Ron Paul on Inflation
Connecting The Dots With CG
The Careful Gambler
8/04/09
One must simply tie
oneself to the mast, avoid the confused chatter from the failed right who
reneged on free market capitalism with the bank bailouts of 2008 as well as the
misguided, immoral and clueless economic policies of the left and simply follow
the path of gold to determine what is really going on. Gold could care less about whether Obama’s
birth certificate is real or a fake, that he is cool and attractive or that his
wife dresses fashionably, that there is debate about whether “In God We Trust”
remains on our currency, that the health care proposal is in fact a death blow
to the Hippocratic oath, that babies are being aborted with all but their heads
hanging from a birth canal, that the left is effectively redefining sensible
law on marriage into some thing that will permit virtually any sexual form of
deviancy known to man, that you and CG (if he continues to remain a US citizen)
will see our liberties stripped, our assets stolen and our opinions attempted
to be confined and controlled. We know one thing about gold – it reflects the
degree of world fraud and particularly
But such romanticism
is dangerous as much as it is misplaced.
CG has seen the sort of breakdown pattern we are witnessing now in the
dollar in other assets before. Remember
the Oct 2007 analysis (a big fat WARNING) that CG provided for GE, right before
it fell off its globalist perch from +$30 down to as low as $6? Do you remember that CG purchased a ski
vacation on the proceeds of shorting stocks in winter of this year? Do you recall how many times CG has advocated
the value and common sense of having a sizable position in physical
metals? Are you adding back to some
energy positions since once the dollar is at the level of other banana republic
currencies you will need to compete with them and their burgeoning populations
of Muslims for fuel? Once the evidence
of hyperinflation is upon us it will be too late to purchase the metals that
you should have purchased during the corrective phase in 2008 and even up to now!
But let’s look at a
few sectors just to make the point where leadership has come from lately.
UYM is a sector ETF
for materials – it has returned more than 100% since the March low, over twice
the typical stock indices, here compared with the often Cramer-touted technology
heavy NASDAQ (QQQQ).
The Careful Gambler
July 17, 2009
Careful Gambler is packing for a summer vacation, but wants to alert his readers as to critical dollar developments.
From his Feb 14th 2009 posting he wrote: “A break below 80 on the DXY would almost certainly cause a test of the low 70’s low. Breaching 70 in this environment of bank insolvency, investor fear and uncertainty would be catastrophic and extremely disruptive to all the markets except physical precious metals. If and when the 70 level is breached is beyond CG’s scope at this time. But if this tsunami wave appears on the horizon CG will alert his readers.”
Here is your early warning: THE TSUNAMI WAVE IS VISIBLE. The dollar is fractions of a penny away from a further slide of about 10% in value. It has toyed with the 80 level and seems to have given up the ghost this week with a couple of dramatically lower closes. It is now at 79+ and worse, (if you are a dollar bull) gold has regained a lot of momentum by moving back to $940. Though this weak dollar move may actually affect the stock market positively, it would likely have a multiple positive effect on mining shares and on commodities in general. A move 10% lower does not automatically translate to a 10% rise in gold at all times, but it did gold would be priced almost exactly at its all time high of $1033 / oz. But an even safer and potentially more profitable trade is to consider buying a blend of silver, palladium and gold instruments (physical, ETF’s and mining stocks). For example, silver is still largely undervalued from it’s high of $21 / oz. relative to gold. Palladium is severely depressed due to the buyers strike in automobiles. Btw, King Hussein Obama, a hint… No thanks on GM! Lovers of free market capitalism (the only system that works) like CG don’t want a Government Motors car competing with REAL automobile companies at our expense and we’re not thrilled about preserving UAW pensions when the UAW was one of the culprits in GM and Chrysler’s own bankruptcies. But, we all know you have political pay backs to the unions. But please, don’t tell us we need to conserve when you are simply transferring our wealth to your political cronies. This is not change, it is status quo and you have misrepresented your objectives.
Back to the markets…the longer gold holds above $900, the stronger the case that the pattern below was just a classic correction that is now gaining momentum for a MASSIVE upside breakout. Check out the chart. You’ve seen this pattern time again in teis gold bull. Why should the outcome be any different this time?
However, the chart below in Yen shows that there has been a flood of safe haven money now also pouring back into certain currencies that are not running the scale of deficits that America has. Though the break of gold below 8600 Y/oz. was bearish, the real support is around $8000Y/oz. As long as gold holds above this level the case for the gold bull in ALL currencies is still intact.
Look, CG proclaimed a “bummer of a summer” in 2008, and you can all see how things deteriorated progressively all the way through the election. You can all see for yourselves that our Executive and Legislative branches are run by buffoonish idealogues…No wait, that is too kind…radical, incompetent liars. You can all see the dollar being destroyed. For heaven’s sake – THIS IS THE OBAMA PLAN! IT WAS THE BUSH PLAN for the dollar. Remember, just like King HO, Bush talked strong dollar as it plunged 6 out of 8 years of his presidency. The end result of this will of course be worse for our standard of living, but don’t waste your time trying to convince “koolaid liberals” now. Their approach is to ignore facts, ignore charts, blame Bush ad infinitum for every American ill. They have already made up their minds what the problems are, even invented problems that were nonexistent and then how to remedy them. Debate? Why debate? There is no time for debate. Remember…We are in a crisis! Quick, do something, anything now, now NOW!
The bottom line is this: if you are reading this, you are interested in educating yourself to an alternative voice that actually resonates with something lacking today – common sense. CG doesn’t need to tell you that a man and woman are the only two genders that when “mixed” can actually produce progeny. CG does not need to tell you that when money is leant at 7% and purchased at 0% banks will make phoney profits. And of course the world is a bit warmer when so much of it is paved with asphalt now. Neither does CG need to tell you how to hide your assets under this new Administration’s nose, but CG will tell you, you had better have a PLAN to do so or enjoy getting wiped out financially. By not telling you, CG is doing you a service as you will do what millions of Americans have done for centuries – innovate!
Fear not! Remember liars, thieves and thugs like we have in Washington today lack one critical element in their thinking and that is truthfulness and the lack of it has distorted their minds. People who have conditioned themselves to spreading and processing deceit have given away their ability to discern. Hooray for you! Hence, by default whatever actions you take, born of clear God-given understanding you will be one step ahead of them.
The Careful Gambler
March 2,2009
The Big Chill
Hearing the news today that the average 401K plan has lost 25% just since the presidential election on November 4th, I could no longer take this torturous stock market and decided to call my old wise friend, Careful Gambler. I just HAD to know…are we at the bottom? Or were the conspiracy guys right and our economy is indeed on the verge of a breathtaking one-of-a-kind collapse and the birthing of the New World Order is now upon us? Or are we equally worse off and at the onset of Marxist style socialism …heaven forbid!…could Hannity and Rush be correct about this wealth distribution stuff? Or was this just a Texas sized parting joke that Bush and Cheney dreamed up on one of their last boozed up hunting and fishing trips… a smoke’em out banking mess tribute to the liberals? Or maybe, just maybe, despite the smooth talk, bold new ideas and seeming political prowess, our new ambitious president simply is showing his lack of experience as McCain and other seasoned, gray haired guys had stated all along? Similarly, maybe the investment community had figured that our modern day Mr. Lincoln wannabe simply had everyone fooled and “knows nothing” and his “stimulus plan was crap” as Cramer put it. As these thoughts swirled about in my head, I recalled with some distant sense of calm my summer conversations with Gambler and how he was able to somehow put it all into perspective for me. Even back then with gas prices over $4 per gallon, after talking to him I felt as though the sun would still come up again…and it did… as I celebrated my last night out with the family on my summer vacation. So I punched in the crumpled number from my wallet stuffed among my loose bills and worthless gas receipts…and waited for him to pick up.
The dial tone seemed to ring endlessly….and it made me wonder…was he OK? Was he even alive? had I said something to upset him and was he, after seeing the number on his cell phone no longer interested in talking? After all it seems with all of the bailouts and now the whopper 3.5 trillion budget on the table that almost everyone is on edge and have taken some sort of extreme political position to justify the candidate they voted for. It’s hard to know who your “family” and friends are any more. On and on the dial tone continued to ring and I was about to hang up when I heard that familiar voice.
“H….Hell….Hello” the voice responded a bit out of breath.
“Gambler…thank God you’re there…I had…”
He interrupted, “oh it’s you, my friend, have I got news for you”. It was as if Gambler had been anxiously waiting for the call.
“News?”, I asked, thinking he had some good market advice (capitulation…time to go all in, perhaps?) .
“Yeah boy, did we get a helluva a snow fall here.”
“Where are you?”, I asked.
“I’m up in the Dacks…you know Adirondacks, north of NYC…doing a little skiing. After all the resorts up here are not doing so hot this season and no wonder. All of that mess down there on Wall Street is finally hitting the brokers and bankers where it hurts – in their vacation budgets - and I got this great ski package deal from a former AIG marketing manager that was afraid of the government oversight thing. I’ve never skied so much at once in my whole life and the slopes are wide open! Actually I’m glad you called, I need to take a hot chocolate bourbon break…hold on”. I could hear Gambler trapsing through the snow back to the chalet and finally he was settled in with his hot chocolate whiskey concoction.
“Man it is great here…blue sky and brisk…it doesn’t get much better than this.”
