Bill Cara's Blog for Dec 29, 2011

Accumulation Zone: Monthly 11, Weekly 9, Daily 5
Distribution Zone: Monthly 7, Weekly 9, Daily 5

M3 MONEY SUPPLY (YOY) EU for November
Actual: 2.0% Cons.: 2.5% Previous: 2.6%

http://www.ecb.int/press/pdf/md/md1111.pdf

...the annual growth rate of total credit granted to euro area residents decreased to 0.8% in November 2011, from 1.6% in the previous month. The annual growth rate of credit extended to general government increased to 0.2% in November, from -0.5% in October, while the annual growth rate of credit extended to the private sector decreased to 1.0% in November, from 2.1% in the previous month.
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RETAIL TRADE (YOY) Japan for November
Actual: -2.3% Cons.: 0.0% Previous: 1.9%

LABOR CASH EARNINGS (YOY) Japan for November
Actual: -1% Cons.: 0% Previous: 0%

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KOF LEADING INDICATOR Switzerland for December
Actual: 0.01 Cons.: 0.23 Previous: 0.34 Revised from 0.35

http://www.kof.ethz.ch/static_media/filer/2011/12/...

wow, that's a big positive vote on the Euro situation.

http://www.fx360.com/calendar/

Precious metals fundamentals are more bullish now than at anytime during the entire bull market...

http://tinyurl.com/csmlgcp

Get well soon Bill, Fireworks

Roughly two weeks ago, I stated here that I thought that the dollar had topped and that gold was ready to take off. That view is still in place because the dollar's pop yesterday did not take out that prior high. Gold holders who are selling out their entire position here will have a hard time chasing the metal higher when that rally begins, which could be within a week.

Thanks Geoff, nothing is guaranteed but yeh, seeing another puke day as open interest is declining, along with leverage and confidence in COMEX, combined with balance sheet expansion (didn't see any news of that) and a dollar that looks like doji, perhaps shooting star before EoD makes for interesting position here.

It's an interesting change from September, when I was so emotionally loaded and tuned to each hourly move. UXG appears to be in stronger hands than the main mining ETF's. Good to see. cheers.

A quick snapshot of my part of the world for the photography fans. View from a balcony where we put up our sister-in-law for a night as a chrissy present. Bill you sure you don't wanna set up shop round my way?

Asian trading countries coming together in the initial global trade war...

“China and Japan announced a wide-ranging currency accord on Christmas day that is expected to give the yuan a more prominent role in international trade. Among the measures, the two countries agreed to promote direct yuan-yen trade, rather than
converting their currencies first to dollars, and also for Japan to hold yuan in its foreign-exchange reserves

Barry Eichengreen, University of California at Berkeley:

I think the new accord is squarely in line with China’s strategy for internationalizing the yuan, which is to proceed in stages: first encourage its use in trade invoicing and settlement, then encourage its use in international investment, and lastly encourage its use as international reserves. They’ve been moving unilaterally to implement the strategy, most recently permitting offshore holders of yuan to invest in the Chinese stock market.

What’s new here is that they are working with and have the support of the Japanese government, which seems to be acknowledging implicitly that there will be a single dominant Asian currency in the future and that it won’t be the yen.

Jeffrey Frankel, Harvard University

Before the yuan becomes a true international currency, let alone rivaling the dollar, it must become a normal currency. I would interpret the increased use of the yuan in China’s international trade as indicating movement toward becoming a normal currency.

Morris Goldstein, Peterson Institute for International Economics

The China-Japan initiatives will obviously increase the regional use of the yuan, although much depends on their scale and timing. That said, I don’t see them as game changers in the broader issue of if and to what extent the yuan becomes a serious rival to the dollar as the dominant global currency.

To do the latter, China would need to be willing to take some fundamental policy decisions, including changing its market intervention and sterilization strategy, undertaking interest rate liberalization, building a larger corporate bond market, reducing much further restrictions on international capital flows, and putting the banking system on a more market-oriented basis — to say nothing about avoiding a crash due to excessive investment in real estate.

Each of those policy choices involves tough trade-offs and reform on the whole package is likely to be some time down the road.

So yes, we are moving to a more multiple-currency world, but it is likely to be a slow process and is not likely to accelerate until China is prepared to give up much more to obtain much wider international use of the yuan.

I don’t think the US should either encourage or discourage it; it should allow the market to choose. Besides the international role of the dollar depends much more on what we do (e.g., U.S. fiscal reform) than on these kinds of yen/yuan initiatives.

I think the international role of the dollar is a moderate plus for the U.S. but this latest initiative is not something the U.S. needs to react too; this is a long-distance race not a sprint.

http://tinyurl.com/83y7z7s

Miners look great compared to the performance of the metal itself. Silver is outperforming gold. Is it feeling like a bottom yet? Perhaps. Just perhaps. Both silver and gold blew through their recent cycle lows, likely taking out whatever stops remain from the previous set of buyers. And it is only today and tomorrow left in tax loss selling season.

