US Dollar Seen Rising in 2011 After Rough 2010

This is the last piece of spin for 2010.

The dollar remains the ultimate safe haven," Prasad said.

My response to this tireless spin argument is bull.

Gold trend, priced in a composite of fiat (paper currency), is up. The market has established gold as the ultimate safe haven. It's the only expert that matters.

Gold London PM Fixed and U.S. Dollar Major Currencies Index Ratio:


Gold London PM Fixed and U.S. Dollar Broad Index:

Never mind the lackluster economy, the huge trade deficit or the government's piles of debt: The U.S. dollar is still expected to outperform most of the world's major currencies next year.

"By all rights, the dollar should be declining in value, but it's not," says Eswar Prasad, economics professor at Cornell University. "For the dollar to decline in value, you must have currencies on the other side that will" rise.

Bad as things are in the United States, they look worse in Europe and Japan, making the yen, the euro and the British pound riskier bets in 2011. A notable exception is the Chinese yuan, which is likely to rise next year as Beijing fights inflation.

"The dollar remains the ultimate safe haven," Prasad said.

Source: abcnews.go.com

Public to Private Transition: Identify & Adapt

Identify and adapt or the markets will kick your ass in 2011.

Yet another transition from public to private sector (cycle) will catch many playing by the old rules.

Long-Term U.S. Corporate Bonds Total Return Index (LTCBTRI) to Long-Term U.S. Government Bonds Total Return Index (LTGBTRI):

Injection Phase From Hell Has Begun

There’s a reason why you know Jim and Dan. It's a combination of talent and wisdom.

Please read Dan's comments on jsmineset.com track record.

Never let any market rhetoric, short term price targets to trend noise, obscure the fact that “injection phase from hell” has already begun.

U.S. Treasury Yield Curve: US LT Treasury Bond Yield- 3M US Tbill Yield (TBD-TB3MS) and Gold London PM Fixed:


This game cannot be played from the sandbox. Comments from it are to be ignored.

Chinese Money In Africa

The Chinese have invested heavily in the rare earths elements around Lake Victoria. The road through the northern section of Serengeti in Tanzania is the most direct route to the coast.

Headline: Conservationists seek Serengeti road freeze

An African conservation group said Wednesday it would ask a regional court to freeze a project to build a road through Tanzania's iconic Serengeti park.

It said it would seek an injunction from the East African Court of Justice (EACJ) "to restrain the United Republic of Tanzania from constructing a super highway through the Serengeti Game Reserve."

Source: news.yahoo.com

Here Comes The Drama

BT,

Silver is clearly within a long-term secular up trend. This overrides any short-term technical targets. The silver ‘newbies’ entering the fray after an undisputed breakout will accelerate the trend. Acceleration implies y=x2 rather than y=mx+b. The addition of the crooked number next to the X will add drama for both sides of the trade.

The observation today, as it was months ago, is growing trend energy. This is illustrated by a dramatic surge in REV(E). A surge in REV(E) suggests accumulation. Markets that are under accumulation are difficult to control. This one is all about control.

Silver ETF (SLV):


Regards,

Eric

Eric, enjoyed looking at your post tonight.... I was curious if you think we are going to head to 38 (monthly close?) rather quickly here? I had always sort of thought of a cup and handle for long term silver onto higher numbers.... any comment appreceated.

best Ciga BT
thanks!

Growing Signs of Hyperinflation

"Who is more foolish: the fool or the fool that follows him?"

Elimination of lower denomination coins and changing metal composition of coins are clear sign of hyperinflation across the globe. Yet, there is no shortage of experts warning the masses about the threat of deflation.

The threat of deflation is an illusion as the signs of hyperinflation are growing in size and frequency. The pain of monetary reality, however, prevents many from straying too from the comfort of the illusion.

Headline: Soaring metal prices ring death knell for 25p coins

The ubiquitous 25 paise coin will be history in six months’ time. Worried by the soaring metal prices, the government has decided to scrap all coins up to the denomination of 25 paise from June 30, 2011, making 50 paise the minimum denomination accepted in markets.

“From this date, these coins shall cease to be a legal tender for payment as well as on account. The minimum denomination coin acceptable for transaction will be 50 paise from that date,” said a finance ministry release on Thursday adding that the Reserve Bank of India will separately notify the procedure for calling in the coins.

Source: indianexpress.com

Don't Interpret Trend Noise

While experts interpret trend noise, they ignore the fact that cycles (TIME) anticipate price. The surge in trend energy, REV(E), suggests that yields on the long bond will continue rising when TIME is right.

30 Year Treasury Index Bear 3x ETF:


Headline: Treasurys slip after unemployment, housing data

Treasury prices slipped a little further Thursday, pushing yields up, after reports showed fewer Americans filing for first-time jobless benefits than economists had forecast and pending home sales higher than predicted.

Analysts noted that most bond investors would treat the session as the last of the year, even though the market is open for a half-day Friday. That will mean a lot of position adjustments and so-called window dressing of portfolios for the end of the month and year, especially after wild swings this week, more than any meaningful indication of the how the data fit into investors’ longer-term outlook.

Source: marketwatch.com

The Gloves Are Off

The talking heads showed no hesitation about pushing fear and doubt for gold and silver in 2011 before the Christmas holiday. At the time silver was in the process of testing upper channel resistance as support. This unbelievably bullish technical setup, an outcome that I had flagged as extremely important in previous commentaries, is hardly the backdrop of doubt and fear.

Yet another example of why investors must develop their own “voice.” The game of money, based on doubt, fear, greed and misdirection, cannot be played on tips or earshot advice.

At one point, I said when upper channel resistance has become support in silver – “The glove come off.”

The gloves are off, people.

Silver ETF (SLV):


When a trend breaks a linear representation, it tends to goe higher-order into what is known as a plateau move.

Silver, London P.M. Fixed:

What Price is High Enough?

