As of 6/16/2008, the CPI adjusted 2000 dollar is worth 77.39¢, and the CPI + lies adjusted dollar is worth 53.08¢. The world purchasing power value has dropped by 10-20% more (based on other measures of dollar value), for a drop of 45-65% (otherwise known as inflation) since 2000.
Our comments & predictions...
... as things change and develop
Same old, same old...
7/6/2008
There is little to no evidence of basic changes in existing trends on the short term. We expect to add to our various long metals positions as the week progresses, and are still watching the 10 year bond for a short although the Fed may be happy with the range of the last week or so. On the short to intermediate future term, our best guess is that real inflation will stay high to slightly decreasing. Excluding everything but energy, corn, soybeans, cattle and a few other items, key commodities are all still well below their 2008 to date peaks although there are significant indications that many have bottomed and are basing for another run to new highs.
Treacherous, choppy...
6/29/2008
A couple of new charts on the currencies page, main currencies since 2000 and main currencies since 1971. We've also brought our total Fed operations chart up to date and added some off Fed balance sheet items to it from H4.1. The short story - the Fed is in a relative holding pattern on money creation in the 8% range, which is down from 10.5% last September.
The period between now and the end of 2008 will tell the story on whether it's a rhyme to 1974-75 or 1977-78.
This week we expect gold & silver to be up as more folk realize the severity of the financial crisis in the US. Like last week, the '73-74 stock market "rhyme" track is still in place and the crash potential is not small, but a bounce would not surprise us at all. We're on the side in US stock markets. Watching again for a TBond short entry point, as well as for longs in coffee, cotton & sugar.
Update 6/30/2008 - stopped out of 1/2 our PM positions. Added a small long S&P trade for a bounce. Stopped out of half the S&P long at a loss. Very interesting move today in the 10 year, possible short tomorrow.
Europe’s Ailing Social Model: Facts & Fairy-Tales
Update 7/1/2008 - stopped out of S&P long overnight at a loss. Added to open gold & silver longs. Added back a tiny S&P short, added again to gold & silver, added small platinum long. Still waiting & watching for 10 year trend break. Nice move in sugar, we missed the entry.
Recommended: "The Dying of Money", Jens O. Parsson (Amazon link)
“Everyone loves an early inflation. The effects at the beginning of inflation are all good. There is steepened money expansion, rising government spending, increased government budget deficits, booming stock markets, and spectacular general prosperity, all in the midst of temporarily stable prices. Everyone benefits, and no one pays. That is the early part of the cycle. In the later inflation, on the other hand, the effects are all bad. The government may steadily increase the money inflation in order to stave off the latter effects, but the latter effects patiently wait. In the terminal inflation, there is faltering prosperity, tightness of money*, falling stock markets, rising taxes, still larger government deficits, and still roaring money expansion, now accompanied by soaring prices and ineffectiveness of al traditional remedies. Everyone pays and no one benefits. That is the full cycle of every inflation.”
And from another portion of the same book:
"Until 1922 and the very brink of collapse, Germans and especially foreign investors were absorbing marks in huge quantities. Only the international reputation of the Reichsmark, the faith that an economic giant like Germany could not fail, made this possible. The storage factor caused by the investors willingness to save marks kept the marks from being dumped immediately into the markets, and thereby for a long while held prices in check. The precise moment when the inflation turned sharply upward, toward its vertical climb, was undoubtedly timed by no event, but by the dawning psychological awareness of the German and foreign investor that Germany was not going to back its money. With that, the rush to get out of the mark was on. Like a damn bursting, the seas of marks flooded into the markets and drove prices beyond all bounds. The German government strove mightily to outflood the sea. The sea of marks which had been stored up by Germans and especially by trusting foreigners flooded forth and fought to buy into other investments, foreign currencies, tangible goods, almost anything but marks."
Update 7/2/2008 - took 1/3 profits on all precious metals positions.
Update 7/3/2008 - 5:37 AM PT, took 1/2 profits on all precious metals positions, closed tiny S&P short at a profit.
BoJ signals...
6/22/2008
Per some Bank of Japan data we track, we expect a large up move in the Yen this week (towards 110 from the current 107 or so), and either an
up move or level in the Nikkei. We also expect continued weakness in US stock markets, especially
since options folk very unusually did not win last week. The '73-74 stock market "rhyme" track is still in place...
and the crash potential is not small. Still watching for a TBond short entry point.
Update 6/23/2008 - entered a tiny to small 10 year TBond short position. Very lightly thinking about a corn short.
Update 6/24/2008 - 7:25 AM PT, out of yen and TBond trades with an ok profit.
