Clues

Bernanke made the case generally for QE without formally announcing a new program.  That will be coming soon though, if I am reading his speech this morning correctly.  And in the aftermath, the market surged and retraced to a more modest gain (at 1:55pm EST), but gold and the miners continue to run.

Jackson Holing

Up a bit late, so I decided to offer up a few thoughts in anticipation of Bernanke's speech tomorrow.

My instinct is that we will get jawboning more than anything else.  So far, he's been able to get away with it -- which is to say, I'm not sure that we have experienced the degree of pain yet that is required to force the Fed's hand on more action (even though I am quite confident that we will get there inevitably).

So, I think the market will probably take a hit.  I think gold will hold up surprisingly well, in part because even if Bernanke doesn't do anything yet, Draghi will very soon.

The next payroll report is a week from now.  That is probably the moment that will trigger what comes next.

Holding the Break

So far, so good.

Cheer Up

Realizing that my last post was probably a bit of a downer, I offer the following to close out the week.

Confucius say, "If you are in a book store and cannot find the book for which you search, you are obviously in the...

(h/t Casey Research)

Tin Foil Helmets

As with most things, I am not talking ex cathedra, but the spidey senses are starting to tingle.

I read a lot of contrarian voices, so it often leads to hearing from people who live in the land of conspiracy theories everywhere. And even if I agree with some of their general investment ideas, I still find myself rolling my eyes at the other stuff. Like the idea that the U.S. is going to implode and there will be revolutions in the streets. It seems far-fetched.

However, more and more, you hear about episodes that speak to a growing disillusionment amongst the masses and a tendency to resort to violence. The shooting outside the Empire State Building today feels like the case in point. Obviously, the facts are still developing, but it sounds like you have a guy who got laid off (and there are a lot of people out there experiencing the same thing) who felt desperate and angry enough, that the appropriate response to him was to shoot someone in the middle of a Manhattan street.

And it doesn’t end there. This political cycle has been the most contentious of my lifetime, and I feel that it’s just a manifestation of how divided people are right now. You hear more and more about episodes of domestic terrorism (the shooting at the Sikh temple in Wisconsin, the shooting at the Family Research Council office in Washington, to name a couple). You see riots in the street that pop up across Europe at various points during the financial crisis. You have occupy movements on the one hand and tea parties on the other. And everyone seems so married to their particular point of view, that the idea of compromise or common ground is simply impossible.

Which gets me back to my own thinking on the subject. I am hopeful that when push comes to shove, reason and good sense will prevail. On the other hand, I fancy myself an investor. And I know that any investment thesis where the justification for taking part relies in some meaningful measure on hope…well, it’s usually a losing proposition.

For Fun

Here's the equivalent GLD chart to what I posted earlier (with a few more trendlines added in).

Not surprisingly, the story appears to be the same.

We're getting close...

I think that gold is on the brink of making the next move much higher.  Below is a 5-year weekly chart of the actual gold spot price (enough of this GLD as a proxy crap).

What do we see?  First up, the shorter down trend line captures the peaks since gold topped out last year in the $1900s.  You will note that it broke through that line today to the upside.  I expect that it will stay there ultimately, but maybe with some volatility along the way.

Which brings us to the longer uptrend line that dates back over a bunch of years now, and well captures some peaks and troughs in that time period.  That is where the battle is really going to happen, probably at about the 1700 level.  The fact that it lies so close to that shorter down trend line means we really are at a pivotal moment in the story.  But, with an expectation that the world is getting worse, and central bankers will need to react...to borrow from Fleck, the path of least resistance appears to be higher.

Update / Addendum: Somehow I failed to mention it in my first version of this post, but there is another piece to this chart.  It doesn't take a genius to see how the past year very much appears to be a pennant formation in the midst of the larger uptrend -- that is, a continuation pattern while the dominant directional trend catches its breath.  Another positive for the bullish case.

Where do you rank?

Interesting article which identifies 5 goals that all men should strive for in terms of physical capability:

1) Achieve a waist circumference of .80 or less

2) Bench one rep at 1.5 times your body weight

3) Do a set of 10 pull-ups

4) Run one mile in no more than 6.5 minutes

5) Reach down and touch your toes

The list is not meant to mirror as any kind of scientific study of what's required in order to be in "shape", just a list of goals which speak to good health.