One observation to Jim's responses to various questions included below,

What price is high enough? The answer to that will reflect the state of confidence within the current monetary system. Confidence will be heavily influence by the extent of nominal debt destruction through direct and indirect default into 2016.

The trend in total credit market debt as a percentage of national income will influence confidence within the old monetary system. The liquidation process, if permitted, will help restore confidence. Of course, this is only the officially recognized credit market debt. Accounting "flexibility" hides a much larger burden.

Total Credit Market Debt As A% GDP:


It doesn't take much insight to recognize that the liquidation phase has only just begun. The termination of the blow off phase represents the initial stages of the Great debt revaluation. The Great debt revaluation as defined by the upward revision in the price of gold began in 2000.

How long the world attempt to exude confidence while looking the other way?

The economic gain for each dollar of debt created has slumped well below the Great Depression lows. The law of diminishing returns has begun to handcuff policy options.

Annual Gross Domestic Product (GDP) per Annual Total Credit Market Debt (TCMD):
Annual Income Growth per Debt Creation


It will be impossible to define the ultimate price target because mathematical equations cannot predict emotions.

The trend, however, remains up. A 5-handle looks extremely plausible. The final value, driven by emotions, will likely surprise even the bulls.

Gold, London P.M. Fixed:


-------------

I had a few questions that I would like you to address if you can.

Several years ago you made the comment that the time would be coming when, if a person had the money, they could buy whatever they wanted for pennies on the dollar as people would be trying to sell whatever they had to pay off their debts. Is this still a likely future event or will hyper-inflation just cause the cost of things to sky-rocket and if you need something like a used car, etc. you should buy it now?

Own gold then buy toys if you must. That is the way to buying for a value of peanuts in time.

I have my portfolio divided between 2 different brokers. Is it still critical to take the stocks out in certificate form? I'm not so much worried about having a hold put on my account even for several months, I haven't been trading my positions much anyway. I've tried to get into mining companies that are performing well and I'm just holding what I have. But I sure wouldn't want to lose my positions. What is the likelihood that one day I could find out that my positions are gone if they're held in my broker account?

Gold is properly defined as insurance. Every thing gold is a gradient of insurance. Is is not wise to keep insurance close at hand?

However many gold companies no longer issue paper certificates.
If things got that severe in the financial markets would you consider it to be more likely to happen during the second run up from $2500 to $10000 gold that Armstrong is predicting?

My deep respect for Alf and Armstrong move me to say they will be right at some time in the not to distant future. However $10,000 is a reach.

Is having the stock held in my name by the clearing house sufficient or should I be holding the actual certificate?

That is called direct registration and is the second best route to take.

Are you still holding to the position that if we don't see $1650 gold by Jan. 14th that it will be $3000-5000 in June?

When you make a statement only a woos wiggles away. I stand by what I have said recognizing that I may have made a fool out of myself in public. The fact that I said $1650 many years ago is no excuse if I am wrong on January 14th 2011 and gold is at $1550.There is no gray, for a responsible person, in what you say.

Thank you for your time,
Steve

Up Ticks In Consumer Expectations Are Bullish For Gold

The small up tick in consumer expectations (CE) in December must be viewed within the context of secular down cycle. This cycle is not scheduled to end until 2016, so ignore the short-term interpretations by the experts. Unexpected up ticks or statistical noise with the secular down trend, often hyped to sell headlines and support spin, represent little more than technical fuel for the next decline.

A study of the CE trend is useful for gold investors. The inverse correlation between CE and gold is strong. Investors can use short-term up ticks in consumer expectations to augment their gold line into weakness.

University of Michigan Consumer Expectations (CE) and Gold: A Correlation Study:


Headline: Consumer sentiment rises in December

A gauge of U.S. consumer sentiment rose in December, reaching the highest level in six months, but remains at a low level on concerns about “stagnant incomes,” according to the Reuters/University of Michigan index released Thursday.

The gauge climbed to 74.5 in late December, matching estimates from economists polled by MarketWatch, but remains below pre-recession levels of more than 80. See economic calendar. The final December result compares with 74.2 earlier in the month, and 71.6 in November.

Source: marketwatch.com

Will We See A Santa Claus Rally in 2010 Poll?

40% of the 108 poll respondents said YES.

The trend continues to be the inverse of currency devaluation but it will not be a straight line.

Santa's team of research elves say that "when time is up, price will follow."

NYSE Composite/Volatility Ratio:

Allstate sues Countrywide over toxic investments

These toxic assets have infected nearly every public and private portfolio. Yet, the people that buy gold and silver are still publicly characterized as hoarders, gold bugs, and various other descriptions that translate into “a bunch of dumb asses”. Go figure.

NEW YORK (AP) -- Allstate Corp. has filed a federal lawsuit against Countrywide Financial Corp. over $700 million in toxic mortgage-backed securities that the insurer bought beginning in 2005, only to see their value decline rapidly.

The suit, filed Monday in Manhattan federal court, targets Countrywide, its co-founder and longtime CEO Angelo Mozilo and other executives, as well as Bank of America Corp., which bought the mortgage giant in 2008.

Source: finance.yahoo.com

The Path of Least Resistance Is Complacency

You know what is about to hit the FAN.

Municipal bonds may not be worth the paper they are written on.

Jim

Jim,

The public, when presented with options - see headlines below, tends to choose the path of least resistance. That is, the path of complacency. It is much easier assume that the world they know, understand, live, and most importantly denominates the value of their possessions is solid as rock.

Local and State governments are facing deficits so large that few people realize how long it will take balance the economic and social equations. Are municipal bonds in trouble? Don’t ask the politicians or experts. The message of the markets is the only opinion that matters.

The suggestion that the iShares Muni Bond to Gold ratio is anything but a plunger’s (short side) trend is opinion. Opinions are the kiss of death in this business.

iShares Muni Bond (ETF) to Gold Ratio:


Regards,

Eric

Headline: Ind. bill would allow cities to declare bankruptcy

INDIANAPOLIS — A plan backed by Gov. Mitch Daniels would allow local governments in Indiana to ask for a state takeover and declare bankruptcy if necessary.