I'm waiting for another test of the lows for the metal before I jump in. I also want to see how PM handles another dollar assault on 81.30. Perhaps tomorrow will be the key for me.

The Euro is still weak, the USD still holding. Glad to see some buying in the miners and a ST intraday bottom in PM's but it's peaked for today so far and we are still in that thin holiday trading.
I made some decent cash this AM but nothing found to hold onto yet.

Technically we are still below the 200. Good luck everyone and here's to a much better new year!

Here's a post I made yesterday (well early this morning, ET) about a long silver short oil trade.

If you look at $WTIC:$SILVER, both the daily and weekly RSI are at 90. This ratio chart shows how many ounces of silver it takes to buy one barrel of oil. It has gone from less than 2 ounces in mid August to 3.67 ounces yesterday.

I don't have the trade on myself, and the risks are that Iran starts blowing up tankers, but I thought it was an interesting paired trade - more so than WTIC/GOLD since both silver and oil have strong ties to economic performance.

Craig,

"They want something close to 2% inflation and I think they will do whatever they can to get it and prevent runaway deflation."

I agree that has been Bernanke's plan all along. but so far no dice. Any ideas of what else they may try?

Each stimulus has been of shorter duration and all that has happened is they have stolen from future sales (autos, homes, green credits). Now we are in that future and people are worse off — adding to the deflationary probabilities, IMO.

While the US (dollar and equities) may initially benefit from the EU mess, the consumer is still worried about job loss and quality, home prices and increasing taxes. Not a recipe for inflation.

Grym

Jimy - "Aren't we seeing a capitulation that raises the hands in surrender? That is my concern."

May it go from your lips to God's ears. That's what makes a bottom - nobody left to sell. Capitulation! Let's all say the prayer together:

Ca-pit-u-lation!

Its when you are at your most frustrated, most discouraged, and you are so tired of holding those stupid miners that do nothing but go down that you feel like you want to sell them and never see another miner again. Stupid miners.

That's the feeling of capitulation. Then wait a few days longer, just to be sure. Then after you see the signs of accumulation, you start to buy. (And maybe this time put a stop under the low, so you don't get in deeper if things keep going down)

I remember that feeling in 2008, after gold had dropped from 900 to 700. Forget "buy and hold", I never wanted to see gold ever again. And so I sold, probably within $10 of the low. I bought it back again at 940. Its done well since then, but I will never forget selling it at $700 and feeling that emotion of capitulation that made me do it.

May it go from your lips to God's ears. That's what makes a bottom - nobody left to sell. Capitulation! Let's all say the prayer together:

LOL. Here's what I'm looking at Jimy. Bullish divergences abound, suggesting up from here. The downtrend line of resistance is clear. I don't know if this is the bottom (who does?), so I watch the downtrend line of resistance to see if its broken or is respected. If stocks cannot make it that far than they are weaker than I thought.

"I will never forget selling it at $700 and feeling that emotion of capitulation that made me do it."

Confess, have you gleaned into this article while writing it? :)

http://blog.realitytrader.com/2008/04/trading-psyc...

jragusa,

it can start by voting out incumbents and starting a viable third party....

db

Speaking of Armstrong and gold:

It is naïve to presume that our economic troubles will cause government to see the light and accept gold as the new money supply. The bankers, who really control government like the financial crack dealers, would never allow it. The attempt to manipulate gold during the Panic of 1869 and force gold higher in price so that the US government when it returned to a gold standard would have to accept the then current market price failed.

The government intentionally released a press statement saying they would sell ten times the amount of gold than what they had. The market collapsed despite the false information. Sell the rumor – buy the news.

http://www.inflateordie.com/files/Financial%20Bord...

I found this an interesting piece: Ron Paul's campaign is a challenge that liberals, aka Democrats, must answer. Evenhanded, good points.
Ron Paul
http://www.nakedcapitalism.com/2011/12/matt-stolle...

Here ya go Dave, seems we're current on the hot topics. Armstrong has the following to say:

It is not the stock brokers, but the investment bankers that are destroying society by their hold upon government in the palm of their hand for they have them and everyone now addicted to debt. Indeed, debt has leveraged the entire economy and it is that leverage that actually prevents hyperinflation in the way many expect. What happens in a economic decline as it unfolds are two primary trends. First, there is the deleverging of everything. Paper profits are destroyed. So the Dow Jones Industrials collapses from almost 15,000 to 6,000 amounting to a near 60% decline.

