GLITTERY STUFF GETS CLOBBERED

ALL THAT GLITTER IS SILVER?
Interesting.  If you haven't noticed, the way I usually put posts together is that I have about 100 ideas floating around in my head and I'll see a news story or blog or other item that will make me think that I'd like to write on that.  Obviously I do a ton of writing at insane hours like 1:00 or 2:00 AM, but you can only get so much done.  What I end up doing often is simply writing a few ideas down and then saving a draft of the post to eventually come back to.  Most of the time, that works just great.  In this case, it didn't as the subject asset is flying again.  And if you were wondering, I still have 11 more posts in "draft status" after getting this one done, so there's lots in the hopper, I just need more time!

Think back almost 1 week ago last Monday when silver hit the $49.50 mark and early in the trading day we were all giddy that this level had been hit.  Almost immediately, I became nervous and started checking all of the silver and gold sites to see what price I could sell my silver at.  Yes, I want to hold some for Mad Max, Thunderdome type calamities, but I'm a trader by nature and if nothing else I need to know what the levels are in the market.

I even went so far as to devise a strategy for selling 1/2 a position so I would not regret any movements that reversed this huge move (recall that silver has been up almost 30% in one month)!

Later that day of course, silver got a good clobbering and that spurred the following article on CNBC's website, which I actually agree with 100%.

Buyers Beware: Silver Crashed 11% in 24 Hours - http://www.cnbc.com/id/42726288

Well, that was a one day deal pretty much, and as usual we saw a tremendous rebound in silver allowing for the shiny metal to regain almost all of those losses during the remainder of the week.

SUSPICIONS CONFIRMED?
I think it was on Wednesday when I received this email from Apmex, a gold and silver seller.  (NO, I DON'T RECOMMEND THEM - AND I DON'T DISLIKE THEM.  They are expensive, so I have never bought from them.)  When I got this email, I absolutely pronounced to myself that this marked the top of silver's run.  A blanket email stating that they would pay anyone $3.00 over spot for any of their silver eagles.  This was $.50 better than the place I usually use, and they are very good, so the APMEX number sort of was over the top, especially for them.  If you have been around enough, when you see weird actions it usually signals important inflection points, and I figured this was one of them.

IS THIS A GOOD LEVEL FOR SILVER?....NOW?
I had a conversation also last week about SLV the silver ETF and I declared that I had no way of knowing where it would go or what kind of technical pricing targets to suggest (other than ones waaaay to the downside).  I noticed this post later that day and figured it was just one that reinforced that view.

http://finance.yahoo.com/news/Silver-Technical-Trade-wscheats-2713589761.html?x=0&.v=1

NEW WEEK, NEW HIGHS?
I'm not so sure about that.  Here is a screen shot from http://www.kitco.com/ that shows precious metal pricing.  As of 10:45 PM CST tonight we see that silver is getting crushed overnight.  Earlier it was down around 9.5%.  I am seeing stories related to China's slowdown causing a drop in commodity prices to fall.

The slowdown will be blamed on tightening measures taken by China to attempt to cool their overheating economy.

The other big news is that Amerika is stating they have killed Osama bin Laden.  Perhaps he died last week as the stories have said, but effectively he died several years ago as Al Qaeda has been rendered impotent for some time.  His organization attacked Americans and Muslims alike and were becoming to be seen throughout the world as the vile serpents that they were.  Amerika used Bin Laden to promote attacks on Iraq and Afghanistan and we gave him more power and influence for a time than he deserved.  Hopefully the death of this evil man will bring closure for the families of 9/11 victims. 

http://www.cbsnews.com/stories/2011/05/01/national/main20058777.shtml?tag=stack

Perhaps the joy of the decapitation of one of the heads of the beast, Al Qaeda, has caused all of the inflation and economic turmoil in the world to disappear therefore sending silver plunging.  I'm not buying it.  I do think that silver is going to correct, but I don't think it's run is over.  I'll do a review of the charts in another post this week, but at a quick glance we could easily see $37.00 in this draw down.  It might be worth it to take a 1/3 position there if it nears that target.  It could go lower to $32 to add the rest of the position.  Longer term, this is still a good trade (if you buy at my targets, not if you buy tomorrow!)  as China, India, Brazil and all others seek to escape runaway inflation and buy precious metals.

Be Careful!

GOATMUG

CRM - A SHORT FUSE?

