Bill Cara’s Blog for Jun 28, 2011 [See Post-Close report]
CTA Trading Desk Morning Report
[7:00am ET] Good morning.
The news is full of the Greek Tragedy, the failure of the Greek government to prudently manage its affairs, opting to take on more debt than its neighbors, without the necessary results; but, nowhere is it explained to me why and how Greece is about to take down the global financial system, potentially worse than Lehman according to the Greek Prime Minister and others.
In my own research I turned to current data published by the Economist. From their website I extracted the following summaries of national debt by country:
From this information, I don’t see why Japan is not the sovereign debt crisis other than the fact Japan is back-stopped by the Bank of Japan, like the Fed does the same for the US, the Bank of England for the UK and the Bank of Canada for Canada, while the ECB and the politicians of Germany and France are in control of the future of Greece, and Portugal, and Ireland, basically ordering the governments and the people of these countries to conform to their “New Europe” or else face dire consequences. Moreover, as I see it, the rest of the world is being threatened with a financial nuclear fall-out should any of the PIGS not agree to be turned into Euro bacon.
The point is; I don’t know what’s going on here. Like you I read a lot about it, but this alarm bell has a hollow ring when it comes to facts that could convince me that we ought not be discussing other crucially important issues instead.
In any case, I believe the Lehman bankruptcy was a sudden development, like the pulling of a trigger, whereas the Greek drama has been playing for years, and its players are hoarse. We all know the script. We all know the denouement. The ECB, Fed, BoJ, BoE, and BoC and the central banks of all other G-20 countries will buy the bad assets of the commercial and investment banks and fill up their reserves to the extent these banks cannot do so directly from the private sector.
The world has reached the point that central banks cannot lower the interest rates on short-term bonds any more, which means that the private sector will not agree to pay more for long-term bonds. Unless the central banks agree to also buy all the long-term debt of the world as they have the short-term paper – and they most definitely will not – their “soft” money cannot get softer.
The world is now about to see what “hard” money is all about. By that, I mean, unless the G-20 governments soon unite to confiscate gold and terminate gold trading, the price of gold must escalate. In fact if they do stop all gold trading, they also effectively shut down enough gold mining to make the metal even more precious.
The Greek situation is a small part of the world’s financial system problem, which stems from the fact that the basis of bookkeeping is that assets must equal liabilities (i.e., debt) plus equity. Regrettably, the world’s leading monetary authorities, convinced by a few mostly Goldman Sachs executives in the 1990’s, permitted debt to go virtual based on derivatives that grew out of control. Unless the assets could be priced at such speculative (read “non-economic”) levels, then the bookkeeping of the world did not balance. So, about six or seven years ago, there was a huge effort made by governments and monetary authorities and banks to promote the price of real estate, not just in America and Europe but everywhere. That policy failed when the private sector got caught in the associated debt bubble.
The only way out of the world’s dilemma – which is much greater than the issues posed today by Greece – is for gold to be re-priced much higher. In order to protect wealth, I have made a fundamental decision to invest (not trade) in gold production, believing that the G-20 central banks and the governments need them to stay in business, and tax the related production and trading.
While most people are caught up in the day to day ebb and flow of the precious metal prices and related share prices, I believe there is only one ultimate direction for these prices and it is up. Moreover, as this development occurs, the prices of equities across the broad market will also lift as higher inflation and interest rates become the new normal as the monetary authorities give in to the private sector, their only hope.
The keys to monitor each day now are the banks and mining stocks. This morning everything is fine there, so don’t be misled by minute-to-minute fluctuations in currency and commodity prices.
These are difficult times as there are considerable risks involved. But I have made my case and I will stick to it.
Have a good day.
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||35.00 (1.34%)||Components, Chart, More|
||13.85 (0.55%)||Components, Chart, More|
||20.71 (0.55%)||Components, Chart, More|
||13.04 (0.18%)||Components, Chart, More|
||0.17 (0.05%)||Components, Chart, More|
|^OSEAX||OSE All Share||453.37
||2.20 (0.49%)||Components, Chart, More|
|^SMSI||Madrid General||N/A||0.00 (0.00%)||Chart, More|
||1.18 (0.35%)||Components, Chart, More|
||6.31 (0.11%)||Components, Chart, More|
||22.32 (0.39%)||Components, Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
Cara on Trends & Cycles
Several years ago I interviewed the new professional management team of Crystallex (KRY) and was convinced the company was finally on the right track. I endorsed KRY until the day they fired Todd Bruce CEO in early 2007. Afterwards, KRY followers knew I was opposed to investments in that company.
I then suffered the slings and arrows of misguided souls – to the point I had to filter my email specifically to avoid the harassment.
After a major push on the stock a year ago, I went further to say this was a con. More slings and arrows.
Even people here were saying I was too close to Todd Bruce to be objective. But the fact is I never knew Todd until the day I called the company for an interview and he later convinced both myself and also a world-class analyst I took to that meeting that the company had a major high-quality resource worthy of our investing in.
All this happened before I wrote the book Lessons from the Trader Wizard and a couple years before I even considered investing for clients. I was, in fact, a totally objective party.
In December of 2009, the pressure on me from the promoters became ridiculous, so I wrote about it in the WIR. Here is the transcript:
That’s the way these things go, and have gone for decades, for centuries. It’s just human nature. What the self-anointed experts ignore are the cycles. Everything in our universe that moves has a pattern of cycles. Everything.
As someone who is knowledgeable about cycles, I understand that merely looking at a one-sided move is not sufficient data for any kind of analysis.
So if it is not analysis, you can be sure it is synthesis — stories, in other words. Stories, you know, are told to you by people who want something.
