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June 12, 2007

Cara’s Daily Commentary, Tues., June 12, 2007, 8:58 AM

Market Chat

The interest rate trend is absolutely key to this equity market. Already we are seeing evidence of Wall Street analysts downgrading the stocks of interest-rate sensitive and debt-laden high-PE (ie, low Earnings Yield) companies. Utilities, real-estate operating companies and REITs come to mind.

That happens to be a normal cyclic roll-over of a primary Bull market, ie the sector rotation where the most interest-sensitive Financials start the swan dive.

Traders now are looking to central bankers and HB&B to see if they intend to keep the window open for new M&A and IPO deals. Further tightening at this point will effectively terminate the Bull market that started in 4Q02.

Already today the Wall Street Journal is carrying a story that the KKR Humungous Private Equity Corp (HPEC) unit is having trouble closing the $29 billion First Data deal. You see, as interest rates rise, serious money goes hunting higher Earnings Yields and it tends to shun the high debt backed deals.

So, at this point, we are looking to see what happens next in the interest rate markets. If the Fed wants to make it easy on HB&B to continue to prop the market, the FOMC trading desk is given marching orders to buy Treasury paper from HB&B. For every dollar put back into HB&B, the bankers can lend out about seven or more, depending on the fractional reserve requirements of the domestic regulator. Most of that money (ie, somebody’s debt) ends up in the hands of HPEC, ie, directly or indirectly via hedge funds and other Friends & Family.

In the US, it is the Fed’s job to determine whether the market can or cannot absorb the debt service at the current and likely future interest rates. A big deal like First Data that hits the shoals is a sign that the good ship Paulson’s Pride is in trouble. And there is always a couple of these deals that signal a warning to the Fed, which then starts to clamp down, which of course they do by selling Treasury paper back to HB&B, which in turn sops up that excessive liquidity people talk about.

When that happens, the clients of HB&B start by selling high-risk assets and paying down loans (often when those loans are called by the banker). Then the lower asset prices ratchet down the collateral of other borrowers, causing them in turn to have to start repaying loans. Soon it becomes a vicious cycle.

With the hyper-inflated collateral values on the books at HB&B these days, the down cycle could be very bad. It was bad in 1990 when my parent’s next door neighbour came calling to see if he could find a taker for his property that had a $950,000 mortgage, valued at that point at $1.1 million. My parents bought that adjoining property for $300,000. Depending on whether you are in a cash-flush position or owing money to bankers, your perspective on life turns either bright or ugly at times like that.

So, the question is what does the Fed want done at this time. If they don’t take action soon, the free market will take it for them by re-pricing risk – something that should have been done in 1H06 before Bernanke and later Paulson took the helm of America’s monetary policy.

My take is that central bankers, working closely with HB&B, have purposefully knocked down the price of precious metals in order to give themselves some breathing room. Now we on the Buy-side have to decide whether these bankers want to extend the market cycle or not. If interest yields and precious metal prices start to reverse their recent trends, ie, where rising yields start to pull back again, say the yield on the 10-year US Treasury Note drops back under 5.0 pct, and where the falling gold price bottoms in the 630-660 range, then I would interpret that as a Buying signal for equities and for precious metals.

Another signal of course is the direction that the price trend takes for other major equity markets in the world, such as the Japanese, German, and UK markets. Higher equity prices there at the same time that equity prices were falling in the US – considering also that many of the major weighted stocks are globally listed – would be a shock to the so-called US wealth effect. I don’t see how the US Administration and Fed could seriously put up with that.

Hence, we have to be watching to see if the analysts of major US-based units of HB&B, such as Goldman Sachs, JP Morgan, Lehman Bros, Morgan Stanley, Merrill Lynch and Citigroup are changing their stock ratings of foreign-based corporations. Although these analysts are supposed to be professionally independent and objective (and many are), it’s a career-ending move to issue opinions that counter the strategies and tactics of their executive committees.

At critical times like this, where markets can evolve through a sea change over a period of a few short weeks, it is incumbent of traders to watch for the right signs before making major changes to their asset mix and sector weightings. This is the time when asset managers earn their keep, and when the unseasoned trader gets sidetracked by emotional issues and the fog of war (to put a military spin on the capital market).

Economics Calendar and Reports

Economic calendar from Econoday

Econoday prior week's international economic report.

Global Equity Markets Review

Europe was taking a hit earlier in the session, so that will likely carry over to North America.

US Equity Markets Review

DJIA (interactive) chart

NASDAQ Composite (interactive) chart

Here’s the closing data of the Asia-Pacific equity markets.. Except for Japan’s Nikkei 225, it is a matter of all green arrows across the Asia-Pacific region today.

Here’s the chart of the Japanese Nikkei 225.. I continue to b concerned that the important Japanese equity market might lead global equities south.

Here’s the chart of the Shanghai equity market.. Shanghai further consolidated following the huge loss on Monday, and has moved sharply ahead. Reuters, however, reported today that consumer inflation in China has reached 27 month highs.

Here’s the chart of the Bombay India Sensex 30 index.. The very volatile Indian equity market had a modest bounce higher today, but the past five days is distinctly down. Traders must be careful here because when HB&B tightens, it is always the most speculative, highest PE markets that take the first hits in any global market sell-off.

Here’s the latest session data for the bourses of Europe. There is a broad sell-off in Europe today (as of 8:15am ET). Reuters is attributing the concerns to inflation data.

Bonds & Yields Review

Here is the T-Bond chart.

Bond prices dropped again yesterday. The T-Bond closed at 106.71875, down from 107.03125 on Friday. So yields are continuing to rise, but over Monday, the move was modest.

Forex Review

Here is the $USD chart at the close of the prior session.

The $USD (at 7:48am ET) is at 82.798, up from 82.775 at this time Friday. The $USD had been down, but has just received a powerful bump in the past few hours.

The market strength seems to consistently happen just at 3:00am ET, which, as I say, “must be the time the US FOMC accounts start trading in London”. Actually, traders in Europe might be more concerned about inflation and rising rates there and the BoE and ECB, than they worry about the Fed.

Commodities Review

The $CRB rallied Monday to 311.18. This will put more pressure on traders who fear the return of inflation.