“I’m sure it doesn’t Gambler”, I responded and continued, “But have you watched the news lately?
“You mean this record late season snowfall or the BIG CHILL in the market over the last 3 weeks?”, he asked.
“I mean the market man, it’s terrible!”. And then I went on to probe CG to see which scenario - the coming New World Order, Marxism, inexperience, or a Bush surprise - was at the heart of the problem.
“You’re a good student, son…all of the above”, he said with a snicker… ”Absolutely…you’re right-on about all of ‘em…. but that doesn’t matter now”.
I could hear the clinging of bar glasses in the background amid that all too familiar silence from Gambler as he allowed me to contemplate what he had just said. Even so, I was still kind of stunned at the reply and hesitatingly asked to hear more.
”Please explain, Gambler”.
He went on…”Eventually you’ll be right about them all, the world is going to hell in a hand basket of course, everyone can see that…but that is not what matters to survive this market. Actually you’ll be happy to know that I am proud of your discernment, but don’t get too hung up on the big theories, just look at the charts and remember this one from the history books.
“Remember what?” I asked
“Bear markets are much steeper and quicker than bull markets. Actually they’re about 7 times more compressed”, he said.
“So……?” anticipating Gambler would further explain.
“So you can make money 7 times as fast…you know inverse ETFs!”
“Yes of course” I responded, “but how do you know when to sell?”
“Sell? Sell whenever you’re up on them and need some cash…how do you think I bought this ski vacation?…hell it’s just paper money…it has no real value…but you didn’t dump your gold and silver in this last drop did you?”
“Just a bit to trade, nothing substantial”, I said. “When it got to 1000 I couldn’t help to think that the traders would think we were getting a double top, so I played it that way with a small portion of my position. It was one of my first lessons from you in 2003 never to short gold and silver when the government is creating money at multiples above the GDP, remember?”
He seemed genuinely proud…“Nice play, boy”, Gambler exclaimed. “But don’t wait too long to buy back in…you always want to stay rather fully invested in real money. Please promise me you’ll only trade in and out of gold quickly for sport only. Don’t ever be a fool and miss the scope of this metals move. Man, it’s generational in size. Please don’t forget that. You know even when all your theories eventually do pan out, and the government austerity takes hold, it still won’t matter because you have something of real value in your metals.”
In spite of his gleeful vacation spirit and taking pride of his student’s recent trade, he seemed to make the point sternly.
“Got it Gambler!”, I responded.
“Good. You OK now?”, he asked.
“I am…thanks again”.
“Listen I want to take one more run down the black diamond before I call it quits today”
We exchanged a few more pleasantries before ending our conversation.
I was so relieved that CG had once again realigned my thinking. What he told me, as always I knew, but was afraid to allow my knowledge to rule over my emotions. With all of the put trading tools out there, cash paying close to zero, bonds at all time high levels and certain to go negative once the flight into dollars recedes, how could I have overlooked such a obvious play?
The Careful Gambler
February 19, 2009
Aluminum – an interesting and important industrial metal that like many commodities has seen its price shaved well in half from its 2008 highs. Low in density and therefore light, malleable, conductive, corrosion resistant and even fairly strong when lightly alloyed…in short it has many properties that make it useful to many industries, especially applications where it’s light weight can provide kinetic energy efficiency applications (transportation).
The continuous contract chart below shows that aluminum is still in the doldrums, reaching yet another new low.
The next chart below of Aluminum Company of America (AA) shows a similar pattern as ALUM , only instead of being down 50% from it’s 2008 high, AA is down over 80%. This is typical for resource stocks – they always move in multiples of the underlying metals they produce.
Though AA is cheap now, CG is not advocating to buy it. But it is worth one’s while to see what is happening in China, where the Chinese government has thrown everything except the kitchen sink at their economic downturn in an effort to halt the drop in GDP, now approaching 6% from a high of nearly 13% just a year ago. China’s large population and relocation of millions of rural residents into urban industrial centers where there is work and where many have tasted an increase in standard of living represents a huge challenge. Keep the masses happily working and increasing their standard of living or face potentially embarrassing worldwide publicity (in the wake of the Olympics), riots and social upheaval.
China’s solution to their crisis was pointed out in a wonderfully detailed article recently by Eric deCarbonnel, where his thesis states that hyperinflation will prevail in China and this hyperinflation virus will be exported, with the eventual casualty being the US dollar. CG could not agree more with Mr. deCarbonnel. And American consumers , drunk on decades of cheap manufactured goods from China could soon get a rude awakening as store shelves mysteriously find themselves thinning with less product selection and at higher prices. But this is still a ways off in USA because no one is doing much retail spending yet to remove the current inventory overhead and the stimulus package looks like a monumental flop in turns of putting much money in hands in 2009. So, while all the fear from Wall Street talking heads, (who have been astonishingly inaccurate in their market forecasts) is focused on deflation, it does not take a genius to know that trillions in new money and spending are both directly inflationary actions. Yeah, yeah,… CG understands that money has been, is and will continue to be disintegrated to some degree as collateral damage continues in the housing and financial sectors. But a picture is worth a thousand words. To get a clue what Mr. deCarbonnel is on to, check out the chart for Aluminum Corp. of China (ACH). You could check any number of commodities, but aluminum is the metal of the day so let’s look at it. Now it’s a little early to state a trend here, but clearly relative to the contract price for Al and for AA, ACH has good strength. If it can hold 11 and trend higher during this current round of selling this would be a bullish indicator that China’s stimulus is working.
Basically the point here is that the industrial metals markets have stabilized, despite what American metals companies stock prices are doing. Increasingly America and it’s brotherhood of blow hard Washington politicians are losing real influence in the real world because we are what we are - bankrupt, both financially and morally. So when CG wants to know of opportunities in basic materials, he’s not looking at most US or European companies for clues. On the contrary, CG is watching China to know the direction of industrial commodities, including oil. And CG would be amiss not to mention that increasing inflation in China makes the dollar more vulnerable to a major sell off as Chinese officials may be very tempted to institute a controlled float policy on the yuan which would rise in value on international exchanges due to China’s superior financial condition and massive reserves. The net effect would be to increase their citizen’s standard of living through better domestic buying power. This is a bit of the dog chasing it’s tail, but it might buy enough time for them and work good enough to prevent civil unrest.
Even as Chinese resources stocks are good values now, dollar weakness appears to be a real power play in a few months…after US equity markets get a climactic sell off, which seems imminent, given the flurry of anti-growth rhetoric exuding daily from the new administraion. And seasonally, the April-July period is a weak one for weak trending stock markets as well as the presidential cycle which is always soft the first couple of years of a new president. In addition, April’s 1st Q GDP number ought to look comparatively horrible since the 4th Q 2008 result of –3.8% GDP was actually erroneously more positive than reality due to inventory technicalities. It all adds up to one last big push for dollar strength and from that point it is difficult to envision where any future strength can possibly be found. There are deficits on the landscape as far as the eye can see! H
How to play dollar weakness without going through FOREX? Here is just one such fund that could be used. Again, this is not yet a pretty chart, but a test and hold at the current level (24-24.5) would be bullish for dollar shorts. A time is approaching where shorting the dollar appears to be a safe and profitable bet.
02-19-09
The Careful Gambler
February 14, 2009
An Anniversary Celebration!
Scene of death from Chicago St. Valentine's Day massacre 80 years ago today
Our beloved and popular President Bush declared several times during his two term presidency that “justice shall be served”. And with respect to the eventual fate of Saddam Hussein and his band of fascist thugs, justice was indeed served by Iraq’s own court…and rope. But CG wonders whether Bush had ever considered that justice could be executed just as easily on his own country, the USA.
As we celebrate Valentine’s Day in the tradition of chocolates, roses and other things that are red and sexy, we should at least pause for a moment to consider that 80 years ago today (1929) was a defining moment in Lincoln Park Chicago (near Obama’s home turf) as Al Capone murdered 7 members of it’s local rival gang headed by “Bugs” Moran. Indeed, justice is not a respecter of political party, class, or ethnicity, and that it may be executed quickly and with devastation on any one of us when we find ourselves in a compromised position, is sobering.
CG uses this horrific example to make a point: When one lives in a land where the rule of law, which characterizes a civil society like the Republic of USA (no, we are not a Democracy!) is disrespected and moral hazard prevails (spelled BAILOUTS), we should not be surprised when justice is served ON US. Indeed we should anticipate it and this should even pervade our investment philosophy if we are to at least break even.
And just how is justice being served on us now?
In terms of economic justice, it has been happening for over a year now….and this will continue. Why should it not? Have the events over the first few weeks of Obama’s term encouraged you that THIS administration will be any MORE ethical, MORE bipartisan, MORE effective, than the last? In under a month an additional 2 trillion (with est’d accrued interest) of OUR MONEY was allocated between the US Congress and the US Treasury to further advance an elitist controlled nationalized bank Ponzi scheme while simultaneously guaranteeing the survival of the least productive industries…not to mention that the main thrust of stimulus would not occur until late 2010 and 2011, the year before Obama seeks re-election. How convenient for our new Messiah-in-Chief! He has already gone to great lengths explaining that “I inherited this recession” (i.e. don’t blame me)…even though we won’t mention the fact that HIS party controlled the Legislature for the last 2 years. But let’s not get hung up too much on finger pointing. Remember both parties have become corrupted and are all guilty of defrauding us, more or less.