Daniels says he hopes there won't be many local governments that seek bankruptcy, but says the state needs to have the law clarified and on standby in case it happens.

Headline: Despite Default Risk, Select Muni Bonds Strong Buy: Gross

Regardless of the shabby state of government finances in the US, Pimco's Bill Gross says now is the time to be buying municipal bonds.


California and New York City are among the governments Gross, speaking in a CNBC interview, says will treat investors the best.

While he suggests avoiding entities with big budget shortfalls like Illinois, there are a number of other opportunities out there for investors trying to get better yields than the still-low returns that Treasurys provide.

Operation Bond Drive

Were the 5-year auction results reflective of poor demand? I’ve seen 2.61 bid-to-cover ratios spun as bullish. The auction results showed increased and decreased participation from primary dealers and direct bidders, respectively. This is a mildly bullish short term observation. This piece of information was ignored because price action makes better commentary.

5-Year Auction Results


What the incentive for negative price action? Negative price action provides churn (volume) or cover necessary to setup (control) the market. Operation bond drive represents accumulation by connected money in the bond market as specs and retail becomes increasing emboldened by the media-hyped price break.

Price action is leading the herd into a narrow, controlled pass that hides cliff around the bend.

Connected money is repositioning on the long side in 2-, 5-, 10-year, and long bond. This clustering of money movement, illustrated below, suggest accumulation within an operation of size and possibility of short-term price "teeth".

COT Money Flow Table:


Headline: Treasurys Sink After Poor 5-Year Auction
Treasury prices sank Tuesday after lukewarm demand on a $35 billion sale in five-year notes.

The bond market extended its losses after the auction, pushing prices to fresh session lows, as the result raised concern about the outlook for Wednesday's scheduled sale of seven-year notes.

Higher yields failed to lure enough buyers to underwrite the auction, a sharp contrast to the two-year notes sale Monday.

online.wsj.com

Herd Capitulation in Natural Gas?

Could it be that the specs (hedge funds) and retail funds are being setup by the media tools of the operators? Those that recognize the tools play the game. Those that cannot recognize them also play but not very long.

Connect money continues to increase their net long positions as the headlines provide the intended ‘perspective’ for the weak hands.

Natural Gas ETF and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


While retail money remains relative bullish, their recent selling represents what I characterize as herd capitulation. In other words, how can I remain bullish when the experts/pros/talking heads remain so bearish? Any retail capitulation on the long side as connected money quietly repositions only sweetens the pot.

Natural Gas ETF and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


If there’s a technical trigger on this one, watch out.

Headline: Hedge Funds Bet Gas Will Fall in Warm New Year: Energy Markets

Hedge funds raised bearish natural gas bets by the most since October on forecasts that higher- than-normal temperatures in the first weeks of the New Year will reduce demand for the heating fuel.

The funds and other large speculators cut net-long positions, or wagers on rising prices, by 35 percent in the seven days ended Dec. 21, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest drop since Oct. 12.

Source: businessweek.com

China shrinks rare earths export quota

What have you learned from China? They use the media to manipulate expectations to hide their true intentions. Gee, sounds like a familiar Western practice. China (unlike the West) is following a specific long-term plan. This makes them a respectable opponent in “the game”.

The talking heads that suggested that rare earth metals was not a short to intermediate supply problem for the West did an excellent job in misinforming the weak hands. The newswire is a tool. Those that cannot reason, or let others do their reasoning will be susceptible to the tools of the operators.

China is scaling back its exports next year of rare earth minerals used in high tech products, which could be an unpopular move with countries such as the United States and Japan.

Numbers released Tuesday by the Commerce Ministry show export quotas of the rare minerals will be down 11 percent next year as compared to the same period this year.

Source: forbes.com

Happy Holidays And Prosperous New Year For All

Thank you all for your support in 2010

Eric

Market Forces Versus Paper Operations

Pushing doubt in gold and silver for 2011 already. Fear is the operators best tool and retail moneys' worst enemy.

The battle for the upper trading channel represents the battle between greed driven by market forces and fear of another paper "operation". The trend will acelerate once the trading channel falls.

Gold, London P.M. Fixed


Headline: Gold a Troubled Trade?


Source: cnbc.com

Ever wonder why the experts talk so much?

Trading operations are certainly not limited to the Euro. Ever wonder why the 'experts' talk so much? The path to higher long-term interest rates will not be a straight line trend.

US TBd (20 Years +) and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Headline: Investor bond retreat the fastest pace in 2 years

Investors retreated from bond mutual funds last week at the highest level in two years, resulting in a net outflow of $8.62 billion in the week ended Dec. 15, the Investment Company Institute said Wednesday.

That's the largest single-week pullback from bonds since the week ending Oct. 15, 2008, when investors took out $17.60 billion.

Source: finance.yahoo.com

Old Habits Die Hard

I have heard the following phrase repeated ad nauseum since my introduction to “the game”.

"Never underestimate the American consumer"

At first the phrase suggested to me that American consumer adorned a cape and red boots and outran speeding locomotives. As my depth of understanding increased over time, I realized that underestimate suggested adherence to a blind routine that general lacked understanding of its consequences.

Never underestimate the American consumer to neglect the message of the markets. The culture of shop-til-you-drop no longer exists, but it will take time for most to realize it. In time the market will force a transition from an era of dissavings to that of savings. The lesson and transition will not be easy, but it will be done.

Personal Consumption As A % of Personal Income:


Headline: Americans boost spending heading into holidays

Americans spent at a moderate pace last month, giving the economy a boost ahead of the holidays.

The Commerce Department reported Thursday that consumers increased their spending 0.4 percent in November. The gain came after shoppers ratcheted up spending by 0.7 percent in October, the most since August 2009. It marked the fifth month in a row that spending rose.