Alert 8:41 AM PT, we've changed our mind and now believe that we'll see a "surprise" Fed Funds rate hike tomorrow, probably 25 points.
Exited all S&P short positions and thinking about a USDX long position.
Update 6/25/2008 - a new page, comparisons on various commodities & indexes between the '70s and now.
8:48 AM PT, entered a small USDX long position.
11:21 AM PT - we were incorrect on the guess for a Fed Funds hike and have exited the USDX long position - no loss, no gain.
Update 6/26/2008 - reverse head & shoulders on silver pointing at 19.50 or so, similar one on gold pointing at $1,000.
Tiny long positions established in platinum & silver. Note that only a very few of our charts have
confirmed a PM upmove, so this is a medium to high risk trade.
Looking at longs in coffee, cotton & sugar.
Update 6/27/2008 - added to PM longs and added gold positions, expect to add more.
Choppy/reversal, quad witching...
6/15/2008
Most likely a comparatively mild (and short term trend) reversal week, due to options expiration with the quad witching enhancement. We expect that the S&P will end up slightly/mildly higher. A new small long in corn, beans, cotton or sugar is possible on reactions or slight trend breaks.
Also note that our SecLend indicator has fired twice in the last few weeks, pointing at a TBond short trade.
Update 6/16/2008 - $13.5 billion TIO operation today, but $22 billion was submitted. The interest in borrowing for possible speculation or manipulation is not strong. SSEC still below 3000. USDX still wildly gyrating in a trading range. Credit cycle has virtually assuredly peaked, probably M3 too. PM's still in down trend since March. Foodstuffs are back on a roll - partially weather, partially supply & demand, partially inflation... but overall tracking with paper bear markets and tangible hard asset markets.
Added longs in corn & beans with tight layered trailing stops (we're late in the pickup of the trend), small S&P short.
Update 6/17/2008 - stopped out of small S&P short at a loss overnight.
Update 6/18/2008 - 6:33 AM PT, back in a small S&P short.
Update 6/19/2008 - exited corn & beans longs. We sure blew it on the expected effects from quad witching.
Got the US stock market trigger...
6/8/2008
We hope that it isn't combined with a huge runup in commodities, but its too early to tell. We'll
be watching oil, ags and softs closely. We also believe we're at least 60/40 on a short term
bottom being in on precious metals, but are waiting for more indicators to turn green before going
long. We don't trade until at least 75/25.
While updating our weekly charts on Friday, we happened to notice that our Dow prediction
chart has been doing a pretty good job of mirroring the actual Dow performance (in reverse)
when the override indicator for fear is on. Odd, but we'll take it. It also seems to apply to our
gold & silver predictions, but not as reliably.
Update 6/9/2008 - $18 billion TIO submitted... $13.77 accepted. We'll be watching for attempts to force short covering.
Update 6/12/2008 - 6:09 AM PT, short covering likely, we're out of our S&P shorts temporarily. 10:37 AM PT, back in with a small position. 11:42 AM PT, added.
Update 6/13/2008 - 5:49 AM PT... crazed market, but we won't argue. Exited all but a tiny S&P short position. CPI-U came in at around 10% annualized... and there's a rally... and precious metals are barely up - sheesh... 10:15 AM PT, now today makes more sense. The total TIO auction today is almost $22 billion. We exited the last of our S&P shorts. Next week will be "interesting". 12:07 PM PT - if we close at or near the high of the day, we may establish a tiny short again. 12:48 PM PT - decided against a new short position due partially to actions of the BoJ. We'll look at it again on Sunday afternoon/evening.
About the same...
5/1/2008
Still nothing much to add from last week's comments - still short term stock market bearish and precious metals bullish, although less bullish since both the metals and oil correction.
Still holding cattle & hog longs, and will likely add this week as well as continuing to look for a good S&P 500 short entry point.
Update 6/4/2008 - exited the cattle & hog longs at a loss.
Update 6/6/2008 - shorted the S&P on the unemployment news. Lightened up near the close due to weekend uncertainities - its likely it'll be a working weekend for many at the Fed and in D.C.
Still in the zone...
5/25/2008
Nothing much to add from last week's comments - still short term stock market bearish, precious metals bullish and still possibly re-establishing a cattle and/or hog long position.
We continue to be sad about various social crises that we expect and foresee ahead for both the US and world, and fervently hope we're wrong.
Update 5/27/2008 - stopped out of 2/3 of platinum longs, lightened up half on S&P shorts. Added small cattle & hog long positions in spite of the oil price break. 11:25 AM PT - it appears that we over reacted on exiting half of the S&P short position, we're looking for a re-entry point.
