31/2008 - 12:32 PM PT closed the rest of the S&P long position at a profit.
Update 8/1/2008 - explosive moves in sugar and coal, possible ones forming in lumber and cattle lately. The one in pork bellies last week was a bull trap. About $7 billion in 1-4 day TIOs today. Markets still quite treacherous and being on the side is frequently the best move. Note also that China's "real" GDP (GDP minus CPI) has dropped from 10% to the 3-4% range over the last year. Possible bottom in uranium...
Unsteady as she goes...7/20/2008
Hanging in there and perhaps adding to gold longs and TBond shorts this week.
Update 7/21/2008 - tightened up stops on TBond shorts.
Update 7/22/2008 - stopped out of 3/4 of gold longs at a profit. Added to TBond short position again.
Update 7/23/2008 - profitably stopped out of rest of gold longs, added again to TBond shorts. $9 billion 4 day TIO today over subscribed by 74%, the "game" is back on for a while... including the likely pumps during the last 30 minutes. 3:46 PM ET - weird, no pumping in the last 30 minutes or so... so far.
Update 7/24/2008 - 8:11 AM PT, stopped out of entire TBond short position. Considering corn and perhaps soybean or even cattle longs.
Still holding longs in gold & silver & sugar, and watching trend lines & momentum, etc. PPI comes in on Tuesday, expected at 1.4% (annual rate of 16.8%) and CPI comes in on Wednesday and is expected to be around .8% (an annual rate of 9.6%). This is not a time to be long US stock markets. We expect to open a tiny TBond short again.
Update 7/15/2008 - just been adding to PM longs, but not a TBond short due to Monday's trend & momentum action.
Update 7/16/2008 - 8:17 AM PT, opened a tiny 10 year TBond short. Update 7/17/2008 - stopped out of sugar long at a decent profit, added to TBond short and metals longs. Tightened gold stops to the general $940-955 area, basis spot.
Same old, same old...7/6/2008
There is little to no evidence of basic changes in existing trends on the short term. We expect to add to our various long metals positions as the week progresses, and are still watching the 10 year bond for a short although the Fed may be happy with the range of the last week or so. On the short to intermediate future term, our best guess is that real inflation will stay high to slightly decreasing. Excluding everything but energy, corn, soybeans, cattle and a few other items, key commodities are all still well below their 2008 to date peaks although there are significant indications that many have bottomed and are basing for another run to new highs.
Update 7/8/2008 - so much for the best laid plans. Stopped out of all long metals positions with an ok overall profit.
Update 7/9/2008 - $3 billion TIO shoring up attempt. We're still on the side S&P wise, but did open a tiny silver long this morning, also a small cattle long with a tight stop. Sugar still looking good.
Update 7/10/2008 - open a small gold long, added to silver this morning (duh). Stopped out of cattle.
Update 7/11/2008 - 5:26 AM PT added significantly to gold longs. 9:43 AM PT, took 1/3 of substantial profits pre weekend.
A couple of new charts on the currencies page, main currencies since 2000 and main currencies since 1971. We've also brought our total Fed operations chart up to date and added some off Fed balance sheet items to it from H4.1. The short story - the Fed is in a relative holding pattern on money creation in the 8% range, which is down from 10.5% last September.
The period between now and the end of 2008 will tell the story on whether it's a rhyme to 1974-75 or 1977-78.
This week we expect gold & silver to be up as more folk realize the severity of the financial crisis in the US. Like last week, the '73-74 stock market "rhyme" track is still in place and the crash potential is not small, but a bounce would not surprise us at all. We're on the side in US stock markets. Watching again for a TBond short entry point, as well as for longs in coffee, cotton & sugar.
Update 6/30/2008 - stopped out of 1/2 our PM positions. Added a small long S&P trade for a bounce. Stopped out of half the S&P long at a loss. Very interesting move today in the 10 year, possible short tomorrow.
Europe’s Ailing Social Model: Facts & Fairy-Tales
Update 7/1/2008 - stopped out of S&P long overnight at a loss. Added to open gold & silver longs. Added back a tiny S&P short, added again to gold & silver, added small platinum long. Still waiting & watching for 10 year trend break. Nice move in sugar, we missed the entry.
Recommended: "The Dying of Money", Jens O. Parsson (Amazon link)
“Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money*, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of al traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.”
