December 8, 2009

Global Market Comments
December 8, 2009

Featured Trades: (RISK), (GOLD), (GLD),

1) Reflections on Risk -- The behavior of the global markets on Friday was a great 'tell' on the current state of risk taking.  We finally got the one data point that we have been hoping for, even praying for, for two years, nonfarm payroll job losses near zero. The stock market should have soared, but the Dow eaked out only a miserly 22 point gain. The markets that should go down on this news got absolutely slaughtered, like bonds, gold, silver, platinum, crude, commodities, and foreign currencies. This tells you that the current risk/reward in the markets totally sucks right now. I believe that Mr. Market does whatever he must to shortchange the most people. And with almost all positions right now, you are facing a 'heads, Mr. Market wins; tails, you lose' dilemma. This is why I have been out of the market since October, except for my physical precious metals, which are too expensive to turn over. Furthermore, all of the markets that have the greatest long term fundamentals suffered the most ferocious falls, like gold's $80 hickey, because they have become the most overbought, thanks to those late to the party, the performance chasers and momentum players. This all leaves me more convinced than ever that I am making the right long term strategic call. Buy hard assets, but not at frothy peaks. Shun paper of all kinds, including stocks and bonds, especially US Treasuries, the world's most overvalued asset.

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2) With gold's whopping great $80, 6.6% pull back from Thursday's all time high, I have been deluged by readers asking if this was the peak, if this was the final blow off top, and if gold is finished as an asset class. My answers are no, never, and not on your life. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad overnight. When I pull a dollar bill out of my wallet, it's as limp as ever. The relentless whir of the printing presses still keeps me awake at night; even though, according to Mapquest, I live 2,804.08 miles from Washington DC. I see the three day plunge as a gift. If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. Start scaling in around the Dubai low of $1,135, and add on further declines down to $1,040. That's where the Reserve Bank of India started the recent love fest for the barbaric relic with its 200 ton purchase in November. Then the next time that snarky guy at the country club starts boasting again about the killing he made in gold futures, the UPS delivery guy chortles about his gold mining stocks, and your cleaning lady quits because of the fortune she made in Mexican 50 peso gold coins, you'll at least be able to shoot back with your own witty response. If the institutional world devotes just 5% of their asset to a weighting in the yellow metal, as many have recently promised, it has to fly to at least $2,300, or higher. By the way, you can pick up those gold pesos by visiting Millennium Metals by clicking here . ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP). If you don't believe a single word of this, or want to protect your existing holdings from a more prolonged move South, visit the Horizons BetaPro Comex Gold Bullion Bear ETF (HBD.TO), a 200% leveraged short position in the yellow metal.

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3) If you are counting on more than a trading rally in the dollar, you are betting against the trend, and I mean the really long term trend. The chart below shows the purchasing power of the dollar since the Revolutionary War, and it has been mostly a downhill slide since day one.  Monetary historians remind us that winning the War for Independence broke the country, and it took 50 years to dig out of the hole. The brilliance of Alexander Hamilton, who graces the face of our $10 bill, was how he kept the financial system running with the US in a state of bankruptcy. I'm sure that Ben Bernanke mumbles Hamilton's biography in his sleep by now. No, I have not been trading the market that long, but some of my ancestors who intimately knew our scandal prone first Treasury Secretary have. The decline in the value of the buck greatly accelerated after we went off the gold standard in 1933 and discovered the wonderful world of fiat currencies.  Better to take your pay in Euros, American Eagle gold coins, bushels of wheat, or barrels of crude. 

Dollar210year-1.gif picture by madhedge

TenDollarBill.jpg  picture by madhedge


'We are going to have to work harder as a country,' said Jeff Imelt, CEO of General Electric.

GeneralElectrc.png picture by madhedge