WHERE NOW WITH SILVER?

SILVER DONE?
Clearly the recent action in the markets has caused many to completely abandon the notion that precious metals are awesome and they now contend that they are dead and gold and silver will become the next prepper's widow maker.  This may be true, and to confirm it, I wanted to examine the charts and also some of the reasons that this would be correct.... and why it wouldn't.

CHART HEADING DOWN....MAYBE
Take a look at the weekly SLV chart.  Some may ask why SLV, the easy answer, is this is the one that I have saved in my stockcharts system, but very importantly, this is what you'd buy if you didn't have a safe full of silver bullion or Silver American Eagles.

In this example we see that SLV did hit near the $35.00 area that we had identified a turn and then melted lower to the $31.00 level where it bounced off it's 200 day moving average (black line).  That strong bounce sure looked good, however the rebound was short lived.

Last week, the $30.00 level was breached and the etf suffered a nasty close at the $29.00 level.  If you were an owner of SLV you'd have to be very concerned that a fall back down into the downward channel through $27.50 would be very, very ugly.

$SILVER
For those of us that hold silver in other forms than SLV, I wanted to put up the commodity silver price up so we could look and see if there were any differences in the chart.

Unfortunately, real silver is already in a downward channel and a similar level of $27.50 is very important.  The close on Friday was actually odd to me in that the equity markets got spanked (if we now call down 1% spanked) while silver was up a tad.

As bad as it looks for silver, there is one shining hope left, and that is that the 14 day EMA is still above the 40 day EMA (on a weekly chart) and the slope of that relationship is still positive (flat to up to the right).  As of this moment, this very long term trend indicator still has a hold on the trade and no sell has been signaled.

WHY NOW?
It has seemed like that ever since the Fed tied their unlimited QE to achieving some job employment number that all precious metals have been falling with renewed vigor.  I'm not sure it that is a result of many suggesting that there is now some end on the horizon of infinite Federal Reserve action and that would somehow tame the beast of inflation that was surely expected to come.  Or, perhaps traders realized that the Mayan calendar prophecy was going to fall on its face and therefore there was no need for extra stores of the shimmering metal.

Another rumored explanation for the recent vicious sell off is none other than that some hedge funds are forced to sell GLD and SLV due to redemption requests.  The famous manager John Paulson has been rumored to be selling his largest positions which do include GLD.  As we all know any significant move in gold will cause silver to move in lockstep with it.

In the last week, Morgan Stanley and Citibank both called on their clients and advisers to sell shares of Paulson's fund and GLD was the single largest holding at nearly 30% as of September 30, 2012 - http://www.stockpickr.com/pro/portfolio/john-paulson/ .

AN EYEBALL'S GLANCE
As I eye ball things, it also seems like the period from October through year-end is always weak for silver as well.  Perhaps it is seasonal.  2011 was up significantly, so we can't say that it works all the time, but hopefully it won't be like October 2008 where silver was completely destroyed and taken down to the $8.00 level.

CONCLUSION
The real story here is that silver has some issues and you'd be smart to look for some kind of bounce at the $27.50 area.  If it doesn't come, the low twenties are easily in play.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments athttp://www.goatmug.blogspot.com/

CONFIDENCE LOST, 13 PREDICTIONS FOR 2012

The 2012 year is off and running and before it gets away from me, I wanted to publish the outlook for the new year and get it done before the middle of January like last year.  I will do a review of the 2011 Predictions later, which I might suggest you read here - 12 FOR 2011, where I might say I was right more than wrong and really on point in several key macro level directional calls.  (Back patting over now).

Let's jump into it.

VOLATILITY, VOLATILITY, VOLATILITY
2011 was one of the nuttiest year for the broader markets that I can remember.  The SPX traded in huge ranges and ended up only 2% for the year.  There were many, many swings up and down of at least 5% and this kind of action makes any sane investor sea sick.  As I mentioned many times in the 146 posts I did last year, 3% moves up and 3% moves down in consecutive days is not a sign of a healthy market, it is a sign that the market is absolutely sick.

CONFIDENCE COLLAPSE WILL BE COMPLETE
2012 will be a year where this type of manic action will continue, so I suspect that there will be great periods of euphoria and gut wrenching falls during the year.  Unlike last year where I predicted that the US markets would be positive and increase 6%, I suspect that we'll see an unnerving drop from the closing levels of the SPX to 1144 or a loss of 9%. (everything in me wants to say a loss of only 5%, but this blog isn't for chickens).  Does this mean that there are no gains to be had this year?  NO WAY!!!  In fact, I believe that we'll see a repeat of 2011 with the theme of Sell in May and Go Away being rewarded heavily in commodity and energy names.  This further highlights that if the front half of the year has the potential of being pretty decent, it must mean that the later half of 2012 is going to be nasty for me to get to my -9% prediction.  It is with this in mind that we must note that all Euro deception and troubles will be revealed after May, and this is how I reconcile the two ideas.


The odd thing about the market losses for 2012 will be that the performance will be disconnected from the improving US economy.  What I am saying is that we will actually look back in January 2013 and say "wow, the economy isn't really that bad compared with last year, but what we'll actually see is that Europe is just that bad, and the fall of the Euro will spell a falling market for equity players.