And from another portion of the same book:
"Until 1922 and the very brink of collapse, Germans and especially foreign investors were absorbing marks in huge quantities. Only the international reputation of the Reichsmark, the faith that an economic giant like Germany could not fail, made this possible. The storage factor caused by the investors willingness to save marks kept the marks from being dumped immediately into the markets, and thereby for a long while held prices in check. The precise moment when the inflation turned sharply upward, toward its vertical climb, was undoubtedly timed by no event, but by the dawning psychological awareness of the German and foreign investor that Germany was not going to back its money. With that, the rush to get out of the mark was on. Like a damn bursting, the seas of marks flooded into the markets and drove prices beyond all bounds. The German government strove mightily to outflood the sea. The sea of marks which had been stored up by Germans and especially by trusting foreigners flooded forth and fought to buy into other investments, foreign currencies, tangible goods, almost anything but marks."
Update 7/2/2008 - took 1/3 profits on all precious metals positions.
Update 7/3/2008 - 5:37 AM PT, took 1/2 profits on all precious metals positions, closed tiny S&P short at a small profit.
Per some Bank of Japan data we track, we expect a large up move in the Yen this week (towards 110 from the current 107 or so), and either an up move or level in the Nikkei. We also expect continued weakness in US stock markets, especially since options folk very unusually did not win last week. The '73-74 stock market "rhyme" track is still in place... and the crash potential is not small. Still watching for a TBond short entry point.
Update 6/23/2008 - entered a tiny to small 10 year TBond short position. Very lightly thinking about a corn short.
Update 6/24/2008 - 7:25 AM PT, out of yen and TBond trades with an ok profit.
Alert 8:41 AM PT, we've changed our mind and now believe that we'll see a "surprise" Fed Funds rate hike tomorrow, probably 25 points. Thinking about a USDX long position.
Update 6/25/2008 - a new page, comparisons on various commodities & indexes between the '70s and now. 8:48 AM PT, entered a small USDX long position. 11:21 AM PT - we were incorrect on the guess for a Fed Funds hike and have exited the USDX long position - no loss, no gain.
Update 6/26/2008 - reverse head & shoulders on silver pointing at 19.50 or so, similar one on gold pointing at $1,000. Tiny long positions established in platinum & silver. Note that only a very few of our charts have confirmed a PM upmove, so this is a medium to high risk trade. Looking at longs in coffee, cotton & sugar.
Update 6/27/2008 - added to PM longs and added gold positions, expect to add more.
Choppy/reversal, quad witching...6/15/2008
Most likely a comparatively mild (and short term trend) reversal week, due to options expiration with the quad witching enhancement. We expect that the S&P will end up slightly/mildly higher. A new small long in corn, beans, cotton or sugar is possible on reactions or slight trend breaks.
Also note that our SecLend indicator has fired twice in the last few weeks, pointing at a TBond short trade.
Update 6/16/2008 - $13.5 billion TIO operation today, but $22 billion was submitted. The interest in borrowing for possible speculation or manipulation is not strong. SSEC still below 3000. USDX still wildly gyrating in a trading range. Credit cycle has virtually assuredly peaked, probably M3 too. PM's still in down trend since March. Foodstuffs are back on a roll - partially weather, partially supply & demand, partially inflation... but overall tracking with paper bear markets and tangible hard asset markets.
Added longs in corn & beans with tight layered trailing stops (we're late in the pickup of the trend).
Update 6/19/2008 - exited corn & beans longs. We sure blew it on the expected effects from quad witching.
Got the US stock market trigger...6/8/2008
We hope that it isn't combined with a huge runup in commodities, but its too early to tell. We'll be watching oil, ags and softs closely. We also believe we're at least 60/40 on a short term bottom being in on precious metals, but are waiting for more indicators to turn green before going long. We don't trade until at least 75/25.
While updating our weekly charts on Friday, we happened to notice that our Dow prediction chart has been doing a pretty good job of mirroring the actual Dow performance (in reverse) when the override indicator for fear is on. Odd, but we'll take it. It also seems to apply to our gold & silver predictions, but not as reliably.
Update 6/9/2008 - $18 billion TIO submitted... $13.77 accepted. We'll be watching for attempts to force short covering.
Update 6/12/2008 - 6:09 AM PT, short covering likely.
Update 6/13/2008 - 5:49 AM PT... crazed market, but we won't argue. CPI-U came in at around 10% annualized... and there's a rally... and precious metals are barely up - sheesh... 10:15 AM PT, now today makes more sense. The total TIO auction today is almost $22 billion. Next week will be "interesting".
About the same...5/1/2008
Still nothing much to add from last week's comments - still short term stock market bearish and precious metals bullish, although less bullish since both the metals and oil correction.
