An aweful lot is being asked of a shrinking base of 108,000,000 people

Private sector: 108,000,000 employed



Government: 22,000,000 employed



86,000,000 is not much of a gap, and they are generally going in opposite directions.

Hussman has some thoughts for greedy bulls...

This guy was bullish when appropriate. I know, because I was bullish too. I noted in NFTRH at the time that smart people like Hussman and Jeremy Grantham were buying the Armageddon '08 tankage. Now? Not so much.

Reckless Myopia

"One of the fascinating aspects of the past few months is the lack of equilibrium thinking with respect to what happened to the trillions of dollars in government money that has been spent to defend the bondholders of mismanaged financial companies. Almost by definition, money given to corporations will show up most quickly as improvements in corporate earnings, and then slightly later, as executive compensation. A few pieces came across my desk last week, hailing the ability of the corporate sector to bounce back from the recent economic downturn even though revenues have continued to suffer and employment has been steeply cut. Why is this a surprise? Where else could the money have gone? Labor compensation? It is truly mind-numbing that a moment after a temporary surge of trillions of dollars, borrowed and tossed out of a helicopter (though to specific corporations and private beneficiaries), analysts would hail a subsequent improvement in corporate results as evidence of “resilience.”

What matters is sustainability, and unfortunately, it is clear that credit continues to collapse. Banks are contracting their loan portfolios at a record rate, according to the latest FDIC Quarterly Banking Profile. Even so, new delinquencies continue to accelerate faster than loan loss reserves. Tier 1 capital looked quite good last quarter, as one would expect from the combination of a large new issuance of bank securities, combined with an easing of accounting rules to allow “substantial discretion” with respect to credit losses. The list of problem institutions is still rising exponentially. Overall, earnings and capital ratios have enjoyed a reprieve in the past couple of quarters, but delinquencies have not, and all evidence points to an acceleration as we move into 2010."

Gold Buyer's Checklist

Only individuals can decide for themselves what is a good price to pay for insurance. So here, above my personal short term target for gold (1100), I would not recommend buying if you are going to later stress about price volatility. But if any time comes that would-be buyers perceive a buying opportunity, Paul Tustain at BullionVault has some good points on his checklist.

Gold Buyer's Checklist

I receive a small commission if you access BullionVault through one of the banners and buy. That does not change the fact that I think BV is a great service. Gold is getting worldwide attention now for obvious reasons. People who want to consider this convenient way to own real gold might tuck this post away for future reference.

NFTRH61 out now

NFTRH61 was sent out to subscribers this morning. Here is a short excerpt:

If you have not yet done so, it is time to pay attention to the implications of this chart because all the while the financial media and Wall Street focused the public’s attention on the stock rally and economic recovery out of 2003, the Dow crashed as measured in gold.

Dismissing this dynamic has two major implications:

1) If the financial system is somehow held together, conventional investors will reap vastly underperforming nominal vs. real returns, and 2) if the thing falls apart, they will be left with paper stock certificates instead of historic insurance against the type of systemic excess now in force compliments of myopic policy makers who would have naive investors believe they can actually control financial forces in an orderly manner.

Why do Wall Street and the major financial media not show this simple chart to investors? Could it be because it is more important for the financial establishment to have people in their chosen assets, which can be marked up and distributed (with all applicable fees attached, of course) far and wide? Nah, our fine bullish troubadours in New York are surely not that cynically institutionalized, are they? Duh.

NFTRH 1 year ago

Excerpted from NFTRH10, dated November 29, 2008:

Bull?

I want to call your attention to a bit of analysis and a monthly chart of gold I did on the old Biiwii.com COW (Chart Of The Week) in March [link no longer available]. I do so because back then I was getting bearish, which was appropriate given the over bought technicals and the level of impenetrable bullishness in the sector now that gold bugs’ long awaited Armageddon had finally visited the financial markets. People were convinced that the yellow metal was going straight to 1500 from severely over bought levels. My thoughts included what I have parroted over and over for years:

“The play in the miners is and has been that if gold declines, it needs to outperform the likes of oil, industrial metals and human hopes for positive economic prospects and the gold miners should be okay, counter-cyclical instruments that they tend to be. But this dynamic is also a factor in our ‘buy the corrections only and take some profits on strong runs’ mentality.”

Well, the gold miners were not okay and in the words of Marcellus Wallace in Pulp Fiction, they were ‘a long #$%&’n way from okay’ as the contraction in credit set off a frenzied race to cover what had been the trade of the cyclical bull market (2002-2007): short the USD (and Yen), long everything else (especially the commodity and resource bubble linked to the popular ‘China Trade’).

This is now water under the bridge because the acute phase of the panic ended with October’s passing and the re-test phase appears to be coming along nicely as well. I am now looking for a decline in the extended and bearishly diverged (MACD, TRIX and other indicators) US Dollar. The daily technicals have eroded and the world’s number one debt note remains strenuously over bought by weekly charts.

By the same token, bullish divergence has presented itself in most other markets, which stand to benefit from unsustainable bearish sentiment as the major media the world over have done their job once again. The result being that people sit safely in cash which is right where they’re supposed to be from the perspective of those who need a counter-party in waiting.

I am bullish nearly everything except the Dollar and Yen, for a technical rally at least.

As this chart [long term Dow chart omitted] shows, there was a long way down following the initial panic of 1929. But do you see that little hitch upward in the red box? Well, it may not look like much but for many market participants at the time it felt like ‘the worst is over and happy days are here again!’ Be forewarned. Longer term this chart tells me the Dow has potential to 4,000 as all the chickens born of immoral activity on Wall Street dial us back to 1994 levels. I don’t necessarily believe this will happen but neither did I necessarily believe gold would go to 700 after the charts told me of that ‘potential’. As shown later in this edition of NFTRH, current portfolios reflect bullish positions in Asia, energy and US stocks. This is for a trade and a trade only .