WE JUST CAN'T AVOID IT, WE'RE STILL CURRENCY TRADERS
Even if you don't think you are a currency trader you are.  In relative terms, the USD is so much better than the feeble Euro and we'll see a continuation of the recognition of this issue, therefore the USD will be higher despite a concerted effort in the first 5 months of the year to reverse this trend.

US MARKETS - IMPROVING CONDITIONS BUT WAIT....
1)  JOBS - The jobs picture will continue to improve with the jobless rate dipping to the low 8% levels.  This rebound in the joblessness level has more to do with employers simply hiring under qualified workers to fill specialized roles as this issue has been persistent for the last year or so.  Employers biggest challenge has been to find skilled workers to fill open positions.  In 2012, employers will just suck it up and attempt to train those new hires in the open spots.

Note that there is an extremely troubling problem in our labor environment where unemployment for the uneducated is amazingly high while the unemployment rate for college grads is extremely low.  Despite the stories you hear, if you have a college degree and are willing to move, you should be able to find a job.  This bifurcation of the jobs market feeds the class warfare sentiment and who can argue with it when looking at the issue through this lens?  The trouble is that the uneducated have to WANT to actually work to get educated!  Our nation has become one where many of our citizens don't even make an effort to grasp one of the best attributes that our country offers; the hope and reality of achieving the American dream and having the ability to work hard, risk, and achieve greatness.  Unfortunately our least prepared and least equipped have traded hope and opportunity for the instant gratification of subsistence living and are pacified with social programs that placate many needs and are a facade of comfort.  Why give maximum effort when the short run gains received from working hard are less than or only marginally better than doing nothing?

2)  HOUSING - (CONVENTIONAL WISDOM DIES HARD AND ATTITUDES CHANGE)
I anticipate that the US housing markets will remain flat even in these depressed levels.  Unfortunately we really have no idea what sales numbers can be trusted from NAR because they have fudged reported sales for so long.  Despite this slight of hand and the conflict of interest, I think that we'll see a flat line amount of growth in sales as there is a significant paradigm shift occurring in the minds of the US home buyer.  In the past owning a home was part of the American dream.  Now, given the collapse of real estate markets and the lack of availability of credit (the demand that home buyers actually have 20% to put down) potential buyers are simply now believing that home ownership is quite as cool as they were led to believe.  The myth that home ownership is a great investment is being debunked and this sham is finally getting some publicity.  As this knowledge is now getting widespread acknowledgement, there will be a steady-state level of home ownership and little variation or boost to buy homes.  Add to the mix the notion that Congress is still looking at a move to get rid of the mortgage interest tax deduction and you'd see a continued decline in home ownership.

3)  USD
As I mentioned above, we are all currency traders whether or not we know it.

While it is tough to believe that the USD has merit, it certainly has "relative merit" and therefore I see an even more impressive move higher in the USD currency basket.  The continued revelation that the Euro is done in its current form plus the continued efforts of politicians and financial leaders to keep the "ponzi" intact will only serve to boost the USD to higher levels.  I think a level of 84 is very easy to achieve on the DXY. (See the 5 year chart below).  If USD goes higher, stocks go lower. (chart by www.marketwatch.com )

4)  INTEREST RATES
Did I tell you that predicting interest rates is a fools errand?  Ask Bill Gross, the king of bonds, if guessing where US Treasuries will go is easy!  I am going to say that the last two directional calls of Mr. Gross have made him look like a complete dolt!  Of all of my predictions last year, this is the one that I missed as I expected rates of 3.5% or more!  Ha!  Who is the idiot now?  I guess I anticipated a decent year in the markets and assumed that we'd achieve that decentness by way of actual growth and a clearing of some tough issues.  Unfortunately, I could not have known that we'd achieve the average returns on the Dow by doing what central banks always do, which is create really low interest rate environments that ultimately blow the real economy sky high and collapse financial markets!  (Oddly, I think Bill Gross miscalculated the level of insanity that the Fed would go to to keep the scheme in place, even though he is one that is really close to these nut jobs).

So, where do we go from here?  Lower.  How about a bold call of 1.65% to 1.75% on the 10 Year.  Despite a stronger dollar, we'll actually see yields lower as the flight to quality and away from the Euroland disaster will push 10 years to Japanese type levels. (chart by www.marketwatch.com )

COMMODITIES
Now we get to the fun stuff.  I nailed the macro level calls on commodities this year which makes me feel very nice and warm inside for about 3 seconds.  Unfortunately, that is about as wonderful as it gets as I am reminded that you have to trade the strategy to make money on it!  Yes, I did trade these, and yes, I did make money, but I didn't make as much as I could have because I stayed longer in the trades than I had outlined in the 2011 outlook.  Essentially, the call on all of these was to stay in till May and get out.  If you did that and actually exited on May 1st, and never traded again (or dare say even went short) you rocked.

