Wednesday, November 30, 2011

Waiting for Godot

Yesterday we suggested that the investors should not underestimate the power of the central bankers and politicians. We also said that the Pavlovian dogs like Zero Hedge or Mish will have to wait longer for the collapse of the world.

Sure enough, the latest press release: “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.”

2011 is not same as 2008. There is more than enough liquidity in the market for TBTF Banks to play their shenanigans. So now their game is to wipe out the shorts. Next week they will squeeze the new bulls. Wash, rinse, repeat. 

A short term top is expected in the next few days. The “first of the month” effect will probably push the top in December. Then look for a dip by mid-December followed by a yearend rally topping at the end of December again.

I would rather not participate in this crazy up and down dance of the wolves. There is very little money to be made and more risk. A good bottom fishing opportunity will come by Jan 2012.  

As an investment policy in this volatile environment, we are committed to “Return of Capital”, not “Return on Capital”.

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Tuesday, November 29, 2011

Gold Gave Sell Signal Today?

Ichimoku cloud is possibly calling for lower price ahead for gold.

AUD is moving up and is about at per. I think we will see strength in the markets for the next few days.
In any case, I do not believe that the end of world is upon us. People who are predicting apocalyptic and end of world, will have to wait more. They forget that it is the interest of Germany to have a weaker euro. And the printing power of the central bankers and politicians are never to be underestimated.
85% of the population still has jobs and malls are still full. We will muddle through for some more time. But that does not mean that we have to go long equities yet.
Cash is King. Long live the King.

Monday, November 28, 2011

“Cyber Monday”, Indeed!

Today’s relief rally was based on what relief really?

IMF refuted the rumor of Italian bond purchase and things everywhere remained same as ever. But still Dow was up 300+ points; Crude up about $ 1.50, Gold reached $ 1722. All based on “hopium” .

Will it lead to a new high? Not likely. I think we will reach a short term top around Dec. 5th, before we see weakness again.  But again, I expect the weakness to be limited. Have you noticed that stock markets have diverged from Euro to a great extent? When Euro dived to 1.32 level, stocks did not reach new low.

I do not think the October lows will be broken.

Crude on the other hand has broken the correlation totally.

I am disappointed with the price movement of gold. If gold cannot decisively close above $1711 tomorrow and close the week above $ 1730, then we will see further weakness in gold.

The world economy will muddle through. The situation today is not the same as it was in 2008/9. The bears are expecting a huge drop every day, but it is not going to come. While a Santa rally is now unlikely to materialize, it is not going to sink to the bottom either.

I shall be calling out the opportunities for safe trade as I see them. At this point of time, with volatility so high, it is better to wait for good trading opportunities and may be better to let go few chances. Risk reward ratio is not very good at this moment.

Be safe out there.

Mexican Standoff

I have been travelling again and hence the long absence from the blog.

Nothing really has changed from my last post. While the Euro-politicians are lurching from one crisis to another and the "Doomsday Sayers" like Zerohedge are salivating like the “Pavlovian dogs”, the market is playing in a range. It is a traders market and not a place for regular folks or investors.

In a market which is up today, down tomorrow, nothing saves our money. Not even inverse ETS.  The emphasis now is “Return of Capital not Return on Capital.”

It appears to me that the society as a whole has become kind of bi-polar. While the smart money is preparing for the coming tsunami, the ordinary folks are busy shopping. While on one hand we hear of high unemployment rates, both here in USA and in Europe, on the other hand, "Black Friday" sales are up over 6% and is a record braking number. People are using lethal force and are willing to inflict physical damage on others to buy sh*t from wall mart! I see the same shopping frenzy in Amsterdam or in other European cities. And here we are chattering about the imminent death of Euro. What gives?

I have no idea but I do not like what I see. I am neither long nor short. I went out of Gold and I am still waiting for it to bottom down. The huge up today is just a bounce and those of you who are still long, may want to use this opportunity to get out of equity. The bounce was expected because the market had become way oversold and McClellan Oscillator went below -100. This is kind of extreme and it is bound to correct itself.