Is there a true bull out there? Yes, I believe so. This bull lives with the gold miners. Various hockey sticks known as the gold-oil ratio, gold-gyx ratio and gold-human hopes for prosperity ratio provide undeniable evidence of superior fundamentals in the making.

As short term evidence now, post panic, again please review the HUI technicals provided yesterday on the blog: http://biiwii.blogspot.com/2008/11/hui-current-status.html and note that yesterday’s low volume, post-holiday action has brought Huey to resistance as noted at around 250. This means we are ripe for a correction, which would be a buying opportunity [boy was it ever - ed] per the notes on the chart. But this is a very healthy index overall, having been savaged along with the rest of the market during the October panic and November retest phases despite fundamentals that were made ever more positive by the same forces that drove the USD higher. I expect relief in the post-panic broad markets to provide the underpinning for a real BULL market in the gold miners to begin to unfold.

As I always say, the market is full of short term noise and misperception, but that eventually gets sorted out. The play book has always shown the gold miners as superior investments during economic contraction, not as part of the greed-fueled ‘inflation trade’ (RIP 2003-2007). There is only one sector in which profit margins are set to expand, therefore there is only one sector where the bull is likely to be a cycle as opposed to a hopeful reaction to fear and panic of unsustainable levels.

Yen - how things have changed

Say, remember the good old days when people used to sell Yen and buy all kinds of other crap?

$CDNX

Small Canadian resource stocks almost to 38% Fib...

Small caps... ugly

Meanwhile, $RUT sports a very ugly chart.

FXI - updating

Am I covering the China short? No. Nor the financials, nor real estate, nor euro. Not at this time because I have not sold a single gold or silver miner today and I just love balance in my life.

This just smells of new highs in stock markets coming soon. I could be wrong, but these event driven wonders tend to be unsustainable. But still I hold the shorts to balance out the good stuff, because at some point I am sure the enchilada will... well, you know.

Meanwhile, we watch the gold-silver ratio first and foremost.

A looong way from bear hubris...

That is the scary part here. The bears can celebrate as they finally stomp on the greedy and naive bulls - whose debt fueled construct is coming apart once again - and regardless of how this gets spun, the credit contraction has not ended and there should be a lot more expressions of bravado and hubris by bearish people going forward.

In NFTRH we have been following for months the low quality of investors who have been sucking on this rally. Sometimes it takes an event to trigger the dominoes. Is Dubai World (really, is that the silliest name you have ever heard?) the trigger? Don't know.

But the entire rally out of March was predictable due to bear/deflationist hubris on full display. When the time comes that you hear the scholarly deflationists lecturing you once again in that authoritative tone, then we can think bullish in some fashion - maybe. But right now, the dynamic sits opposite what it was a year ago and again last March. Full bull hubris should start unwinding now and I will expect to hear less of smarty pants SeekingAlpha commentators with foolish bullish rationalizations like the $IRX t-bill yield declined because hedge funds have locked in profits and gone to cash.

For crying out loud people, learn to think for yourself or the market will never be your friend. Well, not you dear reader... but those who lap up the all the convention the touts are willing to serve up.

Dubai - Is the enchilada coming apart?

"Credit-Default Swaps Soar" --Bloomberg

Garbage in, garbage out I say. And the sources of the 'recovery' were inflationary garbage. Here come the first manifestations:

"Dubai World, the government investment company burdened by $59 billion of liabilities, roiled markets around the world yesterday by seeking to delay repayment on much of its debt. The dollar’s slump to a 14-year low against the yen prompted Japanese Finance Minister Hirohisa Fuji to say his government is watching currencies “very closely,” while traders said the Swiss central bank sold the franc after it climbed to the highest value against the euro since June 24.

Is this it, the beginning of the unraveling? When you consider that it took more than a year for the last enchilada to unravel after outward signs began popping up and officials began trying to hammer them down like whack-a-moles, you think that it could be. Funny thing about symptoms though, they tend to get rationalized, swept under the carpet and twisted in some bizarre way as bullish fuel during mania. As in 'look, the market is no longer over bought... it's a BUYING opportunity.'

And the herd will believe it and possibly propel this to new highs one day. Then, out of nowhere too many of these FrankenMarkets incur too many fatal hits, and the whole mess just wheezes and declines in the initial lurch toward the opposite of today's hyper-greed.

Alternatively, maybe this is it and while we Americans and other Thanksgiving celebrants enjoy our turkey, the entire system is led into deflationary round II by a small outpost in the interconnected global FrankenMess.

The other component is of course the USD. The moment global casino patrons feel that the scam is coming apart, the game of musical chairs shifts to FIND A SEAT mode. And the ones that find a seat will be resting their butts on cushions stuffed with dollars.

Happy Thanksgiving to all who celebrate!

Gold Ratios

Here are some interesting gold ratio charts I have had updating on the chart list for a while. Gold has only amplified its out-performance vs. nearly everything since the charts were originally produced.

Dr. Doom speaks

When Marc Faber speaks, I listen. Plain and simple, he is not a hype-spewing gold bug or an Armageddon fetishist. He is a realist in whose hands the truth can be trusted, in my opinion.

In his gloomiest prediction yet, Marc Faber sees big financial bust leading to war

Now, the headline is sensational and this is a big macro view. Components are inflation, a diseased monetary system with a cancer called the Fed eating away its core, war and stock market under-performance (which is a lot different than nominal price destruction). Dow-Gold ratio, people?

I have never found Dr. Faber himself to be sensational, however. I have always found him to be machine-like, simply stating the situation as he sees it. And the way he sees it, is not going to be fun at all. Get prepared, big picture-wise.

"I repeat what I have said in the past," Faber said. “No decent citizen should trust the Federal Reserve for one second. It’s very important that everyone own some gold because the government will make the dollar (in the long term) useless."

Stock futures extend gains after data!

