Bill Cara’s Blog for Dec 30, 2011

CTA Trading Desk Morning Report

[9:00am ET] Good morning, Geoff here.



84 thoughts on “Bill Cara’s Blog for Dec 30, 2011

  1. … Greece was a sovereign state, no? Read the second line:

    (DE) Germany lawmaker Hans Michelbach said Greece’s privatization plan is not enough – US financial press
    – Said the EU should assume responsibility for the privatizations.
    – Said Greece has to make sure that its partners do not lose patience for good, as European partners are still willing to show solidarity.

    If that’s the language that holds EU together…

    1. BRCM has sold off from $40’s to high $20’s this last couple of months.
      I just got this from a friend, former trader and silicon valley engineer.

      Brcm, qcom and many other semi’s are hugely important for the device makers. Sometimes this matters a lot and other times like this year its nearly universally ignored.

      I have a feeling 2012 might better reflect underlying market values in certain stocks and sectors. Semi’s could be an example.

      BRCM has traded very strangely since the big drop on no news from the $33-35 area. Then on good news it picked up Zero upside.

      I have been doing a lot of digging into this and other names also acting strangely — the best info. I’m finding is that there were several hedge funds blowing up late in the year and thus a fair amount of forced selling. There is no way to prove this caused BRCM’s weakness, however, the way it’s acted and other like stocks, I’m fairly certain it has been caught up in this.

      The good news is that redemption and tax loss selling is over. That said, I would not be surprised if Mr. Market tries and scares traders early in the next year before we see a possibly strong lift.

      1. Lots of support on BRCM around $26.29. see attached chart.
        Great write up today by Jeff B. Thank you and everyone who share their thoughts.
        Happy Near Year to all!
        Bear E

    1. I say the Euro needs to lose 10% from here and then we can talk. ECB will continue to lower rates and with that there will be no reason to be long. Rates were at 1.5 % this fall, but are now at 1%. I see a chance for ZIRP in the EU in 2012.

  2. This is a sectors forecast for 2012 by CS–we’ll see where the prices takes us. Happy New Year Cara Community!

    Product Marketing C. Suisse Global Product
    Heat Map 2012 – Analysts’ View of Upside/Downside Potential Across Sectors
    We present Credit Suisse US Equity analysts’ view on 2012 using Heat Maps.
    The Heat Maps are based on the 12 month target price on 808 stocks under our coverage universe with total market capitalization of $10 trillion. We aggregate growth expectations for 11 sectors and 67 industries using market cap weights. On an aggregate basis, our analysts expect the market to be up 19.0% in 2012. Markets will be led higher by materials, energy and financials. Services and consumer staples will be the laggards. At the industry level, the median increase in 2012 is 18.1% (healthcare technology & distribution). Our analysts are optimistic on money center banks, auto & auto parts and oil & gas equipment & services.

  3. February/March puts on dogs as AEM, NG, etc. Stop @HUI>520. No big bet, since I am aware that I could lose a significant portion of what I paid. I do not mind being wrong on this one.

    Chart of HUI simply stinks. Attached GLD/GDX ratio is getting quite interesting.

  4. I wanted to comment on a few of the mining stocks that I follow and would be interested in anyone else thoughts also on these.

    KGC – CEO Tye Burt seems to be disliked in the mining industry and by company shareholders as he is considered to be more of an empire builder than really focusing on return to shareholders. That said, I think the resources he has assembled are really impressive and the poor performance of the stock over the last 12 months is starting to make this a compelling value. They have approx 2.8M oz of gold production right now and projected to have 4.5-5M oz gold production by 2014-2015 if they can continue to deliver on their plan. This with a stock that has a market cap of around $12B. If miners sell off continues you may even be able to get this in the $8-9 range which would put market cap at around $10B.

    SVM – The fraud allegations and silver slump has driven this one down, but I like how the company has responded professionally and is taking steps to enhance its image. The recent announcement about the 43-101 studies is I think great news. Company has some of the lowest cash costs in the industry thanks to the other byproducts that it sells off. Production of over 5Moz silver annually and could be closer to 10Moz within the next five years if they successfully bring some of their new projects online. Market cap is only about $1B.

    UXG – I have looked closely at the future McEwen Mining because of the interest on the site and the top quality management. One thing that is a potential negative for me and I have not heard discussed here much is the potential after MAI acquisition valuation of the company. UXG has 140M shares outstanding and MAI has 282M shares outstanding. At the exchange price of 1 MAI share for 0.45 shares of UXG, you could be looking at a share count of around 260M shares outstanding. At a current UXG price of $3.30 that gives a projected market cap of $850M. That valuation is too high for me when there is so much blue sky they still need to deliver on. I think I could buy at around $1-2 per share and feel I was getting a really good value. My plan is to wait on this one till the merger goes through and watch how it trades for a while as the new MUX. For me this is one of those stocks where you are betting on the horse and McEwen’s track record and huge insider ownership position are major positives.

    JAG – I have had this one for a while and I welcomed the buy-out announcement when it came. Still it doesn’t look like the board of directors is going to be able to capture anywhere close to the value of the underlying resources and have boxed themselves into a corner. If we could get a buyout anywhere around $10 I would be extremely happy.