Here is the $CRB Index chart.

Oil Review

At 8:24am ET this morning, the e-MiNY Jul-07 contract for Crude Oil was 65.875, down from 66.250 Friday at about this time, but consistent with trading for the past few days.

Here is the e-miNY July-07 Crude Oil chart.

Interactive Chart of Daily Crude Oil:

Interactive Chart of Weekly Crude Oil:

Here is the $WTIC Crude Oil chart.

Gold & Precious Metals Review

Spot gold at 8:32am ET today is 650.70, about the same as yesterday morning at this time, but down in recent hours.

The rally overnight in the $USD does not bode well for PM’s today, but the bright side is that the lower end of the 630-660 trading range is being tested. Longer term, higher inflation will drive gold prices higher. The interim pull-back is caused by the short-term action by central bankers and traders fears of bank tightening. As I say, if the banks tighten more, the equity Bull is dead, and gold is the bell cow.

Here is the Recent Spot Gold chart.

At 8:36am ET this morning, the Spot silver (AG) was 13.09, unchanged from yesterday morning but down in the past few hours.

Here is the Recent Spot Silver chart.

This morning at 8:37am ET, Spot platinum is at 1288, pretty much flat since the big down spike last mid-day Thursday.

Here is the Recent Spot Platinum chart.

Palladium is at 363, same as yesterday, and quite flat for the past week. There is no need to panic here.

Here is the Recent Spot Palladium chart.

Precious Metals Stocks Review

After three or four heavy selling days, $XAU stopped plunging. Yesterday was a gain of +0.97 (+0.72 pct).

As I have written, “With the ETF’s today, it is rather easy to hammer this market, but in retrospect, the goldminers are making good profits, and new resources are not being discovered or brought into production as fast as reserves are depleting. The price of gold and hence the goldminers will rise in the long term… The long base pattern for the goldminers, stretching back to the beginning of 2006 is a powerful one, like a spring coil ready to pop. I would feel more confident when $XAU moves into the 144 level. As you can see on the Weekly chart, once $XAU rises above the 150-155 level, there is little to stop this index from rallying to the long cycle high of 171.71 that was set in May 2006.”

There are many analysts who hold the view that gold stocks ought to be sold here. I don’t share that view. Later today in the Comments section, I’ll probably add some specific remarks.

Here are the Daily and Weekly Data charts of the indexes, courtesy of StockCharts.com:

Interactive Chart of Daily U.S. Goldminers Index:

Interactive Chart of Weekly U.S. Goldminers Index:

The U.S. goldminer share trust ETF trades under the ticker symbol GDX.

The Toronto Exchange-listed goldminer iUnits S&P/TSX Capped Gold Index ETF trades under the ticker symbol TSE:XGD.

Here are the Daily and Weekly data charts for the TSX Goldshares (XGD) index:

Interactive Chart of XGD Daily data:

Interactive Chart of XGD Weekly data:

To watch the moves in precious metal miners, you will have to monitor the individual stock charts, preferably in real-time, as follows:

ABX NEM GG GFI KGC AU HMY AUY BVN
Interactive Daily data
Interactive Weekly data


MDG LIHRY AEM BGO IAG EGO RGLD GOLD CDE GRS
Interactive Daily data
Interactive Weekly data


CBJ SSRI SIL NG KRY UXG GRZ TSE_HRG TSE_GUY TSE_AGI
Interactive Daily data
Interactive Weekly data


NXG GSS MNG DROOY MFN RNO RANGY MRB CLG
Interactive Daily data
Interactive Weekly data

Here are the key Silver miners and the SLV ETF:

SLV SIL CDE HL PAAS SSRI SLW MGN

Interactive Daily data
Interactive Weekly data


The Cara Global 100 Stockwatch

This data is supplied every day by the folks at KNOBIAS, Inc.

Here are the previous session’s Cara 100 gainers. Interactive charts of the top 12 Watch List gainers. Yesterday in a flat market there were still 25 of the Cara 100 that moved up at least +1.0 pct.

The big move was OptionsXpress (OXPS), which caught some nice buy orders (see the volume change table below).

The big loser (see below) was Nucor (NUE) which guided down. Micron Tech (MU) and Hovnanian (HOV) also suffered serious hits.

Mostly though, the analyst upgrades took some of my watchlist higher on the session.

Here are the previous session’s Cara 100 losers. Interactive charts of the top 12 Watch List losers.

Here are the Cara 100 stocks that hit 52-week intra-day highs or lows in the previous session. Not too many. All of the new highs have enjoyed recent analyst upgrades.

Here are the Cara 100 stocks that had extreme volume changes in the previous session. This is a good list to watch anytime markets start trending in the extreme. It pays to watch the price and volume extremes. That btw is called Money Flow.


Here is the current Relative Strength Index (RSI) analysis of the Cara 100 company stocks

Here, from “Chris”, are the interactive charts of up to a dozen stocks with (unsmoothed) RSI-7 above 70 and below 30:

RSI > 70 (5)

RSI-7 > 70

RSI < 30 (7)

RSI-7 < 30

“Chris” takes this data from BillCara2.com, which is not smoothed like David’s data (from Worden). I may have an opportunity to introduce a Wilder Smoother to this data in upcoming months.

Here, from “Sergey”, are the stocks in the Cara 100 trading with the highest and lowest Daily RSI-7 sorted by (i) daily and (ii) monthly values, for the previous session. As “David” is on course this week, “Sergey” has kindly taken over. I think Sergey is located in Europe. I’ll have to check on that.

In Focus

It is interesting that Banc of America Securities downgraded Nike (NKE) from Buy to Neutral, while HSBC Securities upgraded it from Neutral to Overweight.

Goldman Sachs upgraded ABB from Sell to Neutral and (earlier) CHL from Neutral to Buy.

For non-Cara 100 companies, I see that Dougherty Securities initiated coverage of an old favorite Taser (TASR) with a Buy.

Following a successful IPO, several broker-dealers initiated coverage of Cavium Networks (NDQ:CAVM): JMP Securities with a Strong Buy, Needham and also Deutsche Securities with a Buy and Lehman at Equal Weight. Cavium is a chip manufacturer that was founded in 2001. It specializes in multicore networking and communication processors.