But I do not think it is the beginning of a new bull phase or there is any substantial upside. I think we would be lucky enough if we can close the year above 1275. May be we will, just about, so that the year as a whole is in positive territory?

My reading of the global macro situation tells me that we are witnessing a train wreck in slow motion. The debt super cycle is about to end and the massive deleveraging is upon us. It will be playing out for many years to come. But the political powers are not going to let it happen without a fight. So while my emotions tell me that we should be short, logic tells me that bear markets do not start with advance notice. In fact bear markets starts at the height of euphoria and we definitely do not have that.

Will there be a QE3? I think there will be but the timing is an issue. Obama will probably use QE3 to get the maximum out of it for his re-election. If that is so, then the right time would be around June 2012. Till that time the TBTF Banks will do everything to scare the retail investors and make sure they are able to get the best out of it.

Where does that leave us, ordinary folks? I think a good buying opportunity for gold will have to wait till mid-Jan, 2012 but even that will be a short rally. But I am not inclined to go short in a big way either. So the “Mexican Standoff” continues.

Thursday, November 17, 2011

Gold Continues To Follow AUD

Gold is now at 1746 level. It continues to drift lower with AUD. if this level is broken, next stop is $ 1695 and then $ 1675.
Would be interesting to determine a good entry point.

Wednesday, November 16, 2011


Before the markets opened today, I wrote that I am long gold with a very tight stop. Once the markets opened, the stop was triggered and I went out of gold. I believe in the long term higher price of gold. From the following chart you will note that gold is in a rising channel.

However it is now near the upper limit of the channel and even if gold were to correct another $ 90- $100, it will still be in a bull market. I am waiting for a better entry point. I think gold is safer place to be vis-à-vis equity.

For now gold is mirroring euro.

 In other word, it is moving opposite of US$. But a time may come, when gold and US$ will move in tandem. That will happen when investors flee euro and look for a safe heaven.

“Euroxiety” has taken centre stage and the Fitch comment at the end of the trading session spooked the markets. But Fitch did not say anything new, which we were not aware of.  Markets are anxious and the yields of Italy, Spain keep rising. Tomorrow is another big day for bond selling by France and Spain. Everyone would be waiting to see what the yield is. ECB would have to pump in more money tomorrow. How long and how far they will go, is the question.

In such a scenario, hedge funds and mutual funds would first sell their portfolio that are profitable and will hold on to the “not so good” part of the portfolio.  So we see Paulson & co , the largest holder of GLD selling its GLD shares and holding on to BAC shares.

The situation is rather scary and the 1st priority is not to lose money.  

For now, Cash is King.

Going through correlation between various currencies and gold, I found that gold has a better correlation with AUD, even better than Euro.
Gold has now gone down further and has taken out the channel support. If it breaks $1745, the next level is 1675. lets watch AUD carefully.

Stop Loss Triggered

Stop loss has been triggered on gold.
I am now out of gold.
Will wait for a lower entry.

Which Way Wednesday?

I was travelling for better part of last two months and now back in Toronto. I spent considerable amount of time in Western India, Northern India and Eastern India. I got a chance to meet people from different walks of life and got a glimpse of the mindset and thinking of the people of India. India is important in the global business, just as China was twenty years back. I plan to write about my analysis in the coming days as I recover from jet lag.

Back in North America, nothing much has changed since my last post. I am long gold with a very tight stop. If gold closes below $1765, I will get out. If we get past November without triggering the stop loss, then it would be OK to hold long gold. I am avoiding silver altogether. Europe continues to lurch from one crisis to another. I had written months back (When it was not in fashion) that the pink elephant in the room is Italy. And now the markets have found out how much vulnerable Italy is. I wrote that we will get a rally once “Bunga Bunga” goes out. We did get a rally but it was short-lived.  Now super-Mario will form a government and most likely we shall see little calm in the next few weeks.