  5. If I was to summarize the Fed speak of the last three months, I would say they have promised to expand their balance sheets to benefit the banks as needed. If I was to interpret the coordinated actions of the ECB, China’s central bank, and the Fed a few weeks ago, it would be, “We are all willing to coordinate our muscle to provide what the banks need.” Am I missing something here?
    So, The European soveriegn debt problems, the US cities and pension fund time bombs, and other financial risks that loom large, appear to be another set of financial obligations that, if and when they becomes the “story of the season”, could ultimately be addressed (not solved mind you) by the Central Banks of the world, correct? I know these issues are complicated and umemployment is high, a recession is always a potential, but what am I missing? It seems simple, the central banks will fight tooth and nail to inflate, kick the can, and whatever else they can to keep the boats afloat. Can the do it is my question?

    1. if you want to understand how the West cut its debts during the last great bout of deleveraging, namely after the Second World War, then do not just focus on austerity or growth; instead, the crucial issue is that during that period, the state engineered a situation where the yields on government bonds were kept slightly below the prevailing rate of inflation for many years. This gap was not vast.

      But since asset managers and banks continued to buy those bonds at unfavourable prices, this implicit, subtle subsidy from investors helped the government to cut its debt pile over several years. Indeed, Reinhart and Sbrancia calculate that such “repression” accounted for half of the post-Second World War fiscal adjustment in the US and UK, due to the magic of compounding.

      …the political incentives to flirt with this concept are clear. After all, the beauty of a stealth subsidy is precisely that: It is too subtle for most voters to understand. It is also arguably a more equitable form of burden sharing, and thus less politically divisive, than, say, state spending cuts.

      Moreover, governments do not necessarily need to be “repressive” to achieve the “repression” trick. As the economist Alan Taylor observes, if investors are so terrified that they cannot see alternative investment choices, they may end up buying government bonds by default — even at unattractive prices. Indeed, that is arguably what is already occurring today in the Treasuries market, or the world of JGBs. And, perhaps, in the eurozone too. After all, when eurozone banks were given E442 billion of ECB money two years ago, they used half of this to buy government bonds — without compulsion at all.

      I wonder how much of the Western world’s obligations could be cleaned up with 20 years of this financial ‘repression’? Seems they know what they’re doing. Whether we might be agreed to their practice has probably not troubled them too much.

      If you look at 30 year futures in the weekly time frame it looks like an ascending triangle setup. The masses going to give government further cheap funding in 2012 to the detriment of their own financial health?

        1. Kaimu,

          RE: Your assertion:

          “Its a sad day when the 10yr and 30yr bonds are in the top ten performers for the year when those investments do nothing but indebt us and our kids further and further and produce nothing but the funds necessary for a corrupt government to malinvest into more corruption…”

          Certainly indebtedness is the bain of the overly indebted. Who put our kids there? Who believed they could afford $100,000 in college loans or buy a $300,000 home on a $2,000 per month income? Who signed the promissory note they didn’t even read that stated the terms of the mortgage? Denial by choice is not victimization. It is not the easy money or the banks that provide the funds that put them into debt. The choices were theirs: to be responsible and informed or not.

          You could make that statment above about Big Oil, Big Insurance or Big Pharma – but it’s only half true. The other half is that we bring these calamities upon ourselves.

          Insurance companies responded to market demand for extending life and easing pain. If you have bought into an insurance based system to pay for your drugs or therapies – you are now funding Big Pharma. Are they pushing their expensive chemistry upon a populace in denial of other choices? Are those same companies creating unhealthy processed GMO foods that contribute to the cycle of ill health? Are we propping up depressed people with chemicals that destroy their livers – so they can consume more ‘health care’?

          We always have a choice. We may choose healthy diets or therapy or what the heck – dying a natural death if we are not fit for survival. To blame the institution that provides a means of extending credit or ease from pain is pointing in the wrong directon.

          Only by our own choices – in this moment – we may become happier, healthier and more prosperous. Able to contribute to communities like these. And for that I am very grateful.

  6. a lot of motion but ended up at similar place.

    Jan 3, 2011

    Open 1257.62
    High 1276.17
    Low 1257.62
    Close 1271.89
    Vol 3.6B

    Open 2676.65
    High 2704.34
    Low 2691.52
    Close 2691.52
    Vol 1.9B

    1. Remembering the old saying:

      As go the first 5 days
      So goes the month of January
      As goes January, so goes the year

      5D 2007: – Jan 2007: + Year 2007: +
      5D 2008: – Jan 2008: – Year 2008: –
      5D 2009: + Jan 2009: – Year 2009: +
      5D 2010: + Jan 2010: – Year 2010: +
      5D 2011: + Jan 2011: + Year 2011: – (-0.04 S&P points, DJI +5.5%)

      I hope I got the data right. I used S&P 500, which is my preference.

      EDIT: including first day of the year

      1D 2007: -1.67; -0.12%
      1D 2008: -21.20; -1.44%
      1D 2009: +28.55; +3.16%
      1D 2010: +17.89; +1.60%
      1D 2011: +14.25; +1.13%

  7. From Finviz- Futures – Performance _ YTD

    30 yr Bond 18.4%
    Heating Oil 15.5%
    Gold 10.1%
    10 Year Note 8.9%
    Crude Oil 8.3%
    JPY 5.6%
    Nasdaq 100 2.7%
    USD 1.7%
    S & P 500 0.0%
    AUD 0.0%
    CAD -2.5%
    EUR -3.1%
    Russell 2000 -5.4%
    Silver -10.6%
    Platinum -21.3%
    Copper -22.9%
    Nat Gas -32.6%

    And two PM miner ETF’s GDX down 16.46%; GDXJ down 37.12% for the year.