Still holding cattle & hog longs, and will likely add this week as well as continuing to look for a good S&P 500 short entry point.
Update 6/4/2008 - exited the cattle & hog longs at a loss.
Still in the zone...5/25/2008
Nothing much to add from last week's comments - still short term stock market bearish, precious metals bullish and still possibly re-establishing a cattle and/or hog long position.
We continue to be sad about various social crises that we expect and foresee ahead for both the US and world, and fervently hope we're wrong.
Update 5/27/2008 - stopped out of 2/3 of platinum longs. Added small cattle & hog long positions in spite of the oil price break.
Update 5/28/2008 - 6:27 AM PT, although there's definitely a good chance there's more downside, we just got today's TIO report and there's a 5 day $7 billion TIO on deck.
Stopped out of remainder of platinum long position at an ok profit, still holding cattle & hog longs but the hog position is showing a loss.
Update 5/29/2008 - still hanging in there with cattle & hogs long position but not happy about the loss. We still think there's significant upside ahead on the short term.
Update 5/30/2008 - Don’t Blame Speculation—Commodity Prices Are Driven by Fundamentals, might come in handy as "blame the speculators" gets going even more.
FT.com - Short View
We believe that we've now entered a time period that extends until early/mid June where trends for most of the rest of the year will be established. Our best guess is that it'll be tangible assets up and most stocks (especially US stocks) down, but we're waiting for the markets to tell us. The financial crisis is far from over, and the "social crises" have barely begun... and neither are limited to the US.
Some possibly applicable charts: S&P 500 bear track, the '70s and miners (BGMI), and the '70s, Dow and gold.
A new and interesting chart has been added to the forecast page: GNP (Gross National Product), the forgotten stat
Update 5/19/2008 - our initial downside target for the dollar index is now .55.
We're still bearish US and most world stock markets. We're also still long platinum but have pulled the stops up tighter and will likely exit the position due to the long weekend coming up.
"The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over the counter swaps transactions. this has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity swaps, which 85-90% of them do, they face no speculative position limits.
The really shocking thing about the Swaps Loophole is that Speculators of all stripes can use it to access the futures markets. So if a hedge fund wants a $500 million position in Wheat, which is way beyond position limits, they can enter into a swap with a Wall Street bank, and then the bank buys the $500 million worth of Wheat futures."
Update 5/23/2008 - we only exited 1/2 of our platinum longs, and also dropped 1/2 of our gold & silver puts. We'll be looking at another long in cattle & hogs for next week.
Most commodities up some, stocks sideways to slightly up?...5/11/2008
Options expiration this week. Still long platinum, cattle and hogs - will be tighening stops. Looking at longs on corn or beans.
Some new energy charts:
321 crack spread
Oil gasoline ratio
Oil & natutal gas ratio
Update 5/13/2008 - stopped out of platinum at a profit, still holding cattle and hogs.
Update 5/14/2008 - a very broad and long term opinion that we've held for a while but for whatever reason have never clearly expressed here - peak oil (as in maximum worldwide oil production) has arrived. We believe it occured in early to mid 2006.
Update 5/15/2008 - exited 3/4 of our long cattle and long hogs positions, via stops. Probable exit of the rest tomorrow.
Update 5/16/2008 - exited the rest of the long cattle and long hogs positions.
Still little change...5/4/2008
Our current best guess for a gold bottom is the period between May 22nd and June 9th, the "ideal" date being June 5th. There are still no significant reasons to be intermediate term bullish on US stock markets in our opinion, and we're still on the side in all markets... although we've dabbled with a few very small commodity short trades. Note that rice has peaked and is down around 20% from its peak above $24.
Update 5/8/2008 - mild/medium alert - most commodities have broken their downtrends, either today or this week. Hogs are almost in parabolic mode, cattle likely to follow. Long gold, platinum, cattle, hogs and wheat.
Update 5/9/2008 - "Based on the data oil companies are required to file with the government's Energy Information Agency, from 1981 through 2006 cumulative oil industry profits totaled $1.12 trillion compared with cumulative taxes of $1.65 trillion, according to Hodge. That doesn't include foreign income taxes, which amounted to $518.9 billion over the 25-year period."
Early & tentative warning - 7:51 AM PT - M3 appears like it will have a large drop this week. Stopped out of gold & wheat longs with losses.
1:36 PM PT - M3 is still at over 19% on a year over year growth basis, but the actual dollar total has dropped about $90 billion in the last two weeks. MZM has also dropped.
