Slope Of Hope with Tim Knight

Interesting Euro Reaction

As you well know by now, the jobs report blew away expectations, and the NQ and ES both went for the moon. Normally the Euro more or less follows the direction of U.S. equities, but in a fascinating switch-off, the Euro flipped down and is actually down a reasonable amount in the face of a huge equity rally. (The Euro, shown below, is in blue; notice the strong correlation until the report came out).

My faith in the Euro as the "short of 2012" is strengthened all the more.

Interesting Probabilities Surrounding Payrolls

Will the beginning of the “anticipated” correction come tomorrow?

The Nonfarm Payroll report is often a market mover and I expect to see much of the same tomorrow.

The market is wound tight and typically when that occurs we are witness to a large directional move.

I expect, regardless of how positive (or negative) the report is tomorrow, the market will push lower.

Euro Breakdown Continues

The jobs report just came out at the high end of consensus, and ES shot higher along with NQ while the Euro and treasuries dropped.

The Euro remains my "Rip Van Winkle" trade - - if I had to place and short and not touch it for months, this would be it.

America: Why Aren’t You Protesting?

As noted by Richard Heinberg on June 22nd, 2011, the media has lacked the ability to connect the economic situations in the Middle East and their uprisings to what is happening in Europe. I would avoid the word “Revolution” in the case of the Middle Eastern uprisings, seeing as no dramatic systemic changes have taken place, only the ousting of dictators. Same as I would avoid the words of social upheaval in the case of European protests, which have been quite calm and only demanding to maintain the social safety nets produced through years of labor struggle. Rather, the odd occurrence is the ostensibly quiet population of the United States who are in many cases having the same economic problems and austerity based government solutions. This a place where the media does want to ask the public the question, “Why aren’t you protesting?”

Effectively in the United States the labor movement has been dismantled over 30 years through multiple policies, the main one being “Right-to-Work” laws, which have left only 6.9% of private sector workers in unions, and 36.2% of public sector workers in unions. This has correlated as well to a 30 year stagnation in wages, which has barely kept pace with inflation, leaving many with the option of accumulating debt buttressed by a free flowing credit policy. That points to a problem when consumer spending accounts anywhere from 40%-70% of the economy (whether or not you wish to count government spending which is done through the aggregation of taxes from said consumers). Even if the low end number of 40% is the truth of the matter, it is large stake in the economy and plays a disproportionate role in the health of the economy as a whole.

The importance of wage and debt is linked to the economy having a large consumer component, which is basically like the gas to the engine, it keeps things in motion. According to the Federal Reserve, Household Debt is far greater than disposable income, basically at a ratio where consumers are maxed out. Connect this with the Weltanschauung (world outlook) of consumers at the moment, according to the Rasmussen Consumer Index, 61% of the US population see the economy as getting worse. Basically, you have a massive Molotov cocktail being thrown at the economy. The wage trend is not reversing, as noted by Paul Craig Roberts and Shadow Government Statistics, new jobs are typically in non-value added labor (service economy), with an industrial sector shedding jobs as they are outsourced to countries with cheaper labor and laxer regulations (or harsher authoritarian regimes).

When unemployment is calculated correctly it stands nearer to 16-17%, and high-value labor is not returning to employ most of these people, but only the non-value added labor. Without wages and jobs, how is 40% (roughly 5.9 trillion dollars) of 14.7 trillion dollars going to be maintained. Possibly through Citigroup’s idea of a Plutonomy, where the economy services only 20% of the population. However, wouldn’t that lead to political instability in a country that in a form stabilizes the world economy through dollar supremacy and also US treasury bonds (one of the safest investments).

With all this being the trend, and each recession taking longer to reach normal employment levels, where is the social reaction in the United States in comparison to Europe and the Middle East, which were experiencing (and still are) similar situations. A large part of the blame can be laid at the feet of the media who have downplayed protests calling for stimulus and national reinvestment from the grassroots and economists such as Paul Krugman, Josepsh Stiglitz, Robert Reich, and Mike Whitney. Stimulus having the point of proper regulations (neither over or under-regulated, but well regulated), and bringing back value-added jobs which maintain the advancement in Science & Technology. At the same time the media has overrated the Tea Party movement which has been calling for the implementation of the same policies which have been followed since Regean.

