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Thursday, July 15, 2010

BOREDOM PARADOX

Now that gold is holding consistently above $1000 it's going to become tougher and tougher for gold to shed riders, which is mandatory if the bull is to continue higher. That means the bull is going to have to pull out every trick in the book in order to get investors to jump ship. The greatest trick the gold bull pulls isn’t the D-wave decline (although that is a doozie). No, the greatest trick the bull pulls on investors is the boredom paradox. Basically this rule says that before any big leg up gold will wander around long enough that everyone becomes so bored they finally give up and jump ship. The paradox is that usually during this period gold is trending higher.

Let me show you some examples of the boredom paradox in action.


You can see these things often occur during the summer months. Ultimately they are consolidation patterns after large legs up. We have been in a tedious BP since last December. And even though gold has shown enough strength to actually break out to new highs (the paradox) it is still shedding riders at a vicious clip. I know I’ve seen it in progress. During the run up in November last year riders hopped on the bull in droves. My guess is that probably less than 10% of them have had the stamina to hang on, even though gold has made new highs.

Once gold has shaken off virtually every impatient rider then the next leg up will begin. Trust me none of those lost riders will be able to pull the trigger when it happens and the bull, when he starts charging, will instantly leave them behind. Invariably traders buy when the pain of missing the move just becomes too great to endure any longer and that of course ends up as either a short term top or an intermediate term top like we saw last November. Then of course the correction comes and all those Johnny come latelies end up getting knocked out for a loss. Like I said the bull is going to pull out every trick in the book.

Now I know many of you are just chomping at the bit, hardly able to wait for the big parabolic move that will top this monster C-wave. You want it and you want it now. Well I think I can tell you without a doubt you aren’t going to get it any time soon. Even if this is the bottom of the intermediate cycle I can virtually guarantee that gold is going to make you suffer through the rest of the summer. C-waves just don’t top out in the middle of summer. They top either in late fall or early spring. (They also top at the end of intermediate cycles and this one is just beginning.) What we can probably expect is a frustrating grind higher. Each marginal new high followed by another move into a daily cycle bottom. In the mean time some other sector will get hot, maybe it will be tech or energy or whatever. But there will be extreme temptation to jump ship, of that I’m positive.

I’ve seen this for 9 years now. Investors get frustrated and lose their position and about that time gold and miners will start to rally. It won’t be noticeable at first. As a matter of fact by the time you notice it gold will be overbought. And you know you won’t be able to make yourself buy into overbought levels, so you will sit on the sidelines waiting for a correction. Some of you will manage to hang on until the correction comes, most won’t. They will panic in at a short term top. It never fails. Like I said, I’ve seen it for 9 years now.

Of those that managed to wait for the correction probably less than 50% will be able to buy because as we all know by now, this is a volatile sector. Corrections are scaring looking. It’s tough to buy into them. I have to laugh when I see these comments about how a trader is going to back up the truck if we get a correction. Did any of us see any backing up of the truck at the February low or during the recent correction? No of course not, because bottoms never look like bottoms. They always look like the trend will continue. So the vast majority of truck backers never load the truck.

The only way to avoid getting taken out by the Boredom Paradox is to just hang on. As long as you make up your mind that nothing the damn bull does is going to buck you off no matter what tricks he pulls then you will be there when the charge starts. Trust me on this one, all the pain and frustration will be worth it if you can last long enough to make it to that final parabolic move. I don’t doubt for a second that we will eventually see miners break out above that 519 resistance and when they finally do they are going to go a long long ways. I will be totally flabbergasted if we don’t see the HUI above 750, maybe even above 1000 during this final C-wave. But you are never going to get there if you let the BP knock you off the bull.

194 comments:

  1. I want to make money, not get bored. Are there gold futures?

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  2. If you want to make money then you have to hang on till the boredom phase ends. Like they always say no pain, no gain :)

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  3. SLV never moves. What gives?

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  4. What are you talking about it moved from $8 to over $19.

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  5. "Never short a dull market".

    Hmm...d

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  6. I was thinking the same thing about getting bored. But Old Turkey all the way now. I enjoy not mouse clicking anymore. I will let trading off to somebody better than me.

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  7. Nenner and Pretcher say gold and silver due next to crash.

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  8. Trust me there will be a never ending supply of Precther's and Nenner's during the entire course of this bull market.

    As a matter of fact Precther was predicting a gold crash for about the first 5-6 years of the bull market. So I'm not really sure I would listen to closely to this nut.

    Besides as we should all know by now Precthers calls for the end of the world, market crashes, etc. are mostly just marketing schemes to draw in newbie investors that don't know any better.

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  9. Gold still appears to be running into overhead supply, with the 50-day SMA crawl and bear flag firmly in place in the face of a falling dollar. A shame the positive correlation that kicked in (to gold bull's benefit) is still apparently in effect. Perhaps the market is just shifting gears between the gold/euro holders to gold/dollar, or perhaps this is a crowded, seasonal commodity trade in need of a correction. Or perhaps neither.

    Equities certainly seem to be in recovery mode. This morning's selloff appears to be catching a nice bid already, and the Buying of Weakness for SPY has been ramping up in confirmation (the hour-on-hour figure has doubled to the present $298M).

    It would be a refreshing change of pace for a troll to pop up and state why the markets will crash from here. Usually they just show up after the fact to report what is already happening/has happened.

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  10. Prechter always says that everything is due to crash - if not tomorrow, then the day after and if it happens to rally, then it will crash so much harder.

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  11. I look at it this way. If the bear flag does lead to another push lower it's very likely that will be it for this summer since we are so late in the intermedite cycle. I'm still waiting with part of my capital to buy into that dip if it happens. If not then I will just put on the rest of my position into strength instead of buying into weakness.

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  12. If your fully invested into physical please tell how to buy more with no money. Did you sell some to buy lower? I thought you were fully invested in physical metals?

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  13. Nenner? Have to be kidding me. He is calling for Dow 5000 but says that you should buy Lennar!?!?! Yeah, buy a freaking homebuilder when the market is crashing.

    Then the idiot says buy CRB commodities while calling out a deflation risk (in line with his Dow 5000). And in this mix gold is going to crash.

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  14. We may be in for some boredom overall, but there's some nice action in SWC based on some takeover rumors. The option action has really ramped up, but the stock still needs to move up 20+% to get back to recent highs.

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  15. Why is your blog and Toby Connor's blog (goldscents.blogspot.com) the same? Just curious.

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  16. Gary & Toby are the same person.

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  17. The same person? Toby is more successful. His stuff appears on Minyanville.

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  18. Maybe they're both frauds and have a third person (ghost writer) that writes the content?

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  19. Bollinger Band Crash Trade for $USD, anyone?

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  20. Anon,
    Gary has explained this several times. He runs both sites. Although I'm sure you knew that already.

    Dude let me guess, you are one of the perma-bears who didn't listen to Gary's advice and are now getting killed. Instead of squawking like an old hen over nothing why don't you just cover and go long so you can make some money.

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  21. Actually, as I said, I did not know. That's why I asked the question, Dude. So you're saying Toby is copying Gary or Gary has multiple personalities? The reason I'm curious is because I have found the posts on this site to be very insightful. When I read the exact same article on Minyanville, I became curious.

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  22. The GS site is a partnership between myself and my publisher. We needed a second site so as to track traffic garnered through his marketing efforts.

    Toby (my dog) Connor (his middle name.

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  23. Thanks Gary. Does your dog know his picture is on Minyanville's site along with a profile that says his analysis skill of the markets is largely self-taught, though he admits to being an avid reader of Richard Russell and Jim Rogers, among several others ant that he's an avid rock climber and world class weight lifter (for his age)?

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  24. Gary,

    Your prediction that stock bears would be slow to buy into the move up in prices seems to be correct.

    The Hulbert data showed that newsletter writers actually increased in bearishness from -6.5% last week to -12.7% by the end of Monday.

    The Rydex ratio indicates slightly less bearishness now, moving from -16% last week to a still bearish -7.8% through yesterday. These guys are usually quick to embrace a move up, and this is unusual bearishness for them.

    The Investors Intelligence readings through yesterday show a plunge in bullishness from about 41% bulls last week to only 32.6% bulls. That is quite a move for these investors because 25% of them are perma-bulls. Of the remaining bulls, it looks like at least half capitulated this week.

    My favorite indicator is the OEX options traders. These large, usually always correct traders, recorded 14 consecutive days of buying more calls than puts, a streak that included 10 consecutive down days for the OEX 100. That streak ended yesterday when they bought 102 puts per 100 calls. Their 15 DMA is currently 78.4 puts per 100 calls, a very bullish result.