With respect to number 4, since returning from my stress injury, I am surprisingly close to being back at that sort of pace for any given mile (although I used be able to do multiple miles at that type of pace or better).  I know I can do 3 and 5.  Never checked on 1, but I have always been thin and weigh the same now that I did in college.  Number 2 is likely the biggest challenge.  Again, in my early twenties, I could bench twice my weight.  Lately, I typically max out with a set of 3 to 4 reps at about 1.2 times my weight.  But, something to try for, I guess.

Now for Gold

The gold chart looks promising.  An ascending triangle since early May with overhead resistance at about 158 on the GLD chart.  Are the stars aligning for early September?

More Yen

Maybe it's just finally time, but the several financial ideas that I pay attention to have been having an interesting week or so.  Especially the Japanese Yen.  The chart below shows a move back up above resistance after forming a pretty solid bottom at 78.  I'm starting to lick my chops a bit more about this one.

He Should Know Better

I had a really interesting conversation today...with someone who fancies himself an expert on just about everything.  He plays a prominent role in investment strategy in his position, and a week or so back I corrected him on his belief that the various QE programs cause interest rates to go down.  I said, no, actually, the two prior iterations saw rates for bonds on the long end go up.  And if QE3 came down the pike, I would expect more of the same.

Well, fast forward to today, I pointed out to him that bond rates for the 10 and 30 had moved up a lot in the past 3 weeks, perhaps signalling expectations of something out of the Fed soon.  He considered it and let it be.  Later on, he revisited the conversation with me to get my read on why it was happening, and how it seemed to undermine the Fed's stated goal with these programs.

My response: it's not really about rates, it's about inflation expectations.  The boogie man is deflation, so stimulus programs to ward it off are meant to engender the opposite.  And with that comes higher expected returns, spurring investment, wage growth -- ultimately, higher demand.  He seemed to accept that logic.

The part that I didn't mention, but which also might be true, is that we're getting closer and closer to the point where the Fed starts to lose control of interest rates.  And that's when it really gets interesting.

Golden Aspirations

Pretty interesting read over at Zero Hedge.  Per filings, during Q2, Soros' firm more than doubled its position in GLD.  Similarly, Paulson's fund added about 25% more exposure to its GLD holdings, bringing total gold exposure for the fund to about 44% (of $21 billion).  Both pretty hefty increases.  Both smart money.  Both betting on higher gold prices.

Back to the Charts

Thought it might be a good moment to check in on the charts.

First up is the 30-year bond.  Had Bill Fleckenstein not mentioned it today, I still wouldn't have realized the impressive move that's been going on, sending rates higher.  Which, of course, could just be noise rather than a meaningful turn.  Nevertheless, it is now back within the bounds of the trading channel that I drew a while back.  As for the blue arrow, it marks roughly where I bought some puts.  Clearly, my timing was off.

As for the Japanese Yen, I bought puts a bit early (see blue arrow), but I subsequently noted about 10 days ago that it looked like a real bottom at 78 was forming.  And so far, that's been the case.  Draw your own conclusions.

Oh well...

Just take a look at the chart below and know that Bill Fleckenstein was calling for a short back when it lived in those peaks on the left side.  Imagine buying some long-dated puts on that sucker...

Moving On

I have not felt terribly patriotic the past few years.  Not that I am actively rooting against the US – simply that my sense of connection has waned.  With all that’s happened, my eyes have been opened and I am much more skeptical about whether anyone, other than my family and friends, is really concerned about my well-being.

So, it was a bit of a surprise then that I got caught up in the Olympics and rooting for the American athletes.  But for the fact that we live in the same country, I imagine that I probably have little else in common with many of them.  Yet, engrossed I was, as well as glad when any of them won.

Included within that realization, in watching the US Men’s basketball team, I found that my position on Lebron James had softened.  To contextualize, I have never tried to delude myself about his talent nor (in feeling bothered by his move to Miami) felt relieved that he didn’t come to New York.  Yet, where others tried to suggest that how he handled himself in year 2 and elevated his game should remove any lingering ill will, my general disaffection remained.  Until the past couple of weeks.

