Bill Cara’s Blog for Nov 8, 2010 [See post-close report]

for another outstanding WIR!
J

Good morning.

POMO Injection Scheduled For Today.

Cara 100 Earnings:

After the close: SLW

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INTC - Intel upgraded to Buy from Neutral at UBS who believes the PC component inventory cycle has bottomed and that Sandy Bridge product cycle will drive near-term growth. Price target raised to $25 from $20.

MICC - Millicom initiated with a Neutral at Goldman. Target $120

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"I rarely think the market is right. I believe non dividend stocks aren’t much more than baseball cards. They are worth what you can convince someone to pay for it." ~ Mark Cuban

I came across this story about siver manipulation.
May indicate one reason for recent hike in silver prices.

http://www.youtube.com/watch?v=6LvZT7gZuHY

Once earnings season is over focus will switch back onto the macro. If money is really flowing into equities why aren't bonds a lot cheaper?

Mark asks: "If money is really flowing into equities why aren't bonds a lot cheaper?"

"Rather than providing money to businesses and consumers, U.S. commercial banks are increasingly using the cash available at interest rates set by the Federal Reserve that are next to zero and lending it back to the government.

Since June, the biggest banks bought about $127 billion of Treasuries, compared with $47 billion in the first half, according to the central bank. Commercial and industrial loans outstanding have fallen by about $68.5 billion this year, central bank data show."

Bernanke be already blowing the next bubble Mark.

http://www.bloomberg.com/news/2010-11-08/record-tr...

http://finance.yahoo.com/news/World-Bank-chief-sur...

Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.

The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.

2nd,

"It's easy to make fun of Bernanke (reminds me of how the media loved to make fun of Carter in the seventies). But if QE ultimately restores millions to full employment, then they'll be penning books about Bernanke in ten years that compare him quite favorably to Greenspan (as Carter is now recognized for his true stature)."

Surely this must be sarcasm! At any rate the linking of Bernanke and Carter is right on. The only way to restore employment with QE is for all of us to work for the government. Oh, but then of course, that is the plan. We work. They give us some paper. They tax us and take it back. (We can owe the rest.) The old "29 Ton's" routine.

Thanks for starting my week of with a laugh ;-)

I just watched a long interview with Ron Paul and wondered if I would ever hear him say anything I could disagree with.

Hot money flows into commodities will squeeze the consumer unless firms decided not to pass on the costs in which case we'll see margins squeezed. I think it is only a matter of time before the market figures it out. Perhaps Bernanke will come to his senses or perhaps he is not being serious with the scale of his money printing and will just use the threat of it to push the dollar lower to help improve the balance of trade, but one thing is for certain, wages will lag far behind price increases. Any increase in wages will undo the competitive advantage gained by devaluing the dollar.

NOK - Nokia downgraded to Sell from Neutral at WestLB.

Les,

Thanks. Musn't forget about Basel III either which was also mentioned in the article.

The Basel III regulations set by the Bank for International Settlements in Basel, Switzerland, may trim economic growth by 0.1 percent and 0.9 percent, and result in $400 billion of additional Treasury purchases by U.S. commercial banks by 2015, a committee of bond dealers and investors that advises Treasury Secretary Timothy Geithner said in a Nov. 2 report.

Oh, oh :-(

Sorry.

As you can see I'm in a completely different camp.

The long TZA and EDZ, and USO puts gamble (reentered on Friday) is paying off. This is a short term trade though.

USO has especially bad fundamentals though as shown here:
http://etfdailynews.com/blog/2010/11/06/swimming-i...

too bad I was stopped out on thursday and didn't reenter.

My call stands, and with each passing day I become more and more convinced of this scenario for the next few weeks and most likely months: dollar rally is coming, stocks pull back at first, then reverse and go up with dollar abandoning inverse relation with USD.

And gold too?

Sorry, don't have any insight into gold. Being part commodity, part currency, part safe heaven, part hedge, part cult, it's much more complicated than most other trading vehicles, and tends to change its roles often, or re-balance their weight.

Hugh Hendry's Eclectica Fund Sees Hyperinflation Via Deflationary Event;
Constructs Asian Bear Portfolio

Just stumbled on this guy, but a google visit leads to a long list of videos and other opinion pieces.

I'm sure he's not copying my long held stance, but...