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  25. The Tobster is a pretty good rockclimber since I drag him with me every time I go ;)

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  26. You keep mentioning the C wave that's coming (or maybe we're already in it?) and the top of the C wave. Do you see the top of the next C wave as the end of the gold bull? Or will there be a series of C tops, followed by corrections in between?

    What's your target for the top of the next C wave, and what's your target for the final top of the bull?

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  27. Gold has been in the current C-wave since the B-wave bottomed at 860 back in April of last year.

    Trying to pick a target is a mind game that just isn't worth playing. None of us can se into the future so who knows how high this leg up will go. But I will be disappointed if gold doesn't at least reach $1500.

    I expect there will be 2 or three more complete ABCD wave cycles before the top of the secular bull.

    By that point we will see the public madly buying gold and we will see the Dow:gold ratio at 1:1

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  28. Everybody wants to buy gold when it drops, and that is what makes a bull market.

    I hope it pulls back, but I've got enough that if it just goes sideways to higher, I'll have to be content.

    It sure beats holding paper currency!

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  29. Minyanville is for retards. Gary's advice is invaluable. I'm surprised Gary let's them use his material.

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  30. Uh oh, it looks like stock market bears will get crammed tomorrow morning. They should've done their homework, or at least listened to Gary.

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  31. I totally agree with Gary about the boredom paradox. The only hitch is the the sharp declines (or what seems like very sharp declines at the time) do hurt your account balance and cause a lot of anxiety and stress during the boring periods. A period of 'boredom' does not mean calm seas. A $100 dollar drop looks like nothing on a 5 year chart but up close in person it is terrible to ride through.

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  32. Unfortunately that is the price you pay. This is a volatile sector. If you aren't able to pay that price then physical is the way to go.

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  33. Hi Gary,

    I am new to your site - thanks for the wonderful stuff you put out there. Quick question - how does one trade / invest in HUI? I could be wrong, but there this does not seem like an instrument to buy?

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  34. GDX tracks the HUI index very closely.

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  35. Troll babies where are you?

    Come out, come out where ever you are.

    LMAO

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  36. The trolls are sleeping. It is the boring period and they are fast asleep...ZZZZZZZZZZZ...

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  37. Cool...thanks for the GDX info, Gary.

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  38. Sweet baby J! Could this be the pullback I've been waiting for to get MORE GOLD?!

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  39. Yeah, this is going to be a little more than a pull back. The charts have been telling you to sell or lighten up on the long side. We have a long way to go to the down side. Yes you can buy cheaper the lower it goes, but when the losses mount where do you sell. 1150....1050.
    Good luck to all you gold bagholding longs. You were warned!

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  40. Maybe the CBT will play out. Well just have to see if the buyers come in by the end of day and push it back above 1200.

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  41. I think I'll listen to the advice of Old Turkey instead of an anonymous poster who has been telling us to sell for months :)

    None of us care where gold goes tomorrow only where it will be at the end of the C-wave so there are no losses.

    I think we all understand the process of reaching strong hand status by this time.

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  42. "You were warned." Sounds like B-movie dialogue. Did I miss the part about the curse? ;-)

    The anonymous Cassandra (or Cassandras ... they all look and sound alike ) is worth paying attention to, tho. I would wait before buying this dip, as there is no concurrent surge in the dollar (rather the opposite) or heavy selloff in equities. This selloff is entirely gold's "fault," and it would be more prudent to let gold show that it want to rebound before charging back in. There's a difference between bargain hunting and knife catching, and the technical picture is not really in dip-buying mode.

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  43. If gold breaks below the recent lows then the CBT is probably in effect. That would put the bottom about a week to week and a half away.

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  44. "you were warned"..HAHAHA

    Yeah right. Rather than puke 'em out at $1150, or buying today, I'll buy more at $1150, then $1080 if it gets there, just as I said the other day. Nothing changes, when you have strong-hand status. Thanks to Gary, I'm still up over 19% even after today's down open.

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  45. Forgive me for asking, but what is the CBT you guys are referring to?

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  46. LOL! If the bears get stocks to drop 10% more, they might just break even. :)

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  47. Gary's curve ball theory

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  48. I'm going to take today off, and hope gold opens weak on Monday morning so I can add.

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  49. Gary-
    Isn't this weakness in PM's rather odd in relation to the dollar weakness?

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  50. Gold is so deep in the intermediate cycle that it has to put in that correction no matter what the dollar does.

    I't just human nature. Just like we can only stay negative of so long we also have to take a breath on the long side from time to time.

    There is 0 percent chance the bull is over so just ignore this short term move. It will be no different than what happened in Feb. except it should be milder.

    Come this fall I'm pretty confident we will see another leg up in this monster C-wave.

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  51. Another leg up. Hell yes it will but not until we correct down to 1050 area. Your 19% gain will evaporate quite quickly, ANON.
    Again. GET out! for awhile take the profit and buy lower. Long term we will go much higher.
    Geez! Stop drinking the kool- aid.

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  52. I think most of us have learned our lesson by now. Just as soon as one sells then the bull surprises and one just ends up giving away percentages.

    Haven't you learned yet that the only way to make money in this sector is to hold on to your positions?

    A 50% retracement of the intermediate cycle comes in about 1155. I doubt gold will drop further than that especially considering we are only about 4-5 days from moving into the start of the timing band for a cycle bottom.

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  53. Anybody have some troll bait? Found one on the blog, but maybe they were all killed off in the BP spill. Here trolly trolly...

    Dare I say, the blog has matured to the point of losing the fun from the troll comments. sniff!

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  54. Nahh, no selling into weakness in a bull market for me. Weakness in the bull should be bought.

    That's the nifty thing about being long a bull, it will offer up opportunities to sell into strength.

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  55. Just as soon as I bought, the market goes way down. Now what?

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  56. You hold on of course. It is a secular bull market after all.

    The only way to lose money in a secular bull market is to buy high and sell low. Do you really want to do the one single thing that will allow you to lose money?

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  57. And I bought on margin!

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  58. A little bit of margin and you will be fine. 5-10% If you used every single penny of margin then you made a big mistake and you didn't pay attention to what I've been saying in the nightly reports. The odds are high you will get a margin call.

    I suggest you don't make that mistake again.

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  59. It's downright hilarious watching wrong-way TK act as though he's playing the market like a fiddle!

    After losing 30% of your account, you're bound to be right for a day or two. :)

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  60. I'ms a gunna git me sum minerz nixt week...yeehawww!

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  61. I wonder if any traders bought into the late day rally yesterday, only to get destroyed this morning. So done with trading. The market is so manipulated at times.

    Sam

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  62. It's not really manipulate although it does seem that way sometimes.

    The tick hit an extreme reading yesterday. The market just hit a short term exhaustion point and needs to take a breather.

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  63. Most of the manipulation is emotional, imo, and self-inflicted.

    Nothing goes in a straight line, and stocks have been on a big run out of the lows, with falling volumes and technical resistances in the neighborhood. A logical place to lighten up for bull and bear alike.

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  64. I think too much credit is given to human nature. If someone or some group of companies can get away with it, even for the short-term, they will manage the market; message it at the least. Otherwise you must believe that people are not greedy and arrogant. People will not steal, and always act within the rules…..never going to believe that one. The entire mortgage crisis was all a scam…so I doubt much has changed, especially since that behaviour was reinforced with bailouts. Just become too big to fail, and do whatever you want. Or get a tap on the wrist like GS gets, and continue to make 100 fold more.

    Either way my views in the human condition, and I don't trade anymore so riding this gold bull is a rather enjoyable change.

    Sam

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  65. Gary,

    What do you think will be the catalyst for the C wave final advance/top? Dollar weakness, euro weakness (currency crisis), debt crisis, war?

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  66. Well I tend to believe the dollar will be moving down into the 3 year cycle low soon. It may have laready started. But gold will finish the C-wave no matter what the dollar does. Heck we just saw gold rally to new highs despite a strong dollar.

    Gold has pretty much decoupled from the dollar at this point.

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  67. Big divergence in tick on this lower low. I wouldn't be surprised if we see the market stage a strong comeback before the end of day.

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  68. U R hope and changeing it will rally. All assets are going lower. It's called DEFLATION. One day does not matter but we are going much lower accross the board. 1250 in gold was an easy sell. Bagholders here will get their butts handed to them. Just keep buying the dips.

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  69. Gary-
    Still see this playing out?