As CG pointed out in his “Inaugural” newsletter on January 20t, gold was potentially on the verge of a major breakout, as evidenced by the falling dominos of world currencies. Then it was the Aussie Dollar and Sterling. In February more currency dumping took place as gold valued in both the Swiss Franc and the Euro broke out to new all time highs. Consider that the Swiss Franc is an innately strong currency, that is perhaps THE MOST gold backed currency in the world. Anyway one slices it, since Obama’s election we have witnessed a MODERN DAY VALENTINE’S DAY MASSACRE IN THE CURRENCY MARKETS! Remember, just a few years ago the Euro was the darling of currencies. What a turn of events. It was toasted the last few weeks.
Let’s again reflect on the charts…
Last month CG saw this pattern in gold trading in Euros and stated we were “just a few percentage points below it’s (gold’s) all time high of 640 Euro…this pattern often precedes a breakout”.
Skipping along to the current view (below) of this same chart, we clearly got the breakout. It now costs 700 E to buy an ounce of gold. Now Europeans are joining Australia and Britain by preferencing gold over their own currency.
CG could show you the same sort of chart for gold denominated in Swiss Franc too, but what would be the point? For Americans, the question is HOW LONG WILL IT BE UNTIL OUR DOLLAR BUCKLES? CG has good reason to believe that the seasonal tendency of metals (strong now) along with the continued bank INSOLVENCY CRISIS, firming energy and general commodity prices, and a MASSIVE reflation effort underway in China which will lead to higher commodity prices are all bullish for gold and even more so for silver. And remember what CG has also lectured you on in previous sessions – that dollar strength is not real strength. It is RELATIVE flight to safety (short term US treasury cash and repatriated money flows) from crashing equity markets overseas and soon to be weakening bond markets.
The dollar chart below shows the confines of the dollar range now. On the low side is the early 2008 low in the low 70’s and on the high side the 2004-2005 top at 90. What these numbers represent psychologically are as follows…
- 90 = good old housing bubble days. Approaching this level begs to take profits in stocks and bonds while moving into precious metals
- 70 = last support, before run on dollar could ensue, move to gold.
- 80 = also a key psychological support level because it represents the previous multi-decade historical low that was touched in the late 1970’s, the early 1990’s then again in late 2005 but not breached until 2007.
Basically the play here is the idea that a strong dollar is only REFLECTIVE of BOND and EQUITY WEAKNESS and has no other fundamental basis for strength. In reality the 78-80 level is a key to the dollar’s medium term direction. A break below 80 would almost certainly cause a test of the low 70’s low. Breaching 70 in this environment of bank insolvency, investor fear and uncertainty would be catastrophic and extremely disruptive to all the markets except physical precious metals. If and when the 70 level is breached is beyond CG’s scope at this time. But if this tsunami wave appears on the horizon CG will alert his readers. One thing for sure, with the banking system so fragile a strong move below 70 would feel like an injustice to America. But with all the financial shenanigans of the last few decades from the Fed, Treasury, Wall Street and Congress, it would really be “justice being served.”
Feb. 14, 2009
Dollar Reversal…Rally for Gold in the Making?
Careful Gambler
CG has noticed something and wants his friends to take note…and quickly, because it happened THAT fast..within a few days.
A new trend is in the making and it appears to be a reversal of the dollar's multi-month Cinderella bull move, which was really a remnant of the carnage on Wall Street, deleveraging, etc. anyway.
CG regards the drop through 84 DXY today (12/11/08) as a very bearish indicator for near term support level of the dollar. What surprised CG was how quickly we went from pushing 88+ to now 84-, from top to bottom a 5% move in the dollar. Multiply that percentage by the trillions of dollars out there in the world and it is apparent that this is a BIG deal. We're not talking about a little Krona (Iceland's technically bankrupt fiat currency), we're talking the currency that runs the world, at least the "petroworld"!
The surprising thing was how well behaved gold has reacted to this. It's almost as though it knows that if it gets too bullish there are still some lingering plans to bash gold like the Fed did in August and December. CG continues to review those gold charts from August and September and stubbornly maintains the Fed's fingerprints are all over this "correction". But those lunatics probably got more than they bargained for - they eliminated investment banks from the face of the US, crushed Wall Street as well as sane persons' confidence in government. So, for example, even if the auto bailout is needed, who can actually loan the money to GM BESIDES the government? The banks are all broke and their 700B gift from congress they are trying to hoard (as if Hanky Panky Paulson did not know that to begin with). In normal big cap bankruptcy proceedings over the last 30 years it has been investment banking deals that swoop in at the 11th hour to the rescue. The short story is that age of lending is history unless it is the government. Investment banking has been replaced with industry nationalization. That will be the trend for the next 4 years anyway. There are simply too many socialist leaning politicians populating Washington now. It's simple math.
Those of us who recognize this may get lucky and survive this mess.
Ho, Ho, Ho…
CG
The Careful Gambler
11/11/08
Failing "W"
Today is Veteran's Day and we should really be focused on Vets, with a "V". But today CG would like to move on to the next letter, "W".
No CG is not talking about our president, he's referring to a chart pattern on the major stock indexes. Chartists decipher between real stock market tops bottoms or not by certain patterns in volume and price behavior. You all know that…but, on the price side the failure on 11/10/08 for the market to close higher was perhaps more than just a one day event. It subtly closed lower despite a feeble end of the day rally. In a larger sense the market signaled that we will probably have at least a retest of the low another 500 points lower, since yesterday's close marked a failed support of the inverted "W" pattern. This pattern is one of several calssic bottoming patterns.
Though November tends to be one of the strongest seasonal months for stocks, this retest could happen EVEN THIS WEEK, smack in the heart of Novermber strength. CG does not predict but, logically, there is little to suggest that the period between Thanksgiving and Inauguration Day will offer anything positive for the market, so the path of least resistance is still lower, and it could accelerate again, as earnings guidance is now being cut drastically lower and with a prospect of further hedge fund selling and more credit based defaults that uoght to keep Christmas shoppers home for the holidays.
Right now everyone is on the gloom bandwagon, but there appears to be plenty of seats still available! If the DJI goes through the previous October low (or S&P low of ~850) there is little support for a long, long ways below that. It sounds ridiculous to most people to rationally suggest that the market could fall by another 50%, but it is actually possible if the charts are your guides. Basically the next real support are 1995 valuations..bwefore teh age of "irrational exhuberence" as Greenspan called it.
So now, anyone "invested" in this market must make a painful decision - cut with a terrible 30% yearly loss to avoid a further big drop or hope hope hope that the market holds up until a new administration can calm things down.
CG sees the latter scenario as the least likely. In fact, those that gave Obama the winning margin (students, minorities, unemployed, etc.) have the least in savings and therefore the least to lose. So if the market crashes, what do they care? This would effectively cause an amazing relative change in wealth distribution. Pure genius as a socialist!
Careful Gambler
Oct 22, 2008
How is Gold Viewed Elsewhere in the World?
Here in the US, gold and even more dramatically, silver, are being crushed by a fantastically strong dollar countertrend rally, not to mention the concerted central bank pounding of precious metals that began August 1st and continued in earnest through September. The retesting of earlier lows now should be interesting, though there is no guarantee that we will not see <$700 gold briefly. From it’s low of around DXY 71 earlier in the year when gold was pushing over $1000 for the first time ever to it’s current price at DXY ~ 85, this is almost a 20% appreciation in the dollar! Whooda thought we create more money and the dollar would appreciate like that, but that is what happened. And with gold priced at ~ $760, it appears that most of this dollar appreciation so far is accounted for by depreciation of gold. The added 5-6% extension of gold depreciation in dollar terms may be accounted for by deleveraging of our financial system and the much written about induced weakness from the “paper” gold market. In other words gold is being acted upon heavily by the powers that be rather than reacting to circumstances. The extent of dollar strength took CG by surprise, as he figured that DXY 78-80 would be tops. But the fat lady has not sung yet.
Anyway, not everyone is buying a new trend in the dollar. There is no denying that physical coin silver, gold palladium and platinum has severely dried up. So, at least these PM buyers are not in love with dollars again. Though the spot prices, dictated by the pretend paper market are weak, physical prices are holding up and actually strengthening, If you want to buy silver and gold Eagles (real money), for example, you’ll have to resort to e-bay… and be prepared to pay many dollars over spot price or be shut out. The coin houses are sold out across the country.
Another way to observe the metals markets is to see how the price of gold is doing in foreign currencies. How many are aware that gold has busted dramatically through new highs against the Aussie dollar, and most recently the British pound? How many are aware that we are one more financial, OPEC or geopolitical event from new highs in gold if priced in Swiss Franc, Euros or Yen, as these currencies are within striking distance of making new highs? Quite simply, the US dollar is strong because the world has a reserve system that rests fairly exclusively on the dollar as the trading unit. Especially in the BIG market of petrodollars. And we have a Treasury and Fed who have overpowered the markets with a flood of liquidity and promises of more so the trend followers are temporarily happy to feed the bear funny meat (electronic dollars) rather than think for themselves what this is all leading to. So in short, during difficult times it is DOLLAR CASH that investors flocks to until all the volatility can be sorted out. Then the wad disperses into more sensible investments.