EXPENSIVE SERVICES?
I was looking at some charts this afternoon and found this interesting one.  CRM is the symbol for Saleforce.com.  Yes, it is a software company and therefore it is wonderful!  I looked at adding their products to one of my businesses and found it to be nice looking, but nothing other than a glorified contact manager.  I highly recommend http://www.zohocrm.com/ as a substitute.  If you have less than 3 people in your office, guess what..... it is FREE.  Now of course I need it for basic services and I don't manage a pharmaceutical sales force or anything like that, but then again, do you need what you get for the price?

Compare that to the $2,500 a year I was quoted for the CRM services.

P/E IN THE STRATOSPHERE
Anyway, beyond just CRM has a PE of about 275 or so and seems to me it is a natural trade for a short based on the chart.  They are announcing earnings soon, so know that you are rolling the dice trading in front of that but here are the targets.
Based on the chart, a stop at $140.00 is advisable as anything above that shoots you into a new trend channel.

A target of $123 or $122.50 would be nice to place to cover.

Be careful!

GOATMUG

BUBBLE FACTORIES MAKE BUBBLES - FOMC PRESS CONFERENCE ANALYSIS

I wanted to provide a video feed of yesterday's historic post FOMC meeting press conference.  This was a brief review of the FOMC decision and a question and answer session where the FOMC Chairman Ben Bernanke addressed the nation via a few questions from reporters.  Unfortunately there was not a real opportunity for meaningful follow up questions nor any real journalists that would actually press the Chairman about the destruction that he is causing.  Anyway, here is the video.  Below I've captured a few highlights that I've summarized and also pulled out a few notes and quotes from the exchange.

Bernanke Video




The first 13 minutes or so are his summary of the FOMC press release.  I think it is worth the time it takes to watch it.

THE FED'S ROLE

• "As long as we have low resource utilization we will have a low Fed Funds rate."   
• GOATMUG TRANSLATION - (As long as the economy is sluggish and showing slack, our friends at the Fed will be more than happy to provide extra-ordinary measures to assist the economy).

THE FED'S PROJECTIONS (LONG-TERM)

• "The Fed has a long term outlook for growth for the US economy at 2.5% to 2.8% with a long term unemployment rate of 5.2% to 5.8%." 
• GOATMUG VIEW - Are you kidding me?  There is absolutely no way we will hit 5.8%!!!!

INFLATIONARY CRAZINESS

• (6:40) Inflation from commodity pricing has increased significantly recently, BUT measures of underlying core inflation has only risen moderately.  Inflation remains subdued and long term inflation expectations remain stable.  (7:13)As increasing commodity prices moderate, inflation should decline."  (9:13)  If inflation is not passed through to consumers and households then inflation will remain tame.
• GOATMUG THOUGHTS - I don't think there is enough space on blogspot for me to write about these amazing statements!  First of all, inflation from commodity prices have increased, but because we use a fake measure of core inflation that excludes energy and food, of course it has only risen moderately!  That too is about to change as we have seen annoucements from companies like Kimberly Clark and others that state they are raising prices.  Second, long term inflation expectations are not remaining stable unless of course you are looking at the bond market to suggest that things are great.  Many financial pros suggest that treasury rates have not exploded higher, therefore, inflation expectations remain in check.  I would counter that the FED is buying those treasuries and is obscuring the true price of those bonds.  Next, Bernanke says that commodity prices increases should moderate..... how?  Finally, if inflation is not passed through to consumers, inflation will stay low.  Well, since we are now seeing price increases flow through, don't you think that confounds the entire argument? 

After the briefing, Bernanke took a few questions from the stooges that were lined up.  Here are a few of those questions.

CRITICS SAY THAT FED POLICY HAS DRIVEN DOWN THE VALUE OF THE DOLLAR AND DECREASED THE AMERICAN STANDARD OF LIVING.  WHAT IS YOUR RESPONSE? (15:00)

• "First, the Federal Reserve believes in a strong dollar, just like Sec. of the Treasury Timothy Geithner.  Over the medium term we are trying to remain stable inflation.  We are also trying to get a stronger economy through maximum employment.  In our view if we do what is needed to achieve the dual mandate we will create fundamentals that support the dollar.  The dollar retains a high standing in the world.
• GOATMUG RANT - Really?  Yes, there was a safe haven effect that caused the US Dollar to spike in 2008 and in 2010.  However have you noticed that since May 2010, the dollar has gotten crushed.  I haven't seen any of the policies that you highlight as successes that have influenced the direction of the dollar in a positive way.  In fact, the creation of QEII has been absolutely connected to the decline of the value of the dollar and the increase in "asset values".