I will spare you the gloating about how I nailed the calls on oil and gas to almost perfect calls on the high and low, etc.  I will however say that this year is even scarier than last in that we have a quickly escalating Iranian problem and the countries involved are removing all wiggle room for themselves.  It looks like the US and Europe are on a collision course with the real nut job and no one wants to back down, in fact, it could actually be in their best interests to pick a fight!  Without further ambling about things I will obviously write much more on.

I think intra-year, oil and gas ARE the big winners this year, even though they will fall after mid year, other than that, the big winners at the end of the year will be the ag-type commodities like sugar, corn, and wheat.  The play here is that central banks must fight for their lives by providing stimulus in the face of the deflationary forces of the Eurozone collapse, while they won't be successful in saving that which cannot be saved, they will resume the process that helped tear down many of the Middle East regimes by way of out of control food inflation.  Buy your freeze-dried stuff now, cause it is going to cost more by the end of the year!

5)  OIL AND GAS -
This year the theme to buy now and sell in May is again right on.  There is mounting evidence that the US economy is resilient and not collapsing, there is the Fed giving oil and gas an inflationary wind at its back, and finally, Iranian President Mahmoud Ahmadinejad is pushing all of his chips onto the table to buy enough time to go live with several nuclear warheads.  If he can weaponize just one device, he suddenly has tremendous leverage over his neighbors and the USA in the region.  With the brinkmanship at record levels, oil and gas will not sit idly by, they will lurch higher with $110 within easy reach by mid February.

The seasonal play also works well for the plays I made last year and in fact, I am already involved with several of them.  I think WNR and VLO will be winners in the first half of the year and a play in UGA also looks solid.  Targets for these plays are $18, $27, and $54.  I think all of them could easily exceed these levels, but I will stick with the "exit by May 1 strategy" this year even if it means missing out on other gains.

Oh yeah, the big oil names and service companies are awesome too, especially if they pay a dividend.    Portfolio Managers are still in the game of security selection where one would pass on bonds and buy dividend paying equity stocks instead because corporate bond yields are so low.  This benefits almost all large firms and energy firms that are dividend players seem to be a solid approach to capture upside and income.


6)  AG STUFF -
Yes, I said it again, corn, wheat, soybeans, sugar and anything that can be consumed will move much higher.  A safe play is to time the exit in May as well, but I think that agricultural commodities will be the one uncorrelated asset this year that just kills it.  The more intervention we see domestically by Uncle Ben and his round table of doves we will see more food disruption in the form of out of control prices fed into the system.  Tunisia, Egypt, Libya, and Syria will all just be the tip of the iceberg as world citizens rise up to confront their leadership's ability to control prices of food as a result of the never-ending liquidity spigot originating in the USA.  Names to watch here are CORN, JJG, SGG.

7)  GOLD AND SILVER -
I am telling you what, I nailed this one too last year.  While I undershot the move upside in gold and silver, the pricing action did just as expected and clearly the move isn't done.  The crazy euphoria is now gone from the trades and that is awesome because I feel like both gold and silver can now be entered rather safely for longer term trades.  It seems like central bank intervention has eased some fears related to the "buy gold, cause the Euro is going to collapse", but it will return and with a vengeance.

I hesitate to give price levels and targets here, but what the heck it's not like you are paying for this.
I think we will see a revisit to the $1,900 level in gold and probably beyond that given the circumstances that need to be in play for the shiny metal to return to its highs. (charts by www.kitco.com )

Silver, will probably NOT revisit its $50 highs, but will settle in at $44

I think either of those would be nice if you pulled the trigger and then made a hasty exit.

As I noted last year, I actually DID sell 1/2 of my silver position as it was blasting near its highs.  I had experienced enough misery by giving away gains in my refiners and gas trades that I locked in profits on much of my silver holdings.  I am looking to purchase a new replacement slug any day.


8)  COPPER
Copper too was one of the trades that made me look really good in my predictions from last year.  I suggested that copper was going to be a big loser, and it was almost from the start.  There is a chance that copper goes higher this year for several reasons despite the fall of the Eurozone.  First, there is some hope of a recovery in the emerging markets.  Any improvement there will be a benefit to copper.  Second, copper got shelled last year and as a result, is a relative better play.  Despite the chances for a rebound, I won't be buying JJC anytime soon, however a play in FCX might be good for the same May 1 sell time frame since a move higher will absolutely benefit FCX as a miner of gold and copper.  I think this is the best way to play this angle, AND you get a dividend too.  $44.00 is probably a very conservative target (only a 10% move from today's levels, with $55 as a realistic area to expect).

FINANCIALS - 
I just have to say it, I hate them.  They are hard to understand and chock full of liabilities and counter-party risks that are not truly known.  This statement unfortunately goes for banks, insurance companies, and brokerage firms (are there any left?).  There might be gains out there, buy if we can get them from other areas should we really try here?

9)  BANKS - I missed it on banks last year.  I expected that things would improve and they would perform much better, they didn't.  Oddly enough, I think that bank performance could rebound in 2012 IF yields begin to rise.  The margin compression they are suffering as a result of Operation Twist and other FED intervention has been costly and we should see some abatement in this as the program nears its end in 2013.  I think BAC is still a big fat loser and suggest running away from it as some type of Country-Wide or Mortgage Fraud stuff is going to have an impact on them.