Not much change...4/27/2008
We're still in the midst of a financial crisis, even though the "volume" is lower. Total repos (TOMO, TIO, TAF) are still near record high levels. The high level of the TIO pool balance has had little effect on US stock markets other than to support them.
Our Fed 'all actions' chart has been showing relative deflation, or disinflation if you prefer, since last December and it still has not changed trend.
Since their recent peaks, gold is down 14%, silver is down 20%, wheat is down 40%, copper is even, soybeans are down 16%, sugar is down 24%, cattle and hogs are down 5-18%, coffee and cotton are down 25%, stocks are down over 10%... and junior miners have been creamed and are down 15-40%. The only two things that are up significantly and have not corrected are rice and energy.
We have major stagflation. US Q1 GDP is projected to come in at .3% next week. CPI+lies is running about 11.4%. The similarities to the 1973-74 period are legion. After the FOMC meeting, we're thinking about shorting T-Bonds.
Update 4/28/2008 - very unusual item in the TIO auctions today. The 3 day auction interest rate was 1.92%... but the 6 day one that includes the period after the FOMC meeting came in at 1.6%. A surprise 75 bps rate cut on the table perhaps?
Another one for the ag area - Viterra, traded on the Toronto exchange, stockcharts.com symbol VT.TO - DYODD as always.
Update 4/29/2008 - stopped out of all long hogs & cattle positions.
Update 5/2/2008 - The beat goes on - "... the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations"
"... the Federal Open Market Committee has authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB"
Similar actions from the ECB and the SNB.
Intervention still present, in spades...4/20/2008
Total repos (TOMO, TIO, TAF) are currently about $214 billion, not far off the all time record of $236.4 billion established on March 24, 2008 ($235.6 billion on April 15th comes close).
M3 annual growth rate has topped 20%, which does not look good for inflation on the intermediate and longer term.
So far, so good on the now medium to large long hog & cattle positions.
Update 4/22/2008 - big TIO operations the last two days, about a $25 billion addition... although $50 billion was available and at rates as low as 2.07% (translation - "confidence" is not high, and a support operation in under way).
Total of TOMOs, TAF & TIOs today - $243.2 billion, an all time "temp repo" record. TSLF total balance is about $170 billion. Total System Open Market Account (SOMA) balance is $543.8 billion, down from its peak of $786.1 billion in early August 2007. In other words, the Fed is not pumping hard overall... yet... and a current M3 growth rate of over 20% does not look good for inflation or stagflation in 2009-10.
Update 4/23/2008 - 9:03 AM PT tightened up stops, especially on hogs. Fourth day in a row of substantial TIOs... and without much response from US stock markets yet, although the "classic" pump starting around 3:00-3:30 EST can in no way be ruled out.
Down bias, barring intervention - still...4/13/2008
We did add on to the tiny short on Friday with the surprise from GE, but closed the entire position in the last 30 minutes (too many surprises possible over weekends). We're still bearish on the S&P and mildly bearish on precious metals too (short term only on the metals). A close over 60.6 in the nearby (and soon expiring) hog contract will likely have us going long, and especially on a close over 61.7+.
Update 4/14/2008 - $14.5 billion 1 day TIO today, going into effect tomorrow. Bears beware, it's also options expiration week.
Update 4/15/2008 - long hogs & cattle on the breakout. Both MOO and COW doing well too, FEED catching its breath.
Down bias, barring intervention...4/6/2008
Still watching for an S&P short entry point, but it may be a short ride - no pun intended.
Last week did indeed turn out calmer than many expected. Possible developing H&S in gold has us still on the side with puts as a hedge for our physical positions. Possible bottom in hogs last week, we're watching them closely - same with live cattle.
We've added a "fear override" indicator to most of our predictions charts on our forecast page to help show when the predictions become less valid and usable. New gold peak high price chart based on Jim Sinclair's observations on our miscellaneous page.
Also note this change to our M3 article and algorithm:
As of March 19, 2008, we have added the results of the new Fed TAF, TSLF and PDCF "tools" to M3, since they are quite similar to temporary repos (repurchase agreements). Temp repos are part of the original definition of M3.
Update 4/7/2008 - nice move underway in hogs, likely target of at least the gap starting around 62.50 in the nearby. The S&P is looking tired, tiny short position established.
Little directional clue, slight bias down for the week?...Nikkei slightly down and dollar slightly up and S&P up slightly too, it may surprisingly be a relatively calm week. We're watching for another S&P short entry point.