According to the literature, “the OCTEON multi-core processor product line, presented at Fall Processor Forum 2004 and ISSCC 2006, is a scalable multi-core MIPS64 system on a chip with up to 16 cores clocking at up to 600MHz and is intended to consolidate several network processing roles into a single device. OCTEON devices handle packet processing, content filtering and security, and are marketed as Network Services Processors (NSP).”

There is a lot of competition in this space (according to Motley Fool), but this will be one of the Cara Micro-cap 100 components.

As Motley Fool pointed out, there are stocks of hot, young hi-tech companies, such as DivX (NDQ: DIVX) and Sourcefire (NDQ: FIRE), that cooled out after a strong start. This is often where you can find good value, particularly where a broad market pull-back knocks many of the flippers and short-term players (called the weak hands) out of a stock.

Also, Stifel Nicolaus knocked a slew of real-estate operating companies and REITs from Buy to Hold, such as AFR, AMB, BPO, BRT, BXP, CDR, CT, HIW, KIM, KRG, NCT, NRF, QRR, SLG, SPG, WRE, and WRI. If you trade in this space, you might want to look further. It could be as simple as an analyst opining that if interest yields are going to rise here, then the earnings yields on these companies are going to find competition among traders.

But that really is the big story underway today, is it not?

The bond market can fall only so far before interest yields rise enough to cause traders to start selling off the interest-sensitive holdings and the debt-laden, high PE (ie, low earnings-yield) companies. It is why I say that the interest rate trend is absolutely key to this market.


Other Recent Wall Street upgrades

Other Recent Wall Street downgrades

There are various sources for up/down grades by broker-dealers. One is at Briefing.com. Traders ought to check everyday for ratings changes. That website is updated later in the morning.

Community Chat

I have finally signed off on the website changes. Que sera sera.

How many of you were around in 1956, anyway?

Have a great day.

btw, I had a few typos earlier today (remnants of an earlier template I forgot to delete). Please recheck the current blog. Thanks. In the midst of this report I was receiving and sending a lot of important mail and my focus was redirected.

Sometimes when I know I am capable of juggling three balls, it's the 4th and 5th that get to me. (LOL)

Posted by Posted by Bill Cara on June 12, 2007 08:56:05 AM | Category: Cara's Daily Commentary

Discourse

Dear Bill,

What a way to start the morning. Is anticipation of potential interest interest rate increases such as you muse about above what's worrying gold? Have an awesome day!

Chris

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 9:18 AM [link]

moin fro germany,

with rates rising the deals are looking more and more desperate......

Archstone-Smith buyout a gigantic gamble: Barron's

Barron's said the buyout group is paying $60.75 a share for Archstone, or nearly $16 billion, and the company also has $6 billion of debt.

It said the buyers will borrow $17.1 billion to purchase the company and put up $5.1 billion of equity. But Barron's said the interest tab on the $17 billion of debt could top $1 billion, exceeding net operating income this year, which may total $800 million. A sale of assets might not cover the shortfall, the article said.

disclosure: short reits (index)

Posted by: jmf [TypeKey Profile Page] at June 12, 2007 9:39 AM [link]

I was one year old but they played the loving bajesus out of that song well into the 60's.

Fits today, whatever will be, will be.

Enjoy!

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 9:44 AM [link]

New Cara 100 co. DNA is under pressure, could be a buying opportunity.

I'm almost a full position on MU, thinking of adding in this pullback.

Liquid nitrogen anyone? Mmmm, chilly.

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 9:54 AM [link]

Hello Bill,

Thank you for today's write up. Although I am not a short term trader, I can feel the tension in the market right now. A coiled spring which is about to explode up or down.

Although I am well hedged in my long positions, I do have some speculative positions open (with decent gains) to take advantage of the liquidity that has been driving the markets higher. I would like to hit the sell button on these positions as soon as I see the market reverse.

At times like this, I find it best to think from HBB's point of view. What market move would serve them best? I guess a final blow off rally which lures the doubters in. Consequently, I suspect HBB may drive ^TNX to around 5.25% to shake out the nervous hands and then turn the market around for the final blow off. Interim, my finger is hovering on the sell button, should my hunch be wrong.

Posted by: jragusa [TypeKey Profile Page] at June 12, 2007 9:54 AM [link]

A Canadian Press news story today boggles the mind.

http://tinyurl.com/ypw5jw

In China, a man convicted of bureaucratic dishonesty is sentenced to be executed. In Canada, a man convicted in the first degree of murdering a police officer in attempting to escape a bank robbery, and who has also been convicted of armed robbery, kidnapping, theft, break & enter, extortion, possession of stolen property, possession of narcotics and other crimes, has been deemed by the securities regulators to be a fit and proper person for investor relations work in penny stocks listed on the Toronto Stock Exchange Venture market.

These regulators in Canada and the people who manage the Toronto Stock Exchange went AWOL during the two years that Stelco shareholders and bondholders were screaming that over $1 billion of their assets were being stolen. Yet they have plenty of time for committee meetings and hearings, and dollars for legal counsel, to welcome into their midst (and ours) a social miscreant of the worst kind, who in many other countries would have been long ago executed or permanently imprisoned.

You want to know what’s wrong in some countries today? The leadership is sick.

Posted by: Bill Cara [TypeKey Profile Page] at June 12, 2007 9:59 AM [link]

Corrupt = sick? You're being nice my friend.
If this is knowingly being done it's corruption or idiocy, as in the old medical definition, probably from 1956!

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 10:07 AM [link]

Dear Avanuv,

How'd you like that "pop" in Crystallex this morning?

Chris

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 10:15 AM [link]

Hey, I was born in 1956! :p And Bill, fret not over typos for this forum is supposed to be just like we were all sitting around knocking the froth off a few. If the Grammar Police show up I'm leading the insurgency! :D

Yikes, looking at 6 month PM charts this morning and almost every one is at significant support levels. One of the more expensive Gold stocks I like, Anglogold Ashanti (AU), has already broken below critical support at $40.21 this morning and a close below could mean that the October low is in play. A smaller miner, Yamana (AUY), has also broken key support at $12.78 and the next leg down would take out six months of price gains.