Rah rah, sis boom BAH! Pom poms all around.

There is no inflation says the Fed. Just ignore that USD exchange value that declines every time good news comes out when in a healthy economy it should be doing the opposite. Just ignore the gold price which is the barometer of honesty in the financial world. Just ignore it all and buy what this dream is selling.

Sorry to become ever more strident, but bullshit like this is disturbing to watch. I would be all for a real recovery and a real financial system. I am not a negative person at heart. But this FrankenMarket, FrankenConomy, FrankenFed, FrankenMedia and FrankenGovernment are a real bummer to watch in action. We are in Wonderland folks.

"Stock futures are extending their gains as news of an improving job market and strong consumer spending provided reassurance that the economy is recovering.

The Labor Department says new claims for unemployment insurance fell by 35,000 to 466,000. That's the fewest claims since the week ending Sept. 13, 2008, and was far better than the 500,000 that economists had expected.

The Commerce Department, meanwhile, says consumer spending rose a brisk 0.7 percent last month, following a 0.6 percent pullback in September.

But the government also says orders for big-ticket factory goods fell unexpectedly in October." --AP

Fed = laughing stock

Brighter Fed forecast helps market pare losses --AP

"The market strengthened in afternoon trading as the Federal Reserve released minutes from its latest meeting, during which it pledged to keep interest rates low for the foreseeable future and said inflation remained at bay. The Fed raised its expectations for economic growth during the second half of this year, but said unemployment will remain high."

Oh, this is too funny. The Fed said inflation remains at bay. When you subtract out the results of the inflation that remains "at bay", any growth we get next year is going to flat out suck in real terms.

This is too easy. Hold gold and gold stocks in case the wizard loses control of inflation expectations and hold shorts on the markets in case the financial services herd gets tired of clicking its heels and believing in the wizard.

All subject to change of course at a moment's notice here in MoralHazard-O-Pallooza '09 (soon to be '10) depending on which direction the herd panics toward next, because there will come a time to drop the current even Steven holding pattern stance and stake a claim.

Slope - Lifelong Bureaucrats

With the SNL video yesterday and a brief mention of the Obama Administration in NFTRH60, I have about hit my tolerance level on politics.

Whether it be this administration or the train wreck that preceded it, or the mess that preceded it, I tend to wretch at most of what I see coming out of the back end of the two-headed monster, regardless of Republican or Democrat. Honestly, I don't see much difference between them regarding a sane investment stance. Basically the stance can be summarized as 'defend yourself against crazy monetary policy and when appropriate, C.A.P.I.T.A.L.I.Z.E.' As for a social stance, nuh uh, I am not going there. ;-)

So, to end the subject for the week and hopefully much longer (save for expressions of sanity like those of Dr. Paul), I'll refer you to this post by Sloper Tim Knight. Something to think about, eh?

Alert For Tanks

John Hussman's Alert For Tanks is recommended reading and in this context it is not too hard to see why the Fed is keeping this thing on full pump mode. They know that if it is allowed to unravel it may not conveniently stop at some given technical point on a chart.

This is the path toward hyperinflation. The question remains in the nature of deflationary twists in the path.

"As I noted a couple of weeks ago in The Second Wave Begins, we are now largely beyond the peak of the sub-prime mortgage crisis, and have just begun the second wave of Alt-A and Option-ARM resets. That's important, because what we saw in the third quarter, then, was still part of the relatively tame and predictable March-November 2009 lull in the reset schedule. In that context, the surge in delinquencies and foreclosures on prime fixed-rate loans is disturbing, because that wasn't even part of the reset equation, and represents a relatively pure effect of the weakness in employment conditions.

Now, we face a coupling of those weak employment conditions with a mountain of adjustable resets, on mortgages that have to-date been subject to low teaser rates, interest-only payments, and other optional payment features (hence the “Option” in Option-ARM). These are precisely the mortgages that were written at the height of the housing bubble, and therefore undoubtedly carry the highest loan-to-value ratios"

RP - Audit the Fed

AP checks in w/ some silliness of its own...

"Stocks fell late last week on worries about the strength of the economy, boosting safe-haven assets like the dollar. Analysts say investors will continue to look for dips in the rally as a way to get into the market, not wanting to end the year without participating in some of the big gains stocks have made this year."

More thanks to Mr. B

Okay Mr. Bullard...

I guess I will friggin' party on... but nobody says I have to like it. ;-) Linear chart shown for effect.

"Wall St opens higher after Bullard comments"

NEW YORK (Reuters) – "U.S. stocks opened higher on Monday after comments by a Fed official reassured investors the government is committed to helping the economy recover from a deep recession."

Translation: Look, you know this is illegitimate and we know this is illegitimate, but we hope that HOPE can become a transformational thing, with the best case being a cyclical bull market kick started through admittedly panicked, ill-guided and unproductive policy. We'll deal with the fall out later but for now, party on... we NEED you speculators to friggin' PARTY ON!!

NFTRH60 out now

It is a nice New England day, with wood to chainsaw, kindling to collect and football to watch. So, rather than go into a big description I'll just reproduce a snippet from #60. Things are making sense, and now the ball is in the court of various markets, including Uncle Buck.

"The gold mining and exploration companies will benefit in either scenario above. Ironically, if #1 comes to pass, this will probably do no favors to their bottom lines as gold potentially underperforms vital assets like energy and other mining cost drivers. That is why I would label a gold stock rise into a severe inflation blow off as a selling opportunity; an opportunity to sell your gold stocks and immediately put the proceeds into additional physical gold, resources and sound investments for sound living.

If #2 comes to pass, the irony would be that gold stock prices would likely decline with the rest of the Hope ’09 construct even as their fundamentals improve by leaps and bounds as gold’s real price takes the next leg higher out of the current consolidations vs. many other assets. Unlike the selling opportunity noted above, this would be a buying opportunity, with good investment merit for a new age as it slowly dawns on the herd that the old rules no longer apply."