Update 3/31/2008 - $9 billion 2 day TIO today, and we took the short watch off the table for now.
Another reminder too - be very cautious in using our prediction charts on the forecast page. They only basically take "hot money" into account and do not include many important factors like the derivatives mess and US or global slowdows/recessions.
We expect to be fully hedged on our physical metal holdings by the close of business tomorrow.
Update 4/4/2008 - added a chart to our miscellaneous page, showing the probable gold price peak per Jim Sinclair's formula. We've also added a "fear override" indicator to most of our predictions charts to help show when the predictions become less valid and usable.
Turn, turn, turn...?3/23/2008
Our Fed 'all actions' chart has been showing relative deflation, or disinflation if you prefer, since last December on the thin red line (Fed actions only). The thicker blue line is Fed actions plus the actions of the Fed's Primary Dealers (GSDS), and it peaked last August.
Just last week, our M3 money supply reconstruction took a sudden drop from over 18% annual growth to a 16.6% annual growth rate. M3 normally tops during or in the close vicinity of a recessionary period, as the longer term M3 chart on our Key stats page shows.
We've also added a short term greed vs. fear chart to our forecast page to help track the general sentiment... for what its worth. Our financial crisis chart has also put in a peak as of two weeks ago.
Whether all these are showing an intermediate term temporary peak in the hard asset cycle like the '73-75 period is doubtful (gold cycle progress comparison and S&P 500, BGMI comparisons), but the probability is no longer low. High caution is urged. We're currently on the side with no active trades, although we will be watching to re-establish S&P 500 short positions.
We also note that the total number of Primary Dealers of the Fed is now down to 17, from 22 just a year or so ago. Power continues to be concentrated. Of those 17, 10 are not U.S. based institutions. 13 of the 17 are at least affiliated with banks.
Update 3/24/2008 - Another stock to add to the ag list, Agfeed Industries (symbol FEED on Nasdaq).
Update 3/28/2008 - looks like a false alarm, M3 is back up above an 18% annual growth rate. We're still mostly on the side trading wise - the markets are being nutty and whipsaws are not our favorite item.
Very good but quite long article here
on why decoupling is not likely. "According to our estimates, a 1% decline in US GDP growth will reduce eurozone by around 0.4-0.5% after one year, while considering only the trade link the effect should be close to 0.3%".
A very good one today from Kasriel too, containing some very interesting thoughts around page 5. PDF here
The Bear Stearns rescue is obviously a major signal that things are far from well in the credit markets (Bear Stearns Bailout Was `Finger in the Dike,' Historians Say ), although overall credit is still growing at about 9% per year.
On a broader note, we recommend a look at a Fed paper from 2004 - Monetary Policy Alternatives at the Zero Bound (pdf). It's long, but it gives a roadmap of what could easily be ahead.
Note that there is an Armstrong cycle turn on Friday the 22nd, and also that this is quad witching and a short week with the US markets being closed on Friday.
The Fed is at it again - The PDCF.
Update 3/17/2008 - just for the exercise, here are the Fibonacci points for the S&P 500 2002 low and 2007 high:
Update 3/18/2008 - and here are some Fib numbers for the two brackets from yesterday's exercise:
Medium alert Per the Lehman Bros. CFO, the Fed's new PDCF (similar to an overnight discount window, but only for the Fed's primary dealers) accepts collateral rated BBB- ("investment grade") or better. In plain English, the backing of the US dollar is no longer just in AAA Treasuries, etc.
Update 3/19/2008 - Fibonacci on the gold move since last summer:
Same for silver:
Bear track, and 2008 - the Year of the Basics...3/9/2008
New chart showing the S&P 500 from October 2007 is tracking with the bear market from 2000-2002. Link also available on our forecast page (hat tip to jesse).
Update 3/10/2008 - major changes to our greed/fear index on the forecast page
Update 3/11/2008 - Super SecLend: Term Securities Lending Facility (TSLF), a new Fed program to help support the dicey balance sheets and solvency of major US banks. ("The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.")
If the stock market rally fades much during the last 30 minutes or so, we'll likely short it.
Update 3/14/2008 - An interesting article on food & shortages, especially the part about acreage devoted to food only having grown about .1% per year for the last decade.
Lots further to go in hard and tangible assets, and not without corrections. We'll be lightening up on our S&P shorts for the weekend, probably in the last 30 minutes.