I guess as you get a bit older, and hopefully a little more mature, you start to see things for what they are, and not what you wish they were.  And where Lebron might not be the savviest when it comes to PR, he is fun to watch.  Add to that, while it matters less to me than it used to, I can still appreciate how much he seemed to care about wearing the US jersey.  When you put that in context then, that he is also probably the best player to come along since Michael Jordan (all due respect to Kobe Bryant), it’s not worth letting small choices outweigh the greater enjoyment.  And, in the end, that’s what sports are really about.  They are a happy distraction from reality.  So, rather than finding something else that adds to my skepticism of the world, I’ve decided to add to the list of things that I can still enjoy.

Here We Go...

I should preface this post by saying that I did not actually read the article from the Wall Street Journal by Jon Hilsenrath today since I don't have a subscription (online or otherwise) and the piece is behind the paywall.  But, having heard about it on several different sites that I follow, I think I get the gist.  Basically, Eric Rosengren, the President of the Federal Reserve Bank of Boston, came out with the suggestion of a Fed bond buying program that would be open-ended, until the inflation target is where they want it to be and the employment rate is back at normal levels.  In other words, it sounds an awful lot like the NGDP targeting that I have mentioned before on this site.  Money printing on steroids.  And it's probably a preview of what's to come.

So, be that as it may, let's make a prediction.  When this policy does get implemented, and we eventually end up with more painful bubbles that burst and a funding crisis in this country, the monetarists will be discredited.  But some of the other jokers out there, such as Paul Krugman, who will initially be in favor of such policy, will try to cover their backsides and demonstrate how their particular economic theory still cannot possibly be falsified -- and the argument will go something like this...

"You see, we called for both monetary and fiscal policy to deal with the depressed economy.  But, when we realized that those evil right-wingers in Congress would not budge in an effort to get Obama beaten at the polls, aggressive monetary policy became our best and last hope.  But, deep down, we knew it wasn't enough.  Rampant money printing and debt monetization just isn't precise enough, it's like a fire hose.  What was called for was fiscal policy, to a degree and scope that would make FDR blush.  So, bring on bigger government, I say!"

And cracker jack economics will find a way back into our lives.

Observations (for the end of the week)

-Bill Fleckenstein made the insightful comment today that on the heels of the Fed and ECB sitting on their collective hands this week, and the payroll report coming in better than expected, it would have surprised no one if gold had been smashed.  But it wasn't, perhaps foretelling of better times ahead.  My personal take has been that September/October would be when the real fireworks started, which dovetails well with an expected QE3 out of the next FOMC meeting, and a likely comparable measure out of the ECB around the same time.  I believe my LEAPs positions in AUY, GG and EGO will start to pay off.

-The Japanese Yen is not able to break below the 78 level.  And with the monetary measures coming, I don't see any reason that it will.  Which bodes well for my FXY puts (but, truthfully, I have less conviction about this idea these days).

-I watch Morgan Stanley stock.  If I were going to get short a financial at some point, that's my girl.

Guess Who's Back, Back Again

In a bit of a good news today, after going 18 weeks and 3 days without, I have been cleared by my doctor to resume running.  Slowly at first, but a return to it nonetheless.

In anticipation of that outcome, I have been reading Born to Run by Christopher McDougall about a tribe of ultra-runners in Mexico.  Two takeaways, even as I haven't finished it yet:

1) Chia Fresca.  A concoction of chia seeds, water, lime juice and agave nectar.  Good for energy, cholesterol, and all other sorts of stuff.

2) For too long, I ran for reasons other than that I enjoy it.  It was about getting in shape, trying to achieve certain distances, times or speeds.  Well, the guys in this book run without thinking about any of those things.  They don't seem to get injured and they can run endlessly.  I think I may try that.

Populist Poop

One of the financial minds that I respect is that of Jim Rogers.  If you've followed him for even a little while, you know that he has been both consistent and right in his investment decisions and thoughts on the direction of the economy.  So, while perhaps disappointing, unsurprisingly I stumbled onto this garbage at The Huffington Post -- an article that tries to demonize him for correctly speculating that the price of corn would rise.  The gist of the article is that he is profiting on the backs of consumers and farmers in the face of a severe drought.  Of course, if you have paid attention to Rogers at all, the substance of his quotes in the piece mirror exactly what he has been saying for years.  But, instead, you get the typical uniformed journalist making specious claims, and the dumbed-down masses falling for it.  Too bad.

I wonder, though, whether the author views Mr. Rogers' former partner at the Quantum Fund in the same light due to his evil speculations.  I suspect not, as I've found that logic and consistency are not requirements in order to write at HuffPo.