    Happy New Year

      1. I brought up this very same analogy a couple of months ago at the peak in early November, when I successfully shorted the tradable top.

        After saying this, I don’t think 2012 will play like 2008. The retail investor stock allocation now is much lower and bond allocation much higher now compared to early 2008. The markets priced in inflation back then in early 2008 only to discover deflation at the end of 2008. Seems to me that the markets priced in at least some deflation now. Easy to see on the TIP:TLT chart or even on GDX:GLD. The only exception is oil.

        To be honest, I have no clue where the equities will go in 2012. What I do know, most retail investors gave up on PM and miners and I don’t see much more selling from here. All available sentiment measures show the same. This contrarian approach is my investing theme for 2012.

        Happy New Year to all!


          A couple of quick and easily read analysis on a number of markets by Armstrong, indicating gold is in neutral territory.

          Note that if gold had been sufficiently bearish into the close of year (it was not) then he suggested an extended cycle for the real run in gold sometime between 2015 – 2020.

          These sort of time frames are music to my ears as I accumulate without leverage and pay down taxes at the same time. A family picture of the same stagflation case Armstrong makes at the national level.

          Happy am I to continue this process without listening to too much Armageddon talk, from either the major media circus or the monetary/gold crazies. As we recently distilled from a number of sources, there’s likely much more going on in this decade than the simple binary that has been presented to us.

          Once a variety of assets according to the Faber 25% plan are accumulated and debt paid down, I will breathe a little easier and once my boy is a little more attuned to the needs of schooling and homework (the difference in attitudes to schooling between brother and sister are incredible) then gladly will I return to trade happy hour with Vad and Co.

          Through these ongoing discussions together do I feel more comfortable about our future. There is much to be resolved, but there is no need to be hooked to the emotional roller coaster ride being fed us by every huckster with a hand in the game, including the politicians.

          Life goes on, so make it a good one with those that are important. See ya’s next week for what is likely an interesting opening to the year. cheers.

          ps. gold made 10% this year. Regardless of the volatility you’ve gotta respect the returns from a buy and hold perspective. And if you’ve managed to avoid its siren song call, I’d guess that it’s as good a time as any to accumulate here, especially before Washington gets medi-evil with gold’s a$$ and locks down the market in the ‘national interest’.

          1. ALOHA!!

            Les-Can you get a 5 and 10 year POG chart denominated in Yen so we can see if gold was worth holding in one of the most long term deflationary countries on the planet?

            Japan is rated as the 11th most expensive country to live in according to the Cost of Living Index. So far the only asset price charts that I have seen that show the most “deflation” is some sort of “asset” that is denominated(secured) by debt … Like say US real estate for instance.

            I do not own debt and I do not buy other people’s debt(OPD). I used to have US savings bonds in 2001 but I traded them in for gold.

            If Ben Bernanke were the surgeon general he’d be telling you that smoking is good for you!

          2. ALOHA!!

            Les-Thanks …

            Whenever I want fast “go to” charts on currency based POG I go to Kitco and scroll to the very bottom in the currency box and then click on the YEN and it shows me the price of gold in Yen intraday all the way to 10 years.

            On the ten year chart it shows the POG in Yen at $48,000Y in Jan 2002 and on Friday, Dec 2011, the POG in Yen closed at almost $121,000Y. That is near a 230% gain since 2002, which says what? That gold does not perform well in a deflationary environment?


            To copy and paste that quick chart is a bitch since it always defaults back to the intraday. HEY KITCO FIX IT! Not sure why it does that, but you can click on the 10YEAR tab and see for yourself.

            So what does that tell you about gold? Did that 230% gain over a ten year period of world renown deflation say that inflation was coming? That deflation is here to stay? Or was there ever really Great Depression type price deflation and unemployment in Japan? Was there a lot of government debt accumulation in Japan in those years? Or does it harken back to the old 1960’s 007 movie GoldFinger where the Colonel explains to Bond that gold is a “talisman of fear”. What fear? I think it is the fear of corrupted money and politics and all that goes with that, which we can all see so clearly today is not working for the enrichment of the masses. It used to be that the world was a gold backed currency, not debt. When the USA was downgraded a notch by the S&P what was gold’s rating downgraded to? When Greece’s 10yr bond jumped to 16%+ why didn’t that resolve their debt issues? When people in Germany in 1923 during the Weimar were losing everything they ever owned they could have gotten on a boat or a plane and gone to America or many other countries and preserved that wealth. Now you cannot get on a boat or a plane to preserve your wealth anywhere. You see the destructive forces of debt in every country. Not even Switzerland is the same fiscal safe harbor it once was, not with an external per capita debt exceeding the annual per capita income of its citizens. What Swiss citizen voted for that? Heck what American citizen voted for our per capita debt? I did not see that on the ballot box! It has been a slow insidious perversion of representation brought on by corrupt monetary values adopted by the political and banking elite over many decades, starting in 1971 with Nixon then moving globally to the 1973 intervention of the Smithsonian Agreement. These 1970s “monetary accords” were the design of private banking cartels who foisted their rules on the global citizenry like Stalin did on Russia from 1941 to 1953. We now have been forced to live by these antiquated, draconian and ruinous monetary policies for nearly 40 years. I think we as the global masses deserve better and I am highly confident that in this modern era of high tech communications and media we can educate ourselves enough to make demands on those at the top to either make real changes or suffer the consequences. So far the elite political and banking class have opted for the “suffer the consequences” choice. I really do believe they see themselves as immune, but I think they are making a serious mistake and that they are forcing some long term repercussions on the World that we have not seen since WW2. I am not talking about a conventional military World War here, but it would have the same destructive effects on society as we now know it. These are highly dangerous people who now sit in political office around the World. Where’s Gandhi when you need him?