It isn't lost on me that Kyle Bass invested a slug of $200MM into Mortgage Guaranty Insurance Corp which is probably more a statement of his feeling that housing is at least bottoming domestically, but it also might be a signal to watch that stock (yes, it is already up 50%, I know and since he bought at $2.50 a share he is also doing quite well).

In this short to medium term for the year, the chart also suggests that GS could rally almost $15.  If we see a $110 or $112 handle on GS and you are crazy enough to be long it, I suggest an exit.

FIXED INCOME -
The question is, does fixed income exist anymore?  The answer clearly is no.  Treasuries are a scam in that the US government through a scheme of the Treasury and the Fed are distorting the prices for bonds to achieve their own goals of suppressing borrowing costs.  The private sector is buying US Government debt as a result of absolute fear, and so are other sovereign nations.  There is no real market here, just a concoction of lies and more lies to cover the first lies up.

The average investor who is a retiree cannot live on the interest produced by any fixed income investment and so they are force to yield search and carry more risk than they normally would or simply abandon this asset class and reach for dividend paying equities.  Unfortunately that strategy will back fire, we just don't know when.  The Fed strikes again.

10)  GOVERNMENT DEBT -
I've already highlighted this topic in the INTEREST RATE section.  Bonds will go higher and yields lower as we near year-end.  The safety trade to flee to US Treasuries will be firmly intact next Christmas.  Downgrades of sovereign debt abroad will make the US yields even cheaper despite the fact that US spending is totally out of control.

TLT looks like it could spend some more time falling to at least the $113.50 area, but if my call for a move up in equities and then down again is correct, we could see an attack at $123 on the long side by year end.  (That's not much you say??? They are treasuries I say, should they really trade in a 10% range?)

11)  MUNI BONDS - 
Meredith Whitney seems like the biggest loser when it comes to Muni Bonds in 2011.  Meredith learned a hard lesson that a great call one time doesn't mean that you will make every call right.  Further, the better lesson is that once you make an awesome call, DON'T PUSH YOUR LUCK and predict the apocalypse!  Everything that Meredith Whitney said is true, the only problem is that she, like Bill Gross, misunderstood the commitment of the players in the system to keep the system afloat.  Also, Ms. Whitney didn't state a realistic time frame for the collapse to hit.  If the Euro crisis has shown us anything, it is that they implosions are slow and are delayed and delayed until they can't be delayed, and then suddenly the market and its willing participants simply wake up one day and reject the credit of entities and borrowers that just one day prior were perfectly fine.  Perhaps if Goldman Sachs had made a prediction like that, things would have fallen apart faster, but it didn't.

If you take a moment to look at Muni yields you are first struck with how crazy one has to be to  buy munis.  First, it is very difficult to get financials for these municipalities that are timely.  Second, it is impossible to get a decent yield, and finally if you attempt to stay shorter in your maturities you will get paid absolutely nothing for the risk you can't evaluate.

Perhaps the best way to approach Muni Bonds is to short them.  Take a look at MUB which looks like it should at least revisit $107 or even $102.

12)  CORPORATE BONDS -
I am going to copy word for word what I wrote last year in this space and I'll only change a word or two.  Wait for commodity and market ramp. That move higher will continue to push corporate bond prices lower and finally put them in a pricing area where they again become interesting. Please note that I usually target buying corporate bonds that are less than 7 years in maturity. I do not subscribe to the hyper-inflation theories and therefore I do believe that a chance to buy solid company bonds yielding a 5%, 6%, or 7% rate will be great.  What did I change?  #1 - You may only get an opportunity to get into corporate bonds in February or March (last year that was the low).  #2 - I reduced the target yields on bonds by a percent or two.  Right now I would do just about anything for a 5% 4 year bond, you just can't find it, (without buying some stupid financial company bond) so when you do, you better buy it with the money that is allocated to a more conservative type investment.

As you look at LQD it seems ripe for a correction to $107 or even $104.  The crazy shorters out there may look to take advantage of a drop in this etf, but the fear trade will drive buyers right back in to fixed income assets by year end.

EMERGING MARKETS
Other than Bill Gross and Meredith Whitney the other big loser of the year was the emerging market trade.  All of these markets were smashed as the shiny veneer was rubbed off the glorious BRIC trade.  The trouble these countries ran into was one of a slow-down in growth, a wind down of credit bubbles, and finally importation of inflation served to them directly from their friends at the Fed.  I've commented often about the currency race to the bottom as they attempted to counter each move of the Fed to stay competitive.  The only problem with fighting the Fed in this fashion results in run away inflation and citizens tend to get really pissed off about paying 10% higher prices for veggies and meat each month!


13) COUNTRIES TO WATCH -
Based on the three causes of the beating that the emerging market players took last year I am hard-pressed to see if there is any abatement in any of those issues.  The answer is no.  Based on this, I think it is quite easy to simply pass on China as an option for further long-sided investment.