Bearish & bullish...3/2/2008
Bearish on the US stock market and short the S&P, still bullish on commodities in general and gold, soybeans, cattle & sugar in particular. Gold has has not gone almost vertical... yet.
Update 3/3/2008 - tightened up gold stops & made them market based instead of mental.
Update 3/4/2008 - 8:47 AM PT now I know what the sense of foreboding was all about. Exited all longs.
Update 3/7/2008 - Mild Alert - the Fed did a $10 billion POMO today, the first one since last May. $57+ billion was submitted, for what its worth. Note also that $10 billion will be pulled out of SOMA too, so this action is roughly neutral (excluding that it helps support various bankers tenuous positions and balance sheets)... but this had been the longest period that we're aware of without a POMO since 2000. Combined with the TAF announcements to move the auctions from $30 to $50 billion and the $167 billion helo drop etc., we're closer to having the Fed, etc, back to a net larger growth in money creation rate i.e., even more inflation after the varying time lags are factored in.
Errata - the POMO we reported was actually a drain, not an add. There is only one transaction, a net $10 billion drain from the SOMA (System Open Market Account) balance.
Barely off the sidelines...2/24/2008
Exited the small S&P short position at a loss - very choppy and treacherous market. Steady as she goes on the rest and with fairly tight stops. I still can't shake the feeling of foreboding or "something", and I've learned that its unwise to ignore it... and the worst case is that some profits are missed.
Update 2/25/2008 - added significantly to long cattle position, with stepped market based stops.
Update 2/26/2008 - as of today, we're backing way off on daily comments and specific trade data and information.
We've received a number of queries about how to profit from agricultural and other farming commodities, and without the use of leveraged futures. The primary one is of course unleveraged futures (see our futures trading page for some data and DYODD) and options (which we don't recommend but some do very well with) are another path... and few people are interested in options or futures.
But there are also stocks and ETFs (and even an indirect play on futures overall with CME, the COMEX futures exchange). A partial list of possibilities, DYODD again applying, include the symbols DBA, COW, MOO, JJG, JJA, RJA, BG and ADM. If ones account allows trading on the London Stock Exchange, check into a company called ETF Securities - they have about 13 ETFs in agricultural and meat areas. No recommendation should be assumed or implied on any of the symbols - this is simply a list of possibilities.
A long term set of data points: since the US stock market peak in 2000, the S&P 500 is down about 12%. Gold is up 217%, silver is up 232%.
Overall this week, we continue to be skittish about using much leverage and are also on alert for any possible opportuntities to short the S&P now that options expirations week is out of the way. We're also watching live cattle for a possible long.
Update 2/19/2008 - added long gold, beans and sugar positions on the obvious strength and trend breaks... with tight mental stops, and a physical stop in gold. Very close to going long live cattle. An unusually large submit/accept ratio on TOMOs today is keeping us from shorting the S&P. Quite the flag showing in the daily copper chart, 3.66 target achieved too. 9:27 AM PT, out of long gold - the risk picture is too high for our taste on the short term.
Update 2/20/2008 - added to beans & sugar positions, will probably add cattle tomorrow and be carrying some leverage again. Probable next copper target around $4.00. Large TIO operation today, probably helping to prop the US stock markets. 12:38 PM PT - Five+ of our eight internal signals have fired for a gold long position, likely entry within the next 24 hours.
Hat tip and kudos to John Williams of Shadow Stats in picking up the ball dropped by the US goverment (old link) for various stat reporting - the new link is here.
Update 2/21/2008 - Added long gold positions. We have fairly tight actual market stops on all positions due to both the risk of a large break down and whipsaw issues (banking a profit is seldom a bad idea for momentum traders).
Update 2/22/2008 - added a small cattle long with a fairly broad 1 cent stop. 11:43 AM PT - added some S&P shorts, small position.
Our feeling of unease last week seems to have been false, but we're still hesitant about using much leverage. We expect to add to our long positions in wheat, cotton, beans & corn and perhaps open another S&P short based on a mild challenge of the existing short term down trend line... and as usual, the market itself will drive our trades.
Update 2/11/2008 - 10:19 AM PT, no changes so far. Note that this is options expiration week (which we had forgotten yesterday), so our S&P shorting plans are on hold.
Update 2/12/2008 - Out of all positions at a small profit overall.
Rough weather ahead (duh) - G7 discussed joint action if market moves irrational
Update 2/13/2008 - 6:57 AM PT, an unusually large $30 billion 1 day TIO submission today but auction results not in yet... 8:35 AM PT, and $18.5 billion was auctioned off at 2.75%. Not terribly impressive but it should be enough (along with options expiration) to support the markets this week.