I had written in last June / July that I expect two Euro. And reading the various comments coming out of Germany, it now seems that the Germans are seriously working on that. They will not put their necks on the chopping block for their profligate southern neighbours.  The EFSF remains a joke and team Merkozy is engaged in the policy of buying time without spending too much money. Now everybody realizes that the French banks are in deep soup with the sovereign debts of the PIIGS countries and France, the core of Eurozone, is in spotlight. With so much trouble in Euroland, one would expect the Euro to disappear but the markets can remain irrational longer than we can imagine. So I expect Euro to hang around some more time, may be till the end of 1st quarter , 2012. After that things may start to unravel quickly.

Something interesting happened last week in the Forex market. GS came out with a recommendation to buy Euro. Their stop loss was 1.35 and limit was 1.40. Normally I tell my clients to do the opposite of what GS advices. In this case, I was expecting GS to sell Euro above 1.35. Surprisingly or may be not, Euro sold off and 1.35 limit was triggered. Now may be they are buying Euro and it will go up again. If Euro closes below 1.3440, it will probably be a sell signal.

Back to Equity, I expect the market to grind up slowly till December. Already it is in positive territory for the year, marginally so.  We will continue to see massive sell off one day and gap-up open the next day. These are the typical signs of the top and both bulls and bears will get burnt. Yesterday’s late rally was as silly as it gets and so today might be a red day.  My advice is to stay out of equities altogether and if one has not gone out already, one should use the next high to unload. I am short Apple again with a very tight stop and otherwise I am just watching the madness of the market from the sideline.

Be very careful out there.

Tuesday, November 8, 2011

I Told You So!

So boring it becomes! To keep saying, “ I told you so”.

Monday, 7th Nov. I wrote; “Despite all the problems in Europe, I think Europe will hold up for some more time and possibly by mid-November, we shall see bids for risk assets. This is because, I see the trade becoming too one sided. Last week MS came out with a report for its clients which virtually says that Europe is finished. While I do not disagree with that diagnosis, I doubt their timing and agenda.  Everyone is looking to short Euro and play safe while the primary dealer banks need to do window dressing for the coming year end. Just like I do opposite of what GS says, I want to take all reports from TBTF banks with liberal dose of salt. I think bunga bunga Berlusconi would be forced to resign soon and a new Government will be formed in Italy. Then the ECB will buy Italian bonds to reduce the rates and bring in some short lived cheer.

Sure enough, we had a exit-Berlu rally. I expect a major top by December. And for those who have not gone out of equity yet, that would be a good opportunity to exit.

I am long gold in a measured way. Spreading my bets over few days. In short term gold has reached the upside of the channel and we may see some weakness in price. Longer term my upside price target of gold is around $2150 before another correction.

Things are as dysfunctional in Europe as ever. America is just muddling through. Cash is going to be king.
By the way, selling may not be over yet and we are likely to see some selling pressure in the coming days.

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Monday, November 7, 2011

Circus of Paps.

G-Pap is being replaced by L-Pap or some other joker. That way Greece can get another $ 8 billion immediately.  How far this extortion will go on depends on the Germans. If a referendum is held now in Germany, about 70% would want to dump Greece or otherwise go out of Euro.  Regardless of the change of face in Greece, the Greek extortion racket continues even at a higher level.

Markets have written off Greece but the Euro- crates don’t get it yet. The one year Greek bond yields have now crossed 235%.

The focus has now shifted to Italy. The 10 year yields have reach around 6.6% and we are seeing the same kind of denials and action what we saw at the early stages of Greek drama. Remember that Ireland got bailed out at 7%. European and Asian markets are down and risk is off.  EFSF is a joke and anyone who believe in the capacity of team Merkozy to make good on the promised EFSF one trillion,  must also believe in Santa clause or tooth fairy. As of today morning gold is hanging on while silver, oil copper are down. Even CHF is down vs. USD. I expect some correction in gold as well this week, which would be my entry point. I wrote last week that selling may not be over and so it seems today morning. The world market is in red.

Sometimes it becomes boring to keep writing” I told you so”!

There is an interesting article in The Telegraph today. "The six weeks allotted to save monetary union have expired. The G20 has come and gone, yet no workable firewall is in place as the drama engulfs Italy and threatens to light the fuse on the world’s third largest edifice of debt."  