Seems the market has used Tuesdays as its day of tumult, we shall carefully monitor today's action.



Posted by: redclaydawg [TypeKey Profile Page] at June 12, 2007 10:22 AM [link]

"Que Sera, Sera"? It came out in my thirteenth year so I remember it and its cinematic venue, "The Man Who Knew Too Much", well.

The longer I live the more I come to realize that Lincoln's celebrated "government of the people, by the people, for the people" has transmogrified into "government of the ignorant, by the corrupt, for the privileged".

I wonder, am I now a man who knows too much, or too little?

Thank you, Bill, and all other contibutors to this blog for helping we "little people" at least get out of the way of stampeding herds of money . . . .

Posted by: johojo [TypeKey Profile Page] at June 12, 2007 10:26 AM [link]

.
Bad timing...
Just before this interest rate "thing", I' ve bought a Mutual Fund that invest in Global REIT's ((Asia Europe and US).
Apart from SRS is there anyway I can short REIT's?


Posted by: Bullion [TypeKey Profile Page] at June 12, 2007 10:36 AM [link]

FWIW,,,,charting the 1 year chart of gold,,,,my analysis says head and shldrs top. If I am correct, then a break of 640 will lead to a decline in the 590 area.

640 is neckline

Dab

Posted by: dabonenose [TypeKey Profile Page] at June 12, 2007 10:47 AM [link]

From my own perspective,,,it has been my experience that the best time to buy real estate and lenders, etc. is the beginning of the next recession.

When all the layoffs start and noone can sell their home, the RE mkt will have bottomed


Dab

Posted by: dabonenose [TypeKey Profile Page] at June 12, 2007 10:51 AM [link]

.

Gold miners won´t go anywhwre until the 292 level in $HUI is tested.

Posted by: Bullion [TypeKey Profile Page] at June 12, 2007 10:52 AM [link]

Re: Colin Twiggs on Gold
June 12, 2007 3:30 a.m. EST (5:30 p.m. AEST)

"Spot gold continues its secondary correction after breaking below support at $650. Expect a test of primary support at $630.

In the longer term, the primary trend remains up and a rise above $695 would signal continuation of the up-trend, while a fall below $630 would signal that the primary trend has reversed. Strong crude prices normally support demand for gold, but this is being offset by a strong dollar. "

Posted by: JogyP [TypeKey Profile Page] at June 12, 2007 10:52 AM [link]

An AssPress article had this remark on the 10yr Bonds:

"... Tuesday will, however, be the first test of investor appetite for government bonds since the selloff, as the Treasury aims to sell $8 billion of new 10-year notes ...."

That's billions with a "B". Guess a little extra yield helps possible sales. Driving the $US up, and driving Gold down kinda plays into that framework also.

Link to article:

http://tinyurl.com/35djnj

-----------------------------------
Bullion - Try picking the principal (largest %held by the REIT etf of your choice and short that stock, or as an alternative, short the highest ATR with acceptable volume. Just a thought, not advice.
Good luck.

Posted by: spot [TypeKey Profile Page] at June 12, 2007 10:53 AM [link]

"How'd you like that "pop" in Crystallex this morning?"

Chris, I'm not sure if this was intended in good humor or not, but I can tell you that anyone who has grown tired reading about the KRY permit saga and who may have some money in the game and is now watching this stock go down day after day will not find it very amusing.

Posted by: number2son [TypeKey Profile Page] at June 12, 2007 11:02 AM [link]

.
Is there an ETF for the HUI, likewise the GDX is for XAU?

Posted by: Bullion [TypeKey Profile Page] at June 12, 2007 11:05 AM [link]

number2son,

Here is the history behind Chris's humour on KRY
------------------------
Dear Bill and Friends from the Great White North and Elsewhere,

I never did get long KRY last week as I suggested I might, and today I was waiting for signs of life but the rally failed and the $4 level was challenged. Absent a reversal, I think this thing's going to $3.75 or possibly $3.50.

Chris

Posted by: shark_attack at June 11, 2007 8:47 PM

shark_attack: So in other words KRY should really pop tomorrow! ;-)

Posted by: agaunv at June 11, 2007 8:51 PM
----

Posted by: JogyP [TypeKey Profile Page] at June 12, 2007 11:08 AM [link]

Spot,

Do you know when this $8 Billion 10 Yr auction ends? Where can I see the results? If this auction does not go well, we may crash through 5.25% on the 10 Yr. Then, it's time to go to cash........

Posted by: jragusa [TypeKey Profile Page] at June 12, 2007 11:12 AM [link]

Thanks, JogyP. ;)

Posted by: number2son [TypeKey Profile Page] at June 12, 2007 11:17 AM [link]

Posted by: rob d [TypeKey Profile Page] at June 12, 2007 11:38 AM [link]

jragusa - Here is a link that you might find helpful. There is a "10yr Note settlement" scheduled for Friday. Also, some people might find that the Treasury International Capital (TIC) report on Friday will be important.

http://tinyurl.com/ytbax

Hope this helps.

Posted by: spot [TypeKey Profile Page] at June 12, 2007 11:41 AM [link]

Agreed, look at the chart and you can see no support for a while if it (DNA) fails here, but this might be a good point to put a position on knowing where near support is so you can set a tight stop. It's down near the 52 wk low so that helps some.

Market seems to be feeling support here, but I can always be proven horribly wrong.

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 11:43 AM [link]

Disclosure: bought UXG and GRS this AM.
Would have bought more SLW if it came in more.

Opened positions in BMD, GFI, EGLE, PGH at latest lows for Mom. BMD @ 2.50, GFI @ 15.63, EGLE @ $20 (10% yield) and PGH 18.50 (a bit high but yields 17%+). I would love PGH at 15 or lower.

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 11:52 AM [link]

Thanks Jogy for providing the historical perspective for my comment. I offer my commentary, by the way, not as a taunt, but as trading guidance for the few stocks I have a feel for, for anyone dumb enuff/smart enuff, take your pick, to listen.

Now listen to this...I walked away from the box this morning 'cause my mom wanted to check her goshdarn email, and I MISSED the KRY crash. I MISSED it. I had been waiting for weeks I think for that one moment. Now, like the rest of us, I get to wait and see if an uptrend begins that I can climb aboard.