I am still a huge fan of Indonesia (IDX) simply because it is a really nice chart to trade.  I would not be caught adding a position here on IDX unless I saw a pop through $31 (I waited all last year for that)  and I'd certainly be watching closely at the $25 level.  In a year when China's FXI lose almost 20%, Singapore's EWS lost 21%, and Russia (RSX) lost 29%, IDX was flat when you calculate and add in the dividend. (Chart below is IDX)

I'm a fan of EWS despite the brutal beating and I like EWM too, but once again sell early.  Finally, readers will recall that I've had this stalker-like love affair with India where I'd wait and wait and wait for EPI to do something positive.....and it never did.  I must believe that India will one day be a powerhouse, but it wasn't last year.  I like the bounce EPI had over the last week and if there was a time to do it, it was then.  A bounce here could take it to $18 or even $20, I'm just a bit gun shy after seeing a 40% loss of a blood-letting over last year.

Let me wrap things up here.  There are the ideas for 2012 and the outlook for the major macro-level areas of the economy.  I could say much more about the defensive approach that fund managers are using going into healthcare, consumer staples, defense, and utilities, but I've already said that many times last year, and it was a highly successful venture for any that took action.

SHORTS
I was fortunate enough to call a few big shorts this year too.  There were a couple that I was very, very, very early on and just killed it being short on like NFLX, MCP, and RIMM (don't believe me, do a search on the blog for those symbols!).  I did tend to sell those too early as is often the case, I think I am so conditioned to believe that some invisible hand will appear and save crappy companies that I am willing to exit trades that I know could be much bigger winners.  That is one of my goals for this trading year, to keep my foot on the throat of dying losers and cash in on them in a much more significant way.  I'll be looking for those entries in earnest in April.  I can't let this section go without mentioning GRPN.  Groupon will be one firm that is out of business in the next 5 years and therefore it is clearly an equity to focus on if it can ever gain any traction and get a bounce.

DISCLAIMER - THE EVENT THAT MESSES UP ALL PREDICTIONS (A swan that makes black swans shake in their boots)
Finally, let me throw in one last disclaimer because it is important.  All of these predictions in some way assume that the US, Israel, Europe, and Iran (along with the Persian country's allies, Russia and China) don't get involved in a real and escalated shootin' match.  If that happens all bets are off.  I don't think this is a situation where the markets rally like they did in 1991after Saddam invaded Kuwait and we invaded Iraq in the first Gulf War.  If there was a quick overthrow internally of the Iranian leadership and hostilities ceased then I think that a bull market rally could follow, but I don't predict that kind of easy internal outcome and frankly I am terrified that an EMP attack on the USA is really something that is possible.  If that were the result from a conflict our markets would cease to trade and the world as we knew it would be over in the blink of an eye.  An EMP assault on our country would make New Orleans after Katrina look like a picnic and a fun day at the park.

Please read the follow up post that I'll put up over the next couple of days which will include bonus predictions on the elections, healthcare, and foreign policy.  Honestly, I think all of those topics may drive the markets more than we appreciate, but this post is about stating where I think things will go and specific reasons why.  The broader drivers like these topics should be covered in another post, so look for it soon!

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

FIDELITY CONFIRMS - THE FED IS DONE

Here is an article from the Telegraph this morning that highlights comments from mainstream investment giant Fidelity who just be came my new favorite fund company because they actually have someone on staff that will speak the truth to the public.  I can only imagine what is really being said at all of these investment shops, but I'm sure they are now smart enough not to state their true feelings about market environments, stocks, and other things in email like our old friend Henry Blodgett.

Telegraph Article by Dominic Rossi of Fidelity (CIO of European Equities at Fidelity) -

"Markets have reacted badly to the Fed's policy statement and European sovereign debt issues continue to rumble on.


At times like these, it can be difficult for investors to know what to do.
We should expect news over the next few weeks to deteriorate further. As we go into the earnings season shortly, there will be more missed forecasts and guidance from companies will be uncertain and gloomy. For investors, valuations will come in to play at some stage. Yields will be well covered because balance sheets are strong.

It is clear now that the Fed cannot bail equity markets out any more and any interest rate cuts by the ECB may not have much of an impact on markets. The solution on the fiscal front will be either Greek default or Germany accepting that it has to fund debt restructuring and so reduce the quantity of debt in Greece. This will be a prototype for other European countries.

At times like these, investors should remember the strong get stronger. We will see M&A pick up in Europe. There is little capital around and so the threat for companies from new competition is disappearing.
Markets will have to consolidate so that oligopolies or duopolies are created and the remaining companies have strong cash flow and don’t have to rely on the debt markets. This is a carbon copy of what happened in emerging markets 15 years ago. Equity will shrink as well-financed companies grow by acquiring others and buy back their own equity. In time, this will stabilise equities. "

No argument here.  We seem to have a little stabilization today with a few rumors that the G20 would ensure stability and that everything would be just fine.  Hopefully we get some more confidence here and we move up to my targets that I outlined yesterday in CLOSED FOREVER.  Let's go back to my chart on GLD.  If you desire to look back at the August 31st post where I suggested that $162.50 on GLD would be the target for a retest. http://goatmug.blogspot.com/2011/08/charts-to-watch.html.  I've updated that same chart with the recent day's action and you'll see that we are right there.  Personally, I am willing to take a shot here and go long, but those with bearish leanings might press their bets and hold out for a possible $153 to either cover or begin buying. 