These were bad solutions to growth stagnation at the end of the 70’s and still are in the present. Cutting taxes and eviscerating regulation produced large mountains of government debt and has not increased the number of middle class workers (rather decreased that number). Those people, Tea Partiers and so-called Conservatives, do not understand the first thing about economics and are just rabid ideologues spouting words that make semiotics professors mouths’ water. But, not all the blame can be placed on the media, it also is a lack of political will on the part of the politicians, and large propaganda campaigns by corporate America. What has happened is a corporatization of American politics, especially after Citizens United case, but even before, as rampant individualism and greed have taken root into the American culture in a corrosive manner.

A quick glance at the historical record shows that when the elites begin to siphon off more and more of the surplus, social movements were typically the norm. This creates instability and opens doors to collapse of power and markets, the internal structure of a nation. The new rulers are the multi-nationals, and they are not nationalist. As they exist without borders, they are not worried about political or economic instability in a single country.

The new rulers do not have any real party affiliation, and neither party adheres to the political philosophy they claim, they are all corporatists now. And this is the fundamental reason why America is so silent. The people are behind history, they are standing in the trashed piled high by the Angel of History, which always progresses forward, not understanding their old paradigm does not operate properly anymore. They do not believe a government is meant to regulate an economy, that is for the markets. Yet they want a government, just not to impinge on their right to be greedy at all costs.

What then is left to this government that has no purpose within the economic sector?

Militarism and policing, which has never been good for a government to occupy all it’s time with. The other function has been for the government to siphon money through taxes (by having one of the highest corporate tax rates which can be avoided with a legion of lawyers), into corporations. This is shown by the revelations about GE. GE had American profits of $5.1 billion, paid 0% in taxes, and received a tax benefit of $3.2 billion, but I am almost certain it is using roads, electric and water systems, and other American taxpayer produced resources free of charge. So, yes Americans are going the Tea Party route, because they do not trust government, not recognizing that the line between Governments and Corporations have been obliterated over the last 30 years.

What does all this mean for political and economic stability in the U.S.?

It looks like a long brimstone filled road, unless somebody can grow a pair to start making a proper political discourse in that beacon of light on a hill, that republic from 1776. There are many people who are shareholders and need to recognize that collapse economically in the US, means a collapse in their portfolio. And stakeholders as well need to recognize that it is their tax dollars being turned into profits (money begetting money) rather than value-added goods and infrastructure development. These are the last people with any clout, because obviously the rap line is the only mantra left in the US, “Money Talks, Bullshit Walks.”

Otherwise as the system deteriorates even further, massive protests will happen, but with a narcissistic victim hood component where people are finding someone else to blame, ultimately not accepting responsibility for misunderstanding or being blatantly ignorant about the link between politics and economics. With money moving freely around the world, markets will react as markets like to react, dropping dollar supremacy, moving investments to other countries with a better “order”, and leaving a highly militarized and narcissistically angry society holding nothing but guns and their broken dreams. 

Source: http://oilprice.com/Geo-Politics/North-America/America-Why-Arent-You-Protesting.html

By. Andrew Smolski of OilPrice.com

The Biggest H&S Of Them All

Reality and Fantasy

Well, here is data point 3,893 establishing that the economy flat-out stinks, in the face of a Wall Street that is desperate to propel the S&P to 1,900 within the next several weeks.

The ADP jobs report was expected to show 179,000 new jobs for the prior month. The actual result? 38,000, about one-fifth the expected increase (pointed out with arrow below). I would also point out the area I've highlighted with a rectangle. That tiny blip of new jobs was what America got in exchange for putting itself $2 trillion deeper in debt. Only God knows what that works out to per job created.

So we are living in three parallel universes:

Reality is that the job market stinks, it's going to get much worse, and the housing market (which is already pushing to new lows) is going to start falling much faster as props give way;

Fantasy is that the economy is on the mend, since 99% of America is too blinkered to comprehend that the country is basically on a course for failure, which was the price paid in exchange for a year or two of illusory stability;

Wild-Eyed, Mastubatory Insanity is that startups, whose actual value in a rational marketplace would be, at best, a couple of million bucks, are being given billion-dollar valuations. But it's different this time, right?

Oh, well. At least Zynga and Groupon are going to come public, right? That'll fix everything.

Stay Focused (by Ultra Trading)

If you are a longer term trader and not a day trader then it is very important to stay focused on the issues facing the global economy.   The issues are very real and have yet to be confronted in a serious manner, one that will achieve true resolution.  In the day to day noise of ES futures or pundits that are all in and refuse to question their long trade it is very easy to get distracted and drawn into the power of group think.  As investors we need to understand the environment in which we risk capital to determine how the risk and reward coexist.  Sometimes this means missing powerful moves up as I personally have. Other times it means realizing that early to a trade is the same as being wrong, again as I personally have learned. 