Thanks 4 lettin' me bend yer ear Chris

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 12:20 PM [link]

Disclosure correction: BMD @ $2.65, not 2.50.

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 12:38 PM [link]


UXG getting a small pop out of this news
http://biz.yahoo.com/iw/070612/0265269.html

Gold Experts:
Is it really good news?

Posted by: JogyP [TypeKey Profile Page] at June 12, 2007 12:42 PM [link]

ALOHA !!

I believe the POG will go below $600USD since this is still a correction that began May 2006. The US Dollar will rally(up and down)through the Summer. I would be a buyer of gold at $580USD! As the POG comes down I would expect "smart" money to start buying into quality PM producers and some quality juniors like UXG, therefore POG goes down and XAU and HUI rise. Remember essentially foreigners can control interest rates by selling US debt. Now our "money" is like our "oil" ... We used to export oil in the USA but now our main export is "debt" and we are dependant on foreigners for our existance!

REITs ... not all REITs are sensative to interest rates. I am invested in a private REIT(based in Nevada)that will IPO in the UK which owns storage space. As people vacate their homes voluntarily or by force they will need some place to put their "stuff"! I believe as the real estate bubble implodes further storage space will be in short supply and rental rates for space will increase as will "buyouts" by companies like GE. Even in good times storage space has been a very stable business model and in bad times they flourish. There are storage space REITs listed on the NYSE that pay dividends close to 6%.

Are we a country that is so arrogant that we actually believe our economy will never collapse? Here is a view of a US economy collapse from a Russian perspective ...

Link: http://www.energybulletin.net/23259.html

Perhaps starting a vegetable garden is not such a bad idea ...

Long oil, pm and farmland

Posted by: kaimu [TypeKey Profile Page] at June 12, 2007 12:43 PM [link]

Aloha Kaimu,
Ready for this one? Bloomberg is running a story presently....

Australian Law firms are going public and the talk is of U.S. law firms going public.

A NEW level of insane corruption? Can you imagine? Remember, where do almost all politicians get their start? Bellying up to the Bar comes naturally it seems.

I don't see why gold has to plumb 600. There's support at 630, we'll see if this bond thing continues that far. If we get tyt over 5.25 or the full 10% down on equities and/or gold breaks 630 then my bet is temporarily off to wait for better buy pts with preserved capital. We're not there yet.

How long will it be before bonds down/market down rings Ben's bell?


Posted by: Craig [TypeKey Profile Page] at June 12, 2007 1:05 PM [link]

Thanks a lot, kaimu. (that's sarcasm)

This morning I was reading an article about dark pools, liquidnet, GStrue, etc. thinking "how many new ways will they invent to screw us and/or enrich themselves?"

Then I skipped across some article in the news about how hundreds, thousands of 'fans' are outraged about something or other to do with the way someone had the nerve talk to some 'American Idol' person or something - I couldn't and didn't want to follow it closer - and I think "THIS is what you all are outraged and expend indignation over?"

I wonder to myself if the storm clouds I sense over the horizon are real or if I read to many 'doom and gloom'ers and I think "I hope I don't lose my job when/if things begin to go really bad here." It's a big law firm and I guess business is good when times are bad and everyone is suing each other, but you never know and billings may drop someday...

So, all I can do is try to get ready - I pay down my debts (not consumer/plasma/cruise debt, but the 'life smacks you hard when you don't expect it' type) and every month I toss a little chunk or three of silver in the drawer and hope I get it all balanced out before, when, if the perfect storm hits the US.

And I hope my Irish citizenship application goes through before they pull the ladder away from the clamoring hoards who want to get out of here.

So, thanks for reminding me how whacked things are. Seriously, I appreciate your input and the daily ALOHA!!

Mike
NYC

Posted by: MikeNYC [TypeKey Profile Page] at June 12, 2007 1:17 PM [link]

Oh,man, Craig. Come on! That's the last thing I need.

Go public = pressure to outsource the back office = MikeNYC in Bangalore for two weeks training his replacement.

Geez. Can't an IT office drone get a break?

I'm starting to wish I had gone to tech school for HVAC instead of working in IT. I'd be much better off in so many ways.

Mike
NYC

Posted by: MikeNYC [TypeKey Profile Page] at June 12, 2007 1:21 PM [link]

Ah, but WE have disclosure laws Mike....hard to go public when your client list/conflicts have to be disclosed. How to protect attorney/client priviledge and still have public transparency.
Then shareholders would start to dictate cases, load, etc. Insane. So it will be overwhelmingly attractive to the Bush admin. and their friends on Wall St. It's not like the business has the best public image presently, but there's OPM to be had.

For you it would just open up opportunities in politics and lobbying. Look on the sunny side.

Your job would be more complicated, surely not an outsourceable job.

Lot's of barriers here, but they'll come up with something like "the free law initiative" and say it will lower legal fees to regular folks.
They could have one more bait and switch boondoggle left in them.

Posted by: Craig [TypeKey Profile Page] at June 12, 2007 1:55 PM [link]

Gold -

200 dma, 50% retrace and recent low are all around $630-$640. If gold breaks that support band, it will be oversold and ready to bounce. Seasonal bottom could be in only 4-6 weeks or so - maybe sooner. Prior lows during this consolidation since 6/06 have been higher lows. Kaimu sees this changing. That change will be seen as deflationary by some, IMO. I continue to favor gold over miners, that will change, maybe now, if bonds bottom.

Bonds are oversold (to say the least). "Powers that be" should be able to hold the July '06 lows, squeeze the shorts and keep homeowners from turning into starving masses. A furthur bond breakdown would be bad for many... Looking to buy long bond off of downtrend line break to the upside. Simple, pimple. Stocks will rally if this occurs. Gold may also.