Despite all the problems in Europe, I think Europe will hold up for some more time and possibly by mid-November, we shall see bids for risk assets. This is because, I see the trade becoming too one sided. Last week MS came out with a report for its clients which virtually says that Europe is finished. While I do not disagree with that diagnosis, I doubt their timing and agenda.  Everyone is looking to short Euro and play safe while the primary dealer banks need to do window dressing for the coming year end. Just like I do opposite of what GS says, I want to take all reports from TBTF banks with liberal dose of salt. I think bunga bunga Berlusconi would be forced to resign soon and a new Government will be formed in Italy. Then the ECB will buy Italian bonds to reduce the rates and bring in some short lived cheer.

 My advice to my clients has been to get out of Equity and if one is still in equity, any strength in the market in the coming months should be used as an opportunity to exit. The best trade I see now is go long gold. I do not like silver so much and would rather avoid it if I may.

To close on a different note, do you know who or which country have been the worst drug dealers / traders in the history of mankind? If you say the Mexican drug cartels, you are probably way off the mark. The right answer should be; surprise, surprise, England. For two hundred years, when England was the colonial power, they cultivated opium systematically in India and forced sell them to China. For more info you may want to read this;  

Imagine, all the grandeur built on drug money! And then have the gall to lecture the world about democracy and human values. Pity England lost the lucrative slave trade or drug trade.

Friday, November 4, 2011

Crony Capitalism At Its Best

And you still think someone would be punished for the vanishing millions of investors' money from MF Global?
A change we can believe in!

Markets On Steroids.

Yesterday the Euro and the stock markets went up because?
Depending on what we are smoking, the answer could be:
·         ECB reduced rate, or
·         No referendum in Greece, or
·         Possible absence of Government in Greece, or
·         MOMO chasing lemmings forgot the MF Global fiasco and major Euro bank stress, or
·         HFTs forgot about the fact that Europe is in recession, USA is in stall speed and China is slowing, or
·         Uncle Ben promised more free money, or
·         G20 leaders may agree to run the printing press at high speed, non-stop and may even mandate IMF to do the printing, or
·         Nothing was solved in Euroland compared to day before, or
·         Bad news is good news, or most importantly,
·         The primary dealer banks need to do window dressing of their balance sheet and convince the sheeples that all is well.

Take your pick but it does not matter.  Santa clause rally is upon us. From now till the year end, we may see a multi-week rally in stock markets. I have written many months back that when the 1st day of the year and the 1st month of the year in the 3rd year of Presidential cycle is positive, 90% chance that the year will end in positive territory. 

There is absolutely nothing in the market to be happy about. It is just a casino on steroid. Europe’s debt is spiraling out of control and bond yields in Italy are going up. The bad moon is rising and the oceans are swelling to dangerous levels. No levy or dike can stop the tsunami coming in. It is not a question of if; it is a question of when.

I do not think that it is the right time to be in equities. The similarities with 2008 are too much to ignore. The entire global banking system is carrying trillions of dollars of un-hedged sovereign debt and other assets which are severely impaired. Just like MF Global, these sovereign debts are sitting in the books of the banks as risk free assets, leveraged to the teeth. But the stock markets will rise from here because the central banks are injecting liquidity or changing the rules of game. So how do we take advantage of that? They want us to be in equities and other risk assets. Then one day the floor will be removed from under our feet and we would be left dangling, holding worthless papers. From here till year end, window dressing will be on full swing. All the talking heads in MSM will sing that everything has been fixed.

I want to join the party but on different terms.  When the SPX reaches 1350, I would rather take that opportunity to short the market. But for now, I am declining the invitation to go long equities. I would rather go long gold just to be on the safe side. Waiting for a good entry price next week.

Today is a NFP day. The last 5 NFP days have been red. Will it be different this time? The normal pattern is either open high end low or open low end high.

By the way, do you know that the food stamp usage is at record high! Per the latest available record 45.3 mil people used the program. 45,000,000 people are a hell lot of people. And they say we are out of recession?

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Wednesday, November 2, 2011

Time For Long Gold?