;-)

2nd Ave- I was reading the exchange between you and Grym, it reminded me of a recent conversation in my local pub.

The conservative rant was that we have off-shored all the manufacturing jobs, and the liberals tax credits for solar energy just meant full employment for Chinese PV panel makers. All because the liberals and labor!

I asked what would have been the outcome today had we followed Carters' example of a program for energy independance in the 70's?
Remember the solar array on the Whitehouse (torn off by Reagan), the push for efficient autos, and a proposed massive investment for alternative energy research/development.

It is possible we would have stayed the leaders in solar (remember ARCO solar), would have had a world wide market for Detroit, and no series of middle east wars.

We'd have a viable middle class too.

That sh*t adds up.

Ciao, Z.

Looks like the mother of all short squeezes is on with silver crushing JPM and HSBC on a day that the dollar is rising. Ouch.

All in on the silver train. SLW reports after hours. Double ouch.

Cheers.

Going vertical right now.

http://www.kitco.com/charts/livegold.html

Got some?

13:45:10
(US) Fed's Fisher: US is currently in a liquidity trap; underlying inflation trend is steady
- QE has been weakening the USD; financial speculation and excess is again emerging
- Notes that additional QE serves to transfer income from the poor to the rich; concerned asset purchases could become a 'new normal'
- Comments that over the coming 8 months (the end of QE2 program) the Fed will be 'monetizing debt'
- Fed's recent decision on easing steps were a 'leap of faith' that the fiscal authorities would act on the budget, new Congress must act quickly to tighten fiscal policy

- Reminder: On Friday the Fed's Hoenig accused the Fed's actions as monetizing the debt

Tip toed into HL this morning and it took off. UXG likewise continued it's ascent. Picked up a little SCO, which promptly fell and is just now coming back (only to fall again), the $USD is holding for now. Haven't sold anything yet today.

Am watching $XJY like a hawk. There is resistance @123.25, it seems only an overnight gap up can move it past. The CB's may cause a gap up tonight, I expect in the 123.40-123.80 range, but still down from Nov 1 and 4 highs is my guess.

From Bill's WIR #45 Sunday 11/7
“... The Bank of Japan took some remedial action, which they had to do to save their export industry, and now the other central banks have to decide. If they follow BoJ, then short term the price of gold will stop rallying and will likely fall back under pressure from the higher $USD inspired profit-taking in the precious metals. But, longer term, the currency war just helps the POG lift higher, so we have to stay with that trade until the global regulators take some nasty action, as I am expecting at some point, to increase the margin requirements on futures trading and possibly even restrict the free market trading in bullion as the US government imposed on its citizens several years ago."

I'm clinging to 'my wall of worry', waiting for the next shoe to fall. Will it be a European shock from Greece or Portugal? The list of possibilities is a long one.
FD: own HL & UXG.
J

Bill,

this starts looking like the process of decision-making in the Fed is broken (and I for one am glad to see this as it may finally lead to discussions and some changes). Look at this soundbite from another one, a few min ago:

(US) Fed's Bullard: Would have preferred not to announce the $600B program upfront; unclear if deflation risks have subsided
- Not in favor of price level targeting at the moment
- Bond purchases mostly aimed at preventing disinflation
- Calls for Congress to cut spending, as Fed cannot fix economy alone

From David Rosenberg this morning:

Remember that the unexpected turn of events in the equity market in October 1987 began with a war of words and policy discord between the U.S., Germany and Japan, which first manifested itself in intensifying currency instability and U.S. dollar weakness.

Countries, like China, Germany and Korea, are not happy with Ben Bernanke’s surreptitious strategy of weakening the U.S. dollar… Look and see what foreign officials had to say about Ben Bernanke’s QE strategy over the weekend:

“The problem is not a shortage of liquidity. It’s not that the Americans haven’t pumped enough liquidity into the market, and now to say let’s pump more into the market is not going to solve their problems ... what the U.S. accuses China of doing, the U.S.A. is doing by different means.” (German Finance Minister Wolfgang Schaeuble).

“Many countries are worried about the impact of the policy on their economies. It would be appropriate for someone to step forward and give us an explanation, otherwise international confidence in the recovery and growth of the global economy might be hurt.” (China's Vice-Foreign Minister Cui Tiankai).