Update 5/28/2008 - 6:27 AM PT, although there's definitely a good chance there's more downside, we just got today's TIO report and there's a 5 day $7 billion TIO on deck and we've exited the remainder of the S&P shorts for now at a nice profit.
Stopped out of remainder of platinum long position at an ok profit, still holding cattle & hog longs but the hog position is showing a loss.
Update 5/29/2008 - still hanging in there with cattle & hogs long position but not happy about the loss. We still think there's significant upside ahead on the short term.
Update 5/30/2008 - Don’t Blame Speculation—Commodity Prices Are Driven by Fundamentals, might come in handy as "blame the speculators" gets going even more.
FT.com - Short View
The zone...
5/18/2008
We believe that we've now entered a time period that extends until early/mid June where trends for most of the rest of the year will be established. Our best guess is that it'll be tangible assets up and most stocks (especially US stocks) down, but we're waiting for the markets to tell us. The financial crisis is far from over, and the "social crises" have barely begun... and neither are limited to the US.
Some possibly applicable charts: S&P 500 bear track, the '70s and miners (BGMI), and the '70s, Dow and gold.
A new and interesting chart has been added to the forecast page: GNP (Gross National Product), the forgotten stat
Update 5/19/2008 - our initial downside target for the dollar index is now .55.
We're still bearish US and most world stock markets, and have a small to medium open S&P short position. We're also still long platinum but have pulled the stops up tighter and will likely exit the position due to the long weekend coming up.
"The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over the counter swaps transactions. this has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity swaps, which 85-90% of them do, they face no speculative position limits.
The really shocking thing about the Swaps Loophole is that Speculators of all stripes can use it to access the futures markets. So if a hedge fund wants a $500 million position in Wheat, which is way beyond position limits, they can enter into a swap with a Wall Street bank, and then the bank buys the $500 million worth of Wheat futures."
Source
Update 5/23/2008 - we only exited 1/2 of our platinum longs, and are maintaining our medium sized S&P short positions and also dropped 1/2 of our gold & silver puts. We'll be looking at another long in cattle & hogs for next week.
Most commodities up some, stocks sideways to slightly up?...
5/11/2008
Options expiration this week. Still long platinum, cattle and hogs - will be tighening stops. Looking at longs on corn or beans.
Some new energy charts:
321 crack spread
Oil gasoline ratio
Oil & natutal gas ratio
Update 5/13/2008 - stopped out of platinum at a profit, still holding cattle and hogs.
Update 5/14/2008 - a very broad and long term opinion that we've held for a while but for whatever reason have never clearly expressed here - peak oil (as in maximum worldwide oil production) has arrived. We believe it occured in early to mid 2006.
Update 5/15/2008 - exited 3/4 of our long cattle and long hogs positions, via stops. Probable exit of the rest tomorrow.
Update 5/16/2008 - exited the rest of the long cattle and long hogs positions.
Still little change...
5/4/2008
Our current best guess for a gold bottom is the period between May 22nd and June 9th, the "ideal" date being June 5th. There are still no significant reasons to be intermediate term bullish on US stock markets in our opinion, and we're still on the side in all markets... although we've dabbled with a few very small commodity short trades. Note that rice has peaked and is down around 20% from its peak above $24.
Update 5/8/2008 - mild/medium alert - most commodities have broken their downtrends, either today or this week. Hogs are almost in parabolic mode, cattle likely to follow. Long gold, platinum, cattle, hogs and wheat.
Update 5/9/2008 - "Based on the data oil companies are required to file with the government's Energy Information Agency, from 1981 through 2006 cumulative oil industry profits totaled $1.12 trillion compared with cumulative taxes of $1.65 trillion, according to Hodge. That doesn't include foreign income taxes, which amounted to $518.9 billion over the 25-year period."
Source
Early & tentative warning - 7:51 AM PT - M3 appears like it will have a large drop this week. Stopped out of gold & wheat longs with losses.
1:36 PM PT - M3 is still at over 19% on a year over year growth basis, but the actual dollar total has dropped about $90 billion in the last two weeks. MZM has also dropped.
Not much change...
4/27/2008
We're still in the midst of a financial crisis, even though the "volume" is lower. Total repos (TOMO, TIO, TAF) are still near record high levels. The high level of the TIO pool balance has had little effect on US stock markets other than to support them.
Our Fed 'all actions' chart has been showing relative deflation, or disinflation if you prefer, since last December and it still has not changed trend.
