Deleveraging Continues, Confidence Waning. February 5, 2010
Posted by Warren in Government.add a comment
Alas, the past few days has been a stark reminder that deleveraging is far from complete (remember, it’s a slow motion train wreck), and this time, it looks like governments are also at it. Why are governments around the world suddenly so worried about their deficit? CONFIDENCE. I suppose the public is starting understand that government bailouts are only a short-term band-aid that costs a lot of freaking money..money that your children’s children will have to pay off.
When Dubai and Greece first hit the wires, I thought, ok Dubai could be a problem but, hello? petro bailout? As for Greece, I thought, this country is a tourist economy and borderline third world, so who cares? When Spain and Portugal joined the party, I was still skeptical about the initial market reaction. But the markets thought otherwise (i.e. lost confidence), and as I sit here in cash I’m thinking, what’s next? What different fundamental cross current should I expect?
In this choptastic environment, we could easily see dow up 200 next Monday morning..and close down 100 heh. But right now, the pendulum is swinging towards deflation.
By the way, did anyone see treasuries break to the upside? Nope.. If I had to pick one asset when confidence is in question, it’d be gold.
I want to steer markets..yo January 28, 2010
Posted by Warren in Central Bank.add a comment
It’s too bad not that many people know Friedrich Hayek..one of the greatest Austrian thinkers (though he gradually became a statist himself in later years).
Entering Panic Room January 22, 2010
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Correlations are all totally wack right now, and intraday moves have stopped making sense, at least to me.
I have liquidated everything. Ever since the Mass. election, politicians are literally freaking out..and this is certainly depressing risk appetite. Over the next week, we have the FOMC meeting, Bernanke renomination and State of the Union, during which I expect to see a lot of noise. I’d rather be in cash during wild whiplashes and wait for a good entry..but gotta be quick.
I hate politics.
- Choppy McChopperstein
Volker! January 21, 2010
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The man who started working at the Fed in 1952 and earned a reputation as killing the inflation crisis of the 1970’s…is now back on the headlines of major global financial news. After consulting with Volker (whose hawkish stance was not shared by the current Administration), Obama announced proposals for the biggest regulatory overhaul of the financial markets since the 1930s, and declared war on Wall St.
I hope this is all circus politics…all the while Bernanke silently continues to pump and ease in the background.
This could very well be a typical contrarian “sell the news” situation.
CAD/JPY breaking out? January 18, 2010
Posted by Warren in FX, Strategy.add a comment
This popular carry pair has gone through a steep correction as the credit crisis unraveled. However, as liquidity and risk appetite recently began to recover, CAD/JPY looks poised for a break out from it’s 3-year downtrend. Strong crude and Japanese equity prices would be very supportive for long CAD/JPY.
CAD/JPY 3-year
Crude re-test complete January 18, 2010
Posted by Warren in Energy, Strategy.add a comment
Following a great start to the new year, crude seems to have completed a re-test of the break out. If one of your strategy for the new year is to be long energy, now is the time to go long.
WTIC 6-month
Silver:Gold ratio breaking out January 11, 2010
Posted by Warren in Metals, Strategy.add a comment
It’s finally time for silver to shine.
Silver Mar10: 6-month
O Canada October 5, 2009
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The loonie looks poised for a fresh up leg, and it may even hit parity with USD by year-end.
CAD 3-year: after breaking out of a two-year downtrend back in July, the loonie has been consolidating in a tight range
Silver correction complete; update on USD September 28, 2009
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My core view is that PMs will finally break out to new highs over the next few months. Many people are expecting a further correction to August levels, but I think that is wishful thinking. If PMs are indeed headed for all time highs, they must not lose their current momentum – a further correction to August levels would impair the momentum that is required for the final push, especially considering that we are currently in a favorable season for PMs.
Silver 9-month
Silver technicals: 16 is a MAJOR level for silver (see my 8/13 post) and is currently the last line of defense. Silver dipped below 16 overnight but managed to close above it, forming a long doji. Looking at the 1-month chart of silver below, there is a potential head and shoulders topping pattern – I think this will turn out to be a significant bear trap.
Silver 1-month
USD: the chart below is a friendly reminder to DON’T FIGHT THE TREND. There’s been a lot of coordinated USD jawboning as of late, but I think this is merely an attempt to smooth out an otherwise obvious (and beneficial) collapse of the USD. As for the yawning inflation v. deflation debate, the answer is simply in the data; I’m not even going to bother explaining this. Bill Gross recently rebalanced PIMCO’s portfolio to almost 50% in long dated US bonds, betting that deflation in the US will persist – I can hear Jeff Van Gundy commentating in the background: are you kidding me?! Can’t wait for the NBA season to start :)
USD: 9-month
Don’t fight the trend August 18, 2009
Posted by Warren in Central Bank, Metals, Strategy.add a comment
Markets were rattled yesterday following a steep sell-off in Asia. Risk trades corrected heavily (silver was down more than 5%) and dollar/treas rallied hard.
OK, so what?