    Big divergence in tick on this lower low. I wouldn't be surprised if we see the market stage a strong comeback before the end of day.

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  70. HUI @444.75. Well below the 450. Gary said it would never go below 450 again. Well boys you have been had. Get out now! While there is still time.

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  71. A gold close below 1185 will open the door for a major drop. At least 100 bucks.

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  72. Gary,
    In your opinion/report, gold holding/closing above 1184 for the week, would that still imply that the lows are in?

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  73. You guys better stop trying to catch THE falling knife here. Zero Hedge reports Paulson down 1 billion in losses today alone. You can thank him for the plunge in GLD and BAC. OUCH! Liquidations are never nice IF you are on the wrong side. This will only get worse.

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  74. Gary - When will you decide the weekly swing low is in place and add that bit of margin?

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  75. Looks like the weekly gold chart is plunging through the lower major trendline. Its not tooo late. At least lighten up.

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  76. Gold violated both trendline and horizontal support in February. Trendline and MA breaks tend to happen near cyclical lows.

    The Feb. low was marked by a positive midday divergence on GDX with huge accumulation volume. We're certainly not seeing that yet.

    Let's see how she closes, my excitable friend. The short-term trend is undeniable down, the longer timeframes a bit more ambiguous.

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  77. No real positive divergence yet (maybe a little) or much volume yet on the miners but they have stopped going down (for now) while the broader market continues to go down and gold not doing much of anything. We'll see how this shapes up.

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  78. Did the market just crashed - Dow down 200?!

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  79. Tick is still diverging. But like I always say I have no desire to trade the stock market.

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  80. It seems pretty certain the CBT will come to pass. We still have at least a week before gold moves into the timing band for a cycle low so there is no need to jump in just yet.

    I would think gold will drop to at leat the 50% retracement level (1154) before we can start looking for a bottom.

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  81. Hey troll baby don't you get tired of sticking your foot in your mouth. You did the same thing in February.

    You just can't seem to learn your lesson can you? Once the intermediate cycle is finished then gold will be off to the races into the seasonally strong fall season.

    Repeat after me secular bull market!

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  82. Please.
    Repeat after me - long and very wrong. Sorry the facts are what they are. You are giving back hard earned gains by the minute here. There will be a chance to buy at lower levels. Margin calls next week will take it down even further.

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  83. No bounce today. Heavy selling at and above the markets here. Next leg down by the close. Weekend is so unpredictable. Sunday night opening s/b interesting.

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  84. Gary, the only problem with the 50% retracement call is that everyone and their grand mother is calling/expecting it... and what everyone expects, usually never comes to pass.

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  85. So? None of us here care about short term draw downs. I dare say we've all learned our lesson by now.

    We only care where the bull is going to be come fall.

    For some reason you seem to think this is a trader site. If I thought I could profitably trade the bull I would but I know it can't be done.

    The big money is made by holding and accumulating during dips. I'm waiting patiently to add the rest of my margin position.

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  86. DEFLATION! When will you realize this.

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  87. Which may mean that gold bottoms before that level, I know. Actually I will be looking for a swing low once we get into the timing band for the cycle bottom to put on the rest of my position.

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  88. Anon,
    The market is down 7 points for the week. Your a little premature with your chicken little the sky is falling call I think.

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  89. Allright you non believers.
    Shouldn't the dollar be much stronger today based on market weakness and flight to so-called safety.
    This to me spells further trouble for the dollar?
    What say you-- (anyone)?

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  90. Daniel -

    The dollar has been weak pretty much because of the explosive countertrend rally in the Euro. The short term bearishness on the Euro was pretty excessive so I'm not surprised that happened. However the dollar is likely in a cyclical bull market and my target is 90 and then 100. The Aussie and Loonie are forming major topping patterns once again, if you took out Euro strength the dollar would have resumed it's rally already, but it will shortly anyway.

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  91. Something tells me the troll baby doesn't even have an account. He's singing like he's up, when he got smoked holding shorts through a 10% vertical move. LOL

    Looks quiet right now, probably because all the criminals have already left for the Hamptons.

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  92. Justin-
    Are you expecting the dollar to rollover after your prediction. Seems to me that Bernanke and the fed have only one option-- (Dollar Weakness via excess dollars)

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  93. Are there still retards out there that don't yet understand deflation is good for gold?

    Look it up.

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  94. Anon-
    Yes Gold should shine in; Inflation, Deflation, or Stagflation.

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  95. The deflationists just refuse to understand that in a purely fiat system deflation is a choice.

    If need be the government copuld simply print money and mail out checks to every man, woman, and child in the country. It's simply impossible to have deflation in that scenario.

    And let's not forget they have already done exactly that twice. They called it a tax rebate.

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  96. Very bad mistake to hold longs now and over this weekend. Be very careful.
    Paulson is getting squeezed.

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  97. Anon,
    Can't you get it through your thick head that none of us care about short term swings? We are just riding the bull and the ride has a long way to go yet.

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  98. Finally getting some good scared poopless blogs.

    I expect 1100 gold, but old turkey all the way. So just saying it for sport.

    The only thing I can say is anybody believing in a fundamentally strong dollar is fooling themselves….Forget about debt levels, the deficit is out of control. So we increase taxes, and have higher unemployment. Not to mention the labour force increases each year as new grads and immigrants come in. The only hope is that the 20% unemployed move abroad, but even that is not a growth story.

    Deflationary fears end with more gov spending since it is such a great solution...$100 oil in no time, and then things really start to get bad. Only expect some laws on "oil market speculation" to try and curb the upward price.

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  99. No really guys, the EUR is headed to 1.40 and gold to the toilet for awhile. Back up the truck for the 200dma is coming soon to a screen near you! Gary I'll let you know when I purchase so I can debunk your buying on dips phyc theories! Gurboy

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  100. Hey if you think you can trade the metals and make money more power to ya. I can't do it and I don't need to try. If I just follow Old Turkey I will make a fortune during this bull. So I think I have to opt for the sure thing :)

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  101. I think the dollar will probably resume it's downtrend once it completes it's cyclical bull, but ultimately I'll let the charts determine where I think the dollar is headed, and not theories.

    The whole Bernanke can print us into oblivion mantra is so overblown by inflationaists it's borderline ridiculous. It has to be one of the most misunderstood, yet believed to be set in stone, ideas out their today, so I'm glad to take the contrarian side of that trade.

    Bernanke will only print when he panics, if he prints before that he will be considered a lunatic and he won't be allowed to by the government or the mainstream. The average American is still running around trying to repair his balance sheet, trying to figure out what to do with his wheelbarrow full of money is about the furthest thing from his mind right now, but that is what inflationists will have you believe.

    If inflation was such a threat why would commodities be so beat down, and long term bond breaking out on high volume? Why would the dollar have failed to make a new low in 2 years? Why would the Yen be making new highs when Japan has the biggest government debt load on the planet? Can an inflationist answer those questions?

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  102. The high yield and investment grade bond funds are not confirming this move down by stocks. Sorry bears this will turn out to be a bear trap.

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  103. Justin,
    Have you looked at a chart of commodities lately. Since the 09 bottom oil is up over 100%, gasoline 150%, copper over 100%, gold 80%, silver over 100%, stocks up 80%.

    How anyone can say with a straight face there is no inflation is beyond me. We've had massive inflation since March of 09. But it's been asset inflation becuase the money was forced into the financial system first. The banks used it to elevate financial assets and commodities.

    If the governement changes tactics and decides to mail money directly to the consumer then we will see massive inflation in consumer items.

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  104. Justin,

    Bernanke and the other criminals print every day, most of which is done in secrecy. They are accountable to nobody, and can "print" in many ways, like expanding their balance sheet through purchases of foreign debt. They do not need our permission. If they shared their every move, they wouldn't fight tooth and nail against an audit. Sure, they report some aspects, even issuing statements and pretending to have dialogue on limited strategies, but I think you're watching too much tv, brother.

    Do you honestly believe they report their every move?

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  105. By definition, "expanding the balance sheet" is printing, when they give book entry dollars in exchange for debt.

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  106. Sorry Justin;
    I agree with Gary and Anon on this one.
    they said it better than I could!!

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  107. To the deflation fruitcakes, you're right we're getting more deflation. We've been in deflation for 2 years, with more to come, and still gold hit all time highs last month.

    Either deflation started last week, or gold is the place to be for the CONTINUING deflation of certain assets, combined with rising PM prices. Calling out "DELATION" every two minutes isn't going to make a fool look smart.

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  108. You are right about that, but what is going to be really smart is when I cover my shorts from you puking your longs out. Just a matter of time.