The paper value of the stock market declines and it evaporates into thin air. The same took place with real estate and the economy in general, which do not bounce back as rapidly as stocks. One day the market value of the house in $500,000 and the next you are lucky if you can sell it for $300,000. This “wealth” is not actual “currency” that can be used as a medium of exchange. Currency is defined as the product produced by government in modern terms.

Real Estate, stocks, and gold are “money” in the sense that any object having value constitutes the real “money supply” for it is tangible wealth suitable for collateral. These objects are perceived to be a store of value – albeit this is not entirely true since there is no object that is a store of value that remains constant free from fluctuating prices. This is also true of gold that is normally confused as a perfect hedge against “inflation” which it is not for there is no perfect correlation between gold and inflation.

Gold is actually a “movable” liquid asset easily sold in all cultures unlike stocks or real estate, which cannot be easily resold outside the local market. For this reason, gold is the historical perfect hedge against government, not because of a store of value, but because of its liquidity in times of crisis characterized by its movability. Gold simply does not correlate with inflation and this is vital to understand during a DEFLATIONARY trend within which we currently find ourselves.

We are suffering the simultaneous effects of DEFLATION and INFLATION, which can be called STAGFLATION. In other words, there will be no hyperinflation at this stage in the game and the increase in currency by the Federal Reserve using the “elastic money supply” tool, will not even be inflationary despite creating nearly $3 trillion.

If we look at the peak in debt in 2007 in the United States, only one slice of the real money supply, the general leverage stood at nearly $60 trillion, This is based upon Federal Reserve data. If we now factor in the deleveraging of 60% we get a figure of $24 trillion. Of course, this is well below official estimates because they are not marking to market all debt. This would be at the most extreme nadir. Nonetheless, if the Fed increases the money supply by $2.3 trillion through its elastic capability, we can see this is like pissing in the wind – consquently QE1 and QE2 produced no inflation even if the deleveraging was only 25% say $15 trillion off the top rather than 60%...

http://www.inflateordie.com/files/Financial%20Bord...

hmmm hyperinflation sounds like its some tens of trillions of dollar away. We're a long way between here and there.

Thanks for the correction.
I also used to use http://www.cefconnect.com/Details/Summary.aspx?tic...
for the info, but it's not up to date.

Les -

"hmmm hyperinflation sounds like its some tens of trillions of dollar away. We're a long way between here and there."

Not if Spain defaults this Spring and triggers the bank derivitive swaps. Massive young male unemployment and a new ban on bullfighting could prove explosive, no? The Bernank will then print whatever it takes to save HB&B as before. The Fed will not allow HB&B to fail since HB&B represents all the power in the current U.S. gov't regime. Of course, the Brenank will force one sacrificial lamb into the volcano like BofA to maintain his omnipotence within the cabal as long as possible.

Armstrong believes 2012 to be a major trend change year. All eyes should be squarely on the European banks and the sovereign debt spreads.

I like the 'mobility' of gold especially during the potential for a reset over a predictable bank 'holiday' a la FDR confiscation and reset. If that's what gov't considers a holiday, I will gladly wave to those on that Titanic trip from the Southampton docks.

Cheers.

Edit: Here's the roadmap based on the Argentinian experience>
http://www.asalbuchi.com.ar/2011/12/argentina-tang...

I think you are just about on target Mokat. The liquidity crisis in Europe is what we went through in 2007/2008. So there are essentially two movers driving dollar strength (which dictates prices of anything priced in dollars).

While I don't want a war, one of the primary drivers of weak dollar/strong commodities like gold was 9/11 and the resulting war and the printing to fund it.

Even a little skirmish like a reaction to an attempt to close the Straights of Hormuz would drive oil and gold skyward.

I do think Dave's diversification is a good idea. I'm doing the same.
I'm not worried about gold (yet) as most of my purchases were back in 04/05 and I'm still doing good with PM's by any measure. I'm still predominantly in cash so if gold tanks and the dollar goes higher it's really a bar bell type of strategy.

Thanks Les for the Armstrong link, however bleak it may be. He warns of extreme government tyranny ahead
Armstrongs view dovetails the good discussion from yesterday's Cara blog on gold, inflation,deflation,etc.

Everyone should read this post.. A great comparison of the Roman Empire and what we are going through at the moment.

Here's a couple of paragraphs from his comment that should get you interested.

"This is also true of gold that is normally confused as a perfect hedge against “inflation” which it is not for there is no perfect correlation between gold and inflation. Gold is actually a “movable” liquid asset easily sold in all cultures unlike stocks or real estate, which cannot be easily resold outside the local market. For this reason, gold is the historical perfect hedge against government, not because of a store of value, but because of its liquidity in times
of crisis characterized by its movability. "

If government were expanding the currency supply (currency and bonds) in isolation, we would have the risk of HYPER- INFLATION. However, since we are deleveraging still in the private sector, these two trends are offsetting each other creating a DESTRUCTIVE INFERENCE, which is why gold has NOT broken through that $2,000 barrier.