Source: finance.yahoo.com

Muni Bond Crisis May Be Similar to Euro Zone: Strategist

Not may be but rather is similar. Aside from the currency that denominates the debt and the accounting tricks used to hide the insolvency, the bond crisis in the US Union is the same as the Euro Zone.

A crisis in the municipal bond market in the US would be similar to the one sweeping through the euro zone now, Steven Major, global head of fixed income research at HSBC, told CNBC Wednesday.

Analyst Meredith Whitney warned that a wave of defaults by state and local governments is coming and will cause a selloff in the municipal bond market.

"In a way it's the same kind of thing (as the euro zone crisis)," Major said. "The concerns are about the solvency risk for 2012."

Source: finance.yahoo.com

Residential Real Estate Remains Weak

Residential real estate, despite spin's best efforts to sell manure as flowers, remains a train wreck in progress. Building permits, which are difficult to nudge and fudge, started to roll-over in June 2010. The most recent data illustrates an acceleration of the downside trend.

Building Permits And Change YOY


Headline: US Stocks Tack On Small Gains Following GDP, Housing Data

Separate data showed demand for used homes increased by 5.6% to a seasonally adjusted annual rate of 4.68 million, the National Association of Realtors said. The increase was smaller than the 6.5% rise that economists had predicted.

However, the price for an existing home edged up for the first time since August, to $170,600 in November. That's up 0.4% from the year-ago median price of $170,000 and an improvement from a downwardly revised $170,400 in October.

Source: online.wsj.com

The Secular Trends Provide Generational Profits

The message of the tape (market) for gold stocks reflects a contraction of downside force in the short-term trend. The 12/02 breakout gap has been close several times on shrinking volume. The probing and close above support on a contraction in volume illustrates a bullish setup. A market that cannot break support with force will reverse and retest resistance with force. A break of the power down trend line (PDT) in trend energy, REV(E), will confirm a short-term trend inflection.


Gold Miners Index ETF (GDX):


Don't let 5-minute charts and analysis blind you of the secular trends. The Masters Jesse, Richard, D.W., Bart, etc. have passed down "the one lesson" that cannot be ignored.

"Cut your losses, and let your winners run"

Those that live in the world of 5-minute charts and analysis will always be blind to the secular trends. The secular trends provide generational profits.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining:

2011 Will Be The Year of Economic Acceleration (On Paper)

Even the absurd can become believable if it is repeated enough times. Many ‘experts’ and talking heads will suggest ad nauseum the economy is accelerating in 2011. They’ll cite key statistical improvements in centrally generated economic time series. The improvements will be cast as “shock and awe” until year end. Simply be forewarned of the transition from economic recovery to acceleration.

Unfortunately, little has changed since the onset of the crisis other than the magnitude of the debt created.

Personal expenditures, or consumption, still represent over 70% of GDP (national income). Excessive consumption fueled by debt got us into this mess, so only logic would dictate that it will get us out if it, right?

Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947:


Ignore the fact that domestic private investment has collapsed levels not seen since the Great Depression. Oops, it’s best we don’t look at that.

Gross Domestic Private Investment (GDPI) As A %GDP and Gross Domestic Private Investment (GDPI) As A %GDP Average from 1947:


Government expenditures and investment continue to their upward trend as consumption inevitably weakens under weight of the debt burdens created under shop-til-you-drop mentality created by the illusion of the plateau of economic prosperity.

Government Consumption Expenditures and Gross Investment (GCEI) As A %GDP Average from 1947:


The cold reality is that Americans, driven by the instinct of self-preservation, are beginning and to save more. Ultimately, the trend towards thriftiness, while curtailing consumption and redistributing the drivers of economic growth to centralized QE and stimulus, will provide the fuel for the next economic expansion.

Savings (SAV) As A %GDP and Savings (SAV) As A %GDP Average from 1947:


Headline: Economy grew modestly in July-September quarter

The economy grew at a moderate pace last summer, reflecting stronger spending by businesses to replenish stockpiles. More recent barometers suggest the economy is gaining momentum in the final months of the year.

Gross domestic product increased at a 2.6 percent annual rate in the July-September quarter, the Commerce Department reported Wednesday. That's up from the 2.5 percent pace estimated a month ago. While businesses spent more to build inventories, consumers ended up spending a bit less.

Source: finance.yahoo.com

There's a mini ice age coming, says man who beats weather experts

Cold and Wet Cycle. Being right has nothing to do with consensus opinion.

Piers Corbyn not only predicted the current weather, but he believes things are going to get much worse, says Boris Johnson, London's mayor

The man who repeatedly beats the Met Office at its own game

Well, folks, it's tea-time on Sunday and for anyone involved in keeping people moving it has been a hell of a weekend. Thousands have had their journeys wrecked, tens of thousands have been delayed getting away for Christmas; and for those Londoners who feel aggrieved by the performance of any part of our transport services, I can only say that we are doing our level best.

Source: smh.com.au

From Bob

One Cannot Use Mono-Dimensional Reasoning While Playing A Multi-Dimensional Game

Let's just say opinions vary on this subject. As long as money continues to seek refuge from the devaluation of all paper currencies (fiat), not just the movement out of the Euro into the dollar as depicted by the media, nominal global stock market trends and their predictions are meaningless.

Investment decision making is multi-dimensional game; It is similar to chess. Those that view investing as the possibility of a 20% U.S. stock market gain in 2011, a mono-dimensional view, have already lost despite the fact that none of the pieces have been touched.

Stocks, similiar to 2003-2007, remain in a box around the globe.

Dow Jones World and Dow Jones World to Gold Ratio:


Year of USA? As I have already said, opinions vary on this subject.

Dow Jones Industrial Average (DJIA) to Gold Ratio:


Headline: Goldman's O'Neill Sees 2011 as 'Year of USA'

Improving growth, falling unemployment and a sense that the U.S. is returning to "normal" could fuel a 20 percent stock market gain and make 2011 the "Year of the USA," according to Goldman Sachseconomist Jim O'Neill.