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  109. Anon-I would argue we have not had deflation.
    if we have had deflation than why have prices not fallen in the face of the worst recession in a very long time. I believe that lack of falling prices has been indicative of inflation forces and those forces are building just waiting to bust out.

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  110. Daniel,

    Homes (most people's biggest asset) have been getting smashed for years. Even stocks are still 30% off their highs, including the past year's run.

    When you say "prices have not fallen", what prices are you referring to? Gold hasn't fallen, but that's because the Fed is debasing our currency. Same for oil. Check out condos in Orlando, many are down 80%!

    I agree with gary on most things, but happen to believe deflationary forces are still exerting influence for the time being. On the other hand, the criminals at the Fed will fight it heartily. Which wins, I don't know, but that is just a discussion. Gold will continue to rise through deflation, and really ignite if general price inflation (food, gas, and even housing) takes hold.

    To me, inflation vs. deflation not nearly as important as the conclusion gold goes much, much higher.

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  111. Anon-
    Agreed-- and I believe there are both forces exerting pressure-- (Deflation and Inflation) Because they wil fight deflation (helicopter Ben) I firmly believe inflation will win. Just a matter of time. Yes- some prices fallen-- some risen. When I spend money on food-gas and miscellaneous consumer non-discretionary items I do not think prices have fallen-- In fact many have risen. Argument I suppose is one of time and who cares when Gold will shine!!

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  112. "You are right about that, but what is going to be really smart is when I cover my shorts from you puking your longs out. Just a matter of time." -anon

    Will you be upset if I'm adding, not puking out my positions, when you are. Somehow I think not.

    I don't puke out into weakness in bull markets, at least not since I learned how to make money. Here's a hint for you, quit trying to guess the end of any bull market, it'll kill your account when you could've gotten rich.

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  113. Since we're floating our armchair theories of inflation/deflation, my personal view is that the euro started to rally when the eurozone began adopting austerity policies (i.e., deflation) the market found credible. The current politics in the US might eventually mean the same here, but that remains to be seen. Nobody wants to pay for bread with a wheelbarrow full of greenbacks, but nobody wants to go years without a job and debts that must be repaid with appreciating currency. Since the latter is the more pressing problem, imo, the Fed has more room to ease than to tighten, imo.

    The dollar has completely retraced the breakout from the base it spent several months forming earlier this year. One explanation (not necessarily the correct one) for the Treasury rally combined with a dollar drop would be the Fed proceeding with QA. If so, you would expect the dollar, due for a pop, not to pop very much and then continue down. That also remains to be seen.

    It would be a refreshing (though unexpected) change if the folks who show up to scream "The market is crashing" actually colored their observation of the obvious with an argument for why it will continue to do so (props to Justin in this regard). Too much to ask? I mean, you're safe behind your wall of anonymity, so you'll never have to admit being wrong, unless you're unusually honorable for an anono-mouse. The long-term direction is the only thing that's important for the non-trader, so let's hear your long-term view, your reasons for it, and let the chips fall where they may.

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  114. Sounds like me and Daniel are on the same page.

    I noticed the same things you mention, like gas and food not going down in the last year or so. Only recently have food prices started to decline. Gold could get hurt initially (like the last 2 weeks) as the general investor senses deflation, but the smart investors will buy into declines. This creates the floor. :)

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  115. I'd still rather being in gold currency than any fiat toilet paper, regardless of what the next month brings.

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  116. Hey G it looks like we could be working on the right shoulder of the inverse head and shoulders pattern you spotted a couple of weeks ago.

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  117. When commodities start trending higher again, and the long bond finally ends it's 25 year bull market, then I'll be more concerned about inflation. Until then it's just premature. I let the charts do the talking, and not fantasies about what Bernanke is doing.

    How did relying on Bernanke's printing press to save us end up doing for people in 2008?

    Debt deflation is a drawn out process, it doesn't go away in a year and a half.

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  118. I would have to point out that Ben's printing press halted the worst deflationary spirl in 80 years in a mere 9 months.

    Deflation was halted in the 30's the same way. Currency devaluation.

    Nobody is arguing that we have a debt problem. Most of us just believe the powers that be will opt for the short term fix of printing instead of allowing deflation to run it's course.

    This has been the prefered strategy for 10 years, I don't know why they would all of a sudden change tactics now.

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  119. Justin makes some good points.
    I really can't see why Gary thinks there's inflation out there.
    Rising gas prices? Construction material (base metals)? So what? When the system is still deleveraging and there's massive unemployment.
    This whole thing about printing presses and Bernanke?
    In case anybody hasn't noticed, this must be the most crowded trade out there. The hyperinflation-that evereveryone's-waiting-for trade.
    For God's sakes? There's a big forex/retail financial broker that starts out it's ads with "CENTRAL BANKS ARE PRINTING MORE AND MORE MONEY" on Bloomberg (Europe) TV.
    A few times on this blog I've mentioned another "no-brainer" trade that was immensely crowded post Japanese bubble crash.
    SHORTING Japanese Govt Bonds.
    All the "smart money" were caught with their pants down shorting JGB's like crazy... during Japanese deflation that's yet to end.
    Sure post Nikkei/Japanese property crash you had the NIKKEI make massive moves upwards (cyclical bulls), you had the YEN go up and down.
    So what? They were still deleveraging like crazy.
    Gary you are oversimplifying things far too much.
    You can't just base everything out of what happened from March 09 bottom...
    Many of my gold shares, as an example FWIW, have yet to even retrace 68% of the crash, so I have no idea why you are so enamored with inflation/Bernanke.
    What are Treasuries, TIPS, and the Dollar, yes the much maligned US Dollar IndeX, saying?
    I don't see inflation in any of those.
    As Justin said, US DX is hardly below March 2008 levels.
    I'm a sub, own gold, miners, and am very bullish US Dollar.
    It's the only fiat currency in town for a long while to come. And we all need a little bit of fiat to do business.
    I really think you are getting your monetary mechanisms wrong, Gary.
    BTW I can afford to hold on to my investments longer than most. It will take much longer than most, but I also entertain the possibility that your gold/PM mania may never materialize.

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  120. Weakness or Strength into the close?
    Anyone have any guesstimates?

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  121. I meant it will take much longer than most for me to puke up my gold physical holdings and miners...

    Long story short: I think the whole Helicopter Bernanke story is SO played out. Everyone on the street regurgitates that stuff. So something's probably missing.
    And I've said it before here, the US can afford to be more reckless about its finances than the rest of the world, in a world where the Asian fantasy of decoupling is still decades away.
    The US can balloon its deficit and still take the world's money, because the Dollar is still the currency King.
    Sure, all that's bullish Gold, so I hold lots of gold because it seems to be the arbitrer of real "value" in terms of all currencies.
    Also agree with lots of Rosabarba's points.

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  122. Weakness, with perhaps a little short-covering rise in the final minutes.

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  123. Just looked for the 1st time today. Only thing I got green is Mesa Air Group MESAQ,lol. Yes I have 10,000 shares at 4 cents or so...

    Hey everybody have a super weekend.

    Tom

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  124. BTW, a little comment on so-called "smart money" or in other words the super investors.
    Someone above mentioned Paulson losing a billion or so.
    We all know that one of the big gold bets Soros and Paulson have made recently was their investment in one /explorer miner in particular, Nova Gold. I see Faber has joined the mix over there as well as a Director (I think).
    This company that lots of people have made a big deal of has yet to do jack shit... and is years away from producing anything justifiably significant.
    NG's main claim to fame is that it owns claims to potentially massive gold producing reserves. There was yet another story about NG this time in the WSJ yesterday or day before.
    The point is even when I factor in Soros and Paulson actual physical holdings (Faber may be a different type of animal altogether), I wonder what percentage of their wealth is actually invested in Precious Metals.
    Basically their gold/PM-related investments amount to a "hedge", considering how small they are as a percentage of their net wealth.
    So for them, should a gold mania materialize, then they are appropriately invested and hedged.
    NG is really their massive call option on gold.
    But let's say gold is a dud. It won't matter to them because surely they are invested in other stuff (bonds/equities) that will make them a ton of money anyway.
    I really doubt smart money like Paulson or Soros would be above 25% invested in PM's. It's probably much much less than that even if they are reasonably bullish about Gold/PM's.
    But here I am, way overweight the sector and the actual metal :-)

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  125. Marc Faber must go rock climbing with Gary on weekends :):

    "Speaking to Bloomberg in a live interview Thursday, Faber said: " I am conviced the Fed will soon implement further quantitative easing," adding "and massively so".