            HAPPY NEW YEAR TO ALL …
            Hau’oli Makahiki Hou


            Like one of my favorite flower customers(Walter you know who you are)here at the nursery always tells me, “Carry on bravely!” Indeed …

          3. Kaimu –

            Great point regarding deflation and gold in Yen. Of course I’d like to see all 20 years of deflation in Japan to if the first 10 years worked out as well as the second 10 years, especially since we’re on year #2, not year #11 in our own deflationary period. But certainly during the second 10 year stretch gold looks pretty good.

            As far as the US population voting for our debt, we most definitely DID choose our private debt – which far exceeds our public debt. As Steve Keen shows in the article below, private debt to GDP climbed to 300%, which we got into all on our own, no help from politicians there.


            However, in defense of the US population, we’ve been educated to take on debt. Savings were destroyed during the 1970s by inflation, and so the public was trained to take on debt rather than save. Buying property with as much debt as possible was the only way for the little guy to stay even with inflation. So maybe it does go back to sound money after all.

            You can see in Keen’s “figure 1” chart it was 1985 when the combined debt really started to ramp. Can we blame Nixon for that? Or was it something Reagan did? I don’t know what it would be, but I’ll pick 1982 as the year when things started to go out of control. See “figure 3” (debt/GDP by sector) to really be able to point the finger. All debt started climbing in 1982, but it was financial industry debt that really started to ramp up in 1985 and it never corrected down. Financial + Household sectors accelerated things in the 2000s. Government debt creation after 2008 was clearly used to counter deflation from all the other sectors.

            For us to get back to “normal” debt levels (let’s call pre 1985 “normal”) we’ll need to drop 75% of the current financial market debt, 50% of the household debt, 33% of the business debt, and another 33% of the government debt. How is that going to happen?

            Either inflate, or mass bankruptcy. In the 30s, they did both – a 45% inflation in 1933, and a ton of debt defaults.

            But how to inflate, when the standard inflation mechanism that our current monetary system requires increasing net debt using a willing borrower who is currently deleveraging? And we’re not on the gold standard anymore, so we can’t simply change the peg overnight the way we did before.

            That’s the conundrum. To seriously cause enough inflation to get net debt down far enough, we’d need to double nominal GDP from what it is today. That would mean 100% inflation. But how to do it? So far, Bernanke’s printing operation combined with government stimulus has only made a modest down payment – and he’s picked up 20% of the outstanding public debt to do it.

            Bernanke could buy another 15 trillion in public and private debt. That might do it. (And that would be incredibly bullish for gold, of course). I certainly think he has the will and the desire, but does he have the political maneuvering room to make it happen?

            Tea Party politics may limit that room. If he inflates using his current mechanism, it will result in commodity prices immediately screaming higher, while everything else will follow (including wages, if they do actually go up given our unemployment rate) with a substantial lag. Oil at $250/barrel – or higher – will not treat the economy very kindly. And given our recent experiences with printing – only 20% of GDP – it is entirely possible that wages will remain stagnant while commodity prices double. That would absolutely crush normal people, while owners of commodities would receive a windfall. Of course the dollar would be smashed as well. USDX down around 40, a sobering thought.

            I think this would be a bonanza for the top 1%, while the rest would end up with a halved living standard.

            Politically people are aware of the link between money printing and their personal cost of living. Both Occupy AND Tea Party are against it, and they’re pretty militant groups. Will they allow Bernanke to throw them under the bus to the tune of a 15 trillion dollar printing campaign? They’re already upset with 2 trillion, and they’ve seen no improvement in wages at all. With oil at $100, it really doesn’t leave him enough room.

            As for government stimulus, I see the same bond market forces that are enforcing austerity in europe coming to our shores here in a year or two. The USG won’t be able to borrow and spend forever.

            As a result, I see longer term forces working against both money printing and continued government borrowing. Whats left is bankruptcy and debt paydown. We’ve already started down that path, but if the 30s is any guide, we have another 12 years left before its all said and done.

            My question is, how will gold do in that environment? Will it act as a commodity? Japan didn’t endure any bankruptcy wave, they were able to engage in 20 years of government stimulus, all the while maintaining their export surplus. I don’t believe we’ll have that same luxury.

            How does this all affect gold? I don’t think we can be complacent and simply assume it will rise because it has done so for the past 10 years.

            But we can’t ignore government action. Perhaps they’ll try money printing in tandem with capital controls, seizures (IRAs? Pensions? Gold?), nationalizations, commodity price controls, and windfall profits taxes to show the public they are “doing something.”

            A portable store of wealth independent of the government is very useful during such times. That brings up Armstrong. Is he right – is gold is a hedge against government repression? How will that make itself felt in prices?

            Seems like bullion in hand wins out over miners and oil wells. But if Bernanke can’t print – what then?