Since their recent peaks, gold is down 14%, silver is down 20%, wheat is down 40%, copper is even, soybeans are down 16%, sugar is down 24%, cattle and hogs are down 5-18%, coffee and cotton are down 25%, stocks are down over 10%... and junior miners have been creamed and are down 15-40%. The only two things that are up significantly and have not corrected are rice and energy.
We have major stagflation. US Q1 GDP is projected to come in at .3% next week. CPI+lies is running about 11.4%. The similarities to the 1973-74 period are legion. After the FOMC meeting, we're thinking about shorting T-Bonds.
Update 4/28/2008 - very unusual item in the TIO auctions today. The 3 day auction interest rate was 1.92%... but the 6 day one that includes the period after the FOMC meeting came in at 1.6%. A surprise 75 bps rate cut on the table perhaps?
Another one for the ag area - Viterra, traded on the Toronto exchange, stockcharts.com symbol VT.TO - DYODD as always.
Update 4/29/2008 - stopped out of all long hogs & cattle positions.
Update 5/2/2008 - The beat goes on - "... the Federal Open Market Committee authorized an expansion of the collateral that can be pledged in the Federal Reserve's Schedule 2 Term Securities Lending Facility (TSLF) auctions. Primary dealers may now pledge AAA/Aaa-rated asset-backed securities, in addition to already eligible residential- and commercial-mortgage-backed securities and agency collateralized mortgage obligations"
...
"... the Federal Open Market Committee has authorized further increases in its existing temporary reciprocal currency arrangements with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $50 billion and $12 billion to the ECB and the SNB"
Source
Similar actions from the ECB and the SNB.
Intervention still present, in spades...
4/20/2008
Total repos (TOMO, TIO, TAF) are currently about $214 billion, not far off the all time record of $236.4 billion established on March 24, 2008 ($235.6 billion on April 15th comes close).
M3 annual growth rate has topped 20%, which does not look good for inflation on the intermediate and longer term.
So far, so good on the now medium to large long hog & cattle positions.
Update 4/22/2008 - big TIO operations the last two days, about a $25 billion addition... although $50 billion was available and at rates as low as 2.07% (translation - "confidence" is not high, and a support operation in under way).
Total of TOMOs, TAF & TIOs today - $243.2 billion, an all time "temp repo" record. TSLF total balance is about $170 billion. Total System Open Market Account (SOMA) balance is $543.8 billion, down from its peak of $786.1 billion in early August 2007. In other words, the Fed is not pumping hard overall... yet... and a current M3 growth rate of over 20% does not look good for inflation or stagflation in 2009-10.
Update 4/23/2008 - 9:03 AM PT tightened up stops, especially on hogs. Fourth day in a row of substantial TIOs... and without much response from US stock markets yet, although the "classic" pump starting around 3:00-3:30 EST can in no way be ruled out.
Down bias, barring intervention - still...
4/13/2008
We did add on to the tiny short on Friday with the surprise from GE, but closed the entire position in the last 30 minutes (too many surprises possible over weekends). We're still bearish on the S&P and mildly bearish on precious metals too (short term only on the metals). A close over 60.6 in the nearby (and soon expiring) hog contract will likely have us going long, and especially on a close over 61.7+.
Update 4/14/2008 - $14.5 billion 1 day TIO today, going into effect tomorrow. Bears beware, it's also options expiration week.
Update 4/15/2008 - long hogs & cattle on the breakout. Both MOO and COW doing well too, FEED catching its breath.
Down bias, barring intervention...
4/6/2008
Still watching for an S&P short entry point, but it may be a short ride - no pun intended.
Last week did indeed turn out calmer than many expected. Possible developing H&S in gold has us still on the side with puts as a hedge for our physical positions. Possible bottom in hogs last week, we're watching them closely - same with live cattle.
We've added a "fear override" indicator to most of our predictions charts on our forecast page to help show when the predictions become less valid and usable. New gold peak high price chart based on Jim Sinclair's observations on our miscellaneous page.
Also note this change to our M3 article and algorithm:
As of March 19, 2008, we have added the results of the new Fed TAF, TSLF and PDCF "tools" to M3, since they are quite similar to temporary repos (repurchase agreements). Temp repos are part of the original definition of M3.
Update 4/7/2008 - nice move underway in hogs, likely target of at least the gap starting around 62.50 in the nearby. The S&P is looking tired, tiny short position established.
Little directional clue, slight bias down for the week?...
Nikkei slightly down and dollar slightly up and S&P up slightly too, it may surprisingly be a relatively calm week. We're watching for another S&P short entry point.
Update 3/31/2008 - $9 billion 2 day TIO today, and we took the short watch off the table for now.
