Thursday, March 13, 2008

Nuclear "Indian Summer"

Excuse my absence from posting anything lately.

It's a bit ironic, because I actually have quite a bit to say. It's just a matter of trying to organize it all into some sort of coherent thought process that someone could reasonably follow. Now, THAT is going to a take a little doing....but here it goes:

Get Your Affairs in Order Redux

In my orginal post "Get Your Affairs in Order" I posited that the US dollar was enjoying what would be a short counter trend rally -- perhaps lasting for one or two months, and after that rally the bottom would fall out.

For those that live on the dollar and are already cutting it pretty close to the bone in regards to "disposable income" (see: fubarrio!) my advice was to hedge away some of this risk. I think suggested that gold would be one of the most efficient ways of accomplishing this.

Since that orginal post, as predicted, all hell broke loose to the downside on the dollar, and things we use to "heat and eat" (commodities priced globally that we must compete for globally with depreciated dollars) have obviously soared.

So why do I bring this up now? Just to gloat? (yes, a little gloating is in order, but that's not why!)

What prompted me to post the orginal "get your affairs in order" and to speculate that some time remained for people to do just that was that there was a good deal of *manipulation* in the marketplace as the dollar approached significant psychological "points of no return"

If you remember, "support and resistence" -- theoretical "lines in the sand" are psychologically important price points for a given asset or security. While these fundamentally have no reason to exist (usually), the market is made up of people who have psychological motivations for the way they price things.

Important support prices (prices through which a given security seems "unwilling" to go under) or resistance (prices a given security has a hard time "breaking through") can be for any number of reasons. The most common are: round numbers, and places where significant bottoms or tops in price action were formed previously.

Right now, we've bounced off some important psychological levels, with a little help of overt market manipulation by the powers that be. They have in effect halted the "nuclear autumn" and put the warm sunshine of capital appreciation back on your face for an extended "nuclear indian summer".

Well, as soon as the warm snap is over, guess what....getting ready for "nuclear winter".

Gold at $1,000/oz

Gold "printed" 1,000/oz in the spot market today for the first time ever. This is a signficantly psychological price barrier and it is pretty unlikely that a security like gold could just power through without going back to "retest" the 1000/oz mark to see if it could act as "support".

Gold has since pulled back, but without doing any detailed analysis, this is NOT where you typically see a multi-year high. Gold should hit the 4 digit mark a few more times with small pull backs before approaching the 1000 absent any news. Then "magically" some news supportive of gold will probably appear to "explain" a breakthrough past the 1,000 mark in a significant

Dollar/Yen at 100

The Yen has *soared* in recent months. And, as many pundits expected his 100/dollar this a.m. It has since backed off fractionally. But with US inflation hitting asian shores look for them to continue to let their currencies appreciate (longer term) to fight off food inflation. While Japan is not China, Chinese appreciation gives Japan more breathing room (i believe) to let their currency inflate against the USD

Oil at 110/barrel

Does that number just sound "high" to anyone else? Good God. :)

Nat gas over $10/MBTU

I guess the unseasonably warm winter didn't materialize this year in the North and we see what happened to nat gas.

S&P at 1305, 1290, 1270, DJIA under 12k

OK. This is why I think that we could see some shorter term "counter trend" moves in all the aforementioned.

To any casual observer, the "great news" out of the treasury, or out of congress, the white house, or the FED (pick your day, and pick your 'suprise' announcement) just seems like (somewhat) normal newsflow.

To anyone who has been tradin for more than a week, the timing of the newsflow is VERY suspicious (to be kind). The FED, the treasury, and probably the president's working group on capital markets (AKA the "plunge protection team") have been waging a massive war of PR....

Now, if you are LONG in the dollar, or the US markets you may not notice. If you are NOT it seems very contrived.

It seems that no longer is the FED's mandate to "promote full employment" and "promote price stability" -- unless said "price stability" extends to exotic mortgage derivatives to the expense of bread for the people!

The FED has REPEATEDLY announced massive "bailout", special loans, dramatic rate cuts, liquidity injections, etc. totaling in the many 100's of billions of dollars.....All executed (even when done BETWEEN meetings --- a very rare time to announce rate moves) *right* when the markets seemed poised to cascade down off of major price support.

The FED's move seems to have been aimed at "shock and awe" (not sure if they are using this term but the media is) of the short sellers and other would be "bears".

Now, if you're long the US stock market or getting ready to retire in a couple of years you might think this is a good thing. But, sadly this is most certainly NOT a good thing. Because these injections of liquidity have to come at the expense of something ... and it's coming at the expense of the dollar....the result is rising prices for us as a way to socialize and subsidize the largess of the irresponsible lending institutions and their multi-million (and in some cases billion)dollar/year CEOs.

All the while, helping to "support" prices for the collateral underlying this mess (the houses and real estate itself) does NOTHING to address affordability for you and me who have to actually buy these mcstucco sh&t boxes at some point.

Government intervention in markets -- where markets are allowed to go up --- but not allowed to come down, can only end in a disaster. Unfortunately those gaining the most from their manipulations will NOT be those that suffer from the coming collapse. summary.....the manipulations are giving you a chance.....we may see some stability in the dollar and maybe even a little "dead cat" bounce in the markets. Use that as an opportunity to move your 401k money into something that doesn't rely on financial stocks.

If/when govt intervention fails we will see a massive and spectacular bank failure (or two or more) and by all rights the GSE fannie mae is probably insolvent right's just not admitting it yet.


p.s. as always, none of this constitutes investment advice. If you're crazy enough to accept investment advice from a blind, hairless dog on the internet with no dental plan, then expect to look like fubarrio in a couple of years.

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