However, as these problems persist and as the effects from the recent absolute bastardization of the US dollar (via Freddie, Fannie, AIG, bank bailout plans) result in a flight from the currency to avoid the imputed inflation that will go with it, gold is set to explode, yes explode to dizzying heights when “the run” on the dollar eventually happens as it seems destined to. If the run on the dollar turns into a run on FDIC, it is likely that gold will go hyperbolic. Let’s not plan on that though. Helicopter Ben, and the new socialistic state that should ensue soon following the election realize the importance of CONTROL, specifically controlling the flow of money. If everyone pulls their money out of the banks, it is like a house whose plumbing has been shut off. It serves no purpose except creating more distrust that one’s government is incompetent and corrupt. This leads to riots and worse. THEY lose control and THEY DON’T WANT THAT. Now let’s get this straight…Hanky Panky Paulson could care less about preserving your life savings, but instead keeping the wheels of the one-world currency and government on track, so we are all sucked into the New World Order without complaint. Notice that a few months ago we had an investment banking system and now it has been replaced by a hand ful of controlling elitists that use your money to control the banking system – deciding before hand who will win and who will lose. The deck is stacked against capitalism.. This has CG’s ears perked. It oughta scare you some! Maintaining active trading and lending THAT THEY CONTROL is how the world works, friends.
Could the dollar still collapse after it has surged back through it’s former long term support and now resistance of DXY 78-80? Yes of course. Things always revert back to fundamental relationships. In fact the higher the dollar goes, it translates to a higher probability of a catastrophic drop. Something that takes place in breathtaking speed and volume and the economic climate is more conducive to such an event than at any time CG has watched the metals markets or the dollar. Fundamentals demand parity of value in the long run. Even a child would rather own a gold coin than green and off-white toilet paper. The present disequilibrium cannot persist forever, though perhaps even longer than the gold bugs want. However, higher interest rates could offset this decline. We’ll see at what point central bankers will conceded and hold interest rates steady.
CG warned that we would have a” bummer of a summer” in stocks, and we sure did. Though there is enough evidence that we could see a short term stabilization in the credit and stock markets (for example, LIBOR is now trending down and the VIX index reached almost 80 and seems to have pointed to a buying vacuum in early October, plus there is widespread rumor that global interest rates will be undergo a concerted drop) and that the worst of the market may be more behind us than in front of us for 2008, we are nowhere near out of the woods yet. He bear is still lurking and each time we feed him the funny meat he has become yet more aggressive and demanding.
So as we approach some of the traditionally best months of the year for stocks – November and December – we should realize these months coincide with the strong season for gold. Who will win? Will the Euro, Yen and Franc, break step with the US dollar and join the Aussies and Brits and follow gold? Have the US stock markets already fully discounted an Obama win and Obama’s probable new social agenda calling for massive spending while cutting taxes on the rich, which will have the immediate effect of capital disinvestment (several quarters of earnings decline = lower equity prices and lower taxes generated)? It is hard to find much to be optimistic about when one looks at the facts. But just as love may cover a world of sin, so may image cover a world of facts.
Actually, CG noted that the Franken wines are his favorite. Unfortunately, CG misplaced his corkscrew and was forced recently to survive for several days on food and water. But he misses his bourbon too.
CG took a quick glance at the market after the big see-saw and shared his impressions. He seems to believe that the market perceptions approximate reality in the intermediate term, and that the market could go quiet here for awhile. The banks have pretty much discounted a slow recovery, and don't have much further to go from here.....the next serious downdraft, could be the chance to buy in. Energy consumption is slowing, thus slowing down the economy, and therefore, energy stocks are about right, as are inflation plays. Tech, retail, etc, now discounts a steady and sustained slowdown. In short, the Fed has accomplished its aim...throw a bunch of pillows on the stairwell as the market tumbles down. Now, the Fed will threaten to raise rates (but won't) and hope that the confusion holds the dollar at its current level while inflation abates in response to the slowdown. In other words, there isn't much action unless one is looking for long-term plays....though as you know, CG disdains investing. He once noted to me that an investor is a trader who's stock went down. CG believes there will be opportunities:
1. the election will produce misperceptions, though it is not yet clear what misperceptions they will be, and what opportunities they will create.
2. the banking mess is not over, and may now enter a bottoming phase....with a serious retracement as it becomes apparent that bank profits will not recover any time soon.
3. the agricultural play is pretty much done for now, as is the new wave of computerized gadgets.
4. there will be a worldwide slowdown, and America; india and china will be more adversely affected than others.
5. opportunities will take the form of periodic nibbles, buying in on bad days, etc.
CG guesses, and is willing to put money on the table, that DJI 10,850 - 11,000 or so is a market bottom, and that it will likely be revisited, and that it will create a great buying opportunity though buys will need to be accompanied by stops....individual stocks that retrace about half of their recent gains could be buys even before then. CG suspects that this low will be visited before October, will not result from a crash, and could be triggered by many different events based on long-term misconceptions about what is happening. But the winners are already emerging and charts are the best way to know which ones they are (those which are smashed up and rise back above their 200 d moving avg).
The Careful Gambler
I decided to call on the Careful Gambler this weekend, after looking over the wreckage known as my retirement account. I calculated that given my current rate of return, I'll be able to retire in 2125. Last week, I was able to retire in 2072. Anyway, I wanted to check in with CG because I was reading that compared to the recession of the 70s, we're in much better shape now. Then, inflation was at 12% for awhile, now it's "up to" 4%. GDP is still positive, then it was contracting, and the unemployment rate was almost double for awhile what it is now. The article concluded that it's actually a GOOD time to invest.
Anyway, I called the CG, and he answered and greeted me with a sense of gentle concern, which was reassuring. I started to relate the article, "CG, I was looking this over, and really, these aren't such bad times, I mean, the stats say we're well ahead of where we were". At first, CG gently chided me by noting that nothing's over until it's over, and that's the only way to compare times. But as I related the stats to him, CG became icy and contrite in his answers. As I read to him the stats on inflation, GDP and unemployment, an uncomfortable silence set in and then, an inquisition of sorts.
"What did the article say about savings rate back then?"
"Well, nothing, CG, did they even keep stats like that back then?"
"Whether they kept stats or not, the point is, people saved a lot more then than they do now? In fact, a good portion of the population has negative savings and a mortgage that's greater than their house value. What will that do for our consumer driven economy?"
CG went on… "Did the article talk about no down payment housing, or adjustable rates that went upward?"
"No, so?"
"That's because those kinds of tricks, which cause people to buy homes they couldn't afford, didn't exist then?"
Now, CG became righteous, at least by his standards. "Did the article talk about which banks failed back then? Or got bought out by countries that are not US allies? How much foreign money was invested in Citibank in the 70s? I wonder how many people know that Citibank's funding comes now from the Saudis and Abu Dhabi. It's true of course, inflation was much higher in those days, but did the article talk much about loss of purchasing power because of a weak dollar in the Seventies? Probably not, since global trade was barely a glimmer in some economist's eye."
"Let's see, which is scarier, working a low-paying job with a pension plan, high inflation, monthly payments, and gas lines, or a low-paying job that could disappear with no pension plan, a debt greater than annual income, no equity in the house, and a market that's completely unregulated?"
CG went on, "Look, there's really no way to know whether this will be worse or better, but it really smells the same to me. And that went on for over ten years....we might be in the second or third inning of this game, in which case we haven't seen the worst. "
CG stopped himself, and then switched his line of thought. "Now that I think about it, there was some good stuff back then though, the music was pretty good, I thought. I'll tell you what was really a trip,… ya ever try to dance on a hardwood floor in platform shoes? If you think the market's tough, try that out! Do it in polyester pants and shirt, and you might not just break your ankles, you could suffocate!"
CG could tell that he had terrified me, and tried to console me a bit. "I don't want to scare anybody. But let's face it, historical comparisons are useless when times are changing. What the history already says is that we're in one of those times when the rules could be very different on the backside...and disruptive. Somewhere out there is the plan of the future, just keep watching for the opening, and it will appear...if you go looking for it, or start trying to rationalize it: if A, then it must be B, and because it smells like C, I'll do D, just like I did before....well, at least you'll be doing something you know how to do...but that misses the point....we all might need to do something different to get a better result. That's not scary unless you want the world to stay the same....I think that would be boring. Who knows? Maybe it will all settle down somewhere out there, and piling in will work eventually, that's not the point...the real point is when everyone is despairing, that is the moment of possibility.....but maybe we're still in the recognition phase, with more despair yet to come. If so, then it can't hurt to wait, and play a stronger hand tomorrow."
"So do you keep playing or not?" I asked.
"You always gotta play, and always look for the misconception...but sometimes playing means keeping your seat at the table while watching the young bucks learn the game."
The Careful Gambler
Today (Friday) was a really rough day....especially after Thursday's "false hope" bounce, and I decided to call the Careful Gambler a few hours ago. I’m still sorting it out, to be honest with you. I couldn't help it, though, because the market is going into this horrible whipsaw again.
"Gambler, listen the market's down almost 400 points, and everything is going to Hell in a handbasket...what should I do?"
CG shouted into the phone, "Hold on a minute, lemme get a little further away from the surf so I can hear you better?"
"What the Hell are you doin', Gambler, the market's ready to crack, and you're knee deep on the Continental shelf?". I couldn't believe that my investment guru was doing his impersonation of shark bait, and I was pretty angry.