On a side note; I missed Bill down on Paradise Island, Bahamas, due to his health issues. That was a bummer, but my family loved Atlantis. I loved the adrenaline rush that came from swimming with the sharks...but I guess 20 years in the capital markets made me feel right at home in those waters ;-)

Posted by: g034 [TypeKey Profile Page] at June 12, 2007 2:18 PM [link]

"For non-Cara 100 companies, I see that Dougherty Securities initiated coverage of an old favorite Taser (TASR) with a Buy. "

We all know, you have to stop the bad guys, but we also all know, you'd better not kill them. TASR seemed like it might go under when it was hit by a multitude of lawsuits. But they have vigorously defended their product and have not lost a single case. (now numbering 45, or so) So traders (and buyers of their product) starting to regain confidence.

Long TASR

Posted by: Tom Sheepandgoats [TypeKey Profile Page] at June 12, 2007 2:23 PM [link]

Here is what I see unfolding:
It seems like as we become more indebted, the government will have to bring down rates so that the economy doesn't go into the tank. They can spin inflation any way they want, but it seems like they would in reality let inflation rip, so as to devalue money and make it easier to pay off debts. Isn't that what governments do--they inflate away debt? Correct me if I'm wrong. Meanwhile a "transfer of payments" will be underway from average people to the people who benefit from inflation. But since most people don't understand inflation, they won't know who to blame.

Posted by: Denny [TypeKey Profile Page] at June 12, 2007 2:45 PM [link]

Volatile action here. Down 100 on the Dow, up 25 and now down 65. I suppose this is expected during op ex week.

Posted by: IM [TypeKey Profile Page] at June 12, 2007 2:51 PM [link]

Hi Bill,

Just wondering if you'll be attending the Western Goldfields meeting on the 19th of June, and if maybe you'll be able to translate some of what is said there, if you do.

How about this weather we're having???

Kaimu, are you expecting CNU and ECU to fall much further, CNU hit .48 today I think. Good time to start lower the average cost base here I think. Your posts are awesome. PMI down around 10% today too.

Cheers

Posted by: Eric [TypeKey Profile Page] at June 12, 2007 3:00 PM [link]

ONT update

ONT added to Russell 3000

Yardbirds Train A Rollin'

http://tinyurl.com/29znq4

Posted by: Stokbot [TypeKey Profile Page] at June 12, 2007 3:07 PM [link]

Dear Bill,

This morning you said "The interest rate trend is absolutely key to this equity market"

Truer words were never spoke. Rates will have to rise so that we (the U.S,) can continue to sucker the Chinese into buying our bad debt. The anticipation of this rise is pressuring stocks and gold.


Chris

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 3:27 PM [link]

g034 -- Welcome Back. Missed reading you and Mark M these last few weeks/months. Sitting tight on a few miners/GLD. It takes patience to ride this waves but I see no evidence of a breakdown in the fundamentals and, like everyone else, hoping/expecting gold to bounce off support at 630 if it gets tested.
EJ

Posted by: EJStockman [TypeKey Profile Page] at June 12, 2007 3:35 PM [link]

ALOHA !!

MikeNYC ... You bring up a great symptom of a collapsing Empire when the hyped up crowd at the Collesium(TV) cares more about which Gladiator(American Idol contestant)wins than who is President(Ceasar)! Perhaps this is a good time to invest in the new and modern "Gladiator sport" of Extreme Fighting! I believe they went public not too long ago ... As more people get angry with their lot in life they will gravitate towards more brutal sports from a sense of lost power/control over their finances and their lives. More flak jackets(ARTX) and tasers(TASR) please!

go34 ... I guess we will see what sort of interest there is in 10year Treasuries very soon($8bil auction), yet that can be manipulated by the FED sitting in the Carribean buying their own debt like an Enron offshore shell company! I believe the PPT has already done that at critical junctures in the past just like the CBs sell gold or goose the DOW at critical times. Now is the time for the CBs to go all out to protect any downward pressure on the US Dollar and US Debt, essentially "one-in-the-same"!

My Father made investing simple ... He used to tell me he buys Exxon(XOM) and Chevron(CVX) stock because if they go broke that means the US government has already filed Chapter 7! I equate that to gold from a monetary perspective. In anatomical layman's terms everyone on CNBC and Wall Street and even here talks a lot about investing in arms and legs and heads and even the heart yet few speak of investing in "blood". Without "blood" none of the body parts can function. In a financial sense "money" is "blood" and the only real money today is "gold" ... fiat is tainted blood! All the other currencies and the Forex are just "noise" ... It is in the bankers best interest to keep the noise "volume" up as loud as it can go so that nobody hears anything other than their lies and accepts nothing other than their paper IOUs.

I have said before I am gambling that the POG will be below $600USD by the end of the Summer and I have seven(7) figures worth of cash waiting. After that the POG will never see the $500USD handle again! Look at a 100 year chart of the POG and notice the higher lows as the decades go by. I am not so arrogant that I believe the US economy could end up being the USSA economy ...

If you think you are safe with the EURO think again. The EURO is designed for Germans and the German economy. What if you are Spain or Portugal or Italy? The rules don't apply. Its like declaring a law that says all people in the USA have to wear size 9 shoes ... one size DOES NOT fit all and obviously kids and NBA players would be hurting. If economically weak countries like Spain are forced to pull out of the ECB or they go under what will that do to the EUROs credability? This is why I believe all "fiat" currencies are unsafe in the long run. They all exist only by "decree" and "false confidence".

More EURO detail ...
Link: http://www.free-europe.org/blog/index.php?itemid=366

GOVERNMENTS ARE ONLY AS HONEST AS THEIR MONEY ...


Long oil, pm and farmland(life's blood). I own no shares of ARTX or TASR.

Posted by: kaimu [TypeKey Profile Page] at June 12, 2007 3:40 PM [link]

Took a little bit of KRY at the close at $3.87, but it's pure gambling.

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 4:00 PM [link]

ALOHA !!

Eric ... I expect all juniors and pms to fall further. If the DOW tanks do you think HB&B will let pm shares go up? The HB&B will do all they can to make gold and gold shares look bad compared to their "paper"! At some point there will be a divergence, but I believe the sentiment here will be a lot worse before that happens. Maybe to the point where I am having to reply to posts that say "Kaimu ... YOU SUCK!" Perhaps ...

I am doing what I call the KAIMU STRADDLE !!! I still have my foot in the door with all my PM shares and coins but I also have cash ready to buy the BIG DIP, which I believe is coming this Summer. If I am wrong ... then its PLAN B time! Unlike the Bush plan for Iraq ... I DO have a PLAN B!