“There is a common understanding that if we do not work among ourselves, we fear we will return to protectionist measures.” (South Korea’s President Lee Myung-bak).

"I like the formulation of John Michael Greer that we're about to see something called hyperstagflation, which would amount to sharply rising prices in an economy going nowhere fast." - Kunstler

http://kunstler.com/blog/2010/11/pre-post-mortem.html

"I asked what would have been the outcome today had we followed Carters' example of a program for energy independance in the 70's?
Remember the solar array on the Whitehouse (torn off by Reagan), the push for efficient autos, and a proposed massive investment for alternative energy research/development.

It is possible we would have stayed the leaders in solar (remember ARCO solar), would have had a world wide market for Detroit, and no series of middle east wars."

All of those ideas sounded good but the truth was (and still is) that none of them were really economical or practical from an engineering standpoint. You could have very efficient autos today using conventional IC engines if you were willing to sacrifice the relative safety of today's cars by using lightweight materials. Solar still doesn't make sense without subsidies and tax breaks. And as my old ROTC captain told us back in the 1970s the Middle East will always be important to the West. No matter what direction the energy policy of the United States takes there is still nothing better than petroleum for moving the US military. Strategically we need to control it so that a potential enemy doesn't do same. And without the US military keeping the world open for trade everything falls apart (including the US dollar). At least that was true in the past; the future may be different. There is nothing even remotely on the horizon to take the place of petroleum based energy sources for the military anytime soon.

indyric,

I totally agree. The military cannot be allowed to wither. Unilateral disarmament is as nuts as unilateral policing. Oil is here to stay for the foreseeable future.

Still there are many other ways in which we could have (still could) become more energy efficient. Mass public transportation for one.

As long as "our representatives" are more concerned with their own job tenure and wealth accumulation than our nation's welfare we will probably continue to be the most wasteful society in history.

I drove along a recently plowed corn field this morning and noted the scores of plastic bas snagged on the stubble.The same is now true in the mid Pacific ocean — miles from civilzation.

Think of the energy wasted in producing these, collecting them and burying them — at least those not still cluttering the globe. Much of that Middle East oil went into the making and the fuel to rid our homes of them.

Are we simply crazy? Monkeys would do better.

Time will tell... I feel there is more to it than that. And, I've never seen them expressing such drastic differences in almost internal conflict-like manner.

And the new uranium ETF, URA, jumped 11.1% today) http://etfreport.blogspot.com/2010/11/going-nuclea...). 0.69% MER.
Not a recommendation!

I tend to agree, somehow. Silver at 27+ is like $9.22 in 1980 dollars.

More importantly to me, what's the working stiff to do these days? Save and hold cash, you lose; buy long-term Treasuries, you lose; trading, day, swing, whatever; has just not worked out for me.

It seems, the only way to protect oneself is to own PMs (physical); except, even then, there's traps; it's complicated to store and not really that easy to sell; you have to prove where you bought it; and then there's a 28% tax. Not to mention if you kicked off while holding it; and who wants to cart around 2000 ounces of silver (or more, you big-shots).

Really; not that I expect it, but I don't like the idea of my wife taking my rare coins and bullion to some pawnbroker in order to feed and clothe my kids.

Could just say screw it and spend it all. Actually I have no idea what to do.
I'm asking.

Kind of proves the old saying "Your possessions become your burden".

Goldbug58,

I think you just expressed the puzzle facing most Americans and from what I hear much of the world.

With the PM exception I'm uncomfortable holding anything for an extended period.

I used to be aware of risk with equities or bonds, but what is my biggest problem today is the lack of reliable rules, regulations, ratings and laws.

We have a Secretary of the Treasury who slipped in after not paying $30,000 of his own taxes. The country is at the mercy of an "Academia Nut" who is being allowed to play out his fantasy theory of market management — one person controlling for 330 million of us — and Congress sits by like a bunch of robots.

The dollar is now being actively destroyed in the name of reaching a "solution" to the massive debt imposition.

I wish I had a better reply for you.

I am approaching a 100% gain on the physical silver that I bought in April '09. Average is at $13.98/oz on 100 oz. bars and $15.20/oz on 2009 Silver Maples (prices include shipping/premiums). I am also seeing now that Apmex (and other online dealers) have huge premiums on these coins $3+ (I think it was $1.25-1.50 premium when I bought). They also created additional pricing tiers to gouge smaller buyers that I don't remember being there in April '09.