I've been an advocate of physical gold for some time and one of my SOH mentors, Market Sniper, has conditioned me to know that drops in gold are opportunities for purchases as the final result of this fiat scheme will highly benefit the shiny stuff.  I've called my gold guy and he sounds very depressed and I am adding a few ounces today.  Those physical positions get bought and never see the light of day, so as much as I trade around GLD and SLV know that I really have two different perspectives regarding timing and purchases, plus selling physical gold and silver is a total hassle so it tends to stay in the portfolio forever.

As of 9:45 CST gold is getting smacked around and SLV is getting smashed.  I am buying GLD here with a short term target of $170.  My stop will be $160.

Be Careful cause the weekend will be full of emergency meetings for the financial heavy hitters as they attempt to save the world (again.).

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/

CHARTS TO WATCH

I'm posting charts I'm watching. I won't add much in the way of commentary as the charts speak for themselves.



MOS - $72 to $73 area is tough overhead resistance.

LNKD

PPA - Short at $17.75

GLD - Any chance this could retest 162?

TLT - Pretty amazing 10 year trend line.

Getting into the swing of things since going on vacation has been tough, but I think I'm back. Check in at the blog often to see new stuff.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/
 

NOVEMBER UPDATE - MAN DO I FEEL RICHER!

IN FED LANGUAGE, PRICE STABILITY MEANS A BLOW OFF TOP

Call it QE II, monetization, printing, or the precursor to QE III, call it what you like but just don't fight it.  The FED's overt action to inflate asset prices at any cost have trumped all market fundamentals and created an asset price surge into the stratosphere.  Chairman Bernanke states that he wants price stability, yet his definition of price stability must not include a normal ebb and flow, it must only include a moonshot ramp job.  I would contend that we have anything but price stability at the current moment.

I've captured a few sentences from Fed Governor Mishkin in a 2007 speech.  In this message he highlights the dual mandate that the Federal Reserve has in its role. 

"According to this legislation, the Federal Reserve's mandate is "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." Because long-term interest rates can remain low only in a stable macroeconomic environment, these goals are often referred to as the dual mandate; that is, the Federal Reserve seeks to promote the two coequal objectives of maximum employment and price stability. In the remainder of my remarks today, I will describe how these two objectives are consistent with our ultimate purpose of fostering economic prosperity and social welfare. I will then talk about some important practical challenges in implementing these goals. "

Let's examine how we are doing with those goals?  Maximum employment --- QEII and low interest rates have done nothing for this goal.  Stable prices?  We'll dig more into this, but this is absolutely false and prices are getting more out of whack.  How about moderate long-term interest rates?  I'm going to suggest that this is also missing the mark.  QEII is about reducing interest rates so the US can meet its debt obligations and keep the illusion of US solvency intact.  If and when there is a rationalization to normal interest rates there will be no such thing as moderating interest rates.  Strike three in my opinion on the mandates and target goals of the Federal Reserve.

What's the purpose of all the QE?  You must know that Chairman Bernanke and former Chairman Alan Greenspan believe that greater stock prices will lead consumers to buy more and borrow more as the "wealth effect" creates in their mind a sense of having more money.  The notion that asset prices are increasing caused many in the early 2000's to lose all sense of rational expectations and believe that housing prices would always go up, that houses were the equivalent of ATM machines, that living off of one's credit cards is ok, and that all people deserve and are capable of being rich.  While the mistakes and poor thinking in the 2000's were quite real, I am optimistic that Amerikans have learned some lessons and won't fall for the old asset price wealth effect trick again.  Perhaps I'm naive, but I think many are now focused on living within their means and paying off debt, not incurring new and larger obligations.

September and October have provided almost all markets with out sized gains and have posted record results.  Clearly the economic fundamentals must reinforce and justify the rocket launch right?  Let's dig in and see where we are at.



RAILS - http://railfax.transmatch.com/  and http://www.aar.org/NewsAndEvents/~/media/aar/railtimeindicators/2010-11-rti.ashx


Total Rail Traffic continues to outpace 2009 levels for the current week.  We are about 10% higher than those levels, yet are still down 4.2% from 2008 numbers.

RECESSION INDICATORS
Waste and Scrap shipments are on par with last years levels.  These shipments don't give us a clear indication of strength or weakness.  Motor vehicle shipments are greater than 2009's dismal levels, but this should give us reason to pause and temper our elation.

Food Stamps - SNAP PROGRAM - http://www.fns.usda.gov/pd/34SNAPmonthly.htm

As I mentioned an earlier post this week, the Food Stamps Program continues to see greater and greater participation.  The SNAP data continues to highlight how bad things have been on mainstreet.  More families are drawing on the resources of the federal government and taxpayer for their food needs.