"OK, I can hear you now. What did you say?"
"What should I do, the market's going down the drain?"
"Hold on a minute, lemme pull up the internet on the crackberry". Several moments passed. "Nothing unusual looking to me. Hold on a minute, that was my portfolio, lemme check the market averages." Several more moments passed as the wind blew into the phone.
"Well, nothing really unusual going on, looks to me...market just continuing to bounce around between its support and its resistance". I guess the only thing that changes is which sector the investors are chasing. Hold on a sec...". I could hear CG pushing the buttons on his blackberry...he spoke up again, "okay, so the American banks are down again, and it looks like the tech 'safe haven' is beginning to break down. Everything else is just down like we all knew it would do when the economic stats hit the fan....what's the problem?"
"But it's going to break, CG...THEN what?" I agree that it's important to keep one's cool, but CG's " too coolness " was really getting under my skin !
"Markets are markets, my man...didn't you listen to me? Use your technicals, man...didn't you realize it's summertime!? Nothin's changed...long-term capital destruction, devaluation of the dollar...somewhere out there, simply devaluation of value for everyone....find a house, pay the bills, and enjoy the ride".
Then, CG went on, "didn't you buy those energy companies and agricultural stocks when they were hitting 200 day support? Aren't you still holding on to the gold and iron ore? If you feel like participating in a long term, more traditional sense, buy some Berkshire, man, he knows how to make money no matter what.....if you had some tech, I hope it's gone now...stay away from healthcare and don't believe all the hype about international, …didn't I cover this with you in my GE analogy? Man I spent some time with that chart you know… and why would you buy any bank in the USA, they have no money...why do you want to keep em afloat with your retirement?”
At this point I could almost feel my shame for ever doubting the Gambler’s wise words in the brief silence of the moment, especially since he had advised me through so many situations and with uncanny prescience he seemed to read my deepest fears.
He went on… “If you need to go with financials, go somewhere responsible like South America. Chile, Argentina, Brazil - equities in those countries pay great dividends, ya know...they must compete with a relatively sound financial system that pays a real rate - that is, above their inflation rate."
Then he went on further, "It's supposed to be 90 here right now.....but this breeze is so strong it feels more like 70...too strong for any clouds, and there's even some whitecaps.....I hope that helps.” With a touch of mentoring concern in his voice he asked, “Are you gonna be alright?”
"Thanks Gambler", I replied, not convinced that he had told me anything I didn't know already. A few minutes later I noted a voicemail message...I must have missed a followup call.
"Look, it's not about investing, it's about perceptions....be open to what's different, because that's where the money will be. Right now, don't guess, play the see-saw, but be prepared to get off the ride too if the your trends are breaking support and especially if this is happening to many of your stocks...if you must know, in a general sencse it looks like we're at least 500 DJ points from the lower end of the channel, but you know what I have taught you, each stock is different and has it's own idiosyncrasies - that's what makes it a game."
A recent Visit with The Careful Gambler
6/2/08 Soon to be placed in The CG Interview section. . .
...I found myself driving by the CG's residence and decided to drop in on him. He was in a free-flow, talkative trance because the drugs hadn't worn off from a colonoscopy exam that morning. He still was lightheaded and lying in bed with his head propped up on a couple of pillows. The CG spoke in admiring terms of his experience. "Those guys really know how to rake it in...and they didn't find anything...well, at least they didn't tell me they found anything...actually, if they found something they might have left it there, since the big bucks come from the cancer treatment, and I wouldn't know". I couldn't believe what he was saying: "well, they're supposed to take care of it, Gambler!". CG was quick to respond..."but it's their choice.....they don't have to do anything, really, how much would you pay to stay alive with a life-threatening diagnosis?". Then, he went on: "It's pump and dump!".
"Wait a minute, Gambler, what's this have to do with stock market strategy?".
The Gambler laughed, "that's not what I meant....in this case, pump means pump the patient with lots of drugs and devices while pumping the bank account dry, and dump is what you do to the body when you're done. But come to think of it, this all has a lot to do with the market. The amazing part is that these medical companies don't even have to worry about customer complaints."
"So", I replied, "you think the health industry is a good place to put money?".
The CG responded, "what, are you kidding? I've not been in that for years. The doctors, insurers, medical and drug companies, and hospital administrations are circulating bucks so fast with each other that they create a big tornado....putting money out for stocks or services means getting the money sucked right out of your hands." He continued, "It's foolproof you know, national healthcare won't make any difference. The only way it would ever be different is if they got paid well only when they prevented us from getting sick".
The Gambler suddenly sat up, looking clear-eyed again. "Hey, you know what? I'm kinda hungry."
The Careful Gambler
5/15/08
What is GE telling us now?
There used to be an old saying in the good old days of the 1960’s and 70’s, before the slow and tortuous annihilation of our economy caused by “free” trade, outsourcing, financial engineering and domestic led deficit spending that went as follows… “so goes GM, so goes the country”, taken to mean what was good for GM was good for the country and which Wall Street analysts further compressed into a handy dandy predictor of market turning points known as the .
While the price of GM stock was a good benchmark for the stock market of the 1960’s and 1970’s, with the onset of globalization, it later became an outdated market indicator and by the time unionism died in America by the late 1980s and 1990s, GE, under the legacy of Jack Welsh and his now famous growth story that has since spawned bottom-line-fixated corporate beasty models found throughout the multinationals had replaced GM as THE stock that could tell us where the NYSE is headed. In this one conglomerate corporation an investor can own a piece of the action across many industries - materials, industrials, durable goods, consumer products, transportation, medical, power generation and financials - and with globalized exposure! So it seems GE may well still be a decent proxy for the overall stock market.
So, CG figures that the direction of GE may hold some clues for our wavering yet still persistent stock market. And behold CG made quite a discovery this evening! What he found was that by November 2007, just one month after a post-911 high of 42.12, GE had broken “below trend” – that is, the lower supporting trend line. And this is one LONG, LONG trend. CG does not advise, but he is personally avoiding this stock and would at least caution value investors who own it to watch it closely and consider a stop below 30. CG notes that many TV talking head analysts that had been negative on the stock became positive on it over the last few months in the mid 30s within the last few months, proclaiming that it’s time had finally arrived. The CG is suspicious of these folks. They appear to be either one of two camps - contrarian wanna-be’s that must surely have a track record of missing the boat out of every harbor, or pump and dumpers who own it and want to sell out of it now. This is not to say that with GE’s significant exposure to foreign markets where they can sell into stronger currency markets should not help the bottom line. But something seems profoundly wrong with the action of this stock at this point in the cycle. And who knows, it might make another stab into the high 30’s or even to 40, - even a fake-out break-out could occur as the Fed and Treasury furiously conspire to keep the ship afloat and do everything in their power to calm the masses and keep corporate profits strong. But it IS to say that this giant industrial company is flashing a once in 25 year warning! TAKE HEED! CG has observed that GE was a bellweather of the Reagan rally that lasted for almost 20 years. It accurately predicted the Reagan rally breaking out in full bull fashion in August of 1982 and did not stop really until 2000. And following the dot com crash that bottomed in late 2002/early2003 GE well represented the recovery of the general market to interim highs, but not nearly an all time high. Still even in the post 9-11 bust, GE remained above trend line. But as CG painfully observed on GE’s chart over his glass of iced bourbon, it either no longer represents the market and its breakdown is apparently an aberration or, more likely, as of Oct 2007 the stock market has just confirmed that the crash of 2000 was just the beginning of a new bear market, that the 2003 – 2007 recovery was indeed a bull rally within a cyclical bear and worse,…that we are at the cusp of another major leg down in equity prices.
Throw into the mix that we are still in the midst of a weird primary election, promising to culminate in a stranger convention and goofy November election with economic crosscurrents of shrinking credit while money supply expands in hyper-style, corporate earnings coming in all over the map, summer gasoline at +$4.00 per gallon while housing prices continue south and it does not take a genius to see that the GE breakdown must not be dismissed. Meanwhile CG bides his time by hoarding more physical silver and gold (this is the equivalent of simply placing money in a REAL bank) along with some staple food supplies and of course some quality bourbon.
The Careful Gambler
May 14, 2008
The CG called me shortly after the latest rate cut.....he simply chuckled and said, "boiiiinnnng!". I guess his rubber band snapped....which way depends on what you own....then he added his recent admonition, "...the technicals are your friend". CG continues to express concerns about the "young ones", who believe that recovery is merely around the corner, and that it will happen quickly once it starts. As CG noted, "what else do the kids know?". He added, "mind you, exploitation of the market is a necessary part of making a living for someone like me...sometimes you gotta do what you gotta do. I simply hate to see all those messed up retirement plans and throwing good money after bad from people like that....we're not talkin' Bear Stearns here...come to think of it, they're probably doing nicely in this". I find his ongoing adulation of Ben Bernanke more than a little irritating. CG continues to insit that Bernanke is fulfilling a dual mission....weakening the dollar to stoke exports, lowering rates enough to allow banks to re-capitalize by maintaining mortgage rates at high levels relative to treasuries, and causing sufficient inflation to allow the government to fulfill its social security and medicare obligations in the future by turning a present day monthly salary into the cost of a loaf of bread. CG thinks it's brilliant, but noted that he's getting a bit bored....he also confessed that he's getting fidgety because as long as the Fed is satisfied with keeping the market in a trading range, all CG needs to do is set his buy and sell limits each day, alternating between owning beat up technology and industrial names and commodity-driven stocks, with occasional forays into financials when one of them drops a shoe...or a lead balloon. Anyway, CG wanted me to know that April runups bring May hiccups....CG ended by quoting what he heard on CNBC that whenever stocks go up on the last day of the month, after having gone higher earlier in the month, they always finish the month even higher. Such “revelations” by the supposed insightful commentary to a world of uninformed investors is why, the CG explained, there are always profitable opportunities.