Sometimes it is so easy to predict what will happen to the stock markets! And to think that TBTF banks have battalions of analysts and complex computer models to predict the future. On my last post I wrote, “Green tomorrow, but selling may not be over”. Sure enough, we had a green day across board. And now futures are down and it looks like it will be red tomorrow.

I also wrote that I expect a multi-week rally from mid-Nov. Apart from various indicators and analysis; one simple reason for the coming rally is the need of TPTB (The Powers That Be) to fool the investors and do a massive window dressing for the year end. The Greek referendum has been pushed till December and nothing much is going to happen between now and December. Italy and others in club PIIGS continue to dance on the edge of volcano. And they are inching ever so close to the edge.

This news is from Zero Hedge; “While the focus continues to be on G-Pap for the second day in a row following his shocking referendum announcement, the real diversion remains Italy, where the government is in as much of a state of chaos as that in Athens, and whose bonds, while not yet trading at Greek levels  (remember when the Greek 1 year hit 100% two months ago? Today it is at 225%... and tomorrow the two year will be at 100%), are far, far greater in amount, and the only thing preventing their collapse so far has been the ECB, whose monetizing assistance has been contingent on Italy passing and enforcing austerity measures to deal with its runaway debt to GDP of over 120%. Unfortunately, when BTPs open for trading in 7 hours, the ECB bid may not be there, or any bid for that matter, because as the WSJ reports, "Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country."

I had written many months ago that there will be two Euro, one for the Northern Europe and one for the Southern Europe. It will be interesting to see where France fits in. But that is still some months away. In the meantime we still have to worry about things in North America. The USA is at stall speed and the FED is unable to help the Banks as much as it would like. Again, the only way the TBTF banks can make money today is through speculative profit and we will see the buy programs being set in motion soon. Other things being equal, I expect 2011 to be in positive territory. At the beginning of the year, SPX was at 1272, so even if SPX closed around 1300 by the year end, that you be sufficient to fulfill the requirement of a positive year.

I am debating whether to go long equities but the risks are high and the end game is near. It is very difficult to be precise in this volatile market environment. More likely, I would go long gold but not before I am sure that we have reached the tradable bottom. There are signs that the selling would continue this week and that would put pressure on gold price as well. But that would be a welcome development as it would give a better entry point.

Green Tomorrow But Selling May Not Be Over.

All the euphoria of last Friday vanished in thin air with the curveball thrown by G-Pap. For the last 30 years Greeks have held the EU hostage with their brinkmanship and guilt manipulation. After the voluntary ( ha ha ha) 50% haircut agreed by the European banks, EU should now set aside another Euro 200 billion for loss write off and show the door to Greece. If that requires change in the treaty, do it. That way others in the PIIGS club will not ask for any further concession or write off. But that requires nerves of steel and team Merkozy do not have that. They are just buying time for their banks. In the mean time, Greeks have got hold of Europe by their S&C and blackmailing them, milking them for whatever it is worth. Greece will collect another few hundreds of billions of Euros and then default.  It is their sense of entitlement that is driving the whole Euro mess. I do not see any solution for the debt problem of Europe and Italy will soon follow Greece to give the fingers to Germany and France. Already the Italian 10 year bond yields are well over 6% and rising. Frantic efforts are on to reduce the gap between German bunds yield and Italian yield and they are even changing the margin requirement rules. ECB has now stepped in to buy the Italian Bonds to control the situation.

On the other side of the pond, things are as messy as ever. Channel stuffing by GM continues. GM books its car sales as soon as the inventories are shipped to the dealers. And dealers’ inventory is up by 15%. How long it can continue? This is not well for jobs or GDP.

I think we shall see a green day in the stock markets after two successive distribution days.  NYMO is no longer at extreme high and now hear the 200 DMA. So we might see some buying tomorrow but I do not think the selling is over yet. We might see some more selling before we can have any tradable bottom.  I also think we are heading for a multi week rally and would like to take this opportunity to go long. But I am still waiting on the sideline and will take the call soon. For now, the best course of action is not to take any action.