            So many cross currents. My 8 ball keeps saying “Reply hazy, try again.”

          4. Damn Dave, valid question on Japan’s 20 years and it doesn’t stack up so well. Take a look at the attached chart. Still, the 20 year deflation period for Japan hasn’t been that bad. You can see the first ten years shaking out the majority before the bull market began again. What was the peak in 1980 about? Was that Hunt Bros. mischief or the period leading up to Volcker’s 20% rate hike? Or maybe just too much hot money flowing through Japanese markets at the time? Not sure what to make of it.


          5. So – we turn again to Japan. They’re really the only recent example of a credit bubble pop followed by deflation under a fiat monetary system.

            I’m thinking Japan had 20 years of mild deflation because they engaged in government stimulus and debt monetization every year to try and make up for the private sector deleveraging. I can’t find any charts to back this up, but their debt moving from about 70% of GDP in 1990 to 225% of GDP today says their deficit ran about 7% of GDP each year – for 20 years!!

            Japan didn’t have that wave of bankruptcies we did during the 30s. They maintained full employment, still had an export economy, and can still finance their public debt internally. I’m in agreement with folks who say things will likely play out here differently, because conditions are not as good here.

            In addition, Japan was buoyed by a worldwide debt boom – they were actually able to export a good chunk of their way out of it because everyone else in the world was increasing their debt levels at the same time Japan was deflating. Now everyone will be deflating in unison. Who will we be exporting to? All the other deflating countries?

            Furthermore, I think Japan hasn’t avoided the problem. They’ll go bankrupt too, just at the sovereign level, not the private level.

            So in response to these differences do we placidly utter the comforting words “got gold?” and ignore the possibility that deflation from our worldwide credit bubble pop will drag down the price of everything other than cash?

            I think it all boils down to the ability of Bernanke to print. Certainly the Fed CAN do it, and Ben most definitely has the WILL to do it, but if he goes too far, he risks a backlash from an already annoyed public who see bankers receiving 7 trillion from the Fed at the same time they see prices of everything they need to live go up. And this from only a 20% money printing op.

            He might well find his printing press taken away by an irate Tea Party paying $150 for oil and $2000 for gold, encouraged by Ron Paul.

            Ron Paul might be the worst thing for gold ever. Imagine him cutting spending, vetoing stimulus, eschewing bailouts, and forbidding money printing – in essence embracing deflation wholesale. Think that’s positive for gold? Think again. Oh the irony.

            Regardless, I think we have one or two more good money printing ops left before this theory of mine is tested. This is a long term view. In the meantime though, we’ll have to suffer through some gentle deflation – only gentle because of the borrow and spending of the USG. If you don’t believe me, believe Armstrong!

          6. ALOHA!!

            “So – we turn again to Japan. They’re really the only recent example of a credit bubble pop followed by deflation under a fiat monetary system.”

            Dave-When I hear people throwing out ideas about how gold performs under deflationary events I search around for “actual” real time examples instead of mythical charts and formulas or jumping on the band wagon of the correction dujour.

            Hey, Japan works for the deflationists to prove all things “deflation”! I only refer to Japan since it is one of the only major economies to experience long term low rates and a collapse of asset prices at the same time. The USA is relatively new to zero rates and collapsing asset prices in comparison. Now we have sliced and diced the inflation vs deflation debate down to “mild deflation”. Hummm, how about “milder mild deflation” or “greater mild deflation”. When will those enter the inflation vs deflation debate lexicon?

            Still as I have been saying for a very long time I do not care about deflation or inflation as those are economic price values. What good is low prices if the US government defaults? Which it did in the 1930s. Or for that matter any government backed currency. Currency debasement and default happens in both deflation and inflation as you know since you have lived in Asia. Who was debating inflation vs deflation in Argentina except the Argentinian bond holders? Now that debt is currency where can you go to defend against constant debt downgrades? Constant unstable fraudulent sovereign debt and derivative counterparties? Did I not hear you say that you or someone you knew had a MF Global account? Who knew they were going under except management? Further who knew that the rule of law would be obfuscated during bankruptcy except JP Morgan? So much complacency still exists even after we saw the massive counterparty collapse in 2008. And of course there still is no improvement in transparency, so one has to assume the rule of law is up for grabs even in bankruptcy, segregated accounts or not! In a “real” Great Depression event the rule of law means nothing. We saw what FDR thought of personal property rights did we not? Sorry to say we were the only country in the World who threw away property rights except Nazi Germany! Not the company the Founding Fathers intended.

            If you agree there is no true market transparency and the finances of sovereigns and market exchange dealers are susceptible to fraud then we can move on to the gold markets. Lately the negative lease rates to support liquidity has made me wonder about rehypothecation of the basis for gold leasing and swapping. If the Shadow Banking System has no problem reusing equity collateral many times over then why not reuse gold collateral many times over? There is no transparency at the central bank level or the sovereign level, especially in the USA. When it comes to the private member banks of the US FED squandering the wealth of the USA in order to save their monopolistic monetary power I do not rule out any such fraud. Where do I find real time data on the US Treasury gold reserves at various locations around the USA? The same for the US FED stored gold in NYC and various other locations? I won’t even go down the COMEX route …