An opportunity? Take this month as the pharmaceuticals are being bashed. The mere hint of a Democrat in the White House, not to mention the certain change in the “business of medicine’ practiced in the US today, where the majority of practicing physicians have been effectively converted to drug salesmen (on the street these people are usually referred to as “pushers”) have really hit the group. Yet there are bargains to be found here. Secure dividends – CG loves freebees that come at the hands of investor fear and “following the crowd”. So, while CG fidgets around waiting for the reality of inflation to actually show up in some of the government statistics CG recently picked up Biovail Pharmaceutical (BVF). The stock pays a handsome 12% dividend currently and in fact there is still time to capture the quarterly dividend which was recently announced. Cash flow is just fine and it has a reasonable PE. So, even given a stagnant stock price, it will return double digit returns. However, CG warns not to get greedy. If it moves 15-20% it is a good candidate to sell. For someone looking to cash in on our evil government spying on us, consider the beaten baby, SIRF, a leader in radio frequency global positioning chips. Yes this is certainly to develop along with a nasty sister industry called biometrics. Big Brother is watching. After recently hitting a low of ~ 5 it’s on the move back at ~ $ per share.
And last but not least the gold and silver markets are in the process of nearing completion of consolidation and will rally upward, (last year gold stocks bottomed in mid June) regardless of even the most negative commodity development which would be falling crude prices. CG has listened carefully to all sides on this crude issue and still concludes that the trend higher in energy is a higher probability than a substantial break lower. The latter would signal that phase 1 of the depression has started. A not too sharp break in oil prices lower could however be engineered by the anti-commodity cartel, with lower gold as it’s ultimate target, but the problem is the unintended recipient of such action would be the stock market. It does not take a genius to see that the political problem it would create, a crashing stock market, all but guarantees sweeping Republican party losses in November, as Americans, being led to slaughter in their entrapped 401Ks, will revolt at the polls. They will revolt anyway with the trend in food prices which is just now moving from the producer to the consumer level.
This is an excellent time to stock up on your physical gold and silver holdings. CG has found that SOME supply of physical bullion coins is starting to re-emerge after a nearly 3 month shortage.
A strong case can be made that recession will be forestalled, even as consumer spending will be soft and housing will be downright dead, with credit availability becoming yet more scarce. But the precipitous drop in interest rates that is now approaching nearly a year since first begun and not to mention the ill fated “stimulus check” (payola) will certainly have a seemingly positive near term effect as once again more money is sloshing in the international tub. Though this sort of dichotomy in the economy where there is rampant growth (which is really just the early stage of severe inflation) and yet other major sectors that are simply dead men walking is fairly rare, CG reminds his readers that the Bush presidency is in myopic, final and desperate phase called “legacy assurance”. In other words Clearly CG sees that fundamentals of doing what is right for the economy and our currency have been thrown out the window, and such dislocations and increased volatility may be expected.
The Careful Gambler
Stimulating Opportunities Abound
Well CG's mid-March prediction of an S&P sucker rally top of 1420 - 1440 appears in retrospect to be right on the money and could actually follow seasonal patterns and reach this top in the next two weeks. CG will not dwell on the fact that the day of his sucker rally prediction, while he nibbled on inverse stock funds as a hedge against a possible downside plunge (CG sees the interim bottom at Dow 10,500) from the precarious support at Dow 11,700 as protection against the non-materialization of the sucker rally, the market reversed higher by nearly 400 points on the Dow and meanwhile gold was hit by manipulators. Ouch!,…No double ouch!! However, if one has taken the path of CG, it is no time to cave in to the crooks but instead time to raise the ante.
Precisely what is happening to gold is an exchange of hands from weak to strong at this juncture. The government statistics can be manipulated from month to month, but eventually they must be reconciled. No way the major trend in gold is going down with PPI pushing 20%! Hence the economic landscape in the shadow of the King Gold is quite gray and getting darker. As the equity markets have zigged and zagged to the high side lately, the stock markets continue to erode in foreign markets. Interesting divergence. It’s fun to see the foreigners squirm a bit too isn’t it? With many in the financial media heralding the end of our cuddly little US bear market, while they meanwhile sit with their sweaty fingers tightly crossed under the table hoping and praying to their paper gods that the dirty little secrets - new reports about the rise in prime mortgage damage, jumbo defaults, corporate defaults, emerging municipal bond woes, Japanese bank closet skeletons, the “British Bailout”… on an on ad infinitum – will not be accidentally leaked by their cooperative and corrupt media, over in China the situation is beginning to take on an a climate of panic as that market has given back 50% since October! And maybe your financial advisors have recently advised you to park assets in foreign stock markets. Beware of these “advisors”. They are advising YOU to turn YOUR money to them.
Even the proud Germans must be licking some wounds as their prized Deutche Bank has had to increase loan loss reserves by billions of euros while simulataneously watching the DAX drop by 25%. And how long can the financial media’s empty suits continue to divert attention from the further ubiquitous factual evidence that the bastardized USD is deservedly sliding into a yet new lower trading zone (CG 4/17/08 prophecy)?
Actually in looking at the charts a bit closer, the 1400 S&P resistance appears to be fairly significant as the market has been in a trading range of 1300 – 1375 for most of 2008 and three times having approached 1400 since January have failed to break through. Today’s drop of 100 was not nearly as bad as it could have been, but CG is reminded that tops are very seldom cymbal-clashing affairs. Since the low of 1275 to the recent high of 1390 the market has shaken off much bad news that would otherwise have driven prices much lower, so it must be the preoccupation with our savior, The Stimulus Checks (i.e Payola) which come out in May, withholding righteous judgment of our stock and bond markets. So, considering the erosion of underlying fundamentals (Fed low on bullets, inflation soaring and a thousand other specific reasons) CG regards this as further clear evidence of nearing the top of the sucker rally.
What to do? CG is always inclined to sell on the good news, ESPECIALLY when what little good news exists is juxtaposed to the concealed but real gloom - the cold hard reality that our economy has been destroyed by decades of debt spending peppered with large does of arrogance, incompetence and slothfulness and corporate welfare on the part of our congress and President. Yes, like stinking maggots we are observing the US economic carcass rotting from the inside out, yet the media will lean hard to convince you that the putricene you smell is like the sweet jasmine of Seals and Crofts’ Summer Breeze. And the only “good news” around is our “free” check from our friendly conspirators called OUR GOVERNMENT. CG will watch the evening news intently over the next several weeks with his iced bourbon in hand, waiting for that last flashing fever pitch of optimism so he may indulge in converting the remainder of his ever more worthless cash to a large short position in equities.
4/23/08
The Careful Gambler
The CG has not commented lately on what's up with gold and silver. We had that fantastic $1033 top in gold and $21+ top in silver back in March and many a Wall Street advisor since then has trumpeted the end of the commodities bull. What a glorious evening it was to watch Bloomberg late that night as the Asian stock markets opened sharply lower and in full panic mode...which btw, will be increasingly characteristic of the overall markets moving forward....on the day the Fed used JP Morgan to force an illegal buyout of BSC. It was a power grab, plain and simple. Yes that evening, as CG sipped his iced bourbon, gold gave him a precious glimpse of it's true color as THE SAFETY HEDGE in times of trouble. And trouble is certainly abounding, even as we have entered into this unholy euphoria of thinking we are through the worst of the subprime mess and related credit collapse. Again the fundamentals of reality will re-emerge and slam the stock and bond markets lower. Debtors with lots of collateral (for the banks to grab) beware! Then today the proof that these analysts are full of, well, bull...
First, the dollar. CG needs to spend time on this subject because it is directly (inversely) correlated to gold, notwithstanding that ALL currencies are making new lows when counted on the scales of how much will buy a oz of gold. (CG has preached before that the 2005 - 2006 rally was the "decoupling leg" of the gold bull. In fact gold is free to dance as it pleases now. It is not a slave of fiat currency any longer. The CG realizes that GOLD IS THE NEW CURRENCY, if one is willing to acknowledge that the primary function of currency is to essentially function as a convenient bartering tool between REAL reserves held by the government and private holdings of it's citizen's, which btw...in an ideal world where the Constitution still is esteemed, - "by the people , for the people". Gold is not NECESSARILY bound to correlate inversely with a currency, although dollar weakness nearly always translates soon into gold strength. The poor dollar, crashing again to a new fresh SIGNIFICANT LOW below 71.5 on DXY on 4/16/08. Why does CG regard 4/16/08 as a significant breakdown? Well, it is the same pattern that is becoming SO ENTRENCHED in the dollar trading charts since the breakdown through it's HISTORICAL support at DXY ~ 78, and actually characteristic of the post 9-11 dollar decline. It appears to CG that we have just broken down and are entering another push lower to yet another new trading zone. 65-70, perhaps? It's a crap shoot. Only God knows how low it goes at this point as the dollar is in completely uncharted waters. "Dollar policy":(?) Ha! CG is reminded of Jason and the Argonauts navigating the straights of the Clashing Rocks in an effort to reach Colchis, just hoping not to be crushed. Of course, they had the gods on their side, while the immoral Fed and Treasury are perhaps hoping God will support their shenanigans, finding appeasement with "In God We Trust" plastered on our now bastardized currency. This seems to be the play book for the conspiring Fed and Treasury on the bow and stern of the ship once called the great American economy, as they shout signals back and forth above the violent waters. Didn't CG warn that once DXY breaks 78 it will never return? It's happening folks. The negative sentiment surrounding the dollar trades are not really even quantifiable at this point. It is THAT BAD. CG has observed that consumer sentiment indices are coming in at multidecade lows. Sentiment is a leading indicator remember. Btw..CG thinks THIS IS THE TIME TO BUY YOURSELF SOME NICE THINGS FOR THE HOUSE with your still somewhat valuable cash. Particularly a new car. Auto loan rates are less than mortgage rates and you can still get "prime minus" on many auto loans. They'll only cost much more next year - regardless of whether we are in recession. See, that is the pain of stagflation and we have a few generations of folks who have never witnessed it.