I continue to sit on hands until the following items are priced into this market for I feel these issues are very real and skew the risk reward equation far to the risk side. 

EU Debt 

Portugal 10 year yields are at 7.3% as of February 8 (7% is the threshold for the need for ECB / IMF support).  Ireland has asked for an additional 40% in funding to support banks that are faced with an acceleration in deposit runs and reduction in credit quality.  Italy is facing a leadership change as Berlusconi is now very likely to face charges for his sexual escapades.  Recent reports have raised the question that Greece should default as their ability to repay their debt is growing impossible. 

Global Unrest

Yesterday, Egypt saw its largest protest to date.  Just when it appeared Egyptians were tiring, they were rejuvenated by the release and subsequent statement by a Google executive.  Protests have spread to Saudi Arabia, Yemen, Syria, Jordan, Algeria and more.  This movement is just getting started in my opinion. 

QE 

Bernanke is coming under greater pressure to cease QE2 in June and not commence QE3 thereafter. From rising bond yields, inflation concerns to growing internal dissent the case for QE3 is becoming more difficult.

China 

This is a big question mark that should not be ignored.  China has grown more hawkish in their monetary policy yet US markets have ignored this completely.  China is trying to slow its real estate growth as its economy grows from one that is export driven to consumer driven.

Currency

China, India, Russia and many others are increasing their precious metal reserves as they realize the day of the USD reserve status is diminishing and are now trading with non USD currencies.  Charts of the USD look simply horrid and other than a two day bounce cannot reverse trend.  Meanwhile with all the problems facing the EUR it has shown greater strength.  So in the race to the bottom, the USD appears to be winning.

Asset Prices

Residential and commercial real estate have not bottomed as many pundits will lead us to believe.  The levels of residential mortgage underwater are growing that will lead to further strategic defaults, thus higher levels of shadow inventory further pressuring home prices. A recent report from Fitch said that over 30% of commercial real estate that needs to be rolled in 2011 do not meet their standards.  We have far more real estate than this economy and job market can support. 

Unemployment 

The job market is horrid.  Regardless of the weather pattern behind a specific report the bottom line is the US has yet to create the minimum of 160,000 jobs needed each month to simply keep up with population growth.  We have a structural problem in this country and it will not be solved by QE.  20% of income is in the form of a government transfer payment yet only 49% pay taxes.  Meanwhile 1 in 7 Americans are on food stamps and this trend shows no sign of reversing.

I can go on with this list and more detail for each subject but the message is tiring.  This market can stay elevated for another hour, another week, another few years.  No one knows.  Many have learned not to stand in front of this market but as investors its important to understand the issues that surround us aside from the noise.  We must be ready to act when the market begins to price in the above items.  It is human nature to ignore problems we are faced with.  That is exactly what is occurring right now among our leaders.  That will not cause them to go away but only grow.

Submitted by Ultra Trading.  If you would like to read more, please visit - Ultra Trading

Chart Review

Pretty Pictures (and a mixed picture)

http://tinyurl.com/6x8bw96 (Area like tech continue to show divergences)

http://tinyurl.com/6fnfbjn (VIX still working on resistance line, P-C ratios have been depressed)

http://tinyurl.com/4dxa94o (TLT rolled over)

http://tinyurl.com/6be3rns (Transports are still not providing support for the Dow's climb)

http://tinyurl.com/4g2tjqg (Support finally showing for US Dollar, despite the Fed's actions)

http://tinyurl.com/24z77by (NYHL indicator is still above its 200 EMA ... this is bullish)

The range break out by bond yields on Thursday rolled over my TLT short position nicely.  I held despite some scolding from a Sloper on that position entry. I am mildly short going into Friday, as I am hedging a bit that the unemployment data will increase (e.g., miss expectations).  One factor working against bears in the short term is that Mr. Bernanke is determined to continue the Fed's current course of action.

You can see my daily tweets here (@facesincabs) and all my blog posts are stored (for the long term) at  http://facesincabs.typepad.com.  Good luck with your trading.

Food Inflation- More Than Meets the Eye (by BKudla)

As the mainstream public and media starts grasping the significance of rising food prices around  the world, their focus, and the focus of most people is on how terrible it is for poor people or for poor countries, but this is problem is more insidious, and damaging for our economy.

Taking a step back, one of the goals of the Fed is to force velocity of money by raising prices, especially necessities, thus creating the whirlwind of economic activity that can be taxed and diverted to the bankers.  In their mind they solve two problems in one for themselves, and cause some inconvenience along the way for masses.