            Like I have said before in SOUND MONEY we are in uncharted monetary territory historically. When I see the USD rally based on the “lesser evil” concept triggered by a potential collapse of the Euro it does not give me comfort in the USD, but rather it makes me wonder if the USD is next! What was the high of the latest USD rally? I know what the US Treasury is capable of in terms of monetary injections. Not too many places do you see a $238BIL monetary injection in one routine day! Never mind a $700BIL one under extraordinary circumstances of highly imminent total financial collapse! Now over the past 30 years the USD has rallied off the 80 support level because of stronger economic fundamentals at times when US debt has been less than half of what it is now and there was no global debt contagion to consider. This time is different because the USD is not rallying off the 80 multi-decade support levels, it is rallying off all time multi-decade lows with a collapsing EU economy in support. Can you honestly say that you prefer to focus more on the inflation vs deflation debate rather than currency annihilation? That is like being on the Titanic and debating which end of the ship goes down first! Does the bow inflate first then deflate and sink or does the stern inflate first?

            Even though I may be seen as a “gold bug” here I am actually not as highly invested in gold or gold stocks as some may think. It is foolish to rely on a limited wealth base. I am and have been way before I ever knew who Marc Faber was been in real estate, oil, art and at one time even in US Debt. I was buying Hawaii real estate in 1998 at its lows and if I had the support of my business network and/or family I would now be part owner of 330,000 acres of oceanfront property in Western Australia at the price of $2.91USD per acre. Not quite the $1USD per acre that Art Linkletter was buying Australian real estate at in the 1960s but good enough for 1998! Proof that you can be at the right place and at the right time and still not win!

            In simple terms skip the inflation vs deflation debate and consider the end game being currency debasement to $0! That seems to be every major global central banks goal since central banks were legal! Don’t believe me just go out and try to buy a gallon of gasoline for a dime(the price of gas in 1930). It is curious that as the power of central banks and their accomplice governments rise the purchasing power of the currency descends. And at no time since 1913 has that debasement accelerated faster than post 1971. A coincidence, I think not …

            If we ever were to see “real” Great Depression deflation again then the prudent question would not be whether to own gold or not, but to not be in debt, because chances are unemployment levels would only rise from here not descend. Major banks and corporations would collapse and so would the economy. A bank and market holiday would ensue. The people who lost the most in the Great Depression were the ones in debt, just like the ones in 2008. One thing you can be guaranteed of is that whatever President is in office at the time of the next Great Depression will not write an FDR style executive order to confiscate every US citizen’s savings bond and treasury notes or their bond based ETFs.

            Your Ron Paul remarks mean what exactly? That staying on a sure path to default and currency collapse is better than what? Not owning gold or owning it? Did you applaud the Katrina disaster too? That could be called “regional deflation” …

            More food for thought to add into the whole debatism mentality …

          7. davefairtex –

            “Great point [kaimu] regarding deflation and gold in Yen. Of course I’d like to see all 20 years of deflation in Japan to if the first 10 years worked out as well as the second 10 years, especially since we’re on year #2, not year #11 in our own deflationary period. But certainly during the second 10 year stretch gold looks pretty good.”

            Price of gold in Japanese Yen since 1970: 11th chart down under ‘Foreign Forex Gold’


            Kaimu’s point holds water.

            Got gold?!

          8. Dave

            It’s a tough comparison with deflationary Japan as most of their debt is internally financed, the Yen has grown stronger, they’ve had nearly full employment and the country had trade surpluses until recent.

            We find none of those elements in the current US economy.

            I believe deflation in America will paint a much different picture than in Japan.

  8. No, not the day after Christmas when the Lords of the manor and their Ladies boxed up some leftovers from their Christmas feasts together with bits of money and maybe a few unwanted gifts to give to their serving staffs as thanks for working on the most Holy of our Christian holidays.

    This boxing day was a prizefight in 1896 between Bob Fitzsimmons and Peter Maher to decide the heavy weight championship in America. It’s a light hearted tale and has no investment themes but rather perhaps only a lesson about changing social mores over the generations, how they have cycled and how a U.S. congress was ‘bought’ over a hundred years ago. I’m lifting parts of an article from the most recent ‘Texas Farmer’s Electric Co-op’ magazine.’

    America in the late 19th century had reached a point of anguish over society’s violent and lascivious elements, and boxing was at the forefront of the social critics’ agenda, right along with women riding bicycles and the evils of Demon Rum. Most states had outlawed prizefighting but not Texas. If the fight was going to take place, it would be in Texas.

    The trouble began when the promoter, Dan Stuart announced that the fight would take place in Dallas. Gov. Charles Culberson responded to the news by calling a special session of the legistlature that made it illegal to swap punches for money anywhere in the state.

    A group of businessmen from El Paso, who either didn’t know or care about the new law against prizefighting offered Stuart a bonus of $6,000 to stage the fight in their town. Texas Rangers from Ysleta showed up to monitor the situation and enforce the law.

    A group calling themselves the Ministers’ Union of El Paso took its criticisms of prizefighting as inherently brutal all the way to the U.S. congress, which quickly enacted a federal law against any ‘pugilistic’ encounter between man and man or fight between man and bull or any other animal for money or other things of value, or for any championship in any of the territories of the United States. Mexico did the same.

    While the drama played out in El Paso, Judge Roy Bean, the fabled Law West of the Pecos, kept up with the proceedings from Langtry, where he minded his Jersey Lilly saloon and dispensed his own peculiar brand of justice. Bean sent a telegram to Stuart and offered his town as a site if he so desired. Stuart so desired.