WHAT CAN THE FED DO ABOUT THE HIGH COST OF GASOLINE? (17:50)

• “There’s not much the Fed can do about gas prices. After all the Fed can’t create more oil. We don’t control emerging markets. What we can do is try to keep higher gas prices from passing into other prices, creating a broader inflation. Our view is that gas prices will not continue to rise at the recent pace.”
• GOATMUG DISCUSSION - Ok, remember that for once Bernanke says that the Fed can't do everything!  However, I think this is a subtle shift where Bernanke usually highlights how effective and powerful the Fed is at controlling everything in the financial world, but then suddenly becomes impotent when it comes to the price of actual hard assets.  I don't buy it.  This line of response essentially says that the emerging market economies are responsible for all the increased oil demand in the world and that this coupled with the unrest in the Middle East is causing gasoline prices to increase.  There is not one mention that it really is the relative cost of the gasoline that is killing people in the US due to the destruction of the US Dollar.  Not even a whiff of that here.  Finally, later we'll see that the Fed takes credit for the increases in asset prices, the problem is that we at the Goatmug Blog realized early in January that gasoline was an asset!  Therefore I suggested that it might be a worthwhile consideration to buy a whole bunch of UGA to get ahead of the crowd that might also see gasoline as an asset. (look to the very bottom of this long post).  So, indirectly and directly, we have Mr. Beranake to thank for our huge increase in asset prices!  Thank you FED!

HOW IS IT THAT ENDING OF QEII PROGRAM WON'T IMPACT THE ECONOMY?

• The ending of QE II won't harm the economy because we have telegraphed the end of the policy and the market expects it.  Second, it is not the pace of ongoing purchase, but the size of the portfolio.  The amount of securities we hold will remain approximately constant.  The amount of monetary easing should remain constant.  Early in our exit process, it is very likely an early step will be to stop reinvesting securities that will be maturing.  This is a tightening.  We would do this based on economic outlook. 
• GOATMUG REMARKS - So, what you are saying is that turning off QE won't impact the market. (What about what happened at the termination of QE 1?)  Secondly, although you won't buy more than the allotted $600 Billion in QEII and you say that you are terminating the program, you even suggest that you'll continue to buy securities as maturing ones roll off.  So, in other words, you are going to keep QE II going forever.  Ultimately when life support can be removed, you'll then start selling.  Hopefully the patient won't be dead when that happens.

IS IT IN THE FED'S POWER TO REDUCE UNEMPLOYMENT MORE QUICKLY?  29:00

• The Fed took extraordinary measures to stabilize the economy.  We have created new ways to to change monetary policy.  The Fed has a dual mandate.  The Fed needs to worry about inflation.  The cost of future inflation on employment could be high.
• GOATMUG RETORT - No, while the Fed talks about creating jobs as an indication that the economy is recovering, the FED doesn't have any ability to create jobs and the fact that it has taken this long for someone to realize it is just a sad commentary on how poor the main stream media is at actually providing quality analysis and a statement that Joe 6 Pack and Mom and Pop are doomed.  Notice the shift here.  The Fed's intent was to get asset prices higher to save the banks and now that they've done all they could, they want to exit stage left.  J6P thought he'd get a job out of it, but all he got was a foreclosure notice.

QEII HASN'T DONE MUCH TO HELP THE ECONOMY?  30:40

• "The second round of securities purchases was effective.  We saw this first in financial markets.  We saw this in increases in stock prices, decreased spreads in credit markets.  We saw the same responses as we saw in QE 1.  We did get very significant easing.  You would expect from decades of financial experience that it would lead to improving economic conditions.    We didn't say this was going to be a panacea.  We never said that it would solve the enourmous jobs problem.
• GOATMUG - So there it is.  The metric for the measurement of the impact of QE is if financial markets and asset prices (stocks) go higher.  This is no revelation for me as I've highlighted this stinking thinking for more than a year now, but it now seems that Bernanke has simply given up on the notion that alluding to a recovery in other parts of the economy matter (jobs, housing, manufacturing).  Clearly Bernanke has settled in to the thought process that simply stock price increases an indication of a job well done.  See, that was always the game.  The FED has always tried to ease to prop up the next bubble.  The only problem is that this bubble has been one that has been of great size (huge increase in asset prices over the last two years), and it has been so fast.  The last bubbles (housing and tech) took years to pull off and were like slow moving freight trains.  The resulting crash from this Fed bubble will be much more messy due to the size and speed at which it has been formed.  So, that is what is striking, I see Bernanke shrugging here and simply saying, "Well, we did what we could and stock prices rose, it's just too bad the jobs didn't materialize with it". 