Funny thing about stories; the promoter starts with the story while you have the money. But, listen to them too closely and they end up with the money and you have the story.
If you stick to the facts, you do not need to listen to their stories. Here is a case in point from an anon reader who was persistent in his mail to me this Friday.
The conversation went this way:
Hi Bill, I hope all is well with you. I was hoping that you might be taking another look at KRY given hugh volume last week. It appears something is happening that could have a very positive impact on PPS. What is your opinion? Investors would love to hear from you on this one.
Sorry Anon, I don’t trade (Crystallex) and have too little time to investigate what might or might not be happening there. The investors in this community at least know my feelings, so there is no need for me to write any more. /Bill
He didn’t like that:
Bill, we are so close to a deal right now. Don’t you think its prudent to do a follow up for your supporters. This could be an opportunity for them to make some money. After all, you did make this your stock of the year a while back so why not take some time and do a brief report on them. Please!!! (Anon)
Getting a little perturbed, I replied:
Anon, Re: “we are so close to a deal”. Are you in the company? Look, I am not in the gambling or insider trading game. If the company reports an agreement I will convey it, and that’s all. I don’t trust the promoter and have stated it in the blog. Enough said. I hope it works out for you. /Bill
Apparently there was more to be said by Anon, typos and all:
bill, you covered the story. i am not an insider or an employee. i am just asking you like so many who wabt to hear from the great bill cara. how can you not report when yoiu called this stock the stock of the year. how did you know at that time it was the stock of the year. your weren’t in the company or an employee either. you owe an update your readers a update good or bad. come on bill put your personal reasons aside. please provide an update. (Anon)
To put an end to this nonsense, I replied curtly:
thank you /B
I think Anon was just getting started:
Bill, does that mean yes?
By then I had had enough, even wondering why I blog – and all this was a couple hours before I got into the TN_Blogger problem – so I tried harder to end it, knowing my next move was to filter future emails from Anon right into the trash basket:
Anon, pls do not write me again. /B
This was just a side play while the $USD happened to be soaring in a break-out and the precious metals were getting smashed on Friday. The goldminer ETF in the US (GDX) went on to close down -5.31% on Friday. The Canadian goldminer ETF (XGD) also crashed, down -5.29%.
But what did happen to Crystallex? I haven’t read any media releases, and won’t, but I see that through the month ending Nov 13, KRY had traded an average of 659,878 shares a day on the AMEX exchange at an average price of $0.247 – less than a wooden quarter. Then from gloom to boom as KRY traded on the Monday following the amazing total of 20,896,100, hitting a high of $0.52, closing at $0.45. Now that the sheep were ready to be fleeced again, Tuesday’s volume was a similar 20,432,400, but with the price dropping to $0.34, closing at $0.40. Seven of the next 12 sessions KRY also closed at exactly $0.40, which was near the daily high. The other five sessions had closes of $0.43, $0.41, $0.39 twice and $0.28. So there was Anon, 13 days after the moon-shot, watching his or her stock churn an average (on AMEX, not the TSX, which is more) of 5,016,936 shares per day with an average hi-lo-clo of $0.42 $0.35 $0.40. This is called distribution, and so Anon, frightened with the prospects of a soaring $USD and crashing price of gold, wanted me to help the take-out.
I am not an idiot or a take-out artist. I’ll leave the sales role to CNBC/Cramer/Bloomberg and stand by with amusement.
Unless there is a deal at Crystallex that the insiders know about (and insiders always have loose lips), which is going to be announced any day now, and Anon really and truly meant it when he called me “the great Bill Cara” (vomit), then this is one stock I think is headed much lower.
That’s just me, seeing things through eyes that have aged some, and still with my wits about me. Then again, maybe Anon was giving me a tip on something really exciting and wanted me to pass it along to the world. Hahaha.
Anyway, Anon wanted an update “good or bad” and there it is. I try to please.
You can’t make this stuff up. When I was in the business, the only thing missing was the envelope full of stock certs in bearer form they tried to slip me under the table.
I could be wrong. Time will tell.
But it was last summer when I became concerned again as some of your were saying you were still involved and interested. I opined that shareholders were being misled.
June 7, 2010
No matter. Here is the outcome to date: the one I told you I strongly believed would happen.
Experience teaches. I’ve had my share of experiences.
Vad’s Catch of the Day
Kaimu’s Sound Money
CTA Trading Desk Mid-Day Report
CTA Trading Desk Post-Close Report
Good evening. Patrick here.
A slow and steady updraft (S&P+1.29%) gained momentum late in the session after the Greek Opposition Party said they would formally endorse austerity measures, traders eager to push the S&P out of its frustratingly tight 1260-1295 box.
Parliamentary approval is now assumed by most market participants; it remains to be seen how equities react to the “good” news. As we see it there are three possible outcomes tomorrow morning; austerity measures pass, austerity measures pass but peaceful demonstrations turn ugly, union dissent leading to rioting and looting; and lastly, austerity measures are unrepentantly turned down.
A “no” vote to fiscal belt-tightening will most likely produce a large downside gap catching most traders off guard, a low probability event given slim odds of actually occurring.
The path of least resistance after approval of the austerity measures is a little harder to handicap. Judging by the action the past two days most traders expect the S&P to break above 1300 perhaps challenging 1315, a level representing 50% of the recent decline and bracketed by the 50- and 89-day moving averages.
Any opening upside gap to 1315 will attract selling; if the market can overcome this level later in the day Bulls will be energized.
The first 60 minutes of the trading is often referred to as “amateur hour”; NYSE specialists have long made a living fading retail orders executed in the opening moments of trading. If a news inspired opening gap is quickly closed assume “what everyone knows isn’t worth knowing.”
Still in limbo – the beat goes on…