COMMERCIAL REAL ESTATE DATA - http://web.mit.edu/cre/research/credl/rca.html

Moody's MIT Transaction Report - Commercial Real Estate
The CPPI continues to decline and show an erosion of value in the national commercial property price index.  The figures released for August show another 3.3% decline in values in actual transactions.


 

HOME PRICE INFORMATION / LEADING INDICATORS - ECRI - http://www.businesscycle.com/resources/

The ECRI data on home prices continues to show no improvement in this critical area of the economy.  Real prices continue to reel and go lower through the August data release while leading indicators suggest that the pricing is simply flat.

MONSTER EMPLOYMENT INDEX REPORT - http://about-monster.com/employment-index
Jobs reports last week were surprisingly good and we see improvements in the weekly data.  Unfortunately we are not seeing an improvement in the unemployment rate at more workers that just gave up are now coming back in search of job opportunities.  Our unemployment rate is still at 9.6% and is quite sticky at that level.
Despite the good release, the Monster.com Employment Index dropped from a level of 138 to 136 in October.  Why new job listings on the web would decline here is actually interesting.  This is a really good report to watch and get some indication of where we are going. 

On a separate note, Monster reported excellent earnings a couple of weeks ago.  I should have been on this as an investment possibility as the huge surge in the index would and should have been a tip off to the potential rebound in earnings for the company.  I'll continue to keep that in mind as I track this and highlight it as a potential trade in the future.

6 MONTH EURIBOR - Euribor rates continue to climb.  Some of this increase is a result of the European nations holding firm and refusing to follow the stupid policies of our Federal Reserve.  The lack of "relative" stimulus provided in Europe is marked by higher interest rates.  Having said that, there are still real problems in Europe with countries like Ireland and Portugal, and don't forget our old friend Greece.

No matter what, it is unmistakable that there are "interesting" things going on in the last month as the 6 month Euribor rates have climbed about 15 bps or 10%.  This is an inexact gauge but it is an item I watch every day in an attempt to measure stress in the banking system worldwide.



CDS SPREADS -  http://www.markit.com/cds/cds-page.html


To continue on the thread that sovereign debt is still an issue, I wanted to include some data related to the CDS (Credit Default Swaps) pricing to offer protection against a default of one of these countries.  You must recall that earlier this year CDS prices exploded as the European debt crisis was unfolding again.  I am absolutely certain this will happen again just about the time when everyone forgets that these countries are really insolvent (like the US and every large bank).  For those that aren't accustom to looking at these, note that the spread is 992 which means that a person would pay 992 basis points (bps) for protection against a default in a specific bond issued by the Venezuelan government.  992 bps is 9.92% a year!  I personally never traded country specific CDS, but did do significant amounts of CDS in your investment grade corporate bond environment.  Back in the early 2000's we would write protection on names like General Mills and Kraft for around 40bps (for very short time frames (1 year).  While Venezuela is improving over the last week and month, Ireland, Spain, and Portugal CDS spreads are going nuts.  Increases of 25% are an indication of stress in the system!  DO NOT GO TO SLEEP ON THIS!  Remember April, when every thought we were going to keep going higher and then we hit this little debt crisis?  Can you say "DO OVER?"

Venezuela
Spread  992
Daily Change  28.55
Weekly Change -91.92
28 Day Change -24.08

Ireland 
Spread - 607
Daily Change  17.69
Weekly Change 109.17
28 Day Change  182.55

Spain
Spread 264
Daily Change  15.98
Weekly Change  39.83
28 Day Change  56.18

Portugal 
Spread   464
Daily Change  14.89
Weekly Change  70.65
28 Day Change  78.57


WLI DATA - FROM ECRI -  http://www.businesscycle.com/resources/Last week's WLI Data shows continued improvement in the leading indicators.  As I examine this data I find that since June 18th of this year the actual WLI data is showing a change of around 1% from that time.  At the same time though, the S and P 500 is up more than 6% from those levels.  It is clear that there might be improvement here in as shown by the WLI, but the market's rally may be ahead of itself.

 
COPPOCK TURN INDICATOR
The Coppock Turn Data continues to signal a turn south in the markets despite the exponential run in markets.  The turn indicator has been wrong for two months now, but since it is a lagging indicator we must expect that and use this as just another warning.  As usual I've tried to project levels in which it would actually signal a continuation of the positive trend, that level is at 12,300 on the Dow.  I don't put much weight on this indicator, but include it as another data point.

 
FINANCIAL CONDITIONS INDEX- http://www.bloomberg.com/apps/quote?ticker=BFCIUS:IND
As you all know, I like the Financial Conditions Index provided by Bloomberg because it is a composite of many fixed income and monetary (liquidity) measures.  The FCI is showing a value today of .15 which is once again over the critical 0 level.  This is an indication that there is an expansion in the economy, but probably more accurately there is a huge expansion in the amount of liquidity in markets.  We are nearing the  0.5 level we saw in April and this is going to either be a level of strong resistance coupled by the resurgence in a market correction, or it will give us an indication that the economy is truly recovering and going to be the basis for even greater levels in the stock and "asset" markets. 