Pushing against the deflationary housing market and signals of a depressionesque drop-off in general economic activity is this ridiculous hyper inflationary monetary policy (the sinking Fed-Treasury ship), a weird brew indeed, influenced by weird and atypical presidential candidates, an uneasy and increasingly desperate electorate and the aforementioned turbulence in international currencies and deep credit problems. It is as if we are stirring 90 degree Amazon river water with the chill of Antarctic icebergs and contemplating a refreshing dip off the river delta's shores. No thanks! This is an incompatible mixture of forces and a nearly surrealistic economic storm that is brewing, and we have only God Himself to thank for withholding the pace of economic destruction, which in the end will certainly translate to human destruction or misery of some sort.
Under Bush we have seen the dollar go from 120 on the DXY down to it's present value - a smidge above 71. Do the math - it's almost a 50% devaluation of our currency under Bush. And CG used to snicker in the 80's and 90's that it took Mexicans a million pesos to by a dumb taco! Laugh no more - Soon the peso is on track to become a co-currency to the USD. CG observes that the USD has literally rolled off the cliff and is simply bouncing off boulders here and there, stumbling downwardly, insanely (because we have an insane Fed, President and Congress when it comes to soundness in their monetary and fiscal policies) so that CG must conclude that although the crystal ball is fuzzy as to where the DXY finally ends up, it will probably parallel the financial stocks and surprise on the low side.
To add a sickly twist to the dollar's breakdown and further evidence of its sickly status the G7 announcement of "considering to support the dollar" (in a unified international effort) a few days ago seemed to be the switch that turned buyers to the sell side. Maybe it's because the smart money knows G7 does not mean it and anticipates worse, which is more of the same. Maybe it's because the "smart money" IS THE G7 (!) and they are "pumping and dumping"!!!
CG has seen this dollar dump pattern before, particularly in quiet pre- or post-holiday trading periods where our stupid media is focused on people eating turkey, Santa Claus, etc. CG asks who are the buyers? Well, for a few to make a lot of money, the best strategy is to leach from the multitudes a bit at a time. This parasitic relationship may easily be twisted into a "free market" symbiotic argument to keep the neocons pacified and the controlling wealthy class a steady stream of corrupt income. Enter the common man and FOREX and you have "the multitudes" from which the leaches suck. The vast majority of these young FOREX fools (that is for another CG prophecy) have never seen a bear market, and certainly not a Kodiak! This is the present state.
Free advise from CG: When the major financial broadcasters push a product or investment vehicle (i.e. FOREX, futures trading, questionable derivative funds) be wary and if you already own them be ready to dump them. It's all a shell game and you too can sip bourbon late at night and derive pleasure from crashing markets where you have positioned short, against the advise of "the professionals", resting assured that a fool somewhere is buying your drink!
But while the CG is genuinely saddened to see HIS dollar become so devalued, he was unfazed by this dollar action really, because he has played against it despite the strong dollar talk of the administration. Recall the CG has the framed picture of Bernanke above his desk. Our hero, remember?
Secondly, crude oil. Over $114 yesterday. This is not inflationary? Say no more.
Thirdly, PPI - (CG likes this indicator better than CPI as it is less able to be manipulated by the monecrats) - running at double digit pace per annum (and AT AN EVER INCREASING RATE !)as of the last few months. Actually some of the unadjusted figures are screaming +20% YOY inflation. This in CG's book is HYPERINFLATION.
OK back to gold and silver...it's getting late now and CG must switch on Bloomberg to see which Asian markets are spelling opportunity (crashing) this morning....so here's the scoop. Gold has shown this exact same pattern time and again in this now 7 year bull market. Only each time it occurs the rally is stronger and lasts longer. The last good top we had in May 2006, lasted a month longer than usual, This current rally started at the usual time in late summer/early fall and had it's correction in March on fears of recession.
In reality the "recession fear" was just a Fed induced manipulation, timed to coincide with an illegal takeover of Bear Stearns, using strong foreign currencies to play against the metals in hopes of still keeping the hyperinflation dragon covered until after the November election. This Fed is reckless but they're not stupid and they have a plan that you AND I are not privy to. However, once one asks "why?" a few times and thinks a few devious thoughts (like they do) their schemes are obvious and one may profit well in this insane environment. Consider if you charted gold trading on DOLLAR VOLUME rather than just price? might it appear a tad more compelling to get on this train while it has slowed? It IS picking up steam again. And if one subscribes to any form of technical analysis, one knows that once anything makes a new high it is untethered on the upside (no above resistance). BUY BUY BUY.
As a rule, CG doesn't disclose his proprietary equations and graphics by which he makes his predictions, and besides, most people don't care about such a level of detail anyway..they just want to know what the guru has on the bottom line...but it's getting late and CG does want his faithful to benefit from the prophet's wisdom. So here it is...
If gold repeats it's earlier bull trend patterns it will make a stealth move higher and then seemingly unexpectedly make a stab at $1000 or maybe even approach it's $1033 high and sit there for a few days to sucker in some trend followers (as in LATE dudes who don't get it). These basically unconvinced, unconvicted trader-fools will turn their attention to some 5 day moving average, or start to dream of a double top pattern, get nervous and sell. The CG loves these folks. There will be enough of them to push the market lower and if the Fed gets involved in the party to hit gold, all bets are off as to how quickly we could retreat back into the mid 900s, but odds are we're definitely going to see it go lower from the +1000 level. But here again the pattern for 7 years has been higher lows after the interim high (say ~ 935-950, which again is time to BUY) another stealth advance to $1000 - $1033, and then CG expects to see a steady summer rally in gold led by healthy inflationary fundamentals. Rally through the summer? YES! However, realize this will happen against the usual seasonal weakness in metals that occurs in summer, resulting in an continued "wall of worry" climb higher in gold, and perhaps dramatically in silver, as stocks are reported somewhat lower, manufacturing is showing signs of rebound and global demand for unrecoverable silver (spelled - land filled) applications are all over the place.
By year end we should be in position again to capture the strong side of the cycle, but then we'll have a goofy election which will add a polarizing wild card effect. If we get Osama Obama, CG sees a neocon led monetary coupe attempt and possibly much higher interest rates, justified by "controlling inflation", and "strong dollar" goals. These are just excuses to bash a newcomer to DC, but could signal a huge correction in gold - maybe 20-30%. However by the same observation one could project further dollar weakness as foreigners sell more, observing that the once mighty USA has embraced the "change candidate" with blatant, unproductive, partisan, banana republic infighting. (strong for gold). If we get McCain, it's a pretty simple equation... Status quo. same domestic spending + more war = more dollars printed = higher inflation = higher gold.
-CG
4/17/08
The Careful Gambler
Paydowns, Payola and Payoffs
I had the occasion to see the CG after you had jostled me about him...wanted to see what he was up to. The CG is somewhat reclusive, noting that the best way to earn money through exploitation is under the radar screen.
I was rather surprised to find that the CG had a color portrait of Ben Bernanke framed and hanging prominently in his office. I asked him what that was about. The CG was animated in response, noting that Ben is perhaps the greatest social and civil hero since the lawyer who headed up the Exxon Valdez defense team. Taken aback, I asked him to explain himself. You may recall that the CG issued a buy recommendation in the wake of the oil spill, and the CG was gleeful as he noted how the lawyers had solidified his gain, and in the process, created confusion in energy policy that persisted for over 20 years, resulting in an oil exploration industry that continues to make barrels of money even as an increasing number of people in America and everywhere else can't afford it. No telling how long it can last.
I told him, I don't get it....Bernanke let everything go to Hell by wavering at first, and then throwing in the kitchen sink to buy time as the economy collapsed. The CG excalimed, "Genau!" (Swiss German for Exactly). I find this an irritating habit of the CG...a passive aggressive statement (using a foreign language) to convey that he knows things from (in this case) spending time in the exclusive retail district of Zurich, something that the rest of us might find pretentious more than satisfying...nevertheless, I diverge.