WHY DON'T YOU DO MORE QE?

• "The problems are getting tougher due to inflation risk."
• GOATMUG - Bernanke is saying, "That's it, NO MAS!"  In other words, they are trapped and he knows it.  Of course he doesn't come flat out and state that he created all of this inflation.  Of course he doesn't say that housing is going to implode even more.  Of course he doesn't say that he can't do anything about jobs.  He simply is saying, we're done, we can't do anything extra other thank keeping asset purchases at the same level.  See, if Bernanke does the Son of QE (III) we will see commodities go even more nuts and the US dollar simply collapse.  Recall, I've always stated that the US Dollar destruction was purposeful and choreographed like a dance.  A collapse is not the best form of art, so this is where we could see a skillful move on the part of the Fed to hit stock markets with a few blows (corrections) and move the dollar higher.  You can't just have the dollar fall through the floor.  Once there is a reprieve, we could see some sort of emergency stimulate program put in place again.

FOMC NUGGETS
Let me wrap it up there. The press conference didn't tell us anything we didn't know, but give us a few hints as to the mindset of the Chairman.  This is important because what he says goes, the other Fed Governors are simply a distraction.  I'll just bullet point the key items.

*  Inflation is showing up, but somehow it will moderate.  (How?)
*  No more QE, except for the $600 Billion they have on and whatever else they decide to do later.  (A promise)
*  Jobs no longer are under control of the Fed, they can only indirectly create an environment where that happens. (Sorry)
*  Asset prices have increased, so that means the Fed did a good job.  (Bubble factories only know how to make bubbles).

*  The strong dollar is important to the FED.  (We believe in the Loch Ness Monster too).
*  The Fed didn't impact increasing gas prices (obviously it isn't an asset), that is the fault of emerging markets. (uh huh.)
*  The Fed is stuck.  They are at the end of the rope and they know that they are creating inflation.  (The dirge is playing).
It is telling to me that the Fed is winding things down.  The theme we've discussed all year is that stock markets could begin to fall in May which historically has been a very poor month.  Thanks for sticking with this post.  It is a bit weird in its structure, but I think that we can pull a few interesting tidbits from the remarks how the Chairman responded to the questions.


TRADING UPDATE
Since I mentioned it, I might as well make a comment about the on-going UGA trade.  Things have obviously gone very well in this trade since the original post on 1/17/2011 when UGA was trading at $40.00.  $14.00 in gains is nothing to sneeze at and I do think that it will continue to be a positive trade.  Having said that, it is nice never to give back hard fought gains.  Therefore I advocate putting a stop in around $53.00 (I'd do it 5 cents below) to ensure that you don't blow a great trade.  There was a gap up that took place around June of 2008 where UGA blew through $60, I have that as an upside target for this trade.  This is also a good way to trade this since I posted that article from FMXconnect.com where they suggest the best trade here is to sell on May 1 or May 15.  Either way, we can let the market just take us out around $53 or get us to the target. 

GOATMUG



THE FINAL WORD ON DEFLATION - MUST READ

DEFLATION OR INFLATION - THE FINAL WORD
Last evening I read one of the best pieces in the blogosphere on the financial direction of the economy and what to do about it.  If you haven't read anything from the blog FOFOA, you have been missing out.  I found his site about two years ago and have frequently checked his posts to ensure that I am reading one of the deepest thinkers out there is predicting.

This post is not for the casual reader, nor is it a post that you can skim and get the gist of.  It is one that you must pour over and over and steadily get through so that you savor each morsel.  You may wonder if I agree with everything.  The answer is, no, but overall I believe the direction is correct and that direction will be driven by the motivations outlined in this amazing post.

http://fofoa.blogspot.com/2011/04/deflation-or-hyperinflation.html

Interestingly, since I stayed up way too late reading it last night, I am dragging, but am more convinced than ever that the overall outlook that I've had for the economy for this year is absolutely correct and it reaffirms that my longer term outlook also is on a solid foundation.