    When a Southern Pacific train pulled into Langtry with its cargo of sportswriters, fight fans and gamblers on February 21, 1896, Bean was calmly taking in the scene from the front porch of the Jersey Lilly. He had constructed a ring on a sandbar at the bottom of Rio Grande Canyon, just across the river in the state of Coahuila, Mexico. It was physically inaccessable from Mexico and legally removed from U.S. juristiction. Bat Masterson, that aging lawman was the master of cermonies.

    ‘Ruby’ Bob Fitzsimmons knocked out Maher at 2 minutes in the first round.

    There was a whole lot of money spent and a great deal of activity used on both sides for and against this 2 odd minute athletic spectacle. Using current BLS norms, it was probably greatly additive to the then GDP as a measure of ‘activity.’

    1. Les,

      I don’t think COT will go long silver. They are always short as far as I can see on long term COT charts (since 2000). Now they have the LOWEST short position since 2001, exceeding the positions in the end of 2008. This is one of the reasons that makes me bullish on silver and PM.

      The attached chart is a bit dated (mid Oct 11), now silver COT is at -14,132.

      1. aah but why stay short JB, when after terrorizing and pillaging leveraged accounts so profitably one can begin the next period of accumulation and uptrend. If I was a deep pocketed, Fed supported, short player until now, I’d now switch to a long position, adding leverage as one begins the marked uptrend that sucks in the sheeple once again for distribution. Could take a year or three to get going. Who knows how they’ll play it, but the COT graph will reveal all as it happens.

    1. Can someone explain how markets would react to Ron Paul? He sounds great on paper (president Hoover did so too back then), I’m not sure of any unintended consequences.

      1. jack black, BOB 47,

        While I like Ron Paul’s candor and his long held beliefs, I suspect initially his getting elected would be tough on the markets.

        Those who have been benefitting by bailouts, bonuses and the D.C. buddy system, all stand to lose almost immediately. I say this not because I believe he can change things right away, but because I think he would be an active opponent of the status quo. HB&B would need to have Congress override a lot of vetoes, IMO.

        Also, I think the bulk of market activity has swung to fund managers as individuals have switched more toward bonds and cash. How many have dipped into 401(k) plans I can’t say, but I suspect even those remaining have been getting lower contributions.

        I favor Ron Paul, but think Romney has the blessing of the GOP and the oligarchy would be happy with either him or Obama. The biggest Obama campaign contributor last time was GS. I see Romney as one of the “In Crowd” and would expect the stock market to do well with him or Obama in the short term.

        Longer term (years) Paul would, I think, restore confidence in the US. If nothing else, just eliminating all the temporary tinkering would give business a firmer footing for decision making. Two month withholding tax elimination is among the stupidest I can think of. If I were still in business I’d be livid. Hey, I’m not, but I’m still livid!

        We have been so long without leadership in the WH and Congress, so long with inept monetary and fiscal policy, that we hardly remember what the real world is all about.

        Unfortunately, I don’t think Paul will get the nomination and if he runs as an independent he will give Obama a better chance of another term.


  9. I knew that headline would get some attention. I just got back from my usual brunch spot and the NY Times has a piece on the “Golden cross.”

    Well that prompted me to look at the charts myself. them touting a golden cross is pretty irresponsible without having talked about the recent death cross as well and only painting the picture of one side of the equation.

    In the past 20 yrs, on the SPX, when the death cross could not regain footing above the 200 day moving avg, there has been 100% incidence of drop in prices for a few months. as well as a 100% incidence of rising prices once the 50 can quickly regain footing above the 200 day.

    I have annotated on the chart the number of times the death cross recovered for a sustained period of rallying prices.

    One characteristic that is synonmous of the current death cross to the past two that started a bear market, was the 200 day moving avg was declining. If you look at the ones where it recovered, each had a rising 200 day ma. So if the markets were to recover for Q1, we would have to have a new event; a death cross that recovers with a golden cross, despite a falling 200 ma.

    prices will soon tell us which direction to vote with our money.

    EDIT: the 1994-95 was the outlier. we would need another 1995. The key is to be ready for both scenarios. Not to convince yourself which will happen prior to it happening.

    1. ALOHA!!

      NYUGrad – Good call there. Based on the prior two corrections you have listed 741.02 as a possible area of interest on a third correction.

      Go post that in the reply comments at the NY Times! Sometimes I even send a reply to the author directly since they usually post their email address. That is how I got to know John B Taylor over at Stanford Economics. You never know where your QUESTION AUTHORITY emails will end up! Heck, if you do it enough you may even get a private audience with his Majesty, Sir Timothy Geithner, at the Square Office!

      1. Nah. I have learned the value in anonymity. If i could choose, some day i would like to be a great trader that no one ever knew about.

        If anything i should thank NYT for forcing my hand to look at the charts again to compare my own findings with theirs.

        1. Here you go for the dow industrials. I dont look at this as much as IBM, MCD made up quite a bit of the 5% gain for the yr.

          More importantly Nasdaq:

          Yes I realize moving averages are lagging indicators. but when you apply longer time frames, they are also great big picture signals. And a 200 day ma cannot be easily manipulated to go another direction on a dime.

          For a rally to take hold in either Nasdaq or S&P, we will need a 1995 like burst in new money. the money is there in cash at banks and at companies. i then beg the question, why dont they buy hand over fist right now?