Then the CG went on..."it was brilliant!. He's solved so many issues in one fell stroke. First, there's China....no longer can some sleezy toymaker send us lead painted toys....the inflation that was set off in China and America makes the Chinese items more expensive and the American customer simply unable to afford the stuff. Then, of course, there's the paydown of social security and medicare....the government can now meet its obligation by simply doing nothing except printing more money to prevent recession. Of course, then there's the opportunities for those like me who must exploit to make a living....food is expensive, energy is expensive, getting stuff to people is expensive, and even for the rich, buying jewelry is expensive. I've never had an easier time figuring out how to win.....moreover, the gains are especially good right now when it comes time to buy a house, since the sellers are often desperate! Bernanke has solved our long-term problems while creating opportunity now! He's a genius and he needs to be praised....Hallelujah Helicopter Ben. Who could have realized that he would not only crush the housing bubble, but also handle social security....just by doing nothing and then going wild? I swear....the best minds in the Bush administration must have been involved in this, too! After all, the payola checks are going out, thus fueling the hasty resolution of the social security mess while lifting the economy like a helium balloon."
The CG explained his bathtub theory. He says that the world's money is basically a sloshing bathtub that was full of water and is draining out rapidly. As it violently swirls down the drain, sloshes occur....first it was tech, then it was housing, now it's commodities, and will be for awhile (maybe five years)....next, who knows? maybe small arms and plastic explosives. As the money sloshes around, just pick a trough and let the rest take care of itself.
The CG leaned back in his chair with great satisfaction and serenity in his eyes...."So, there it is....paydown the debts by giving out payola, and take the payoff.......never has it been so good to exploit the markets!".
The Careful Gambler says...
April 10, 2008
March 24, 1989 - After 2 terms of borrow and spend Reaganomics and 9 years after gold hit it’s then historic high of $850/oz, having survived the stock market crash (correction) of 1987 and after just 2 years of Greenspanism, already fate was preparing a new leader.
Careful Gambler thinks as fate would have it that, unknown to most, the destiny of our current Federal Reserve chairman was charted that day. One must admit that whoever could wreck a huge tanker through sheer incompetence and cause an ugly mess that would take years and a lot more money to clean up than was represented in the tanker that day, was worthy to be a Federal Reserve Chairman. Chairman Bernanke was chosen because he is a supposed expert on the Great Depression, but Careful Gambler thinks his leading qualification is being able to cause a financial wreck on the order that America has never and will never see again.
Consider that in 1994 a boozed up Captain Joe Hazlewood landed the Exxon Valdez oil tanker upon a shoal in a shipping channel approaching the Gulf of Alaska. To refresh your memories....
HAZELWOOD DETAILS HIS STRUGGLE WITH BOOZE
EXXON VALDEZ CAPTAIN SAYS MANY COMPANY OFFICIALS KNEW ABOUT HIS DRINKING
By NATALIE PHILLIPS
Daily News reporter
ANCHORAGE- For the first time since he radioed that the Exxon Valdez had "fetched up hard aground" on Bligh Reef five years ago, Capt. Joe Hazelwood on Tuesday began his public reckoning of his role in the disaster and of his bouts with alcohol. Speaking as one of the first witnesses called by the attorneys suing him and Exxon in U.S. District Court, Hazelwood described the two-faced life he led during the years leading up to the spill: drinking at sea, a member of Alcoholics Anonymous at home….(blah blah blah.) that dark suff is oil (ole, as T. Boone Pickens likes to call it!)
The Careful Gambler finds a striking resemblance of this nautical accident and it’s cause (the captain) with our present state of economic affairs, particularly with respect to our Federal Reserve. Though we may rightfully point the finger at former Fed Chairman Greenspan and his loose, dollar-destroying monetary policy for a good bit of the mess we’re in, and we can certainly accuse him of appearing of speaking in parsed, nonsensical Nostradamaniacal terms before the congressional banking and finance committees, we cannot accuse him of the recent swift, violent, power grabbing actions that have characterized the Bernanke Fed. Indeed Greenspan’s style was much more characteristic of one who enjoyed tweaking the system and then justifying his experiments with nonsensical statements that everyone was afraid to challenge for fear of appearing to be ignorant. (He actually later proudly admitted to this tactic on a TV interview – aren’t you glad he sat on the Fed chair for 20 years?) Probably a sherry sipper too. Anyway Careful Gambler finds these shipwreckish monetary policy actions disturbingly similar to the former Valdez captain. May we call them last ditch efforts? And perhaps the analogy is not merely figurative.
Consider this..
…Hazelwood (AKA “Helicopter Ben”) making his getaway.
So you decide…who is REALLY running the Fed, because we all know, the unelected, illegally structured and increasingly power seeking Fed is running our country.
Since gold shares usually move at a multiple of the metal, this chart comparing the metal (GLD) to a gold mining index (HUI) shows that the mining shares have not led. I believe we may be at a turning point. However, we will need the price of energy to stabilize. Energy is usually at a seasonal high about this time. Have you noticed on days where oil goes up a lot, unless gold does too, the mining shares get pummeled. Today was no exception.
In my last newsletter I already provided sound reasons why this year should provide an extended advance in PM prices, so if we get a little softening in energy we could see mining shares really take off, provided that gold holds up to the barrage of the evil empire.
4/9/08
The Careful Gambler says….
Good thing that was not MY prediction that Iran would get invaded on the 4th or the 6th! Nevertheless, I have increasingly less doubts that our government would use such a tactic to divert the deep problems in our economy that really have our system at the brink of collapse. Maybe these sorts of things have always driven our world and maybe we have always been "at the brink" but I just was not aware of it. An Iran invasion would be used probably if we begin to have banks defaulting at a rate greater than FDIC could bear..which probably would not be long.
I became aware of yet another aspect to the average man's financial entrapment on Friday.
I called my broker to find out what financial instruments are available to capture high yielding commercial paper that exists in other countries, such as Brazil, Argentina, Australia and New Zealand. Every one of these countries is resource rich and their currencies are stronger and more secure. They have not bastardized them like USA by lowering rates to become the world's newest carry trading currency, that is if our banks can stay in business. The central banks of these other countries appear to be more concerned about inflation to the point that they do not want to lower their rates. Well, anyway why should they? They are not in a recession like here. And besides that the world financiers, including within our administration and congress (I cannot prove it but strongly suspect it just by certain patterns in the markets) are conspired to significantly lower the dollar. This is no accident - nothing happens by chance (the doom of the religion called evolution, btw) , and this will either cause massive inflation or massive credit defaults or a some of both. But back to my point - unless I had $100,000 or $250,000 I am shut out of these investment vehicles. Sure I can buy a world bond fund which carries significantly more risk and less yield. My point is the BIG MONEY has exit strategies in place (and you can bet these have been and continue to be used) to get THEIR CAPITAL OUT OF THIS COUNTRY, OUT OF US BANKS AND INTO FOREIGN BANKS, because when the bank run starts it is going to be a riot in the streets affair. After all, Bernanke and the almighty Fed are supposed to be able to prevent such panic. You see, the Warren Buffets and even the average CEO is able to get HIS big money where it is safe. But your option is just one because you have just a modest savings comparatively - hard assets. In light of this gold and silver of course are the best ones - portable, private and liquid. Working man's security.
But why do they want to lower the dollar? They say it is to make manufacturers (exporters) more competitive. We've been through this before - manufacturing is only 12% of GDP now, so, like export how much of what? In 1950 it was 50% of GDP. What happened? I see this competitive nonsense as a surface argument to calm the masses, who rely on their work to pay the daily bills (US citizens have essentially no savings, on average). Rather, I think the plan is to adjust all currencies so that they are basically on a par value which will bring in the acceptance of one world currency. It will be the next natural step in doing trade. First was globalization (or should I call it free and often unfair trade).
Rumors are we will get the Amero ( a new collage currency of dollar, peso and Canadian dollar) some time this year. May 11th we supposedly get the new national ID card. Sound a little big brotherish? In light of the Amero, is it any wonder that our borders with Mexico are so loose? Why invest in large fences when in another year our financial borders will become yet more blurry? Regardless how the details all play out that's how the scum bags called politicians and world bankers think nowadays.
As I shared with you on Friday, I sold out of some GLD and SLV and went into the mining related shares - GG and SSRI on pretty much a dollar for dollar basis. I can see from the opening that the mining shares are leading the market this morning, up ~ 4 times the S&P, and up ~1.5 X the underlying metal. I think this trend will continue and it is an excellent time to buy mining shares. Should be an interesting week. But I'll tell you, the market has built up a good rally since it's most recent low and this gives the Fed and world bankers more potential energy to crash down the market to hit gold if it moves up too fast. If your quick and see it coming, you can short gold and silver and then buy right back after the manipulation is over. Usually these international twerps don't push the crash button for too long. After all, doing so could end up spilling over into equities THEY OWN. But every time this happens it is an excellent buying opportunity for gold and silver..and Pd is cheap again. The physical demand for PMs is increasing. Every time a BSC rescue happens and every time you hear of another sickly banking problem, this is turning investor psyche ever more weary of the security of their savings. I'm sure there are more folks than I who view the mattress as safer than the average bank.
BE AHEAD OF THIS CURVE. BEING BEHIND IT COULD COST YOU DEARLY.
Chances are the fed's last bullet to move rates to 1% and the stimulus checks due out in May will work to forestall the inevitable crash of the stock market and credit markets. We are witnessing what is the equivalent of a dope addict with his last euphoric shot in the arm before he passes out.
4/7/08