 
BALTIC DRY GOODS INDEX - http://www.bloomberg.com/apps/quote?ticker=BDIY:IND
With the ever-increasing prices for copper and other commodities, one would think that spot rates for transporting these goods around the world would also be increasing.  In this case, that is actually not happening.  As I've posted many times, the BDI is subject to many issues other than simply that commodity prices are going higher.  First and foremost, I think the issue is that there is a ton of supply of ships available to move this cargo as shipping companies continued to order ships several years ago.  I have seen a few comments about purchasing some of the dry bulk shippers like DRYS.  Based on the chart I'm seeing, the thought of picking up a few shares might not be a bad one considering that there has been a recent breakout and it was confirmed with the move above $5.00 as I type.  I also like that the increase has come on increasing volume.  A very conservative trade could call for a stop to be placed at $4.90 and an upside target of $5.70.

DRYS CHART

USD INDEX - http://www.bloomberg.com/apps/quote?ticker=DXY:IND
The USD index continues its assault on lower levels despite 2 days in a row now of being up.  Since the May/June peak around $88, we've seen an almost uninterrupted dive to $76.  Imagine that, a 13% drop in the value of the dollar and a move up in the overall markets of around 16%!  Clearly the move higher in the markets is not due to improving economic fundamentals and a healthier environment.  The unsustainable recovery in index asset levels is purely a move derived from US dollar debasement.

The FED's announcement last week of the use of $600 Billion of newly minted QEII to "stabilize" our economy has essentially created an environment where everything simply goes up.  As the dollar goes down, asset prices in stocks, commodities, and everything else have simply risen to keep value somewhat constant.   And if you didn't believe that Bernanke and the FED were serious, there is the overt threat that there is even more liquidity behind the $600 Billion in case it is needed. 

While there is no proof that any of the QE will actually provide sustainable jobs or expansion in the economy, that doesn't mean that we won't have the facade of growth by way of ever increasing valuations of stocks.  Of course when you value those stocks in terms of foreign currencies or in hard assets you find that we are getting nowhere.

The area we are in is pretty critical and the $76.00 level must hold or else we will see a real fall in the USD and a tremendous surge (even greater than we've seen) in gold and silver and other anti-US currencies.  As stated previously, the gold and silver trades are now more than just commodities, they are trading as their own safe haven currencies and have taken on a life of their own.  Yesterday the dollar was actually up and we saw silver go nuts.  It is on days like these that I wish there was an easy and quick way to sell my physical silver as we've seen an almost 20% move in silver in two or three days.  I've heard several stories as to what is going on with these moves from a massive short squeeze to the filing of inquiries and court actions against JPM for silver market manipulation.  No matter what the cause, it is almost enough for me to want to exit.  I simply haven't due to the trouble associated with packing it up and sending it out for sale.  (Anyone want to buy some silver?)

NOVEMBER TRADING UPDATE
As much as the broader economy's recovery is still in doubt for me, there is little doubt that the FED is acting to not only buoy this market but to attach a rocket pack to its back and propel it to the loftiest levels.  The policies that are being executed are making it impossible for one to remain in less risky assets like money markets and also makes one very cautious to hold on to other fixed income type holdings as the specter of run away pricing erosion becomes more real.  What I mean here is that despite the notion that I still believe that we do not have inflation, there is rampant asset speculation in all the old standbys.  Oil, copper, wheat and grains, sugar, coffee, cotton, and more all are going parabolic.  I will say it again that this doesn't mean we have inflation, but it does mean that we have speculation like we did in June/July of 2008 where oil reached $147 a barrel.  No one can suggest that that price in oil was caused by actual demand, but it was caused by loose monetary policies that brought our economy to its knees.  It blows me away that we can have a FED that will sit idly by and allow it to happen again.  What kind of recovery will we have if my $100 a barrel target for oil is hit?

Despite my protests, the FED has promised QEII and will promise more of QEIII as the second version fails.  As a result our old trades are extremely profitable and are still ones that I highlight as winners.  We need to remain in commodities like DBA, DBC, JJG, SLV, GLD, and more.  We need to continue to trust in emerging markets for the reason that they are ACTUALLY growing at a pace well beyond the US's 2% AND are investments that are outside of the USD.  Countries like Chile,  Singapore, Malaysia, and Brazil have been my favorites.  They have been winners for me for sometime and that trend has not been stopped.  While there is every temptation to harvest gains, the real question needs to be....."And go where?" 

As we have discussed, the potential canary in the coal mine here is the stress in the European countries as measured by Euribor and also by the sovereign debt CDS that I pictured above.  If these continue to blow out this could derail the heroin induced rally the Fed has us on, just like what happened in April of this year.  I don't want to get too excited about any drop in the market though because we have rallied so much in such a little time with NO pullback.  We must expect some drop simply to digest the recent gains.  WATCH THESE CDS AND WATCH THE EURIBOR RATES THEY WILL BE THE INDICATION THAT SANITY IS RETURNING TO THE MARKETS!

Given the tsunami of liquidity and threats of more liquidity we will continue to see more of the same for the next month as the FED continues to debase and devalue our currency in an attempt to make us all feel richer.   Man, do I feel richer, don't you?

Be Careful!

GOATMUG