Not even thinking about selling yet. Virtually no one I know owns any silver (or PMs). Revealing to other fairly investment-knowledgeable people that I own physical has (until recently) even elicited a few laughs. The amount of people coming out of the wood-works to claim silver is amazingly overbought is only reinforcing my confidence in this trade. Fact is, the only people I see predicting doom for this silver "bubble" are those who never called a buy point in the first place and missed the whole darn ride from the bottom.

I am not saying that we won't get some wild swings both ways in silver, but those who are staunchly in the "this move is just too irrational" camp should really do some research on "pets.com" or "krispy kreme" donuts stock to understand what truly "irrational" means.

As far as I am concerned, the only "irrational" thing that's gone on in silver in the last few years is that people were dumping it overboard and selling it at such a discount.

A few things to think about:

The Silver/Gold ratio is currently around 50. From 1974- mid1982, the ratio was NEVER above 50:1. The ratio went as low as 15:1 in 1980. At $1400 gold, a move to a 40:1 ratio would give us $35/oz; a move to 30:1 - $47/oz; 20:1 - $70/oz.

A hopeful sign....

"Ron Paul, the Republican Congressman from Texas, is the ranking member of the monetary policy subcommittee, and when the next Congress takes over he’ll likely be the chairman of the subcommittee.

Paul said his first priority will be to open up the books of the Federal Reserve to the American people.

“We need to create transparency there. To see what it is they are buying and lending, and who it is they are dealing with,” Paul said.
Paul mentioned that he hoped to use subcommittee hearings to educate the public about the causes of business cycles—which he believes are mainly attributable to monetary manipulation by central bankers."

http://www.cnbc.com/id/40013227/

Was having a little fun at the St.Louis Fed (FRED) data site the last hour.

http://research.stlouisfed.org/

First, I went to the CIA data site

https://www.cia.gov/library/publications/the-world...

and downloaded the 2009 GDP estimates for all countries.

Then I used the ones comprising the top 80% of world GDP (Euro 21, US 20 , China 13 , Japan 6 , India 5, Russia 3, Brazil 3, Mexico 2, South Korea 2, Canada 2, Indonesia 1, Turkey 1, and Australia 1)

and created a US$ index of these currencies weighted by %GDP. FRED gives you the capability of making transformations of their data sets.

The resulting graph shows

- in red, using the left scale, the US$ index, GDP-weighted that I created.
- in green, using the right scaled to 100 in 1999, the popular US$ index
- in blue, using the right scaled to 100 in 1999, the Broad US$, trade weighted index.

One notable difference is how the GDP-weighted index (red) signalled the fear-trade, at the beginning of the last recession, a good 6 months before the US$ and broad index did.

Other than that, I just thought some of you might be interested in the data manipulations one can do at FRED.

To those that chuckle at fools like me that don't trust paper money, I found a little history lesson for yuns. Bon Apetite!

http://www.321gold.com/editorials/leishman/leishma...

...big snip to the summary for those too lazy to click and read the gory litany of mistakes...

The parallels with today’s global fiat monetary system, now arguably close to the verge of collapse in October 2010, are so amazing as to warrant this short essay as a heads-up, and to provide a template as to how events might play out in the next couple of years.

The intention is to allow the readers to draw their own conclusions as to how they might or might not save themselves from a similar potential collapse in fiat paper monetary system.

One can, of course, imagine that many of Law’s measures would not be acceptable in the 21st century, but a global monetary system collapse may well lead to surprises?

History seldom repeats, but it often rhymes, to paraphrase the famous bonmot of Mark Twain.

CAVEAT POSSESSOR CHARTA

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Oct 26, 2010
Alan Leishman
email: dalhn@freesurf.ch

Glad you liked it, Johnny.

One point of clarification. The two traditional indices (US$ index (green), and the Broad Trade Index (blue) use the scale on the right, and they are scaled so that they were both 100 on Jan 1, 1999. So we see that since that time the US$ index is down to 77 (-33%) and the Broad index is down to 87 (-13%).