Another reminder too - be very cautious in using our prediction charts on the forecast page. They only basically take "hot money" into account and do not include many important factors like the derivatives mess and US or global slowdows/recessions.
We expect to be fully hedged on our physical metal holdings by the close of business tomorrow.
Update 4/4/2008 - added a chart to our miscellaneous page, showing the probable gold price peak per Jim Sinclair's formula. We've also added a "fear override" indicator to most of our predictions charts to help show when the predictions become less valid and usable.
3/23/2008
Our Fed 'all actions' chart has been showing relative deflation, or disinflation if you prefer, since last December on the thin red line (Fed actions only). The thicker blue line is Fed actions plus the actions of the Fed's Primary Dealers (GSDS), and it peaked last August.
Just last week, our M3 money supply reconstruction took a sudden drop from over 18% annual growth to a 16.6% annual growth rate. M3 normally tops during or in the close vicinity of a recessionary period, as the longer term M3 chart on our Key stats page shows.
We've also added a short term greed vs. fear chart to our forecast page to help track the general sentiment... for what its worth. Our financial crisis chart has also put in a peak as of two weeks ago.
Whether all these are showing an intermediate term temporary peak in the hard asset cycle like the '73-75 period is doubtful (gold cycle progress comparison and S&P 500, BGMI comparisons), but the probability is no longer low. High caution is urged. We're currently on the side with no active trades, although we will be watching to re-establish S&P 500 short positions.
We also note that the total number of Primary Dealers of the Fed is now down to 17, from 22 just a year or so ago. Power continues to be concentrated. Of those 17, 10 are not U.S. based institutions. 13 of the 17 are at least affiliated with banks.
Update 3/24/2008 - Another stock to add to the ag list, Agfeed Industries (symbol FEED on Nasdaq).
Update 3/28/2008 - looks like a false alarm, M3 is back up above an 18% annual growth rate. We're still mostly on the side trading wise - the markets are being nutty and whipsaws are not our favorite item.
Very good but quite long article here
on why decoupling is not likely. "According to our estimates, a 1% decline in US GDP growth will reduce eurozone by around 0.4-0.5% after one year, while considering only the trade link the effect should be close to 0.3%".
A very good one today from Kasriel too, containing some very interesting thoughts around page 5. PDF here
Zero bound...
3/16/2008
The Bear Stearns rescue is obviously a major signal that things are far from well in the credit markets (Bear Stearns Bailout Was `Finger in the Dike,' Historians Say ), although overall credit is still growing at about 9% per year.
On a broader note, we recommend a look at a Fed paper from 2004 - Monetary Policy Alternatives at the Zero Bound (pdf). It's long, but it gives a roadmap of what could easily be ahead.
Note that there is an Armstrong cycle turn on Friday the 22nd, and also that this is quad witching and a short week with the US markets being closed on Friday.
The Fed is at it again - The PDCF.
Update 3/17/2008 - just for the exercise, here are the Fibonacci points for the S&P 500 2002 low and 2007 high:
100.0.... 1576
76.4...... 1385
61.8...... 1267
50.0...... 1172
38.2...... 1077
23.6........ 959
0.0.......... 769
Update 3/18/2008 - and here are some Fib numbers for the two brackets from yesterday's exercise:
100.0.... 1385
76.4...... 1358
61.8...... 1341
50.0...... 1327
38.2...... 1313
23.6...... 1295
0.0........ 1268
Medium alert Per the Lehman Bros. CFO, the Fed's new PDCF (similar to an overnight discount window, but only for the Fed's primary dealers) accepts collateral rated BBB- ("investment grade") or better. In plain English, the backing of the US dollar is no longer just in AAA Treasuries, etc.
Update 3/19/2008 - Fibonacci on the gold move since last summer:
100.0.... 1034
76.4...... 944
61.8...... 888
50.0...... 843
38.2...... 798
23.6...... 742
0.0........ 652
Same for silver:
100.0.... 21.44
76.4...... 18.99
61.8...... 17.47
50.0...... 16.25
38.2...... 15.03
23.6...... 13.51
0.0........ 11.06
Bear track, and 2008 - the Year of the Basics...
3/9/2008
New chart showing the S&P 500 from October 2007 is tracking with the bear market from 2000-2002. Link also available on our forecast page (hat tip to jesse).
Update 3/10/2008 - major changes to our greed/fear index on the forecast page
Update 3/11/2008 - Super SecLend: Term Securities Lending Facility (TSLF), a new Fed program to help support the dicey balance sheets and solvency of major US banks. ("The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.")
If the stock market rally fades much during the last 30 minutes or so, we'll likely short it.