    "It will probably happen in september, October," Faber said, putting a timeline to his prediction."

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  126. There is simply no dening we have had massive asset inflation. That include commodities.

    If the dollar was really strong then oil would be back at $35 which is where it was at the last time the dollar approached 90.

    I'll say it again since everyone seems to have a lot of trouble understanding. The money was printed and forced into the banking sector. Instead of making risky loans to people who would probably just default anyway the banks put that money to work in the asset markets. This is why asset prices have risen massively since the bottom in 09.

    If the government decides to let the average person get theri hands on more free money it will come in the form of more rebate checks. When that happens you will see other areas inflate besides just asset markets.

    It really is that simple folks. Magic really doesn't work in the world we live in. If you print a lot of money then the price of things are going to go up. Depending on who gets first use of the money determines where that money lands.

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  127. khalid,

    One shouldn't also assume Soros/Paulson et al haven't directly hedged their PM positions as well (not saying you are so assuming).

    Emulating the positions of a hedge fund isn't as straightforward as mirroring their 13Fs.

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  128. I think low prices halted the last major downturn in stocks, not Ben Bernanke. Bernanke is like the Wizard of Oz, his true power is miniscule compared to what people believe he can do.

    Low prices halted the Great Depression as well, and the Government didn't devalue the currency until well into the Depression. The government doesn't pre-emptively print, contrary to what the Wizard of Oz believers believe.

    Ultimately believing in fairy tales doesn't pay, price pays so I'll just follow price action.

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  129. Roosevelt took office in early 32. One of his first actions was to confiscate gold and devalue the currency by almost half. The market almost immediately bottomed.

    Bernanke most definitely did put a bottom in the market. The last 4 year cycle low occured in March of 08. The market then entered the single most left translated 4 year cycle in history. We should have continued down into a final low this fall. But that process was reversed by the Fed's QE program.

    Granted I never would have believed it possible if I didn't watch it happen.

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  130. I like what Justin says.
    I'm another who think there's a lot of liquidity in the financial system generated by CB's but I believe most of it (most of which ended up in the mega banks' hands) is still flowing into government bonds in a big way.
    Gary's always been right that money has been increasingly flowing into the PM's and the mining sector, but that's still miniscule.
    Unlike Gary, I don't think it boils down to Bernanke.
    IMHO it boils down to when China starts struggling.

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  131. Gold falls 1.3% and people are already freaking out. Gold bull dead. Paulson lost money....wow, I can't wait until gold falls about 10%...this is setting up for a very powerful T-wave....Troll wave.

    PS increasing purchasing power is key....all tools have an element of belief...TA is probably the biggest fairy tale, its like Santa Claus...we all know that he doesn't exist, but we still get the presents.

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  132. LOL I like it. I'm going to have to remember that one

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  133. Technically, GLD and GDX are still sitting on a supporting horizontal (no confirmation of the bear flags thus far).

    So, even if you believe in Santa Claus, today's action hasn't taken away the presents, yet. :-)

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  134. I think you raise some pertinent observations, Justin, but I think you underrate the effect Fed action had on the market, both psychologically and monetarily.

    Holding the Fed action as somehow irrelevant to the market's perceptions of price isn't convincing to me. Expanding a balance sheet to more than $2T denominated in the world's reserver currency and suggesting a willingness to go further is more than just smoke and mirrors. Prices were perceived as low, and the actions of the Fed and Treasury were part of the reason, imo.

    Now, it's a separate question as to whether the Fed expansion of its balance sheet will overcome the contraction in credit and the drop in the velocity of money. Gary clearly believes it will. I'm not quite convinced myself, but to khalid's point, it might not matter with respect to the PM trade. I have a hard time believing we are on the verge of a hyperinflationary spiral, but I also agree that might be irrelevant to the PM bull.

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  135. Gary -- you know why it always appears that the Fed bails out us at the last second at the bottom of a big down move? It's because they panic at the bottom like the rest of us. They are humans after all just like the rest of us.

    The Fed's role in all of this is exactly that, a role. It's not the single cause for why things happen. That's why ultimately if you pay attention to price and ignore everything else you'll be fine. If you invest on theories of things that you may or may not actually understand or that even exist you're opening up the possibility of being terribly wrong.

    Ultimately people that believe in the craziest theories on how the markets work, still invest based on price, they just are the ones that end up capitulating at the end of big nasty downtrends since they finally have to come to terms with the idea that they're hair brained theory could be wrong, but they hold on way too long thinking they are right.

    I've read both sides to the coin ad nauseum, the hyperinflationary theory or the deflationary theory. Truthfully, I could see either happening depending on how crazy things got, but ultimately, I'm going to invest on the side I think is winning at all times, I have no allegiance to either camp.

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  136. Well if one wants to invest based on nothing more than charts there is no question. Gold is in a secualr bull trend. Just buy dips and wait for the bull to run it's course.

    Hey that's what I'm doing :)

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  137. There's no question I'll be participating in this bull market for as long as it lasts.

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  138. Something Weimar this way comes?

    From--http://jessescrossroadscafe.blogspot.com/

    According to the latest report from Shadowstats:

    Alternative Consumer Inflation Measures

    "Adjusted to pre-Clinton (1990) methodology, annual CPI inflation was roughly 4.3% in June 2010, versus 5.4% in May, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was about 8.4% (8.37% for those using the extra digit) in June, versus 9.2% in May.

    The SGS-Alternate Consumer Inflation Measure adjusts on an additive basis for the cumulative impact on the annual inflation rate of various methodological changes made by the BLS. Over the decades, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept. Roughly five percentage points of the additive SGS adjustment reflect the BLS’s formal estimate of the impact of methodological changes; roughly two percentage points reflect changes by the BLS, where SGS has estimated the impact not otherwise published by the BLS.

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  139. And again according to

    http://jessescrossroadscafe.blogspot.com/

    Gold and Silver Highs

    Adjusted for CPI-U/SGS Inflation. Despite another recent all-time high in the price of gold in the current cycle, gold and silver prices have yet to approach their historic high prices, adjusted for inflation. Even with the June 28th historic high gold price of $1,261.00 per troy ounce, the earlier all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 has not been breached in terms of inflation-adjusted dollars. Based on inflation through June 2010, the 1980 gold price peak would be $2,382 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,689 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

    In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce (London afternoon fix, per silverinstitute.org) has not been hit since, including in terms of inflation-adjusted dollars. Based on inflation through June 2010, the 1980 silver price peak would be $139 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $447 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

    As shown on page 22 in the Hyperinflation report, over the decades, the price of gold has more than compensated for the loss of the purchasing power of the U.S. dollar as reflected by CPI-U inflation, while it has effectively fully compensated for the loss of purchasing power of the U.S. dollar based on the SGS-Alternate CPI."

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  140. I think anyone who actually has to live a real life knows there has been no deflation other than real estate prices and a very brief period into Dec. of 08.

    Other than that the price of energy has gone up. The price of a meal at ones favorite restaurant has gone up, Health care has gone up, education has gone up.

    Other than real estate which has a severe over supply problem there is simply nothing that anyone can point to and claim that prices are collapsing (deflation).

    Amazingly enough this is happening in a high unemployment environment. For prices to remain elevated in that kind of climate inflationary pressures have to be huge.

    Employment levels this low should be driving prices through the floor but it's just not happening.

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  141. Agreed Gary. In the last two or three years, I have seen virtually no falling prices for the every day stuff I buy. I was recently in Vegas and was shocked at the high prices of airfare, hotels, meals and entertainment. It was as if the crash never happened. And the place was bustling! Same in my home town - no dropping prices on anything except real estate.

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  142. Do you still like banks, Gary, since they have uncle Ben on their side?

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  143. I wouldn't buy them but then I wouldn't short them either. I'll just stick with PM.

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  144. Pretty much anything that is made overseas has been hit with deflation over the past 20 years or so. How about textiles and clothing? How about electronics? How about furniture?

    I think the jury's out on deflation. I know that Helicopter Ben has said there will be no deflation on his watch, but I am not so sure he can prevent it. Inflation is caused by an expansion of the money supply which occurred during the great credit bubble of the 90's and early 2000's. Deflation is caused by contraction of the money supply which is occurring now with the debt defaults and refusal of consumers to take on new debt.

    Ben's QE, what did that do? Didn't cause inflation as far as I can tell. Gee, maybe that's because the money didn't go anywhere. And the zero interest rates? Who's borrowing? Banks, yeah, they can borrow from the Fed at zero, then buy T Bills, Notes, and Bonds and get paid interest for zero risk. The American people ought to be up in arms about that. Or about the fact that those same banks who borrow at zero, charge them double digit interest rates on their credit cards.