O'Neill, the widely-followed chairman of Goldman Sachs (NYSE:GS - News) Asset Management, in a note this week made the case for the U.S. to be a bright spot in the world economy, with growth rates of 3.4 percent in 2011 and 3.8 percent in 2012.

Source: finance.yahoo.com

Investors Are Often Blinded By Personal Opinions and Biases

Not really, JBG. The long-term stock market trends and cycles have changed little since 1999-2000. Investors, often blinded by their personal opinions and biases, tend to consistently ignore the message of the markets. The message from the small cap sector remains the same in 2010 as it was in 1932, 1939, 1999 and 2009. Those that read this message have profited from it. Those that did not tend to complain that their personal opinions and biases have not been realized. For example, a common interpretation of market action implies that many if not all market are manipulated. While market manipulation and operations do exist, they cannot alter the direction of the secular trends and cycles.

U.S. Small Cap Stocks Total Return Index (SCSTRI):


U.S. Small Cap Total Return Index (SCSTRI) to Gold Ratio:


U.S. Large Cap Stocks Total Return Index (LCSTRI) to U.S. Small Cap Total Return Index (SCSTRI) Ratio:


Happy Holidays,

Eric

Hi Eric,

I have followed your web site for quite a while and really enjoy it. In the past you have written about small cap stocks and how they have historically performed during economic environments (i.e. printing money) like we are now experiencing. Do you have any updates?

Thanks,

JGB

Chicago Fed National Activity Index (CFNAI)

The Chicago Fed National Activity Index (CFNAI) is a monthly index designed to gauge overall economic activity and related inflationary pressure. The CFNAI tends to register numerous negative divergences, a trend of lower CFNAI highs relative to S&P 500 highs, before equities record their intermediate cycle peaks.

Chicago Fed National Activity Index (CNFAI) and S&P 500 Average:


Source: chicagofed.org

60 Minutes - The Day of Reckoning

It won't be longer before the public can no long deny what 60 Minutes has recognized. The Day of Reckoning is near.

It's a good but predictable watch for long-time readers.

Source: amazon.com

The Horse Is Not Drinking

It's certainly difficult to positively spin the commercial banking lending trends. The percentage of total, business & commercial, and real estate loans to total credit continue to contract since the onset of the crisis in 2008. Business & commercial and real estate loans which accounted for nearly 60% of total credit creation in 2008 have contracted to nearly 50% in 2010. Even consumer loans which had carried more of the credit creation burden after 2008 is beginning to weaken.

Where’s all the (bailout) cash going? The table below reveals that an increasing amount has been heading for Treasury and Agency debt. Treasury and agency debt as a percentage of total bank credit has risen from a low of 12.1% in 2008 to high 17.7% in 2010.

There’s an old saying that you can lead a horse to water (access to credit) but you cannot make it drink (borrow).

Breakdown of Total Bank Credit:

The Unusual Concentration in Natural Gas Continues

The concentrated money flows in natural gas (NG) flag continue to flag bullish tendencies despite the bearish supply reports. Connected and retail players have increased their net long positions into weakness; the retail long positions represent over 11% of the total open interest. This concentration is unusual as retail money as "chasers" tend to be on the wrong side of the trade at inflection points. A quick review of the money flows illustrates that trading tendencies common to other markets do not always apply to NG.

The heavy concentration of longs by connected players; nevertheless, warrants close attention. NG will most likely chop until the line of least resistance is established. The bearish supply reports, while contradicting the message from the leveraged market, have the specs plunging again. The spec short position at greater than 36% of open interest remains highest reading in nine years. In other words, the black boxes known for their tendency to race for a very small exit when “spooked” are aggressively short. This alone warrants a technial eye be placed on NG.

Natural Gas ETF and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Natural Gas ETF and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Headline: Natural gas falls further after inventories report

Natural-gas futures fell further Thursday after the U.S. government's weekly storage report showed a withdrawal from supplies that was slightly more than forecast. The Energy Information Administration said working gas in storage fell 164 billion cubic feet from the prior week. Analysts polled by Platts were looking for a reduction of between 159 and 163 billion cubic feet for the week ended Dec. 10. Natural gas for January delivery was down 13 cents, or 3.2%, for the session to $4.09 per million British thermal units. It had traded around $4.18 ahead of the report.

Source: marketwatch.com

Fancy ATM skips the folding cash, spits out gold

The market, legit or black, always finds a way.

BOCA RATON, Fla. (AP) — Shoppers who are looking for something sparkly to put under the Christmas tree can skip the jewelry and go straight to the source: an ATM that dispenses shiny 24-carat gold bars and coins.

A German company planned to install the machine Friday at an upscale mall in Boca Raton, a South Florida paradise of palm trees, pink buildings and wealthy retirees.

Thomas Geissler, CEO of Ex Oriente Lux and inventor of the Gold To Go machines, says the majority of buyers will be walk-ups enamored by the novelty. But he says they're also convenient for more serious investors looking to bypass the hassle of buying gold at pawn shops and over the Internet.

Source: timesherald.com

From Bob

Influence the Masses to Manage Price

The Asians are using the paper operations in gold and silver to reduce their exposure to the dollar and index to gold with the intent of purchasing physical at a later date. The paper operations have become of tools of the patient buyers.

This is why the headlines proclaiming to reveal China's true intentions, such as bearish views on gold, cannot be trusted. They are also tools intended to misdirect and aid their purchases without disrupting the exchanges or market price.

Jeese Livermoore described how little things have change in a hundred years.

If the World (newspaper) had not published that article - July Cotton Cornered by Jesse Livermoore - I never would have been able to dispose of my line without sacrificing the greater portion of my paper profits. Selling one hundred and forty thousand bales of July cotton without sending the price down was a trick beyond my powers. But the World story turned it for me very nicely. Why the World published it I cannot tell you.

The Chinese with trillions of dollars to hedge have learned the lesson of influencing the masses (herd) to manage price. This is why today’s headlines, often planned and coordinated, are so transparent to the trained eye.