Update 3/14/2008 - An interesting article on food & shortages, especially the part about acreage devoted to food only having grown about .1% per year for the last decade.
Lots further to go in hard and tangible assets, and not without corrections. We'll be lightening up on our S&P shorts for the weekend, probably in the last 30 minutes.
Bearish & bullish...
3/2/2008
Bearish on the US stock market and short the S&P, still bullish on commodities in general and gold, soybeans, cattle & sugar in particular. Gold has has not gone almost vertical... yet.
Update 3/3/2008 - tightened up gold stops & made them market based instead of mental.
Update 3/4/2008 - 8:47 AM PT now I know what the sense of foreboding was all about. Exited all longs.
Update 3/7/2008 - Mild Alert - the Fed did a $10 billion POMO today, the first one since last May. $57+ billion was submitted, for what its worth. Note also that $10 billion will be pulled out of SOMA too, so this action is roughly neutral (excluding that it helps support various bankers tenuous positions and balance sheets)... but this had been the longest period that we're aware of without a POMO since 2000. Combined with the TAF announcements to move the auctions from $30 to $50 billion and the $167 billion helo drop etc., we're closer to having the Fed, etc, back to a net larger growth in money creation rate i.e., even more inflation after the varying time lags are factored in.
Errata - the POMO we reported was actually a drain, not an add. There is only one transaction, a net $10 billion drain from the SOMA (System Open Market Account) balance.
Barely off the sidelines...
2/24/2008
Exited the small S&P short position at a loss - very choppy and treacherous market. Steady as she goes on the rest and with fairly tight stops. I still can't shake the feeling of foreboding or "something", and I've learned that its unwise to ignore it... and the worst case is that some profits are missed.
Update 2/25/2008 - added significantly to long cattle position, with stepped market based stops.
Update 2/26/2008 - as of today, we're backing way off on daily comments and specific trade data and information.
Mostly sidelines...
2/17/2008
We've received a number of queries about how to profit from agricultural and other farming commodities, and without the use of leveraged futures. The primary one is of course unleveraged futures (see our futures trading page for some data and DYODD) and options (which we don't recommend but some do very well with) are another path... and few people are interested in options or futures.
But there are also stocks and ETFs (and even an indirect play on futures overall with CME, the COMEX futures exchange). A partial list of possibilities, DYODD again applying, include the symbols DBA, COW, MOO, JJG, JJA, RJA, BG and ADM. If ones account allows trading on the London Stock Exchange, check into a company called ETF Securities - they have about 13 ETFs in agricultural and meat areas. No recommendation should be assumed or implied on any of the symbols - this is simply a list of possibilities.
A long term set of data points: since the US stock market peak in 2000, the S&P 500 is down about 12%. Gold is up 217%, silver is up 232%.
Overall this week, we continue to be skittish about using much leverage and are also on alert for any possible opportuntities to short the S&P now that options expirations week is out of the way. We're also watching live cattle for a possible long.
Update 2/19/2008 - added long gold, beans and sugar positions on the obvious strength and trend breaks... with tight mental stops, and a physical stop in gold. Very close to going long live cattle. An unusually large submit/accept ratio on TOMOs today is keeping us from shorting the S&P. Quite the flag showing in the daily copper chart, 3.66 target achieved too. 9:27 AM PT, out of long gold - the risk picture is too high for our taste on the short term.
Update 2/20/2008 - added to beans & sugar positions, will probably add cattle tomorrow and be carrying some leverage again. Probable next copper target around $4.00. Large TIO operation today, probably helping to prop the US stock markets. 12:38 PM PT - Five+ of our eight internal signals have fired for a gold long position, likely entry within the next 24 hours.
Hat tip and kudos to John Williams of Shadow Stats in picking up the ball dropped by the US goverment (old link) for various stat reporting - the new link is here.
Update 2/21/2008 - Added long gold positions. We have fairly tight actual market stops on all positions due to both the risk of a large break down and whipsaw issues (banking a profit is seldom a bad idea for momentum traders).
Update 2/22/2008 - added a small cattle long with a fairly broad 1 cent stop. 11:43 AM PT - added some S&P shorts, small position.
Unease...
2/10/2008
Our feeling of unease last week seems to have been false, but we're still hesitant about using much leverage. We expect to add to our long positions in wheat, cotton, beans & corn and perhaps open another S&P short based on a mild challenge of the existing short term down trend line... and as usual, the market itself will drive our trades.
Update 2/11/2008 - 10:19 AM PT, no changes so far. Note that this is options expiration week (which we had forgotten yesterday), so our S&P shorting plans are on hold.