Update 2/14/2008 - back in some small corn, beans & sugar long positions. Still standing aside on S&P shorts and gold or silver longs. Happy Valentine's Day and don't forget your lady.
Steady as she goes...2/3/2008
Light positions still, the risks of unexpected moves is significant. We'll be watching gold for a possible long re-entry on a bounce. Long corn, beans & sugar...
Update 2/4/2008 - dropped the sugar long on the triangle breakdown, added wheat and a small cotton long. Added leverage on corn and beans.
Update 2/6/2008 - 10:11 AM PT, booked profits on all positions. We only have single contract positions now in wheat, cotton, beans & corn and may even drop them...
I can't put my finger on it, but something odd seems to be going on - the risk picture has changed in some way and we've learned over the years to pay attention to "hunches" or "feelings". They're not always right, but its risk management too... and the worst case is that we miss some profits. That was part of the reason we existed most of our positions, and added some physical metals etc.in our core portfolio too.
Update 2/8/2008 - minor add to soybean long today, otherwise no changes. Medium/high risk very short term copper trade to $3.66 or so, but we're not going there. Will probably drop our small long positions in wheat, cotton, beans & corn tomorrow - especially cotton.
Update 2/9/2008 - Very large margin rate changes for Cocoa, Cotton, Coffee, and Sugar going into effect today; as much as 50-100% increases. Still holding our small positions. Lucky guess so far on copper... and if it blows through 3.75, new highs are quite likely.
The risks involved in the "creeping corralito" in the US are substantial. If you're a US resident and do not have money in non US assets, it's our opinion that the risk is significant to "events" that may prevent reasonably unfettered access to your funds, or worse. Extra cash on hand is also not a bad idea. Note that this is a short and intermediate term opinion, and that most who read here are aleady quite aware of the issue but we mention it just in case some aren't.
Regarding the recent political actions in Washington D.C., the coming injection (a.k.a., helicopter drop of money) of about $150 billion will act like a $150 billion POMO (permanent money injection) from the Fed, and is also subject to the rules of fractional reserve banking in the sense that the $150 billion will be multiplied by at least 5 over time. From another view, eventually M3 plus credit (a broad definition of "money supply") will grow by at least $900 billion, and probably over $1 trillion dollars ($1,000,000,000,000.00).
- added a bit to gold longs on the open just for the helluvit, and will likely buy corn, beans and sugar or some combination thereof tomorrow. If we do any S&P shorting (down 5 as we write), we'll be out before the FOMC announcement on Wednesday due to the possible surprise of only a 25bps drop. Opened longs in corn and beans and sugar, cotton also looking like its getting ready to jump.
Update 1/29/2008 - As expected - back down to tiny long gold position, lightened up on all three ag positions too. Risk too high to hold much before the FOMC meeting - 25bps chance is not zero. We would have entered a long cotton trade today if not for the FOMC meeting.
Update 1/30/2008 - wild & vicious market today, we took a much shorter than expected S&P long ride after the 50 point rate cut and barely exited with a profit. Cotton made a nice move today, as expected. Added positions back to what they were on Monday, with relatively tight mental stops and a physical stop in beans. 1:10 PM PT - added a small S&P short.
Update 1/31/2008 - the Term Auction Facility (TAF) pool balance hit a high of $80 billion yesterday and will drop to $60 billion today. The grand total of TOMOs, TIOs and TAF was just over $175 billion, and a 125 point drop in Fed Funds... and we haven't even had a 1000 point Dow rally/bounce. We've added significantly to our S&P shorts. 8:18 AM PT - out of S&P shorts at a loss.
Update 2/1/2008 - week closing comments: another decent week with nice profits in gold, corn, beans and sugar in spite of a relatively small net loss in the S&P. If you follow intra day trend lines at all, you'll know that we exited our gold longs this morning around $920 basis spot.
We deem the risk too high to carry any leverage at all, until things clarify a bit. We're only short the S&P 500 about 200%, and will lighten up near the market open or tighten our trailing stops substantially if the market is down. We continue to watch gold & silver with tiny long positions.
Update 1/21/2008 - Great Russ Winter blog today here. 3:43 PM PT, exited 1/2 our S&P shorts (currently trading around 1268)...