    But I digress. Deflation may be inevitable, even with Helicopter Ben at the helm.

    But even if we do get deflation, I'm not sure how that will affect the price of gold. Gold may go up even in a deflationary environment.

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  145. The money went into financial assets just like I said it did, and for the reasons I said it did. Otherwise oil would still be at $35, gas at .80,gold at $680, Cotton BTW is up 50%, I don't see where electronic prices are down by any significant amount, and furniture is for the most part directly related to the housing industry so that one I can understand, although I doubt prices for furniture are collapsing, probably just stagnate.

    Like I said there is virtually nothing that anyone can point to and say that prices are collapsing other than housing. On the contrary virtually everything has exploded in price since the 09 bottom.

    Folks that means there are inflationary pressures. It simply isn't possible for the price of almost all assets to move up 50-150% and there not be inflationary pressures.

    Just because the inflation happens in areas that we don't normally consider "bad" doesn't mean there isn't inflation. Remember inflation is defined as an expansion of the money supply. Rising prices are a symptom and no one can deny we are seeing the symtoms.

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  146. Inflation and DeflationJuly 16, 2010 at 8:22 PM

    Gary, since we do see inflation in some asset classes since 2009. Like what we experience in 2008 as oil price went to $147 and then collapsed. Could we not suffer another deflationary time like then?

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  147. Certainly we could, and when oil spikes high enough I'm pretty sure it will collapse the economy again. If it wasn't for squatter stimulus I tend to think we might already be there.

    But I just don't see it yet. The restaurants are full, people are spending, Vegas is busy. I'm just not seeing the signs that another deflationary collapse has started yet.

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  148. What is the cycles saying now. It appears everyone is confused where the market is headed these days. Can't blame them though, everybody is so reactive.

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  149. I'm pretty sure the intermediate cycle bottomed two weeks ago. The odds of an intermediate cycle rolling over this quickly are virtually zero. There is a small chance that we could experience a very stretched cycle like we did in Feb. but I don't think I've ever seen two of them in a row.

    I'm going to go over the historical data in the weekend report.

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  150. Anyone here been to Wal-mart lately. Prices there are coming down. Most smart people buy most things on sale especially in grocery stores. Foreign car prices have stopped rising car prices in US. Real estate has another 50% to go to the downside before anyone should think about buying.
    Deflation is here. You gold farts are in de-Nile. Of course time will tell. Gold looking to test 1000 on the next roll over. There will be many people bail. Then you buy with both fists. jmho.

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  151. I go to Target all the time. Prices have been stagnate. I'm sorry but it's just not true there is no deflation in anything except real estate and that is because of a severe oversupply issue.

    When I see gasoline drop back below $2.00 then we will have deflation. Gasoline is a neccesity for everyone if the money supply is contracting drastically (deflation) we will see it show up in the price of gas...just like it did in `08.

    Until that happens this deflation nonsense just doesn't hold water.

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  152. The inflation/deflation debate is kind of like politics, people seem to take sides and then stick to their guns and never admit the possibility of the other side being right. I think inflation/deflation run in cycles, prices run up in different assets and get out of whack with supply and demand, and then prices collapse. Right now I think credit is still collapsing a lot more than inflationists realize or care to admit.

    The simple fact is most Americans are still seriously in debt, and possibly without a job now or with reduced income. I don't see how they can continually prop up asset prices if they are making less money, paying off debt, or if they are defaulting on debt they are affecting the purchasing power of their creditors.

    Combine that with real estate bubbles in Canada, Australia, and China and who knows where else that are about ready to pop, also very deflationary. Look at what the bond market is doing, does anybody think the bond market cares about inflation right now? The TLT and IEF are breaking to new highs on high volume!

    Like I said before if inflation was a problem right now commodities would be breaking their 2008 highs, instead they are still very far away from that. Look at silver, it hasn't even made a new high in 2 years now either, how can that be inflationary.

    Prices rebounding from 2008 lows is not inflationary, that is just simply a bounce from an oversold level. All you have to do is look at the prices of commodities and bonds to figure out what the bigger problem is, and right now they both point to deflation. Inflation maybe down the road is a problem, but not right now.

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  153. I agree that inflation and deflation run in cycles. We have obviously been in an inflationary cycle since the 09 bottom.

    And yes the consumer is still heavily in debt but for a lot of people that means they are underwater on a mortgage or mortgages as the case may be. Most other debt was financed by taking cash out of their real estate during the good times so a big part of consumer debt is directly tied to real estate.

    But as we discussed before that defaltionary pressure has for the most part been sterilized. Literally millions & millions of underwater home owners have simply quite paying their mortgage.

    Under normal conditions this would bring down the lender (banks) except congress changed the mark to market rules. Banks can now hold those loans on their books at full value. In the meantime the Fed just keeps pumping free money into the system.

    All the while the government just continues to take on more and more debt.

    I think the deflation "now" crowd is vastly overestimating deflationary pressures. What little deflationary force there is is being more than offset by massive government borrowing and spending.

    And in the mean time the banks are forcing their "free" money into asset markets.

    And I have little doubt Ben will embark on another printing spree before he let's deflation get out of control.

    Ask yorself if you were the Fed would you let deflation get a solid hold on the economy again before you do anything or would you act preemptively?

    We already saw what happens when they wait around until the problem is obvious. Do you seriously think they are going to make that mistake again?

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  154. Gary,

    I agree that the Fed should act preemptively but will they be able to do it? I have no doubt that Ben would like to do it yesterday but there are so many other constituents. The economy is clearly already moving back down rather sharly (look at the latest ECRI numbers for confirmation) yet the Fed seems to move so slowly. Bernanke clearly saw what was happening in Oct 08 but waited another 6 months to really pull the trigger. Meantime the markets got hammered and the problems they were attempting to correct got significantly worse. What do you think they are waiting for this time around? Is the political landscape making it more difficult? When you do you think they will act? And, equally as important, what do you think they will do this time around? I'm not convinced that simply buying treasuries will do the trick and how many more mortgage purchases will help the greater situation at this point? Keeping interest rates low doesn't seem an issue so long as they have China not moving too fast to liquidate. Perhaps they are doing much of this behind the scenes (where the heck did the UK get the money to double their treasury holdings when they are having problems!). Tough to analyze for sure.

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  155. I tend to think Ben is already printing. The dollar is moving down sharply again which is what we should see if the currency is being debased.

    But I think if the market continues to erode the Fed will publicly announce another round of QE to get asset markets headed back up.

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  156. Great posting on gold...but, David Banister has turned short-term bearish on gold and so far he seems to always get it right! If u have 5 minutes to spare please watch his video and tell me why he is wrong. http://www.activetradingpartners.com/articles/2010/07/gold-peaking-video-june-29th/

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  157. Everything is lining up for QE with the mainstream financial press full of deflation fear-mongering. These are the scouts and foot soliders preparing the scene for the upcoming move. Like in Friday's FT editorial page someone from the AEI penned an editorial about the risk of deflation.

    But the move in the dollar recently is all to do with the euro, so can't read much into that.

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  158. Anon,
    It seems apparent the CBT is going to play out so gold should have one more move down into the intermediate low.

    Frank,
    I'm going to go over this in the weekend report but the commodity markets are already telegraphing another round of money printing just like they were in early 09.

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  159. FDR took office in early '32? The election was in 1932.

    Is credit contracting or expanding? That is the only question that matters regarding deflation as the USA has a credit-based money system.

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  160. Total credit is expanding massively. Yhe government has picked up where the consumer has left off.

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  161. Well I took the advice of the JW and had a couple beers. Old Turkey is right. Beer is better than stress any day. Old Turkey 101. Believe in PMs or not. Life is so much better now. I am dancing now, so to you jerks that still trade and want to troll my ass, please go ahead. I have seen the sun again, and it feels nice.

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  162. You have to be careful when using anecdotal evidence to support a deflationary claim. There is deflation is some areas like real estate although it has slowed greatly. In hi tech manufacturing, I'm seeing prices rising from our suppliers. Much of this comes from overseas. Even stuff we buy OEM is going up in price and of course we are raising some of our prices too.

    I agree with Gary, when energy prices start dropping heavily, then we have deflation.

    One other thing, just because a flat screen TV is half the price it was a couple years ago doesn't mean deflation. That's the effect of mass production efficiency.