Headline: When that happens, the game is over

So the Asians are exercising patience in converting all of these spot purchases to physical?

“If these guys converted all of their spot to physical, there would be a massive default today. No one in the US understands that, the Asians are laughing at these guys. It’s a way to unload billions and billions of dollars into the market. Looking at the futures market gives you a totally false impression of what is going on, this is going to totally blow up. Remember if you are China, your primary goal is to get out of trillions of dollars, that means purchasing hard assets such as gold and silver.”

How sustainable is that?

“It’s eventually going to blow because at some point these buyers will say, ‘I’m indexed, but I actually want to get all of this physical gold and silver now.’ When that happens, the game is over.”

Source: kingworldnews.com

Portugal May Get Frozen Out by Bond-Sale `Avalanche' in 2011: Euro Credit

Better get out those search dogs, because the avalanche might threaten those higher-rated governments and agencies as well.

Portugal risks being frozen out of the bond markets next year amid a wave of auctions from higher- rated governments and agencies that threaten to force the nation into seeking a bailout to pay its debts.

“It has become the market consensus that Portugal’s ability to fund on a standalone basis is fairly constrained,” said Jamie Stuttard, head of European and U.K. fixed income at London-based Schroders Plc, which has $286 billion under management. “People have investment alternatives.”

Source: bloomberg.com

Message of the Markets Before Opinions of the Street

The "discussion of doubt" for gold and silver starts 12.25. The prevailing opinion of silver comes at 17.25.

While gold and silver are struggling at the upper trading channel, the technical line in the sand, their technical setups remain constructive. We have characterize this zone as the battle for the bridge until the line of least resistance materializes.

Gold, London P.M. Fixed:


Opinion on the Street says that the gold to silver ratio (GSR) will not fall below the 1998 low. The message of the silver market does not agree.

Gold to Silver Ratio (GSR):


Word on the Street

Will the Dow hit a record high in 2011?

An even better question would be would record highs in the Dow reflect economic strength as implied in the commentary?

History clearly says no, but this won't stop the public from believing. It’s the unsupported belief that will prevent many from being prepared against the consequences of currency devaluation.

Could the Dow set a record high next year?

That question would have seemed crazy early last year when fear and panic enveloped the stock market and the Dow Jones industrial average plunged to 6,547 on March 9. Many investors thought it would take a decade or longer to get back to the record of 14,165, set on Oct. 9, 2007.

Now we could be on the verge. The Dow has soared 76 percent the past 21 months, and it would have to climb just 23 percent from Thursday's close of 11,499 to set a record

Source: finance.yahoo.com

Little Has Changed with The Execution of Controlled Operations Over Time

The Green Hornet says that the Cabal is working hard, but not making that much headway on the short of the euro play. That is the market saying the Wall Street Cabal covering as they now put their dollar short back on. It is free money when you control communications.

Jim

Jim,

Other than the names pulling the strings, technology used to communicate, very little has changed with the execution of controlled operations over time. Jesse Livermoore often discussed how bear pools controlled or plunged the tape in the days of the ticker tape. Independent thinking remains the only way to ID and defeat controlled operations and trade in sympathy with the secular trends.

This is illustrated by the absolute flushing of the "marks" by the sharks. The operation will weaken and terminate with the consumption of the paper fuel and adaptation to the market conditions by the various trading groups in the coming weeks.

Euro and the Nonreportable Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:


Eric

Headlines: Moody's Downgrades Ireland's Debt

Moody's Investors Service Inc. downgraded Ireland's debt to Baa1 from Aa2 Friday, warning the government's financial strength could deteriorate further if economic growth were to miss its projections.

The five-notch downgrade was made as "Ireland's sovereign creditworthiness has suffered from the repeated crystallization of bank-related contingent liabilities on the government's balance sheet," said Dietmar Hornung, vice president, senior credit officer at Moody's.

Source: online.wsj.com

Geithner says bailout will cost less than $25B

The hidden cost of currency devaluation, an aspect rarely considered in headline commenatry, will make the final cost far more expensive than any officially recognized number. The price of gold was roughly $750 at the time of bailout. Today, it's approaching $1,400 and heading higher. In other words, the financial bailout represented borrowing on the expensive while repaying on the cheap. From this vantage point, political success at least in terms of final dollar costs was ensured at the onset regardless of the economic results.

The eventual cost to taxpayers for the government's $700 billion financial bailout will be less than the $25 billion price tag put on it in the latest estimate, Treasury Secretary Timothy Geithner said Thursday.

The Congressional Budget Office's most recent estimate is that taxpayers will lose $25 billion on the rescue of automakers, banks and other financial institutions undertaken at the peak of the crisis in the fall of 2008.

Source: finance.yahoo.com

Gold Miners Are Raising Dividends

Agnico has boosted its annual dividend 256%. Of course, huge payoff for investors is met will selling as the options expiration game punishes those foolish enough to hold to maturity. Agnico is but one of growing list of miners increasing their dividends. History, as described by Homestake mining, suggests this trend remains in its infancy.

S&P Gold (Formerly Precious Metals Mining)*
*S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining:


Headline: Agnico boosts dividend; shares sag on cost worries

Gold miner Agnico-Eagle (AEM.N) announced a big dividend increase on Thursday and outlined plans to raise its gold output, but its shares fell on concerns about its higher than expected productions costs.

Analysts noted that Agnico's average production costs of slightly above $430 an ounce over the next five years were higher than expected, sending the shares down more than 4 percent in both Toronto and New York.

Source: reuters.com

Gold's Prospects Rosy in 2011 but Pitfalls Abound

Here’s a good example of the support of gold through the analysis of doubt. In other words, it's all good but watch out its not safe! Those lacking the ability to challenge the flawed assumptions presented as fact will have trouble overcoming the doubt. Meanwhile, the operators quietly pick their pockets with a smile and periodic commercial revealing the long-awaited return of the McRib sandwich. The secular gold bull will be over when the talking heads, numerous ‘experts’, and finally the public at large no longer see any “pitfalls.” If you cannot read the game, you cannot play it.