NFTRH 1 year ago

Speaking of the TED spread, from NFTRH9 dated November 22, 2008:

TED Spread & LIBOR Still With the Program [TED & LIBOR 1 Mo. charts omitted]

Again, these are not the kind of charts I want to be posting on NFTRH. What I want to be doing is looking at markets, stocks, bonds and currencies in a relatively stable environment. But since the NFTRH launch, I have not gotten what I want. These macro indicators, along with the above money supply data are a necessary evil for the time being because they help us navigate a historically difficult period. They help us avoid becoming just another sheep to the slaughter.

These charts rising impulsively are the last things economists want to see. As it turned out, the pullback in credit and risk nearly ground the system to a halt. With the massive globally coordinated efforts on the part of policymakers to savage their currencies, we indeed have more indication that the panic is easing. But of course the cost will one day be extracted in the form of a more intense inflation problem. But for right now, all anyone cares about is refuge from the deflation impulse now in progress.

This is not good...

Stock promoters do not want you to look at this chart... the government does not want you to look at this chart... As risk rises, the t-bill generally rises (its yield declines) and well, there ain't no 'less than zero' involved and if there was, it would seek it out. You know, frightened money might actually pay for perceived safety.

Each time the Fed has met (and pretended to have a decision to make) during the supposed recovery, I have posted an updating chart of the t-bill yield ($IRX) with its implications stating that there is no decision to make. There is no real recovery either.

Unfortunately, all too many just go with the flow. They are the dumb money and that money is dumb for a reason.

I would like to know who, in this grand rally and economic recovery environment, is so scared they have just got to get themselves more t-bills? The lower panel is the TED spread, between t-bills and eurodollars which NFTRH used as a bullish indicator back in Q4, 08. Now, it is turning up and that squares with the message of the nominal t-bill.

Silver

Silver is not bearish. In fact since the breakout it is bullish as long as top line holds. There is a gap down inside the triangle, which would muddy things up if filled.

Gold-Silver ratio remains the key to the various market plays, however. But silver is in no way technically bearish as it stands now. And that means my own personal whipsaw, ZSL must only be very temporary until the technicals change. Edit (2:34) Nice recovery in the PM's and silver looking good. ZSL likely to be sold again. I am getting tired of messing up the blog with this ZSL idiocy, so from now on just assume I am either in it or... not. But I am boring the hell out of myself with this amateurish in and out stuff. If it is owned, it will be noted in the newsletter's portfolio section. Jeepers Gary, ENOUGH already.

New Gold - Sometimes it's better to shoot 1st, ask Q's later

New Gold to appeal suspension of mining operations. On Monday, when I sold it, everything appeared okay except for this nagging issue that never seems to go away, as the company anticipated continued operations. Now, the all-too familiar work stoppage based on a ruling by the Federal Court of Administrative Justice, is again in play.

Mining is a risky business and these things can blow up out of nowhere. The chart looked fine on Monday. My gut on the other hand...

Gold stocks are not gold. They provide profit and that profit simply must go to you (me), not to management, Mexican kangaroo courts or institutional profiteers. It must go to you.

Dear subscribers...

In reference to this morning's note, I have just flip flopped back into ZSL (most likely for a short term) while I could get it for close to what I sold it for yesterday. This goes along with all the other shorts and helps me hold gold stock positions strongly.

Signed,

Your Whipsawed letter writer. :-)

VIX

Here is another previous chart that has been updating. The big spike to the SMA 200 gave me a chance to get out of some VIX calls that were looking at front month status, but I still hold some others, with higher hopes. Although time is becoming an issue there as well.

I had mentioned that the VIX needed to hold the SMA 50 area to keep the bearish proceedings rolling, but it was not to be. So, upon such time as VIX declines again to the bottom of the reverse symmetrical triangle, it will be time to punish the bulls, if only for a trade. But maybe more, since they are living on hope, denial and hype. Oh, and a heck of a lot of terrible inflation policy.

Keep buying little piggies...

Here is a chart originally done a few weeks ago, that updates on a chart list. The status has only degraded since then for risk vs. reward watchers.

Trouble at Evil HQ?

Does this look like a bullish chart to you?



How about this one?

GSR - What's it mean?

Here is what it means... Basically this ratio had better find support right here at the SMA 50 or I am going to once again cover the silver short in ignominy and let gold and silver miners ride naked and free.

Here is what else it means... unless gold can establish dominance in the short term (it of course already dominates in the intermediate and long term vs. silver, and every damn thing else) you might wish to get ready for some serious inflation headlines. Maybe even the most serious kind. Because inflation fears will be threatening to break out and the environment would be potentially dangerous to inflationists and deflationists alike, in a game of winner take all, or Russian Roulette, or what have you.

Authorities are getting very anxious, and a wet behind the ears President is over there in China with his hat in his hand. Things could get really woogly soon. Best for a deflationary impulse to hit when everybody least expects it. But we sure may not get what is best, or the better of two evils.

Edit (12:00) Silver short covered once again. GSR SMA 50 remains intact, but I am going to use shorts on other sectors against gold & silver holdings. Too much potential for blow off here. Edit: (12:25) And in the event that I just capitulated the top, I'll accept thanks in advance for the wonderful contrary indicator that is me. We are in the realm of the monetary however, so shorting silver is dangerous because hyperinflation is entering the debate. I am going to increase the shorts on other markets as opportunities arise however, which should provide a nice spread short the garbage and long the good stuff.

"Gold is my enemy" --Paul Volcker

From the Kudlow show... Rick Santelli recalls Paul Volcker thusly: "I can't remember the exact quote but when I used to trade and Mr. Volcker was Fed chairman, he said something like 'gold is my enemy, I'm always watching what gold is doing', we need to think why he made a statement like that. If you're a central banker or one of the congressmen or senators, watch what gold is doing because this is a no-confidence vote in fiscal and dollar policy.'