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  163. Gary -- you fail to answer my question, what is the long bond telling you about inflation? Do you think that entire market, which is bigger than the equity market, is wrong? I'd personally rather let the market tell me what is the bigger problem, and not my own theories.

    The fact is the bond market would be topping out if QE was really a problem. Ben neither has the political will or the ability even to create the type of inflation to counteract the current deflation.

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  164. Justin,
    Let me ask you a question. Would you be willing to loan the government your money for 10 years at under 3%?

    Remember this is a government running up such huge debts that we will never be able to repay them unless we debase the currency.

    So I have to ask knowing that the only way you are ever going to get your maony back is with debased dollars would you lend money to the US government?

    Of course you wouldn't, none of us are that stupid...well I hope we aren't.

    But let me ask you this. Did people wait in line overnight to buy condos that hadn't even been built yet? Did they buy tech companies valued at astronomically high prices even though they never really had any chance of ever making a dime?

    Of course they did. People become astronomically stupid during bubbles. The bond market has been in a bul market for 30 years. Isn't it obvious it has reached the bubble stage?

    Or maybe you were one of those people camped out in FL waiting to buy real estate. (meaning of course you are unable to spot a bubble)

    Most of the great investors (Rogers, Gross, Paulson) understand that the bond market has reached the bubble stage. I agree with them. No way in hell I would give the government a loan for 10 years at 3%.

    Hey I was born at night but I wasn't born last night.

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  165. I want to also point out that the entire commodity complex, even chronic underperformer nat gas, has been diverging from the stock market. We saw the same thing in quite a few commodities at the 09 bottom.

    The signs are there for anyone with the eyes to see, that commodities are starting to sniff out another inflationary trend (probably another round of QE).

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  166. I see someone else asked, and I will ask too: What is CBT? Might be nice to have a glossary posted somewhere for new readers. Thanks

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  167. Gary's curve ball theory.

    If you are a subscriber you can find it explained in one of the nightly reports. I don't remember what day it was off the top of my head.

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  168. Some thoughts:

    1. China will exporting wage inflation soon; the $180/month workers are seeing the shiny new Buicks and BMWs the factory owners' are driving and they want a share of the pie. The CCP knows that and wants to avoid civil unrest; hence the news of strikes and suicides by factory workers. After ruining the manufacturing base of the West, the CCP will now focus on internal demand. Even if wages double in China, there are very few alternatives which provide the ease of doing business as China does. The CCP also needs more people to buy the condos and fill up the cities they have built. This wage inflation will complement the commodity inflation we are already seeing on a relative basis.

    2. US bond prices (even at 3%) will continue to command a bid, until there is a secular change in the US economy. Inflation imported from China is not going to drive away the bid; especially if that inflation squeezes margins in the absence of pricing power and equities become even more unattractive. The boomers have been burnt twice in the past decade and their appetite for capital preservation will grow as they near retirement. Uncle Sam at least guarantees they will get their dollars back. So unless and until, the US starts creating jobs and unemployment starts falling, the bid in bond will remain.

    3. Gold has a huge following and every dip under $1200 is being bought. However, technically it is also finding it hard to break above the 50 Day SMA. This increases the chance of downward range extension. Prices may not stay low for too long; but they are likely to go down and test the long term support at the 150/200 Day SMA.

    The spike will have to wait till QE2 sails. And QE2 is stuck in the yard till the mid-terms are over.

    4. SPX has now completed a 38.2% retracement of the sprint of the lows. It might just test the air below 1000 this time around. The true low will likely wait till October, when it becomes clearer that the shift to GOP is real.

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  169. $GOLD on stockcharts is showing the 150 Day SMA flattening and potentially trending down.This line has acted as solid support since early 2009. The last time it started curling down was in the Fall of 2008.

    We all know what happened next.

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  170. The 150 DMA started to roll over in 04, 05 & 06 also. 08 was a once in a generation market crash that took everything down with it, although gold was the one asset class that did not drop below the 200 week moving average and it was the first asset to recover and move back to new all time highs.

    08 was also the move down into the 8 year cycle low for gold. The next one isn't due till 2016.

    Base on historical data gold should be about 4 to 12 days away from putting in the final low of this intermediate cycle. Then just like in Feb. we will see another 15 to 20 weeks of rising prices as gold puts in another leg up in this C-wave.

    The bottom line; there is another great buying opportunity right around the corner. The question is will you take it or will the technicals tell you "gold is looking terrible" and you let another incredible opportunity pass you by?

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  171. Gary wrote:
    The bond market has been in a bul market for 30 years. Isn't it obvious it has reached the bubble stage?
    No, I don't think it's obvious. Most people I know who are interested in what to do with their money have no clue what Treasuries are, let alone what to do to begin even investing in them.
    Just one of the core problems I have with USD bears and US Government bears' mantras (yes, they are mantras) is that sentiment towards the currency and government debt don't even remotely begin to look bullish for me to say that that market has topped.
    I don't know how to measure such sentiment concretely, obviously, but all I discern inordinate bearishness... it's all I read, all I hear, and all I see everyday.
    I'm willing to bet a decent content analysis of all economic and financial media published would indicate that all people are ever afraid of is Dollar Collapse.
    People have worried about this forever. And financial companies have made money out of such unfounded fears of hyperinflation for decades.

    BTW Gary, you seem to be anchoring your view of the consequences of monetary policy (and you seem to focus almost exclusively on what the Fed does) on just prices of commodities and some CPI goods.
    I don't think such prices have anything or much to do with actual monetary mechanisms that could lead to high inflation.
    One of the few people who had a practical perspective and grip on Inflation/Deflation is Mish Shedlock.
    I'm not saying he can call the markets correctly more than most pundits but he has the best handle on money/credit issues and the way he explains them is second to none.
    I find your views have much in common with Peter Schiff.
    Anyone who actually reads Mish knows that he schooled Schiff on such matters.
    You say money's pouring into commodities. OK , but wouldn't that be pure speculation if banks and smart money decided to shift into that sector when the global fundamental scenario at the very least is still cagey and fragile.
    We have bubbles in Canada and China, still, as in other places.
    If smart money is "investing" in an ongoing commodity boom that's at risk of collapse once China enter a crisis, then we are really in for another crash in stocks, corporate bonds, and commodities once the insanity in say, China, stops.
    Hyperinflation is a possibility sure, but only from much much lower prices in everything.

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  172. K,
    You judge sentiment by what you read, I judge it by actual surveys.

    Bond sentiment is again back at the same level as when Bernanke spiked price with his plan to artifically depress rates. As always happens when a governement tries to force the market to do something it doesn't want to do it fails.

    The same thing holds for the dollar. Actual sentiment surveys show the dollar is back at the same levels as the March 09 top.

    I'll say this again. Magic just doesn't work in the real world. There is no Santa Claus or tooth fairy. And a government can't print trillions of dollars out of thin air and not have something bad happen to their currency ... and eventually the bond market.

    The greatest investors in the world see the bubble in bonds. I see the bubble in bonds, but then I easily spotted the housing bubble and I'm quite sure I will spot the bubble in gold when it arrives.

    So again I will ask the question; would you loan the government your money for 10 years at 3%?

    My guess is that you would not.

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  173. "would you loan the government your money for 10 years at 3%?"

    3% is nominal. What is the real return? Why is the return on JGBs less than 2% after 20 years of Keynes, helicoptor drops, and quantitative easing? Are you saying the Japanese didn't print enough money but in the USA "this time is different"? If gold is pricing for inflation, then it should correct under heavy liquidation...probably this year.

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  174. The real return is below the price of inflation. To buy a 10 year treasury one has to assume that bonds will remain in a bull market for another 10 years making this a 40 year bull market and that rates will drop considerably below 3%.

    You would have to believe this with government debt spiralling out of control and the only way out is by debasing the currency.

    Now as to something happening that hasn't happened before one could have said the same thing about housing in 05. Actually many people did. They thought just because housing had never gone down that meant it never would...they were wrong weren't they :)

    Now just because we haven't had a severe inflationary bout in this country since the 70's doesn't mean it isn't going to happen again. (actually we had a severe bout of inflation in 08 when oil spiked to $147)

    And just because we haven't had a hyperinflationary event since the 1860's doesn't mean the conditions aren't brewing for the next one.

    Certainly it doesn't happen overnight, but we are heading down the path that leads to that outcome. The only way to get off that path is to force a severe deflationary depression on the country. So far the powers that be have shown absolutely no willingness to do that. As a matter of fact they have done everything they can to fight it...which is why we are heading down the path to eventual hyperinflation.