The second half of the year is harder to predict, with one potential setback coming in the form of surging interest rates in Europe and the U.S., he said. Much higher interest rates would push investors away from gold, which bears no interest, pays no dividends and thus carries an opportunity cost.

Source: finance.yahoo.com

Act Like a Jack Ass and You'll Always Get Treated Like One

Three taps and out on the gold stocks has created a significant breakout in the gold stocks. Rather than galvanizing investors resolve to hold their positions, it's obvious that weak hands can still be easily spooked out of their positions by 'timely' garbage analysis and news flow.

Over the years the markets have taught me this personal message,

"Act like a jack ass and you'll always get treated like one."

The stock operators, fully aware of the technical significance and potential of three taps and out, continue to relieve the weak hands of their positions. They are laughing all the way to the bank in the process.

Amex Gold Bugs Index 'HEUY' (HUI):

Jerry Brown: California Budget Is "Much Worse Than I Thought -- We've Been Living In Fantasy Land"

Europe has exclusive rights to ‘living in a fantasy land’ economics according the unrelenting news flow – apparently not. And, so goes the selective amnesia of the headline feed. I’m sure this news will find adequate coverage in California’s cooking sections of the printed media.

California's troubles represent yet another reason why the "Formulas" are beginning to roll over and Fed initiated QE2. Please review The Timing of QE Was No Accident for further discussion on this topic.

"The Formula" US Fiscal Balance vs US Dollar: Federal Government Budget As A % of GDP, 12 Month Moving Average:

You know it's a bad sign when the outgoing California governor announces a fiscal emergency and everyone ignores him.

Now incoming governor Jerry Brown has realized how screwed the state is and he's announcing his own budget emergency, according to the LAT.

He said last night: "I'm going to try to get the budget agreements done within about 60 days. I don't think we have a lot of time to waste... It will be a very tough budget, but it will be transparent... We've been living in fantasy land. It is much worse than I thought. I'm shocked."

Source: businessinsider.com

Gamble Blindly or Speculate Intelligently?

Silver has and will continue to lead the way once it (re)establishes what Livermoore described as the line of least resistance. This will be reveal by the strength of the tape. As expected, the upper trading channel has been formidable resistance for gold and silver. It has also become the line in the sand for the paper operators as they understand the technical implications of an upside break. This means that the battle for control over this line will be fierce.

Do you wish to gamble blindly in the hope of getting a great big profit or do you wish to speculate intelligently and get a smaller but much more profitable profit?, Jesse Livermoore.

The above quote hints at why gold and silver seem so indecisive at the upper channel resistance. While the pros are watching intensely, they have withdrawn from the trade in order to speculator more intelligently. The withdrawal of the pros and the holiday trading conditions means a sharp reduction in liquidity (volume) and discipline within the trend. In other words, price will be increasingly influenced by the weak hands of retail money and the actions of the paper operators.

While price has faded from upper channel resistance, it has yet to decisively break down. This suggests that the third tap of "three taps and out" remains in play. The labelling of the three taps will not be known until the tape reveals the line of least resistance.

Silver ETF (SLV):

Hi Eric,

On monday you posted "Silver will lead the way" ... but once it approaches the 30-level it gets hit ... and tumbles about 1.5 USD.

The chart - technical inidicators - looks very bullish these days ... Could it be that we see big moves the coming days or will shorters lead the way .

thanks to share your insights with us.

Barry

Lower Taxes AND Spend! Deficit Cuts "Will Be Self-Defeating," Economist Declares

This is not opinion but rather the message of the markets. Any material reduction in deficit spending will generate a harsh response not only on Wall Street but also Main Street. Either devalue the currency – kick the can down the road to live another day, or immediately adopt harsh fiscal discipline and get your ass served on the silver platter of social order here and now. Nobody wants to be the lead scapegoat story on 60 minutes.

Damned if you do, or damned if you don’t. Those seeking the protection of gold understand the conundrum.

The U.S. Senate is soon expected to pass an across-the-board extension on the Bush-era tax cuts. President Barack Obama’s $858 billion proposal also allows an extension of jobless benefits for the close to 15 million unemployed Americans.

The bill, however, is still a long way from a done deal as it does not have the full backing of House Democrats, who want to limit the tax cuts to the first $250,000 of family income. Liberals also oppose the estate tax provisions in the bill, as discussed here with former Sen. Ted Kaufman (D-Del.).

Source: finance.yahoo.com

Newswire Targets Zombie Traders

Thus, eliminating the need to think objectively.

Eric,

I just thought you'd get a kick out of Yahoo finance's front page right now...
It reads "disagreement over EU Debt Crisis Measure Deepens" immediately followed by "Gold Prices suffer sell off" just below it...

Hilarious...

Amir

Batême Du Feu - Baptisted By Fire Will Characterize The Recognition of Hyperinflation

The undeniable face of hyperinflation - policy desperation, shortages, and growing social discontent is everywhere yet largely unrecognized by the public. I can’t help but think of the old French phrase baptême du feu. Unfortunately, baptized by fire will characterize the public's recognition.

Headline: Hungary Follows Argentina in Pension-Fund Ultimatum, `Nightmare' for Some

Hungary is giving its citizens an ultimatum: move your private-pension fund assets to the state or lose your state pension.

Economy Minister Gyorgy Matolcsy announced the policy yesterday, escalating a government drive to bring 3 trillion forint ($14.6 billion) of privately managed pension assets under state control to reduce the budget deficit and public debt. Workers who opt against returning to the state system stand to lose 70 percent of their pension claim.

Headline: Anti-austerity riots erupt amid Greece strike

Protesters clashed with riot police across Athens on Wednesday, torching cars, hurling gasoline bombs and sending Christmas shoppers fleeing in panic during a general strike against the government's latest austerity measures.