Try as i might, I couldn't get my red GDP index to begin at 100 also (I would have had to set each of the constituents to scale to 100 at the start). So instead I used the left scale for the red index; So it started at 45. Today it is down to roughly 41.5 (-8%) a superior performance to the other two indices.

One last observation: I mentioned the early fear signal entering the 2007 recession. Now that I look closer at it, there was also a rather dramatic "relative" signal entering into the 2001 recession as the GDP index shot up from 44 to 52 (+18%) right before the onset while the other two indices just slowly drifted up from roughly 48 to 51 (+6%) during that same time.

Anyway, I wouldn't try to read too much into the graphs. I was just experimenting. A good GDP index would have to use real-time GDP data but the one I created is all based on 2009 data so its value looking back is questionable to say the least :)

http://tinyurl.com/26r4jha

Houston: All systems are go for ignition. Commence sub-orbital slingshot to the moon. Over.

SLW: Roger that, Houston. Firing all boosters for acceleration to Mach 15 and leaving JPM's gravitational short manipulation pull at Tuesday morning's London Bullion Market Association's price fix. Over.

Houston: Roger that, SLW. Over.

Haven't seen this done before on Stockcharts but I was able to get the 3 RSI lines to display together on the same RSI chart.

http://stockcharts.com/h-sc/ui?s=SLW&p=D&b=5&g=0&i...

While I'm at it here is a google spreadsheet I have put together with various charts. To give me a quick view of the markets. My home version has my personal portfolios on it.
https://spreadsheets.google.com/pub?key=0AuGu9ZAmy...

I should be changing my handle to Southern Otoko now as I am now in Australia. Weird reading this forum when everyone else is sleeping.

S&P -2.50 / -0.20%
Level 1,217.50
Fair Value 1,220.79
Difference -3.29
Nasdaq -1.00 / -0.05%
Level 2,183.00
Fair Value 2,186.97
Difference -3.97
Dow -15.00 / -0.13%
Level 11,347.00

China pullback perhaps reflecting trader sentiment that PBOC will continue to tighten rates as reflected in 2 year interest rate swaps:

http://www.bloomberg.com/news/2010-11-08/swaps-sho...

hmmm wonder how long before traders catch on that central banks in hot markets will shut down the parties created by loose monetary policy in Japan and the US? That and a $ which has refused to roll over and die since 'The Chopper' announced his new debauchery.

Pure speculation on my behalf (but isn't that what we are here for?) and paraphrasing some words with Vad from yesterday, perhaps we should be discounting $ drop as was widely speculated and now be looking to $ pop as emerging markets tighten policy in the face of Fed actions?

Good morning.

No POMO Injection Scheduled For Today.

10:00 - Wholesale Inventories

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CCJ - Cameco upgraded to Outperform from Sector Perform at RBC Capital based on the outlook for uranium pricing. Price target raised to $45 from $30.

RIMM - Downgraded to Hold @ Kaufman Bros. PT Lowered from $72 to $60

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"In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten." ~ Peter Lynch

There's a fear of missing the rally. At least that's what I'm feeling. I bought GDX before it took off and sold calls against it thinking it would churn for a few months. Also, sold naked puts on several stocks which would be more profitable if the stock was purchased instead.

Thanks for the illustration Dave.

Johnny and I are in sync (as many others, I'm sure) with our distrust of nearly all sectors due to a lack of faith in the US policies and actions currently.

My years of designing ads and measuring results makes me wary of reading too much into any single data source and especially when the human emotional factors are running high.

Additionally, my experience in advertising only included about 15 years post computer/internet effect.

For the above reasons I have been more and more inclined to follow Vad's advice, "Trade what you see." For me that means seeing a clear trend change before I make any big moves.

If I participate at all in the possible continuation of a upward equity move — it will be with close stops in place.

I think of the herd mentality and the land where millions of buffalo once roamed.

FD: I've been gradually shifting profits out of the Treasury mutuals and into a fund which has a large AU segment (PRPFX) which I've also held for a couple of years.

Les,

I had to kind of chuckle to myself when I read this line...

"U.S. credit quality is improving relative to Europe at a record pace, reflecting faster economic growth in North America and ratings downgrades of nations from Ireland to Greece."

It reminded me of a cousin who proudly reported to the family at a Thanksgiving gathering, "I'm the best reader in the dumbest group!"