Update 2/12/2008 - Out of all positions at a small profit overall.
Rough weather ahead (duh) -
G7 discussed joint action if market moves irrational
Update 2/13/2008 - 6:57 AM PT, an unusually large $30 billion 1 day TIO submission today but auction results not in yet... 8:35 AM PT, and $18.5 billion was auctioned off at 2.75%. Not terribly impressive but it should be enough (along with options expiration) to support the markets this week.
Update 2/14/2008 - back in some small corn, beans & sugar long positions. Still standing aside on S&P shorts and gold or silver longs. Happy Valentine's Day and don't forget your lady.
Steady as she goes...
2/3/2008
Light positions still, the risks of unexpected moves is significant. We'll be watching gold for a possible long re-entry on a bounce. Long corn, beans & sugar...
Update 2/4/2008 - dropped the sugar long on the triangle breakdown, added wheat and a small cotton long. Added leverage on corn and beans.
Update 2/6/2008 - 10:11 AM PT, booked profits on all positions. We only have single contract positions now in wheat, cotton, beans & corn and may even drop them...
I can't put my finger on it, but something odd seems to be going on - the risk picture has changed in some way and we've learned over the years to pay attention to "hunches" or "feelings". They're not always right, but its risk management too... and the worst case is that we miss some profits. That was part of the reason we existed most of our positions, and added some physical metals etc.in our core portfolio too.
Update 2/8/2008 - minor add to soybean long today, otherwise no changes. Medium/high risk very short term copper trade to $3.66 or so, but we're not going there. Will probably drop our small long positions in wheat, cotton, beans & corn tomorrow - especially cotton.
Update 2/9/2008 - Very large margin rate changes for Cocoa, Cotton, Coffee, and Sugar going into effect today; as much as 50-100% increases. Still holding our small positions. Lucky guess so far on copper... and if it blows through 3.75, new highs are quite likely.
US Risk...
1/26/2008
The risks involved in the "creeping corralito" in the US are substantial. If you're a US resident and do not have money in non US assets, it's our opinion that the risk is significant to "events" that may prevent reasonably unfettered access to your funds, or worse. Extra cash on hand is also not a bad idea. Note that this is a short and intermediate term opinion, and that most who read here are aleady quite aware of the issue but we mention it just in case some aren't.
Regarding the recent political actions in Washington D.C., the coming injection (a.k.a., helicopter drop of money) of about $150 billion will act like a $150 billion POMO (permanent money injection) from the Fed, and is also subject to the rules of fractional reserve banking in the sense that the $150 billion will be multiplied by at least 5 over time. From another view, eventually M3 plus credit (a broad definition of "money supply") will grow by at least $900 billion, and probably over $1 trillion dollars ($1,000,000,000,000.00).
1/28/2008
- added a bit to gold longs on the open just for the helluvit, and will likely buy corn, beans and sugar or some combination thereof tomorrow. If we do any S&P shorting (down 5 as we write), we'll be out before the FOMC announcement on Wednesday due to the possible surprise of only a 25bps drop. Opened longs in corn and beans and sugar, cotton also looking like its getting ready to jump.
Update 1/29/2008 - As expected - back down to tiny long gold position, lightened up on all three ag positions too. Risk too high to hold much before the FOMC meeting - 25bps chance is not zero. We would have entered a long cotton trade today if not for the FOMC meeting.
Update 1/30/2008 - wild & vicious market today, we took a much shorter than expected S&P long ride after the 50 point rate cut and barely exited with a profit. Cotton made a nice move today, as expected. Added positions back to what they were on Monday, with relatively tight mental stops and a physical stop in beans. 1:10 PM PT - added a small S&P short.
Update 1/31/2008 - the Term Auction Facility (TAF) pool balance hit a high of $80 billion yesterday and will drop to $60 billion today. The grand total of TOMOs, TIOs and TAF was just over $175 billion, and a 125 point drop in Fed Funds... and we haven't even had a 1000 point Dow rally/bounce. We've added significantly to our S&P shorts. 8:18 AM PT - out of S&P shorts at a loss.
Update 2/1/2008 - week closing comments: another decent week with nice profits in gold, corn, beans and sugar in spite of a relatively small net loss in the S&P. If you follow intra day trend lines at all, you'll know that we exited our gold longs this morning around $920 basis spot.
Sidelines...
1/20/2008
We deem the risk too high to carry any leverage at all, until things clarify a bit. We're only short the S&P 500 about 200%, and will lighten up near the market open or tighten our trailing stops substantially if the market is down. We continue to watch gold & silver with tiny long positions.