You know Greenspan, the former gold bug, was obsessed with what gold was doing. Are the myopic academics running the show today tuned in? Do they - perish the thought - actually want a gold bubble; the 'final bubble' as I have called it over the years? There's only one asset (the monetary one) in new high, blue sky territory. Stay tuned.

Bought this chart today

Yeh, it's on the NGD theme again. Here is the GBG-NGD ratio chart. I already owned the under performing GBG but decided to add based on its nominal chart and based on the ratio to the already sold NGD.

GBG, he of the diluted stock but desirable US and South African properties.

The year the game changed

In 1999, the price of gold bottomed after having ridden the post-Volcker era down along with treasury yields. This was due to the sound policies the former Fed chief rammed home and the confidence that ensued.

Enter the Maestro, Greenspan, who inherited the benefits of this sound policy and used it for years as a lever to bail out the system whenever needed. Many people thought Greenspan was a great and powerful Fed chief, but in actuality he was simply playing off the confidence that had been restored in the monetary and financial systems.

I think this macro chart has profound implications and clearly shows that sometime in the 1999-2001 period, we went off the charts as increasing debt burden became not only acceptable, but necessary to support the lifestyles we had grown accustomed to. Denninger's letter in the previous post illustrates China's role in the macro Ponzi scheme in the harshest of terms.

There is talk of a gold bubble and in my opinion, the most unsavory of the gold bug 'community' are out in full force, hoping for nothing less. But gold is not in a bubble. That is because gold represents an anchor to sensible systems and simpler times. It is going nowhere. The other stuff, the remnants of a rotting system is what is going somewhere and that somewhere is down. In short, confidence is being lost. It is no coincidence that gold is the only asset in new high (blue sky) territory.

Back to the chart, look at what happened as Greenspan finally ran out of Volcker's ammo and the market realized that this was simply a shell game promoted mainly by the macro vendor financing relationship between the US and China. There have been various means of keeping treasuries aloft, not least of which is the need for China and other creditors to keep buying them or at the least, not talk them down. Gold's honest monetary value has simply picked up on the rigged game beneath the surface and sought the value that treasury yields have thus far refused to seek.

At the very least, this is a picture of honesty beneath the surface and sadly it is a picture that most people will either never see or come to see when the media are shoving it down their throats and they panic into gold at god knows what higher price than it is currently at.

I'll kill it here, but when I see and ponder pictures like this, I hear thousands of words.

Denninger - No Karl, tell us how you REALLY feel

You know, I sit here and twittle my charts and bitch about this and that, but there are some real heavy weights out there who really know how to get to the point, whether written or spoken. Like Karl Denninger for example, flipping the bird to China in this open letter.

"Let me give you a piece of advice: Sell your Treasuries and dollars while you can.

Oh, you'd love to do that, wouldn't you? But you can't, and you know it. See, you've entered into a pact with the devil - a devil of your own creation. Should you sell a material amount of your holdings you would collapse the Treasury market and receive only pennies on the dollar. Further, you would instantaneously cut off your trade flow into the United States - the rise in interest rates this would provoke over here would force our citizens to spend only what they earn, as the cost of credit would rocket higher - much higher. It would also force an immediate default on whatever was left of your alleged "Treasuries" as our government would be forced to repudiate your holdings to remain solvent. When it comes down to "you or us", let me assure you, it will be us. This in turn would cause all your poison toy, drywall, toothpaste and melamine-laced baby food factories to close. Without that meager $2/day salary you would have 750 million hungry and angry Chinese who just might figure out what a pitchfork's best and highest use is. We, on the other hand, would chuckle mightily as we returned to actual hard work - for our benefit, not yours."

Have bears given up?

They are tired, yes. Pissed off too.

The government has this rigged and set on autopilot. Goldman Sachs runs everything out of the penthouse office. Money printing as far out as the eye can see. We don't have free markets and this is the run up to the new, fascist world order with Rockefeller and the Rothschilds in control. We have lost our freedom. We are going to devalue our way out of seemingly unpayable debts and obligations. Oh, the humanity. These are the thoughts of bear capitulation.

Or just maybe the dollar is going to turn and burn as greed turns to fear one day and it is again shown just how powerless these bureaucrats and buffoons really are. I know this is crazy talk, but neither the gold-silver ratio nor the VIX are at new lows as the markets make new highs. In fact, the VIX did a little hammer action yesterday and the GSR bounced off the SMA 50. But I am 'just a top caller who's not with the bullish program' say the newly brave bulls.

I don't like hype and I don't like mania (in either direction). Okay, I am a freak by today's standards. Let's hear it for the freaks, for one day they shall inherit the world.

Today I bought this chart...

...which is another way of saying I took profits on NGD and bought HMY, as the HMY-NGD ratio suits this bottom feeder just fine. See, you can find nice bottom feed opportunities even in a speculative blow off!

Seriously, after owning Metallica Resources (MRB) for years from 1.00, I am now officially tired of the bullshit going on at the former MRB's (now NGD's) Cerro San Pedro mine, with the locals again stirring up a hornet's nest. The company is operating and will probably be unaffected, but it has been a good ride up from under a buck late last year. Maybe I will revisit at a later date, but for now I'll take this chart, which means I'll take long time South African major gold mining basket case HMY over NGD.

'If HUI is going to 470, Silver is going to 19'

Yes, I wrote that in NFTRH. Actually, I think it was 460 and adjusted to 470. Anyway, it is not like I am surprised. Disgusted yes, surprised? No way. I have seen this movie before.

I am not so much bearish on silver as I am on speculative excess in general. And the silver boyz can get as frothy as their evil cousins over in junk bond land, over in the stock market casino, over in the new stock frontier, China.