A REBUTTAL OR A WHITE FLAG?
Finally, if you don't believe me, I found this post this morning from Rick Ackerman, a committed Deflationist.  He gushes about the FOFOA post and also suggests perhaps that he too is a HyperInflationist after all.  I think this is the compelling part of this article, is that it addresses all of the concerns that Deflationists have and even suggests that many of the symptoms of deflation really are actual results of hyperinflationary processes.  You must have your "I'll look at every asset in terms of relative value to gold (replace gold with hard assets like oil, silver, gas if you like.)" glasses on when reading the arguments.  If you do, you too will be convinced that FOFOA is right. 

http://www.zerohedge.com/article/finally-hyperinflation-argument-persuades

Now, I've read enough of FOFOA to know that he only advocates physical gold, this is where I differ with him.  No matter, I think his overall direction is in agreement with mine and his ability to plod through the analysis and description is amazing.  When I write articles half as long as his, I become bored with my own writing and can't ever tie the bow up as well as he does. 

If it takes you a few sittings, do it.  I think it would be worth your time.  On that note, I am off to buy my store of freeze dried food!

Finally, I am curious to see what Mish says about this.  Mish is a committed deflationist and is one of the resources I rely on to distill that perspective into clear points.  I would wager that we'll see a post on this in the coming days from him.  I'll link to it as soon as we see it.

GOATMUG

TIM GEITHNER, MAN OF FEW TRUTHFUL WORDS

http://www.bloomberg.com/news/2011-04-26/geithner-says-u-s-will-never-weaken-dollar-to-gain-an-advantage-in-trade.html

You have to love this story on Bloomberg that highlights Tim Geithner's commitment to a strong dollar policy.  Now that the dollar has broken long term support, you would expect the head of the US Treasury to come out and defend our currency right?  Wouldn't he detail the plan for stabilizing the fall and highlight that the US needs a stronger dollar to be successful as the leader of the world of global finance?

Perhaps you'd expect that, but this is what you got instead.

“Our policy has been and will always be, as long as at least I’m in this job, that a strong dollar is in our interest as a country,” Geithner said in remarks at the Council on Foreign Relations in New York. “We will never embrace a strategy of trying to weaken our currency to try to gain economic advantage.”

Hmmm.  Statements like this want to make me laugh.  Please play the clip below.
(Link) View more The Simpsons Quotes and Sound Clips and Nancy Cartwright Sound Clips

See, even if you believed for a moment that Mr. Geithner was actually telling the truth it would not matter much because while he is busy talking about how a strong dollar is in our best interest, you have several other parties that could care less.  Those three parties of course are the CONgress, the Fed, and those in the office of the President.  Since Congress and the President gleefully spend, spend, spend, and US Treasury and the Fed joyfully participate and facilitate their stupidity, we receive results that stand in stark contrast to the words of Timothy Geithner.

Our Executive and Legislative branches spend and our Fed and Treasury support "asset prices" through crushing the US Dollar.  Anyone see where much of the increase in the market indices gains come from?  Yes, since March 2009 the overall markets have rebounded significantly.  However, see where that performance started to flatten out last year?  That was when the latest version of QE was announced.  Suddenly the SP500 rallied another 100 points or so and the dollar got shelled for about 12% in declines.   

Geithner didn't disappoint though, he did tell us what this miracle strategy should look like. 
Geithner said today that the U.S. needs a “credible strategy” to reduce its budget deficits over time, without moving too quickly and choking off economic recovery.

“You have to commit to bring the budget deficit down to a level that will put our overall debt burden on a declining path as a share of the economy,” he said. The Obama administration wants to move onto that path by about 2015, he said.

Wait there are even more nuggets of brilliance!

Geithner also said Congress needs to act by June to raise the debt limit, saying it would be “irresponsible” and “unacceptable” not to act. “The idea that the United States would take the risk people start to believe we won’t pay our bills is a ridiculous proposition,” he said.

That's another one that has you scratching your head.  When you are running a deficit of $1 Trillion, or $2 Trillion dollars, does anyone believe that you are paying your bills?  No, I don't think anyone thinks we are paying our bills or actually have the ability to do so in the future.  I think we all know that this is going to end very, very badly.

I think this graphic of UGA (Gasoline) says it all.  UGA is up more than 100% since the March 09 lows too.
I can't wait for tomorrow's barrage of truthfulness from Ben Bernanke.

GOATMUG