I have not sold or bought any of the companies I recommend here lately. When the time comes I will load up though and then some!! I have to say though it is less painful for me because I bought in some core pm shares last year much less than their current prices.

Remember though some excellent drill results or a buyout or a spin-off or a split can really move some of these juniors to the upside no matter what the DOW or the HUI or the POG is doing. For me it is much harder to predict a PM company's future than it is to predict the POG future. We are all risk takers and sometimes you just don't get the reward!

Long oil, pm farmland and "no debt" ...

Posted by: kaimu [TypeKey Profile Page] at June 12, 2007 4:02 PM [link]

Kaimu - agreed about the fact that they better "goose" now. The only problem is that neither you nor I have any clue about the CBs gameplan. I would bet my last dollar that the central banks of China and Goldman (oops, I mean USA) are in cahoots and are applying the same gameplan to this issue.

How long before we see one "World Central Bank"??? What a bunch of &%##!!!

Posted by: g034 [TypeKey Profile Page] at June 12, 2007 4:03 PM [link]

sbux

Posted by: g034 [TypeKey Profile Page] at June 12, 2007 4:07 PM [link]

The BMO Weekly Gold Report, which I think is an important read, was caught off guard by this week's selling wave. The report dated June 11 (for the week ending June 8) actually increases their forecasted average price for Platinum and Palladium. They opine that some of the same drivers are behind gold.

For 2007, 2008, and 2009, BMO is maintaining a price forecast of 650, 675 and 700.

I was out in meetings all day. I'll look into this more this evening. But here is what BMO has to say this week about (Cara 100) Gold Fields (GFI), plus (ex-Cara 100) Newmont (NEM) and an assessment of the sector:

Sector Commentary

• The Bank of Spain reported gold reserve sales of 28 tonnes in May. Spain sold 40 tonnes in both March and April, reducing its gold reserves by 25% in the last three months.

PGM Market Review; Price Forecasts Revised

• We increased our short- and medium-term platinum, palladium, and rhodium forecasts following a review of our supply-demand forecasts and of the impact of continued investor interest in PGMs.

• Our average price forecasts for 2007 platinum, palladium, and rhodium are $1,257/oz, $359/oz and $6,029/oz, respectively.

• The platinum price is expected to be driven by factors similar to those of gold with support from supply-demand fundamentals. The platinum market is expected to be in a slight surplus this year, although it could be absorbed by the ETFs.

• We expect the palladium market to continue being in substantial surplus through 2010. The palladium price is likely to be influenced purely by investor demand.

• We are forecasting the rhodium market to be in deficit positions until 2009.

• Emissions standards are to continue tightening globally. We expect healthy growth in PGM demand as a result.


Gold Fields Ltd. (GFI-NYSE, US$16.07)

Market Perform Target: US$21.00

• Gold Fields released its 2007 reserves and resources statement. Attributable gold reserves as of December 31, 2006, increased to 91.6 million ounces from 63.1 million ounces one year earlier.

• The acquisition of South Deep added 30.6 million ounces and depletion was 4.0 million ounces, thus the net increase was a modest 1.9 million ounces. Additions at St. Ives, Choco and Damang were partly offset by a decrease at Tarkwa following a remodeling of the reefs.

• Measured, indicated and inferred gold resources were estimated to be 235 million ounces, primarily sourced in the deep deposits of South Africa.

Newmont Mining Co. (NEM-NYSE, US$39.90)

Market Perform Target: US$48.00

• The company announced the retirement of Chief Executive Officer Wayne Murdy as of July 1 and the appointment of Richard O'Brien as CEO and President.

• Newmont’s economic interest in Batu Hijau has been reduced from 53% to 45% after P.T. Pukuafa Indah (PTPI) repaid its loan to the joint venture and earned its full 20% interest.

• The company expects to incur a $20–30 million after-tax charge in Q2/07 as a result of the change and is reassessing the accounting treatment for the mine, which had previously been consolidated in its financial statements.

Posted by: Bill Cara [TypeKey Profile Page] at June 12, 2007 4:19 PM [link]

The parallels to Rome are almost a cliche at this point. Cliche yet clearly accurate. Watching Christians getting eaten by lions is about as appealing to me as watching two men tear each other apart in a cage, but others around me seem to love it.

I'm reading "The History of Money" by Jack Weatherford and two things jumped out at me:

1. One of the many reasons or perhaps symptoms of the fall of Rome was over reliance of mercenaries as the empire was over-extended. See recent news stories regarding private security forces with a 'license to kill' in Iraq.

2. The Lydians, first users of non-commodity money, became fabulously wealthy under Croesus and:

"Rather than generating more wealth, they were destroying the wealth their ancestors had accumulated. The elite of Sardis used their new wealth for consumption instead of investing it in production." p. 33

My father, back when he was young and strong, worked like a dog to support himself and his family by building some of the same toll roads being sold off to Macquarie Infrastructure.

Regards, all,

Mike
NYC

Posted by: MikeNYC [TypeKey Profile Page] at June 12, 2007 4:22 PM [link]

PMs: No change in the story for gold IMO. And no reason to judge your positions on a daily/weekly/monthly basis (unless those are your time frames).

Posted by: 2nd_ave [TypeKey Profile Page] at June 12, 2007 4:33 PM [link]

Isn't Goldfields at 15.81 rather a screaming buy? Where are its RSI's? I liked yesterday's post saying that GFI had the cheapest reserves of any major producer.

Posted by: Jock [TypeKey Profile Page] at June 12, 2007 5:03 PM [link]

I think maybe I can offer a useful alternative explanation for the current selloff and a framework for analyzing and trading the gold
market going forward that does not require any conspiracy theories.

This idea came to me first in the fall of 2005 when i was attempting to trade the gold market using the fundamental indicators of cpi and
ppi published by bls. Although I correctly anticipated a major upside surprise in the cpi at the time I did not understand the psychology of
the underlying relationship between gold and inflation expectations. Gold at the time sold off huge on the greater than anticipated inflation statistic because it created an expectation in the market that interest rates would rise, thereby slowing growth and inflation.