NFTRH is not a newsletter to accompany players riding a bubble to blow off, and that is surely what the stock market managers in the White House, the Fed, at Treasury want. Bubbles. Everybody willing to play has a shot at the big time. I however, will continue to play the game but remain the same person I have been all along, which is a boring old voice of reason. This is why I am more comfortable when things are falling apart than when they are being levered up. I am a fairly conservative, sensible type of guy and most definitely not a player.

I guess it is time to actually consider whether these creeps have the power to devalue the dollar right here in the light of day, to the benefit of speculators far and wide. Then again, the previous sentence may have rung the sweet sound of capitulation to those with tuned ears.

I have gotten rid of most bearish positions in a conservative account and still hold them - including silver short ZSL, in a speculation account but have also added some positions in silver and gold/silver stocks to weigh a little more bullish from market neutral. Portfolios are at all time highs and I will not become a bitter or tired looking bear (Isn't that little fella cute in the previous post? He's just resting up for an active future).

I can't tell you what my stance will be at the end of day, or the end of the week for that matter. But I can tell you, as a trader, that this pig will not beat me. If adjustments need to be made, they will be made and I will then outperform the greedy mess all the way up until termination, while having risk management in place every step of the way. It's what I did starting in 2003.

The Dow-Gold ratio has been crashing since 2000, it's all one needs to know. NFTRH has its targets and it has its A, B & C scenarios. They are trying to go for C, and it will likely not end well when it does ultimately end.

Gold-Silver Ratio

GSR is about to be hammered this morning if US markets open as they currently stand. This could invalidate the 'Not buyin' it' post from a few days ago. I am going to get pissed off and then just deal with it. Whether it means covering shorts or whatever.

This is the market we are given. This is the fantasy we are sold. Our job is to go forth into this mess, protect ourselves from its dangers and then use its excesses against itself to outperform. So yes, I will be pissed off, but this too shall be managed and I'll go forward with a smile. There are plenty more battles to this war. Some will be bullish, some bearish and virtually all will be noisy.

Have a great day dear readers.

A lovely way to start the week...

We have greed and hubris on full display as hope morphs from something pathetic and pitiable into something downright evil. The US dollar is trashed once again and a casino full of players continues to try to make itself whole again after last year's disaster. And why not? There is no downside, no liability.

The Obama administration is bailing out not only the working poor, but a whole gaggle of interests that have bought their way to your money (American readers, that is). Check out Tim's post The Latest Transfer of Cash to the Rich and prepare to have your stomach turned, as he puts it. There is definitely a mentality that it is all back stopped... and rigged to the hilt. A can't lose situation for anyone who is able to ignore the laws of sound economics, which is basically 95% of market participants now, I would figure.

Here are just a few welfare recipients (courtesy OpenSecrets.org) and the relative chump change they put into lobbying this administration and the disaster of an administration that came before it. 2007 and 2008 were banner years for targeted lobbying efforts, and boy did they get bang for the (your) buck!

NFTRH 1 Year Ago, NFTRH59 out now

From NFTRH9, dated November 15, 2008:

Present

Deflation is everywhere. Confidence is lost. People have been scared back into the ‘safe’ paper issued by those in whom confidence has been lost. Think about that. In the short term, in the present, safety means liquidity and refuge from price destruction. This is a necessary refuge. But the same crowd that could not wait to get aboard the commodity mania now lusts after worthless paper. Are they suddenly right in the big picture? I know I am like a broken record with this theme, but you have simply got to consider a way to establish a contrary focus if you want to survive financially in the future.

Fast Forward

How many people were worried about inflation in late 2001 and 2002? Relatively few, that’s how many. Die-hard gold bugs, the Austrians http://mises.org (who understand the dynamics of money creation) and a thoughtful few others. Fast forward from 2002 to 2007 and you have manic hysteria and the ‘resources’ trade going full steam. This trade seemed more valid than the previous mania in revenue-free dot coms. In fact, many commodity companies appeared to be undervalued even at the height of the boom. But were they? No, they were not considering that the entire commodity bull train was steaming down a track that ended at a cliff. But investors did not see a cliff out on the horizon. They saw a China growth story. They saw an ascending India and developing world. They saw what they thought was an unstoppable global apparatus being constructed. But it was an illusion. The illusion was built upon a foundation that really was never there to begin with; this foundation was the idea that America could keep borrowing its way to prosperity and fueling the global system. Sober, forward-looking people knew this had to end.

But what are we here for at NFTRH? We are here to do what we have always done; look ahead once again. My personal belief is that the new unsustainable story is that people can hide, en masse, in various global paper, the only value of which is the value that respective governments say it holds. Therefore, I am an ‘inflationist’ as some people have described me because when I look forward I see a realization out on the horizon – perhaps as faint as today’s deflationary crash episode looked to most in early 2007 – that the current rush to cash will have been only a knee jerk race for short term liquidity even as global authorities did all they could to destroy the units in which this cash was denominated.

So, with the same hazy timing (it took longer than most of we doomsayers expected for the current crisis to arrive) I look forward and NFTRH assumes the stance of balancing short term needs for ‘safety’ with long term needs for a very different kind of safety; protecting oneself from the devaluation of global currencies. Understand that the stance is monetary first and foremost and while I can see a new commodity boom well out on the long term horizon, I remain focused on the producers of the monetary metals first. The great commodity boom, part II will have to wait until still declining economies experience their next upturn due to today’s policy now being carpet bombed globally, 24/7. As for the economies themselves and associated stock markets, the returns are likely to be diminishing indeed. But there could be select opportunities there as well.

Only a few are watching for this today. It is as it always has been and tomorrow’s counterparty remains secure in its conventional wisdom.

NFTRH59 out now.

Not buyin' it... not yet, nuh uh

The gold ratios are not buying it either. Gold has gone AROON trend up as measured in silver, commodities and industrial metals. As long as this persists, the bulls are heading for sadness, as are any bears getting blown out of their shorts here.