          Be ready for both scenarios. a rise in prices for few months or a reversal.

          January might define the entire yr.

  10. While Ben ‘Swapper’ Bernanke has been busy swapping old US bonds for new and swapping dollars for Euro with the ECB, the EU was busy trying to figure out how to skirt the law that prohibited them from printing money for member states.

    The loophole is then found or created and ECB provides $600B Euros to private banks at one percent for 3 years. The banks could buy short term sovereign paper yielding over 7% or whatever to earn a juicy return The goal was to lower short term rates on PIIGS debt. Apparently the banks were willing to cooperate.

    The result was short term Italian rates dropped precipitously, the Italian 6mo from 6% to 3% and the 2yr fell to 4.85% from 7.8%. However the Italian 10yr did not participate and remained at 6.97%. The injection only affected short term rates.

    This is an example of how rising rates and excess debt can cause an immediate crisis. Like if US rates doubled to 7% for borrowings, the annual interest cost would be heading towards a trillion dollars. It would be the largest item in the total budget. One wonders will we have ZIRP forever, as higher rates would inflict serious damage and perhaps cause economic collapse.

    Euro Banks now have liquidity to rollover existing obligations coming due shortly. And existing bondholders of short term debt recouped some of their losses. Can successfully kicked down the road. Mission accomplished. Crisis adverted for now. Many more may lie ahead. Monetary creation will put upward pressure on inflation in the Eurozone. Greece may come back into the forefront in the spring of 2012.

    The condition of US debt may come back into temporary focus and push the dollar lower. There will be new haggling over increasing the US debt ceiling. It’s a tough call here… A stronger Euro and a weaker dollar would be favored by China and the US. The Germans could be OK with it too? Or will the Euro falter and drop to the 1.20 area in a contagion of selling?

    The political environment in the US is about to intensify…. the term ‘helter skelter’ comes to mind. This will be the ugliest dirtiest political battles in memory. I am guessing America will become more divided than ever, as the election evolves. Divide and conquer still works. … we shall see.

    It appears 2012 will be an eventful year ….. wishing all Caraista’s good health and fortune

  11. … who have contributed here. Cheers to a great 2012!

    As Bill usually likes to list the well wishes in many languages, i will start it off in my native tongue

    “saehae bog manh-i bad-euseyo”
    ?? ? ?? ????

  12. Appear to be setting themselves up. Bearish divergences in $USD heading into January could set GDX:$GOLD for a break out from this descending triangle as the miners once again lead the metal. POG looks like it’ll stabilise and the big picture silver:gold chart suggests the potential for risk on for the first time since the silver sell off in April.

    I would suggest that primary importance is the understanding that Central Banks are expanding their balance sheets again. This is something I’d like to be more in tune with in future.

    As always we shall see.

  13. UXG closed 2010 at 8.07
    UXG closed 2011 at 3.36
    loss of 4.71 per share in 2011 = 58% loss while
    gold was up 10% in 2011.
    UXG under performed gold

    UXG chart still looks really ugly to me. Bear E

  14. I’m skipping town for a couple of days break. There are some PMI manufacturing numbers being released in Europe tomorrow and Wednesday. If anyone should think to post them, much obliged.

    The calender has a tendency to auto update, so for you yanks who get up when the day is almost over for the rest of us, you might need to use the filter at the top of page in order to retrieve data released in morning European trading.


    1. excellent charts, for both the bullish and bearish camp. I suspect with central bank balance sheet expansion we might get some lift now followed by further downside in 2H2012. Either way, a great find, thanks.

  15. The WIR will be delayed a day because, well, one thing led to another. After being bed-ridden for several days, eating dried toast, the result was a tooth crown was pulled out by the toast, which in turn led to an abscessed gum because I was too weak or busy to get to a dentist. I slept for most of the day!

  16. Just in time for New Years day
    Europe at the Brink – A WSJ Documentary 12/30/2011 8:58:55 PM
    In this documentary, Wall Street Journal editors and reporters examine the origins of Europe’s debt crisis and why it spread with such ferocity to engulf much of the continent and threaten the entire world.

    Sounds like a hollywood drama preview. “Aliens invade”

    1. The USD chart looks bullish indeed. The only problem is dollar sentiments are as high as at the peaks in 2008, 2009, and 2010. This rally is running out of steam.

  17. With wages nearly flat over the last years, workers aren’t sharing in any of the large profits by multinationals.
    Let’s destroy some more of the middle class… this time in Canada.

    Caterpillar Inc. said Sunday it had locked union workers out of a train locomotive plant in London, Ontario, in a sign that the world’s largest maker of construction and mining equipment is prepared to get tough with workers despite a big recovery in earnings over the past two years.

    Caterpillar said in a statement that workers would be barred from the Electro-Motive Canada plant until “a ratified contract is in place” for the workers, represented by the Canadian Auto Workers union. The most recent contract expired at the end of 2011, and the two sides have been unable to come to terms.

    Caterpillar’s Electro-Motive Canada plant was acquired in 2010 as part of the $820 million purchase of Electro-Motive Diesel Inc., based in LaGrange, Ill.

    Union officials said Caterpillar’s latest proposal would halve wages and reduce benefits. Tim Carrie, president of the union’s local branch, said the cut would mean hourly pay of $16.50 for most workers, down from $34.

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