Now here is the key. I believe that up until say 2003 we were in a disinflationary cycle which began in the early 1980s. The collective
psychology of market knowledge during the past twenty-five years has been reinforced to believe in #1 the fed's and #2 the credit market's ability to effectively monitor and regulate inflationary and growth expectations.

Right now I dont think the gold market is declining so much because of market participants' expectations regarding future fed policy actions,
but instead on the very concrete and real upward moves in longer term treasury yields over the past weeks.

Based on current market participants' extensive reliance on the historical evidence of the past
two decades, traders appear to be betting that higher interest rates slow inflation and as a result reduce the demand for gold as an inflation
hedge.

Personally I as many others on this site believe that the disinflationary cycle of the past two decades is over and that inflation rates in the usa will be going much higher whether the cause
manifests itself in the form of higher cpi inflation or dollar inflation (re: depreciation) vis a vis the rest of the world's currencies due to excessive Fed easing.

I guess the key takeaway from this would be to look back at the relationship between gold and inflation expectations back in the 1970s. I was not around then, but my understanding is that during that incredible gold and commodity market, the Fed completely lost its credibility at least for a time as an inflation fighter. Higher interest rates alone were also not able to contain inflation expectations. In the end it took a systematic effort by Volcker to directly target money supply growth without regard to the potential effect on interest rates. This and this alone was able to kill inflation.

Contrast the current period with these two prior cycles. We now have a Fed which is deliberately manipulating money supply growth behind the scenes via M3 to goose economic growth while playing the enforcer on the main stage vis a vis the fed funds increases. Not to mention coordinated central bank selling of gold.

I guess all I am saying is that we all KNOW that central bank manipulation of gold exists but it is very difficult to measure and keep track of. I think the most useful observation currently is that a majority of market participants' BELIEVE that these higher treasury yields will put a damper on inflation. That is enough to drive gold prices down in the short term.

I am with Kaimu personally. I think there will be a momentary stabilization of the gold price in the $630 range but it is entirely possible during this decline for the price to go back to the mid to high 500s.

Still I think that understanding these perceptions regarding interest rates, inflation expectations, and the gold price are important to understand the current prevailing bias as well as relationships that existed during prior commodities bull markets.

Best regards,

Soulek1

Posted by: Soulek1 [TypeKey Profile Page] at June 12, 2007 5:13 PM [link]

Thanks for your excellent comment Soulek1.

Posted by: moab [TypeKey Profile Page] at June 12, 2007 5:23 PM [link]

Kaimu, the link you provided of a "US economy collapse from a Russian perspective ..." was extremely interesting.

Link: http://www.energybulletin.net/23259.html

We all hope it doesn't come to that, but it is hard to see how we could go 25% towards what he is projecting, without ending up 100% of the way there. Just heading out the door to check the garden. My potatoes and carrots are now jumping out of the ground with our warm weather. Also looked at my bullion. It doesn't seem to be growing as fast!

Posted by: bobj [TypeKey Profile Page] at June 12, 2007 5:48 PM [link]

Valgold seems to be holding up very well over the last couple of days. Geologix is down substantially.
Has anyone nibbled at South American Gold and Copper? I did at 5.5 cents although now it is at 5 cents.

I was reading Doug Casey a while back and he suggested that these very minor gold producers are the place to be if gold is run up, which is why I am trying to have small positions in companies like Valgold and SAG.

I'm finding that I really want to hold on to companies like Khan Resources, KGC, and SLW as investments over the long term, but if they drop more than say 15% I will feel obliged to sell them to preserve capital. This is a very uncomfortable situation, feeling obliged to sell something you would rather hang on to. How do other people resolve this conflict?

Posted by: aucourant [TypeKey Profile Page] at June 12, 2007 8:11 PM [link]

Aucourant,

This may sound like something of a cliche, but I've found that buying when others want to sell and selling, generally, when others want to buy has stood me in good stead.

I would never sit around for a 15 percent loss. I prefer very tight stops, figuring if I'm wrong I'm wrong, or conversely, if I'm right I'll buy in later when I'm more sure.

Why would you "rather" hang on to them? They're just ideas, and ideas are either good or bad. If good, great. If bad, better to surrender them quickly and reevaluate. It's like that thing...
Did you ever say something really srupid, realized it right away, but defended your stupidity rather than simply retract the statement and be done with it? It's like that.......

Chris

Posted by: shark_attack [TypeKey Profile Page] at June 12, 2007 9:03 PM [link]

There are so many conspiracy theories on this board about how Wall Street bankers collude with each other and the Fed to take from retail investors. You are talking about people who would sell their own children for a profit. What do you think they would do to each other? The vast majority of trading on exchanges is done by Wall Street Brokerages, Hedge Funds, Mutual Funds, Pension Funds, etc. They are not as much trying to take from us as they are trying to take from each other (the big bucks). I can't see them getting together on much of anything. I'm not saying that there isn't a lot of inside talking that goes on. But, at the end of the day they don't care where the profit comes from. If Merrill Lynch collapsed tomorrow I doubt if Goldman Sachs would be sad.

Posted by: Mikel [TypeKey Profile Page] at June 12, 2007 9:15 PM [link]

Food for thought, Chris--thanks.

Posted by: aucourant [TypeKey Profile Page] at June 12, 2007 11:28 PM [link]

Clarification on my earlier comments regarding PMs: If you have a long-term time horizon, then there is no need to judge your performance on a daily, weekly, or monthly basis. Let the position play out to completion. I decided a few weeks back to take a long-term position in gold and oil simply because I think both are poised for large upward moves sometime in the next couple of years, but I don't know when. By "locking up" my positions I avoid the temptation to trade in and out, which I hope will allow better returns (as pointed out in some of the behavioral studies posted on leisa's site). "Lock up" actually serves as a good analogy for me, as I have seen many positions I've held in the past go on to make fantastic gains, which I would have capitalized on if I had in fact been incarcerated during that time and unable to exit them early! I have capped the long-term position at 25% of my portfolio, and am prepared to weather some serious down turns while waiting for things to unfold.

Posted by: 2nd_ave [TypeKey Profile Page] at June 13, 2007 3:23 AM [link]

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