Bear in mind I am market neutral (gaining a little on days like yesterday, losing a little today) with my fundamentally favored longs in the gold sector. So I can wait around a bit to see how this plays out. Honestly, I am not sure how people can play the high risk game of being net short everything when they are fighting some very determined inflators/reflators/pumpers.

The very definition of flying up your own A$$

"The wider deficit was driven by a big rise in imports, led by a jump in oil shipments. That overwhelmed a fifth consecutive increase in exports. Exports are expected to continue to rise on the back of a weakening dollar, but as the economy improves, imports should increase as well." --Reuters

Uncle Buck gets whiplash

The Federal Reserve displays utter disregard for the dollar. G-20 anticipates feeding off the current abusive trend so that it can sell the global public on the recovery story. Timmy goes before our Asian 'partners' and delivers a Snow job to feign support of the world's reserve currency with all the ironic hilarity of his predecessor.

All the while, the dollar sports bullish divergence but remains below RSI resistance and the resistive SMA 50. So it can't be said that there is anything technical stating that a bottom is at hand. In fact, a weekly chart shows lower potential.

I have taken some positives (for the USD, and for rational markets to take the correction that rational markets need right now - but oh, we are a long way from rational aren't we?) out of the GSR's refusal to give in to a new leg down thus far. If the GSR is able to persist to the upside you will see other things that have been in similar downtrends, like the VIX, like Uncle Buck, follow right along. If not, then we go further off the charts of common sense and further into the moral hazard that will become all too real upon termination of the rally in hope and greed.

Okay folks, something's gotta give...

Either the uptrend in the stock market is going to conclude or the gold-silver ratio is going to go back down. As long as the short term positive correlation between the two remains in place, it is a bearish divergence for the stock market.

Call me a perma-bear if you like, just don't call me late for dinner. And after the aggravation I have gone through trying to catch this pig, I am going to be quite hungry when the turn comes.

If the GSR reverts to its intermediate trend however, it is likely to be blow-off city in precious metals, stock markets and inflation hysteria. So which is telling the truth now, GSR or the stock market?

Timmy speaks...

SINGAPORE (Reuters) – U.S. Treasury Secretary Timothy Geithner offered fresh reassurances to Asian nations that the Obama administration was committed to a strong dollar and to actions aimed at bolstering its value. I've seen this movie before, think the Chinese.
"It's very important to the United States that we have a strong dollar," he said at a news conference at the Asia-Pacific Economic Cooperation forum, or APEC in Singapore on Thursday. "As growth recovers, (we will) move our fiscal position back into balance." "But since growth is only going to recover from devaluation, we are going to get the double whammy benefit of inflating away our debt as well. Then we will come back to you, after the damage is done, and try to support the dollar. Can we still be guardians of the world's reserve currency? Pretty please?"

Soaring budget deficits, which hit a record $1.4 trillion in fiscal 2009 and will likely be near that in 2010, have weakened the dollar because of huge U.S. borrowing to meet the U.S.'s day-to-day spending needs. Spending, it's the American national pastime.

As he did throughout the past week, at meetings of the Group of 20 in Scotland last weekend and in Tokyo earlier this week, Geithner acknowledged the U.S. carried a special burden for protecting the currency's value because it is the global reserve currency.
"We bear a special responsibility for being a source of stability and strength in the global economy and we are going to continue to be a voice for reform and we'll be a strong partner for countries in this region," Geithner said. Ha ha ha ha...

The dollar has declined 16 percent against a basket of six major currencies from the highs set in March and is down more than 37 percent from a peak in 2001. The rotten garbage known as the dollar has declined against a basket of rotting alternatives. Hey, that's not good!

Geithner dismissed a suggestion that pouring hundreds of billions of dollars worldwide into spurring economic activity might lay the ground for a future inflationary surge and said finance ministers must stay focused on getting growth on more solid footing.
"Inflation is low and still moderating across most of the major economies," Geithner said. "The most important thing we need to be doing is try to make sure we are reinforcing this early recovery." "Inflation is low if you believe me when I tell you that inflation is prices but please, whatever you do, do not look behind the curtain. I am trying the best I can here, with the mess I inherited. If the recovery fails, we fail... if the machine breaks down WE break down."

The U.S. Treasury chief said there were promising signs of growth returning to the global economy and credited Asia with leading the recovery but stressed it will have to find future growth in sources other than hard-pressed American consumers.
"The rest of the world is going to have to shift to more domestic sources of growth, investment and spending," Geithner said and singled out China as an example that was already starting to happen.
"China's external surplus has fallen very sharply, you're seeing spending and investment in China expand very rapidly," he said. "These are early signs of not just recovery and growth but a fundamentally necessary and important shift in how the global economy grows." "My fellow Americans, we are screwed. Ours was the 20th century, their's is the 21st."

TINKERING WITH THE YUAN
Geithner avoided saying whether he thought China was signaling a willingness to let its yuan currency rise in value more rapidly in a central bank monetary policy report that said Beijing should consider major currencies in guiding the yuan.
China has effectively pegged the yuan's value to the dollar since the middle of last year, to the frustration of not only the United States but other Asian nations that have seen their hopes for exports checked as the yuan tracked the dollar's losses.
"Maybe that's a question that should go to my Chinese counterpart," Geithner said when asked if he felt the People's Bank of China was ready to let the yuan appreciate, then went on to praise Beijing's robust economic growth. "God, please don't ask him that."

"China's playing a major role in helping contribute to recovery and the broad thrust of reforms its government has laid out provide a very promising basis for helping obtain a more solid foundation for growth in the future," he said. "In the finest American tradition, they are inflating to beat the band."