Police fired tear gas and flash grenades as the violence escalated outside parliament and spread to other parts of the capital.

Headline: Portugal Tries to Prevent Sugar Hoarding Amid Shortage, FT Says

Portugal faces a sugar shortage, the first European country to find itself in this position in more than three decades, the Financial Times reported.

Agriculture Minister Antonio Serrano asked people not to hoard the commodity after a breakdown in imports to refineries led to a run on supplies in the shops, the newspaper said.

Headline: U.S. Called Vulnerable to Rare Earth Shortages

The United States is too reliant on China for minerals crucial to new clean energy technologies, making the American economy vulnerable to shortages of materials needed for a range of green products — from compact fluorescent light bulbs to electric cars to giant wind turbines.

So warns a detailed report to be released on Wednesday morning by the United States Energy Department. The report, which predicts that it could take 15 years to break American dependence on Chinese supplies, calls for the nation to increase research and expand diplomatic contacts to find alternative sources, and to develop ways to recycle the minerals or replace them with other materials.

Attention Will Turn To The U.S. Dollar Soon

The media's intense, unbalanced focus on the troubles within the Euro Zone should be a major warning sign for astute trades. The US Union (States) are also struggling with massive budgetary holes driven by excessive consumption have already drawn from the bailout well numerous times under relative media blackout. Yet each time the bucket is dipped, it is camouflaged by ‘redirective’ headlines.

Who's the more foolish: The fool, or the fool who follows him?

The eventual termination operation Euro necessitates the following question: what’s next? The dollar index strength, a byproduct of Euro weakness, is cyclical rather than structural. The US Union requires similar, possibly significantly more, withdrawals from the bailout well as the European Union.

Jim said it best this morning,

The momentum decline of the euro in operation short of the euro named "Shark Feed' is the best precursor of the " Shark Feed" being a terminal attack on the US dollar very soon.

The 12/3 down gap on heavy volume has been filled on contracting volume. This suggests that the cyclical strength in the Dollar Index is weakening. A turn in the leveraged money flows from short to long by smart money will mark the turn in the dollar.

U.S. Dollar Index ETF (UUP):


Heading: Stocks, euro hit by Spanish credit rating warning

World markets and the euro fell Wednesday after Spain was warned it may have its credit rating downgraded, echoing a similar report on Belgium the day before and renewing worries about Europe's debt crisis.

In Europe, the FTSE 100 index of leading British shares was down 22.92 points, 0.4 percent, at 5,868.29 while Germany's DAX fell 55.70 points, or 0.8 percent, to 6,971.70. The CAC-40 in France was 34 points, or 0.9 percent, lower at 3,868.87.

Source: finance.yahoo.com

CNBC's Boldest Predictions for 2011

Some of my favorites were cited below. It's best to read them with pom-poms in hand.

16. The Fed Ends QE2 Program in June

"The Federal Reserve, responding to intense political criticism and an improving economy, ends its QE2 policy after purchasing Treasuries in June. The Fed will avoid punitive legislation ... GDP growth of nearly 3 percent will ease pressure on the central bankers. By year-end, speculation will be percolating about the first Fed rate hike, which could come in early 2012." — Greg Valliere

15. U.S. Stock Prices Soar
"Buy, buy, buy . ... I’m calling Dow 14,000 by this time next year. Why? Highly productive firms only need a little growth right now to blow the doors off. They won’t get a lot of growth in 2011 in the U.S., but with high productivity, strong global growth, and fewer competitors, they’ll get enough." — Tony Fratto

11. Consumers will return to spending.
"Yes, consumers will be more frugal, but the negative pundits will be shocked that people actually do buy presents this holiday season. Sales will not only be better than last year but even mildly reminiscent of previous years. ...This holiday season will cause many to wonder about the sanity of the American public as consumption returns. Never underestimate the motivation of the American public to spend. " — Michael Yoshikami

9. Bonds Keep Booming
"The secular bull market in bonds should continue through 2011. Bond investors may fear inflation, but ... secular changes will keep driving rates on all fixed-income securities to record lows—Treasuries, munis, and corporate bonds alike." — Gary Kaminsky

Source: cnbc.com

Judge the Exterior Without Examining the Inner Workings

How could the biggest jump in department store sales in two years be interpreted as anything but good news before the holidays? There lies the beauty of surface analysis as known as economic spin. Words such as ‘strong’ and ‘huge’ provide a formidable facade which most of the public cannot refute. Our basic tendencies are to judge the exterior, i.e. first impressions, without bothering to examine the quality of the inner workings.

This basic human tendency makes for easy prey in the money game. Money always punishes flawed reasoning, intellectual laziness, mistakes, etc; and it will do it while shaking your hand and smiling.

The headline and detailed commentary make one critical omission; retail sales are measured in U.S. dollars. These are the same U.S. dollars the Fed is creating, some call it printing, to purchase $600 (more like $900) billion in Treasuries for QE2. It is this money creation, better known as QE to infinity here, that’s driving the price of gold up in all fiat currencies.

How could the biggest jump in department store sales in two years be interpreted as neutral to bearish news? The strong number doesn’t look so strong when retail sales are priced in constant currency terms. In other words, retail sales don’t look so impressive when the effects of currency devaluation are removed.

“Real” or constant currency retail sales remain in a deteriorating downtrend since 2001. The deterioration of within the downtrend is illustrated by declining momentum. The weakness in real retail sales has been confirmed by declining auto sales since 2005.

Gold-Adjusted Retail Sales (RSGLDR) and YOY Change:


Auto Sales (AS) and YOY Change:


Headline: Retail sales rise 0.8 percent in November

Retail sales rose for a fifth straight month in November, as the biggest jump in department store sales in two years gave the holiday shopping season a strong start.

Retail sales increased 0.8 percent last month, the Commerce Department said Tuesday. That came after a 1.7 percent gain in October, which was propelled by a huge increase in auto sales.

Source: finance.yahoo.com