Nothing has changed fundamentally. What are such fundamentals that I speak of? Simply put, we are currently going through a cyclical recovery on the back of unprecedented debt monetization and government spending, with the ultimate hope that consumer spending will pick up the demand side. My core assumption is that the US government is committed to devaluation of the dollar (though not as vocal about such intention as the UK government for example) for the long term.
USD 1-year: don’t fight the trend
Buy silver August 13, 2009
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A break above the downtrend line (see below) should lead to a quick move to around 20. We’re looking at a 2-year long downtrend line that may be breached here!
Silver 2-year
ssibly
Flipping back to long August 11, 2009
Posted by Warren in Central Bank, FX, Metals, Strategy.add a comment
I had taken profit on PM longs and also shorted some last Friday. Indeed gold and silver have sold off sharply during the past few trading sessions, and I decided to flip back to long this morning. As for tomorrow’s FOMC announcement, it looks like almost everyone in the world is expecting the Fed to shut down QE! My expectation is that the Fed will not raise rates until next year at the earliest. I doubt that Bernanke will pull the trigger on any “exit strategy” before the dust has really settled. So long as the Fed doesn’t explicitly announce an end to QE right now, I think Fed day will be bullish for risk (and bearish for USD).
Silver 1-month: very nice entry point
USD 1-year: don’t fight the trend
On second thought… August 7, 2009
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I had initially thought that PM could launch a rally pre-FOMC meeting, but it looks like risk is due for a pull back (but only for the short term). Consequently, I expect the dollar to rally for the short term. I’ve taken profit on my PM (a very good run!) and shorted some as well. Eventually, however, I expect the long term triangle formation to be broken fairly soon. In terms of summer seasonality, one can argue that we’ve already passed the seasonally weak period. August is also traditionally a pivot month for a rally that extends into spring of the following year. As for my downside targets, I expect gold to drop to about 940 (50 dma) and silver to drop to about 14.250.
Gold 6-month: very neat triangle formation is near its end…
Gold testing resistance August 6, 2009
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The 7-month triangle formation is finally coming to an end, and a breakout seems imminent. I had been cautious to factor in seasonality for precious metals, but it looks like the deflationists are the ones that are still on the beach (and caught with their pants down). A positive payroll tomorrow would be helpful.
I acknowledge that gold has underperformed most of its commodities siblings since the bailout/stimulus fueled recovery (the “Great Recovery”) began, but one must understand the dual role of gold ytd. Although it seemed like a noisy ride, the gold chart below neatly summarizes overall market sentiment ytd through the eyes of gold.
- Until late-February, gold rallied to $1,000 as a safe haven (along with the dollar and treas); this was not the propoer launching pad for four-digit gold.
- Until mid-April, gold sold off as capital rotated back into equities (even as the Fed announced QE); this marked the end of gold’s role as a safe haven and the start of the Great Recovery (also the last oppotunity to buy gold under $900).
- Until early-June, gold rallied as renewed risk-taking lifted inflation expectations; this marks the rebirth of gold as the anti-fiat currency.
- Until early-July, gold sold off to $900 as the government became more hawkish (and prematurely/foolishly announced plans to withdraw bailout facilities and raise interest rates) and the Great Recovery came into doubt; this marks the last oppotunity to buy gold before launching into four-digit territory.
News flash: Bank of England boosts QE; this should be positive for PM.
Silver breaking out July 17, 2009
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On the back of positive earnings from GS and JPM, risk taking seems to be back in vogue, fueling silver’s break above the falling wedge.
Silver SEP09: 1-month
Silver: falling wedge July 9, 2009
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…one of my favorite reversal patterns is in play. My medium term (2 months) expectation is for silver to make a quick break above the downtrend and go range-bound around 14.25.
Silver SEP09: 1-month
Market sentiment chain of events; chart updates July 9, 2009
Posted by Warren in Central Bank, Energy, FX, Government, Metals, Stocks.add a comment
Cyclical recovery and commodities have dominated the news since Q1, but prices have experienced a near collapse during the past month; this is a very drastic change in market sentiment. My take on the chain of events impacting market sentiment this year is as follows: (i) Fed/government props up market via historic stimulus/bailout, (ii) inflation fear prematurely turns into hyperinflation fear, fueling risk-taking, (iii) stocks recover and green shoots sprout everywhere, (iv) an optimistic and inflation-fearing Fed/government prematurely indicates plans to roll back historic stimulus/bailout, (v) hyperinflation fear turns into deflation fear, curbing risk-taking, (vi) stocks sell off and green shoots are put into doubt, (vii) ???. As for subsequent chain of events, I expect the Fed/government to realize its premature mistakes and eliminate any doubt of economic recovery (while at the same time implementing much needed additional fiscal/monetary stimulus). Consequently deflation fears will dampen and risk-taking will resume. As for timing, I expect the Fed/government to act before the current stock sell-off gains serious momentum (so pretty soon). It is interesting to note that despite the drastic sell-off in commodities during the past month, the dollar index has not moved all that much; the current currency devaluation trend is still very much in play.