The greater the shift toward the retirement of the baby-boomers, the greater the problem with the exponential rise in the cost of government. We have lost all sense of our roots and government is becoming increasingly hostile
desperate for revenue. This is a lethal trend that only leads to tyranny. Despite all of these trends, and the ultimate conclusion being inflation, in the near-term we remain in a deflationary environment with a massive deleveraging of the economy that cannot be reversed even with $3 trillion of new elastic money by the Federal Reserve. The collapse of Europe becomes inevitable for there also government will not address the structural flaws and will only increase its oppression against the people as if taking every euro will somehow reverse 60 years of fiscal mismanagement. The
dollar may rise sharply thanks to deflation, and we may see the worst of every possible trend before this nightmare comes to an end."

Perhaps it is the so called American spirit or optimism that we naively cling to with the idea that someone or something ahead will allow us to overcome government tyranny and return to a sound money system and right our economy. Armstrong warns that this ain't so and we better prepare for an onslaught by the government as it struggles to avoid collapse.

In my personal view, i would want price to confirm it is going higher. no point in trying to guess a V bottom.

If it can build out a trading range or test 3.53, maybe start scaling in.

but i also want to point out that in 2008 the stock also fell to $0.38. not saying it will go 1 tick lower than today's low.

i guess it is all dependent on one's strategy, entry, time frame, etc. Isn't the ticker changing to a consolidated co, in Jan on MUX?

No position.

For swing/position traders maybe a buy in the low $3's to high $2.90's and a stop at or just below the 52 wk low.

I've been (day) trading it off of the Euro/dollar and intraday momentum in gold.
I was pleasantly surprised at the action today as a day trade, but in this sideways chop I'm cautious on entries and take profits early on upward momentum.
No clue in this environment where we go, esp. at or near the 200 dma. I am prepared to go long or short but the overhead and debt/currency issues still have me psychologically leaning short.

Edit: Trading in this environment is quite a test. It reminds me of my scuba instructor who told me if I could dive the Puget Sound I could dive anywhere.
After this year I either got good at technicals and intramarket analysis or good at hand sitting.

This actually has a couple lessons in one. to set this up, he was long wheat and short cotton. He become friendly with Percy Thomas, who was a cotton bull and industry insider who knew every facet of the cotton industry.

In meeting Percy, Jesse Livermore began to doubt his own read of what the prices were already telling him. And he began to adhere to the expert analysis of Percy Thomas. This episode nearly wiped Jesse Livermore's account out.

Page 196
It seems incredible that knowing this game as well as i did and with an experience of twelve or fourteen years of speculating in stocks and commodities I did precisely the wrong thing. The cotton showed me a loss and I kept it. The wheat showed me a gain and i sold it out. It was an utterly foolish play, but all I can say in extenuation is that it wasn't my deal, but Thomas'. Of all speculative blunders there are few greater than trying to average a losing game. My cotton deal proved it to the hilt a little later. Always sell what shows you a loss and keep what shows you a profit. That was so obviously the wise thing to do and was so well known to me that even now I marvel at myself for doing the reverse.

And so I sold my wheat, deliberately cut short my profit in it. After I got out of it the price went up twenty cents a bushel without stopping. If I had kept it I might have taken a profit of about eight million dollars. And having decided to keep on with the losing proposition I bought more Cotton!
I remember very clearly how every day I would buy more cotton, more cotton. And why do you think i bought it? To keep the price from going down! If that isn't a suckers play, what is?

(few paragraphs later)
To learn a man can make foolish plays for no reason whatever was a valuable lesson. It cost me millions to learn that another dangerous enemy to a trader is his susceptibility to the urgings of a magnetic personality when plausibly expressed by a brilliant mind. It has always seemed to me, however, that I might have learned my lesson quite as well if the cost had been only one million. But Fate does not always let you fix the tuition fee. She delivers the the educational wallop and presents her own bill, knowing you have to pay it, no matter what the amount may be. Having learned what folly I was capable of I closed that particular incident. Percy Thomas went out of my life.

Hi Craig,

I would agree on your sentiment on the educational benefit of not only this yr, but since the dot com craze. Since then we have also had a debt and housing bubble. just incredible learnings.

Not sure what would have become of me if i chose the wall st door vs the tech startup route straight out of nyu stern in 1999. But i have a strange feeling I would have been chewed up and chewed out by now. But by being able to keep one hand in the market, one hand out, and continue my education, i am now going back into it on somewhat my own terms.

Most of my friends who i graduated with are burned out and looking for ways to start their own business or anything else but wall st jobs. however they are now in full speed raising family mode. Risk off.