Update 1/21/2008 - Great Russ Winter blog today here. 3:43 PM PT, exited 1/2 our S&P shorts (currently trading around 1268)...
Update 1/22/2008 - Sold another 1/2 of our S&P shorts (1/4 of the original position) due to the Fed's emergency 75 basis point cut. Gold only having a small reaction, down to only one long contract. We may sit out today to let things settle out a bit, but watching the ag complex & gold closely. 6:31 AM PT - $18 billion (2 day) TIO offered... 7:13 AM PT, out of the rest of our S&P shorts. 7:32 AM PT, rebuilding a gold long position.
Update 1/23/2008 - Added back a small S&P short position, but still carrying no leverage in total. 7:29 AM PT, we're back out of our S&P shorts at a small loss and should have stayed on the sidelines.
IMPORTANT NOTE: NEVER use only one chart or datum alone in making trades or decisions. There is no known way to put all the important factors on one single chart, and that applies to our forecast charts too.
Most of our forecast charts are primarily based on "hot money" and do not include any factors for recessions, black swans, fundamental supply & demand issues, helicopter drops, market senmtiment, etc. etc.
Update 1/24/2008 - Added some to our gold longs this morning based on both the US stock market pumping and inflationary money injections. Also added a small S&P long, based on TIO activity the last two days, the government support/helo drop, and the resulting trends. Watching rice for indications of a turn in the ag complex... 10:24 AM PT, and its getting more likely. Lightened up on gold longs, strength doesn't look good on the short term... and as usual we can be wrong.
Update 1/25/2008 - we were wrong on gold, another attack is underway on the $918 level... and we're still mostly practicing being mostly on the sidelines due to the volatility and our relative uncertainly, and as risk management. There are three possible basic positions in any trade or investment - long, short or on the side.
We'll probably exit our small S&P long for the weekend... and did so on the break in a 9 minute chart.
Rice has broken the down trend - the ag complex will likely get our attention next week.
Ups & downs...
1/14/2008
Our charts are still showing ok on gold (with a possible spike into the $980-990 range), but flashed a mild warning on silver this morning. Ag looking ok, added some wheat. Still short the S&P 500, added a bit there too.
Update 1/15/2008 - Just in case that the rumors or a surprise Fed cut are true, we've entered loose market stops on our S&P shorts. 9:49 PM PT - stopped out of all but a small gold long.
Update 1/16/2008 - Lightened up very substantially on wheat & beans, down to a tiny gold long position, no change on S&P shorts. Possible "sympathy" move across almost everything... oil down below $90.
Update 1/18/2008 - out of wheat & beans temporarily, no change on S&P shorts. 12:23 PM PT - lightened up due to 3 day weekend.
Steady as she goes...
1/6/2008
Nothing much showing that would change our longs in wheat, soybeans & gold or our S&P shorts, except for risk management in the sense of carrying too much leverage.
Update 1/7/2008 - nothing like trend line breaks to show that the market is always right. Lightened up on wheat, may lighten up more before the close based on price movements.
Update 1/10/2008 - 6:11 AM PT, lightened way up on all longs. Likely very rough weather ahead... 7:23 AM PT, and we got fooled by volatility. We were obviously carrying too much leverage and over reacted, and will wait a bit before adding back some of the longs. We'll lighten up a bit and take some profits on our S&P shorts if the market holds above yesterday's close for more than two gours or so. 9:39 AM PT - added back half of our previous longs, added to S&P shorts on poor reaction to Bernanke and close approach to main down trend line. Only running about 4.5:1 leverage now. Added a small silver long, just for the helluvit. 11:16 AM PT - sold the S&P shorts we put on this morning at a profit, and also sold 1/3 of the main position - perhaps more selling to come as the market tells us...12:06 PM PT, out of all S&P shorts except for a tiny tracking position.
Update 1/11/2008 - back in with a significant S&P short position, partially for obvious trend reasons but also for the increasing chances of a large break ala 1987 lite.
Things that make you want to go hmmmm...
"It would be fair to say that monetary and credit aggregates have not played
a central role in the formulation of U.S. monetary policy."
-- Fed Chairman Ben Bernanke, in a speech in Frankfurt on November 10, 2006.
"The Chairman noted that the President had recently signed the Financial Services Regulatory Relief Act of 2006, which among its provisions gave the Federal Reserve discretion, beginning October 2011, both to pay interest on reserve balances and to reduce further or eliminate reserve requirements. The Act potentially has important implications for many aspects of the Federal Reserve's operations"
Source: Fed minutes from Oct 2006 (emphasis ours)