China's latest reference to a possible new set of benchmarks for determining the value of the yuan came shortly before U.S. President Barack Obama is scheduled to visit the country. China's move would be a departure from recent practice that has seen the currency held steady since mid-2008 around 6.83 per dollar. America, the new manufacturing and exporting powerhouse!
But U.S. officials were wary, cautioning that a change in its exchange policies is only one of many reforms China is undertaking and should not be over-estimated.
In a statement, the 21-member APEC endorsed a movement to "market-oriented" exchange rates that was widely seen as a reference to China as well as the necessity for keeping massive global stimulus measures in place until a more stable recovery is assured.
In a later interview on CNBC television, Geithner said the Obama administration needs to borrow "substantially less than we initially anticipated" to bail out the financial system and said that will help get the country's fiscal house into order. "We need to borrow less and INFLATE more, which is more politically palatable."
"That's going to allow us to devote more to debt reduction," he said without offering any estimate how much less will have to be borrowed. "That's a fundamentally good thing." So is hyperinflation if you are the one doing the inflating and if the counter-parties sit idly by and let it blow them up. We are in Wonderland folks... guided by stooges.

u3o8 - me like

Amid all the noise to the upside in the precious metals and all of us thus far ill-fated top callers in the broad markets and commodities, it seems that a little sector known as the U's is looking very interesting.

I think that NFTRH59 is going to do some technical analysis on the sector itself and on a stock or two in support of what I think is a bullish set up (okay relax, I am a bottom feeder who likes to buy low and sell high - so momo's or impatient traders should avoid). There was a key indicator NFTRH looked at much earlier in the year when it was time to get bullish for a trade, and that indicator is going to be looked at and updated. I like the looks of it.

This is a funny sector that tends to go its own way. It has not really been participating in the rally, but I find myself picking up shares slowly as I think that over time, U is going to be a big winner. I am up to 3 U's and may add more if things stay on track.

Nice gold micromanagement...

For those into the short term on the relic, here is a good video from Ino.com:

What's Gold's Next Stop?

Separately, Ino is also featuring a seminar with John Murphy, he of 8 books on technical analysis and founder of my beloved stockcharts.com. Check it out - a TA giant is Mr. Murphy.

Mr. Jones & Me

Price action is bullish. There, we got that out of the way.

The technicals on the Dow however, continue to meander along, slowly degrading as the dumb money becomes emboldened. I guess I am becoming something of a perma-bear, but then again I was persistently bullish beginning a year ago. Good things take time.

So the Dow rises higher as casino patrons place their faith in macro monetary policy micro-managers and their ability to control the markets, all knowing and all powerful. The US currency - virtually the counter party to the world - continues toward would-be devaluation.

From this mix springs the 'take the longest term mortgage you can and put your money in stocks' tout, the 'silver is undervalued compared to gold' tout*, and a chorus of "I told you so's" from smart alecs the world over who, in reality, were nowhere to be found when the bullish play was originally ready to roll.

I tell you again, I never heard from one single stinking bull in Q4 '08/Q1 '09**, but the deflationists were on 24/7 and you couldn't write something bullish without hearing from them. It is really interesting how these psychological swings get corrected, isn't it?

* Speaking of silver, a reader asked why an SLW post was removed yesterday and it is because I unwittingly used a linear chart, which showed a more bearish interpretation than the normal log charts I use. So in the interest of consistency, I removed it. I am still bearish on SLW however. When it was in the 2's and 3's, I was buying with both hands. But that was in a different lifetime, all the way back to a year ago.

** Well, I heard from one bull. A subscriber who runs a firm in NYC noted to me his bullishness and that of a legendary trader who was coming to work at his shop as he had never seen such an opportunity for "picking off the sissies".

Ah heck, let's reproduce it below as part of the NFTRH 1 Year Ago series. Excerpted from NFTRH9:


An email from another NFTRH subscriber who is a Wall Street long-timer and whose level of experience makes mine look silly:

Yes Gary, I spoke last night with one of the legendary street traders from the old days (pre 1990). He wants to leave Miami and work free at our shop because he has never seen a time when there is more money to be made the old fashioned way...picking off the sissies.

And then there is an unfortunate situation that someone I am close to experienced yesterday. She is selling a prime piece of property near the ocean in Maine and was in the final offer / counter-offer phase with a cash buyer and all looked good. The buyer pulled out at the last minute for reasons I paraphrase below:

I am concerned with the stock market making new lows that this is not a regular recession and we are in fact headed toward a depression. The only safe place to be right now is in cash.

Okay, everybody’s got the memo; deflationary depression it is. Well not everybody… I’ll go with the old pro’s and stick to my story that there will be recovery – borne of inflation – and there will be places to invest and places to avoid. With the entire world now expert on deflation and 1930’s history, I have got to believe we have a huge counterparty of ‘sissies’ waiting to take the other side of the trade.

I personally believe any coming stock market rebound is a trade only and things could get worse before they get better. But if I were a deflationist I would be uncomfortable with the level the major media and by extension, the public are up to speed on the concept just as I was uncomfortable with every Tom, Dick and Harry on board the inflation express.

A Value Proposition

This was written almost exactly 2 years ago. I am dredging it up again because I turn on CNBC and it's 'gold this and gold that' and all the inflation experts getting everybody discombobulated once again with inflation fears... the 'silver is undervalued vs. gold' story getting pumped now 24/7... gold bugs are on full froth.

Gold is simply about value, but we are so far removed from that concept in the age where supposed financial advisers are again touting 'take the longest mortgage you can and use the extra money to buy stocks for better return' (my friend actually told me he heard this uttered by a CFA on a supposedly serious financial radio show last weekend).

If you are confused or emotional about gold, take some time and read this. I am not trying to sell you anything, other than piece of mind.

A Value Proposition

GG trade over

I must kiss pretty pretty Gigi goodbye once again. Trade is done off of this buy and I have plenty of smaller miners with more value embedded, in the event that Gigi wants to go for the top line of the trend channel, because then HUI would do the same and the smaller miners and explorers would absolutely go mental.

Gold & Gold Ratios - Where's the bull market?