But we are not in a demand push inflation, but a cost push variety with no increase in domestic income, but more importantly, they are neglecting Maslows laws of well being; specifically when people start to worry about food security and in our case ability to pay for food, a multiplier effect takes hold; in the wrong direction.  People shut down when pursuing safety.

In my view food, and for purpose of this post, is non prepared grocery food, and it is low margin and low velocity.  As prices in the market go up, and wages do not, the first effect is rolling down from restaurant eating, then the high margin prepared foods in the market are target-ted.  This brings us to today, going forward the next roll down is from discretionary food items, and label brands to basics and store brands.

Now it gets interesting, as food and fuel push up from here, the next area is distretionary other spending, which rips into the heart of our service economy, margin squeezes on everything not essential will happen first, then these businesses will simply give up and close. 

My point is as people focus on basics, and worrying about the future cost of said basics, they are less likely to have the animal spirits to create the velocity the FED desires, buying food instead of something else is not simply a one for one substitution of expense in the family budget, and replacing high margin spending with low margin ones, does not drive us out of this ditch, it perpetuates it.

It is ironic to me that every business in this country either becomes a non profit or extinct, so the bankers can be made whole.  Where is the CEO outcry?

November Update - Man, Do I Feel Richer! (by Goatmug)

IN FED LANGUAGE, PRICE STABILITY MEANS A BLOW OFF TOP

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

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

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

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

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

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

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

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

RAILS / RECESSION INDICATORS

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

 

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

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

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

Moody's MIT Transaction Report - Commercial Real Estate

The CPPI continues to decline and show an erosion of value in the national commercial property price index.  The figures released for August show another 3.3% decline in values in actual transactions.

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

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

MONSTER EMPLOYMENT INDEX REPORT - http://about-monster.com/employment-index

Jobs reports last week were surprisingly good and we see improvements in the weekly data.  Unfortunately we are not seeing an improvement in the unemployment rate as more workers that just gave up are now coming back in search of job opportunities.  Our unemployment rate is still at 9.6% and is quite sticky at that level.

Despite the good release, the Monster.com Employment Index dropped from a level of 138 to 136 in October.  Why new job listings on the web would decline here is actually interesting.  This is a really good report to watch and get some indication of where we are going. 

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

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

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

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

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

Increases of 25% are an indication of stress in the system!  DO NOT GO TO SLEEP ON THIS!  Remember April, when every thought we were going to keep going higher and then we hit this little debt crisis?  Can you say "DO OVER?"

 

Venezuela

Spread  992

Daily Change  28.55

Weekly Change -91.92

28 Day Change -24.08

 

Ireland 

Spread - 607

Daily Change  17.69

Weekly Change 109.17

28 Day Change  182.55

 

Spain

Spread 264

Daily Change  15.98

Weekly Change  39.83

28 Day Change  56.18

 

Portugal 

Spread   464

Daily Change  14.89

Weekly Change  70.65

28 Day Change  78.57

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

COPPOCK TURN INDICATOR

The Coppock Turn Data continues to signal a turn south in the markets despite the exponential run in markets.  The turn indicator has been wrong for two months now, but since it is a lagging indicator (14 month average) we must expect that and use this as just another slow warning.  As usual I've tried to project levels in which it would actually signal a continuation of the positive trend, that level is at 12,300 on the Dow.  I don't put much weight on this indicator, but include it as another data point.

FINANCIAL CONDITIONS INDEX- http://www.bloomberg.com/apps/quote?ticker=BFCIUS:IND

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

BALTIC DRY GOODS INDEX - http://www.bloomberg.com/apps/quote?ticker=BDIY:IND

With the ever-increasing prices for copper and other commodities, one would think that spot rates for transporting these goods around the world would also be increasing.  In this case, that is actually not happening.  As I've posted many times, the BDI is subject to many issues other than simply that commodity prices are going higher.  First and foremost, I think the issue is that there is a ton of supply of ships available to move this cargo as shipping companies continued to order ships several years ago.  I have seen a few comments about purchasing some of the dry bulk shippers like DRYS.  Based on the chart I'm seeing, the thought of picking up a few shares might not be a bad one considering that there has been a recent breakout and it was confirmed with the move above $5.00 as I type.  I also like that the increase has come on increasing volume.  A very conservative trade could call for a stop to be placed at $4.75 and an upside target of $5.70.

 

 

DRYS CHART

USD INDEX - http://www.bloomberg.com/apps/quote?ticker=DXY:IND

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

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

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

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

 

NOVEMBER TRADING UPDATE

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

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

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

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