Update 1/22/2008 - Sold another 1/2 of our S&P shorts (1/4 of the original position) due to the Fed's emergency 75 basis point cut. Gold only having a small reaction, down to only one long contract. We may sit out today to let things settle out a bit, but watching the ag complex & gold closely. 6:31 AM PT - $18 billion (2 day) TIO offered... 7:13 AM PT, out of the rest of our S&P shorts. 7:32 AM PT, rebuilding a gold long position.
Update 1/23/2008 - Added back a small S&P short position, but still carrying no leverage in total. 7:29 AM PT, we're back out of our S&P shorts at a small loss and should have stayed on the sidelines.
IMPORTANT NOTE: NEVER use only one chart or datum alone in making trades or decisions. There is no known way to put all the important factors on one single chart, and that applies to our forecast charts too.
Most of our forecast charts are primarily based on "hot money" and do not include any factors for recessions, black swans, fundamental supply & demand issues, helicopter drops, market senmtiment, etc. etc.
Update 1/24/2008 - Added some to our gold longs this morning based on both the US stock market pumping and inflationary money injections. Also added a small S&P long, based on TIO activity the last two days, the government support/helo drop, and the resulting trends. Watching rice for indications of a turn in the ag complex... 10:24 AM PT, and its getting more likely. Lightened up on gold longs, strength doesn't look good on the short term... and as usual we can be wrong.
Update 1/25/2008 - we were wrong on gold, another attack is underway on the $918 level... and we're still mostly practicing being mostly on the sidelines due to the volatility and our relative uncertainly, and as risk management. There are three possible basic positions in any trade or investment - long, short or on the side.
We'll probably exit our small S&P long for the weekend... and did so on the break in a 9 minute chart.
Rice has broken the down trend - the ag complex will likely get our attention next week.
Ups & downs...1/14/2008
Our charts are still showing ok on gold (with a possible spike into the $980-990 range), but flashed a mild warning on silver this morning. Ag looking ok, added some wheat. Still short the S&P 500, added a bit there too.
Update 1/15/2008 - Just in case that the rumors or a surprise Fed cut are true, we've entered loose market stops on our S&P shorts. 9:49 PM PT - stopped out of all but a small gold long.
Update 1/16/2008 - Lightened up very substantially on wheat & beans, down to a tiny gold long position, no change on S&P shorts. Possible "sympathy" move across almost everything... oil down below $90.
Update 1/18/2008 - out of wheat & beans temporarily, no change on S&P shorts. 12:23 PM PT - lightened up due to 3 day weekend.
Steady as she goes...1/6/2008
Nothing much showing that would change our longs in wheat, soybeans & gold or our S&P shorts, except for risk management in the sense of carrying too much leverage.
Update 1/7/2008 - nothing like trend line breaks to show that the market is always right. Lightened up on wheat, may lighten up more before the close based on price movements.
Update 1/10/2008 - 6:11 AM PT, lightened way up on all longs. Likely very rough weather ahead... 7:23 AM PT, and we got fooled by volatility. We were obviously carrying too much leverage and over reacted, and will wait a bit before adding back some of the longs. We'll lighten up a bit and take some profits on our S&P shorts if the market holds above yesterday's close for more than two gours or so. 9:39 AM PT - added back half of our previous longs, added to S&P shorts on poor reaction to Bernanke and close approach to main down trend line. Only running about 4.5:1 leverage now. Added a small silver long, just for the helluvit. 11:16 AM PT - sold the S&P shorts we put on this morning at a profit, and also sold 1/3 of the main position - perhaps more selling to come as the market tells us...12:06 PM PT, out of all S&P shorts except for a tiny tracking position.
Update 1/11/2008 - back in with a significant S&P short position, partially for obvious trend reasons but also for the increasing chances of a large break ala 1987 lite.
Things that make you want to go hmmmm..."It would be fair to say that monetary and credit aggregates have not played a central role in the formulation of U.S. monetary policy." -- Fed Chairman Ben Bernanke, in a speech in Frankfurt on November 10, 2006.
"The Chairman noted that the President had recently signed the Financial Services Regulatory Relief Act of 2006, which among its provisions gave the Federal Reserve discretion, beginning October 2011, both to pay interest on reserve balances and to reduce further or eliminate reserve requirements. The Act potentially has important implications for many aspects of the Federal Reserve's operations" Source: Fed minutes from Oct 2006 (emphasis ours)
Emergency Economic Stabilization Act of 2008:
SEC. 128. ACCELERATION OF EFFECTIVE DATE. Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.
10/22/2008 - "Under the new formula, the rate on excess balances will be set equal to the lowest FOMC target rate in effect during the reserve maintenance period less 35 basis points."