Dollar index: 9-month (this chart gives me comfort that commodities prices are currently oversold)
Silver: 6-month (back to 12.80! BUY!)
Crude: 6-month (down $14 since last week’s scandal; could hit 55 but 60 seems to provide strong support)
Treasuries: 6-month (breaking out; rates have room to go lower while commodity prices (and inflation expectations) recover)
Shorting more stocks July 2, 2009
Posted by Warren in Stocks, Strategy.add a comment
It looks like stocks are about to roll over to the downside; cyclicals are struggling and the economic growth story is starting to lose its lure. Fears of credit (consumer credit) contraction is back in the media and the long term implications of jobless Americans are coming to light. From a technical perspective, almost everyone seems to be talking about the head and shoulders formation. Despite this renewed bearish sentiment, only time will tell if this correction gains any momentum. As much as any calls for hyperinflation are premature at this point, the government’s recent indications about closing down the various credit/liquidity facilities and stimulus measures are very premature.
S&P: 9-month
Silver outperforming gold May 12, 2009
Posted by Warren in Metals, Strategy.add a comment
The silver:gold ratio depicts the level of inflation expectation and risk appetite in the markets; it has been on the rise as of late. While gold re-tested 1000 back in March, silver rose to a meager 14.6. The rally back in March was driven by fear, whereas the current rally is driven by risk-taking. The long-term chart of silver is signaling a new up leg to the previous high of 21. Of course, timing is always important. If silver doesn’t break out at this time (and suffers a correction), it may take weeks or even months to regain momentum sufficient enough to break the multi-year resistance level.
Silver:Gold ratio: 3-year
Silver: 3-year
Silver breaking out, thoughts on PM May 4, 2009
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Silver has broken above a 3-month downtrend line and closed above it’s previous high. As I mentioned before, it seems like precious metals are finally resuming their role as the anti-dollar. Ever since Lehman fell, precious metals had taken the role of a safe haven (along with the dollar, which also rallied), and while other commodities were getting crushed from deflationary pressure, gold and silver rallied more than 30%. But as stocks started to rebound and quickly took the form of a recovery rally, more and more capital exited safe haven trades, erasing all of precious metals’ gains ytd. As precious metals kept forming lower lows and lower highs, stops were triggered and shorters became merciless; this is where we are now, and it’s imperative that precious metals hold on to their current support levels.
I never felt comfortable with precious metals in “safe haven” mode…why? Because unless we’re in for another great depression, economic recovery will likely occur sooner or later in some shape or form; this is not something that will extend gold’s secular bull market for years to come. At the end of the day, it’s the rise in fiat money supply (not only in dollars, but in all other currencies) that will drive precious metals’ long term bull market.
Silver: 6-month (breaking above)
USD: 6-month (breaking below)
Here’s a long term look at silver. Wow, I sometimes forget that silver was at $21/oz just 14 months ago.
Time Out! Buy gold & silver, buy it all… May 1, 2009
Posted by Warren in Government, Metals, Strategy.add a comment
I’ve recently become bearish on gold for short term techincal reasons, but I just could not ignore the flurry of political uncertainty as of late. Namely, I’ve become very wary of recent political developments surrounding the Chrysler/GM bankruptcies, bank stress tests and new tax plans (to shut down tax havens). After a couple months of shutting up, the government is back at it again. I’m also seeing signs of recovery in gold and silver’s role as the anti-dollar. As I said, I’ve been short PM for techincal reasons, but putting these new thoughts together, I decided to cover my gold/silver shorts and flipped back to long. One may think that I’ve been flip flopping with PM way too much, but hey it’s that kind of market, and it’s all about catching a trend before it gets too crowded (whether it’s down or up).
Gold: 3-year (I’ve been focusing too much on short term charts…here’s a look at the bigger picture)
Precious metals looking bearish April 27, 2009
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Although there were signs of bottoming, it looks a downtrend might be forming for gold and silver; it’s time to short my friends.
Gold JUN09: 6-month
Silver MAY09: 6-month
Precious metals may have bottomed April 23, 2009
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Technicals look promising. A break through key levels could lead to a bit of a short squeeze. Lately, precious metals have been ignoring the rest of the market and have crept back up behind everyone’s back.
Gold: 6-month
Silver: 6-month
Bullish falling wedge April 20, 2009
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…this time for gold.
Gold JUN09: 1-month
Bearish rising wedge pt. 2 April 20, 2009
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…still, the last stand.
S&P JUN09: 1-month
Gold: support?
Bearish rising wedge April 16, 2009
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…the last stand.
S&P JUN09: 1-month
Gold breakout imminent… April 14, 2009
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…could lead to a massive short squeeze. Many speculators piled in to short gold when it finally broke 890, expecting a significant correction (some say to 700!). Despite such selling pressure, gold seems to have bottomed at 865; the break below 890 may be a bear trap. Gold is sitting at 890 right now…I would like to see a weekly close above 900.
Gold JUN09: 1-month
Silver MAY09: 1-month (already breaking out)