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  175. BTW Japan didn't print. They funded their bailouts with internal savings. It's why they didn't experience any inflationary pressures.

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  176. Gary's CBT =

    C - Cash
    B - Bleeding
    T - Trades

    Gold should test the 1000 area during the equity meltdown coming. Forget about loooosing your position. You will be able to buy it back cheaper.

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  177. and that why Japan is still in this funk of an economy. They kicked the can down the road for 20 years now and look where they are.

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  178. LOL the youngster said the same thing to Old Turkey too. But OPld Turkey knew better than to take that chance.

    These aren't trades for most people. They are investments. For some reason you can't seem to get that through your head.

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  179. anon, Be honest with yourself you could no more buy gold at 1000 than you can now. If gold were to go to that level it would be virtually impossible for a trader to buy because the technicals would look terrible.

    Only a value investor can buy into an intermediate correction. They can do so because they aren't trying to "time" an entry and they understand the bull market will continue until completion.

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  180. Can't speak for the other anons - you have several - but I bought plenty of gold the very day after it closed over $1000. That gives me a cost basis of somewhere around $800, but I am not even remotely convinced that I am right. It costs about $2 for a futures contract (not including margin requirement) so hedging a physical position is a piece of cake.

    The gold bull may have a long way to run, but it will very likely flush current longs with some shocking declines.

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  181. If hyperinflation is where we're headed, then really you can throw a stone on any sector and still make money.

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  182. Not really. hyperinflation destorys an economy worse than deflation. Just look at what happened to the economy during the inflationary period of the 70's. The stock market at that time also went into a long term secular bear market. The same thing is happening now and in inflationary terms one is losing massive amounts of purchasing power by holding stocks. They only asset class that is protecting your wealth is the precious metals sector.

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  183. Gary -- the difference between you and me is I have price action on my side, while you have your theories. You might be able to make money on a theory by selling a book, but if your theory is wrong in the marketplace you will lose money. I on the other hand use only price action to determine how I trade and for my view on the markets. Right now the long bond chart shows no sign of breaking down to me, so I have to assume that inflation is not a problem at this time. Maybe it will be in the future but the chart will show us that ahead of time.

    I'm pretty sure I can spot a bubble too, it's pretty easy to see a parabolic move on a chart, it's just hard to figure out where they will end sometimes. Usually you don't know until after it rolls over. The long bond went parabolic in 2008 but since then it has only formed a large base from which it is breaking out on it's current move. If you're familiar with stage analysis it's called a stage 2 breakout, it's the type of move you want to be long. I learned a while ago it doesn't pay to bet against the market even when you think you have the fundamental case down.

    The dollar will be making new lows during a hyperinflation, not forming a multiyear basing pattern from which it could potentially break higher from. Until that pattern breaks down as well I will assume deflation is the problem.

    Also I would expect to see other major currencies breaking out against the dollar if we were to experience hyperinflation but they weren't. But I don't see that on the charts either. So frankly nothing I see on the charts points to hyperinflation at this time, so I have to believe this threat is only perceived by some people, and not real.

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  184. Justin,
    No body in their right mind would say we are experiencing hyperinflation right now. Certainly I'm not say we are. What I'm saying is that we are traveling down the path that leads to that and the only way to get off that path is by an extremely painful deflationary depression.

    The powers that be have shown no sing at all of being willing to go that route. Unless they do the end result will be a hyperinflaitonary event sometime in our future.

    Right now we just have inflation in asset markets, which is the Fed's intent btw.

    But at some point that will get out of control because the country is running up an astronomical debt burden that we can never pay back.

    That is the key that must be understood. If you can visulise what the end game will be when this debt burden becomes unservicable by any normal means especially when the bond market starts to revolt you will see that there are ultimately only two ways out of this.

    One is out and out default on its debts by the United States of America. If we choose that path then yes the world is going to be plunged into a deflationary nightmare that will make the Great Depression look like childs play.

    The only other exit from the path we are traveling down is to inflate the currency and try to pay off the debt that way. However this has gone on so long that we created a debt bubble just like we did in the 20's.

    At this point the debt has grown so large (and still growing) that it can't just be inflated away. At this point the only way to service this kind of astronomical debt is going to require so much printing that the bond market is goign to eventually break and that will lead to ever higher inflation rates in a futile attempt to service debt with ever more worthless dollars.

    The only question is at what point do the powers that be finally give up, can the currency, default for real and start over.

    Do they let inflation rise to 10%, 20%, 100% or 10,000% before they finally accept the fact that it really isn't possible to get something for nothing in this world we live in?

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  185. Gary,

    I don't disagree with the ideas behind what you are talking about. What I'm trying to say is the charts will tell us when it's time to worry about hyperinflation, in my opinion they aren't doing that at this time. So I'm going to invest for deflation until I see things change.

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  186. Here's the problem. Investing for deflation means shorting. The problem with shorting is the mathmatics are against you, not to metion the government and the Fed.

    If there wasn't a secular bull market anywhere then I would either reluctantly try to make money shorting or I would just go to cash until a bull market materialized.

    However, lo and behold there is a secular bull market still alive and well (just take a look at that last chart in my next post).

    As long as that is the case I will never opt for getting tangled up in the ruthless world of trying to short stocks.

    Let's face it after three vicious counter trend rallies less than 5 bears out of 100 have even made any money trying to short stocks.

    You (and every trader) make it sound like the easiest thing in the world to make money shorting, but I can tell you from years of experience it is anything but.

    Making money in the stock market trading is one of the toughest businesses in the world to succeed at. Let's face it you are competing against the smartest, best capitalized people in the world. These people have inside information you don't. They have research teams that number in the hundreds if not thousands.

    What do you have? Some charts. Do you really expect anyone to believe you are going to get an egde over these people with only a subscription to a charting service? If so I have some beach front property I'd like to sell you here in Las Vegas.

    Now that is trading in a bull market. You want to know how to make it 10 times harder? Trade in a bear market.

    History has proven over and over that the vast majority of retail traders don't make money in the stock market over a significant time period. It has also shown unequivocally that people trading solely off technical signals also don't make consistent money over a significant time period.

    Now you can claim you do and we can believe you or not, but what I'm telling you is that 95% of all the people that read this blog are not going to make money trading. Most will lose money.

    I'm not trying to help that 5% that do have the discipline, risk management and skills to trade and make money, I'm trying to help the 95% that are just going to throw their money away to the professionals if they try to "trade". Especially if they think they can trade a bear market.

    So you are just wasting your time trying to convince me that trading is easy. I know better and hopefully most of the people reading this blog have enough sense to see the truth and just stick with a bull market so they can actually reach the end of this with a small or large fortune instead of a big hole where their life savings used to be.

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  187. We already saw what happens when they wait around until the problem is obvious. Do you seriously think they are going to make that mistake again?

    Don't you think that the Fed will want/need the public to be demanding them to speed up the presses due to perceived deflation, Gary?
    If not, how can they justify it if people aren't asking for it - since it's generally thought that they've done too much QE already....?

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  188. John,
    Let me ask you a question. When was the last time the Fed did anything based on public opinion?

    Can any of the Fed members be fired because they didn't follow public opinion?

    Are Fed members seated by public election?

    Now that we got that out of the way what are the Feds twin goals?

    Maintain currency stability and economic growth.

    The problem is the two aren't compatible.

    The Fed has to decide which is more important a sound currency or economic growth.

    Go look at a chart of the dollar from 2001 till the present and decide which one you think the Fed has decided to concentrate on.

    Unless one is blind or extremely near sighted its quite apparent the Fed has decided to sacrifice the dollar in favor of trying to prop up the economy.

    Obviously the Fed buys into the whole Keyensian theory of economics and is trying to print prosperity.

    So I have to ask why after 10 years of this policy do you think they would all of a sudden switch tactics and decide it's more important to protect the currency than the economy?

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  189. Gary,

    I agree with you about the Fed's autonomous attitude and position; but I consider that 'it' prefers the psychology that it's easier to get your way if you're seen as a saviour rather than a dictator.

    I do also believe they're happy to see the dollar go down to zero. That way the Fed and it's CB allies will be able to restart the whole thing again, but this time globally [under the pretence of it being gold-backed].

    I just expect them to let people believe that deflation is hurting for just a bit longer ..... but that could tie in with your intermediate gold low within the next 15 trading days, I think.

    Thanks

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  190. FWIW, we bounced on the pitchfork line this morning from the weekly chart (for those interested in pitchfork analysis). IF we hold then we MAY have put in a low and could be looking at a retest of the old highs. Early still but encouraging.

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