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Friday, December 31, 2010

15 MONTH SPECIAL

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159 comments:

  1. Have a good new year Gary and up down or sideways in 2011 it's been a nail biting yet good two years following your action.

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  2. LOL I don't expect the nail biting to end next year either.

    Come to think of it I've been biting nails since the first day I started investing.

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  3. Gary: I have to say I have learned a lot from you this past year. Jimmy Rogers has always said "There's always a bull market in something." Sometimes you understand something and then letter you really get it on a deeper level. Well, reading your stuff has really changed the way I will look at trading from now on. Combining your approach with the more precise timing I have developed as a trader will, I think, dramatically improve my trading from now on. That is not something easily done so I am quite grateful for it. Not to mention that you run a great blog and have attracted some very high quality traders and investment thinkers. Good stuff! Have a great New Year

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  4. Thank you so much DG. That means a lot coming from a trader of your caliber.

    Next time your in Vegas the burritos are on me :)

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  5. Hi all and happy new year.

    Gary, I would like to echo many of the remarks and praise too, thank you.

    Looks like the dollar index is just a step away from a failed cycle reaching 78.92. If it breaks will you add to margin or are you looking for additonal or other confirmation?

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  6. The number we are looking for is 78.82. I am planning on adding some leverage when it breaks.

    Although the action in the dollar leaves little doubt that it is going to break so one could probably go ahead and add today.

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  7. Gary, I always have to laugh just a little to think I discovered you on the SOH blog in late 2008. Took me awhile to get it. Sure glad I did. Like DG you have changed my thinking about markets and their behavior. More importantly you taught me that individual investors have to focus like a laser on bull markets. I will be forever grateful! I will be buying your burritos the first chance I get, drinks too. Happy New Year!

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  8. It looks like the "fear" of having the '07-08 scenario play out is coming to fruition after all. Shoulda known that PMs wouldn't correct much with the 3 yr cycle low dive looming.

    But that's hindsight for sure. It was still prudent to lower exposure in the face of a possible IT correction. I've upped my exposure a bit over the last couple of days, and still have some powder left.

    Happy new year to all

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  9. Yeah Gary, thanks for the fantastic advise and iinsights!

    Happy New Year everyone and here is to a great 2011!

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  10. AGQ reach dec 6 high, SLW still lags,

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  11. we officially have a failed cycle.

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  12. Since we are all doing the hand-holding thing. Thanks Gary for the insights. I can rarely find an author that believes close to what I think will happen in the future. Putting all my money in cash in late 2007 was a very lonely time, not to mention being called a crack-pot fool. Everything is short term day trading or exclusively looking at lines on a chart these days. Your big picture views in conjunction to your cycles and other thoughts have really helped this muck of an investor stay the course. Like any practice, old turkey is not so easy at all times...keep it up coach!
    Cheers and happy new year to all!

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  13. Gary,

    If the debt crisis reemerges in Europe, which seems inevitable at some point, do you think the dollar will go back up?

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  14. We know it will.

    At the three year cycle low the dollar will begin a violent rally that should drive another deflationary period that will include big problems in Europe and it should also begin the next leg down in the secular bear market for stocks.

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  15. If I remember correctly you originally thought that might happen this summer, because we got a failed cycle do you think that will happen sooner or later?

    thx,

    e

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  16. The dollar's three year cycle low is due in late March or early April.

    That's when things will start to turn south for risk assets (including a D-wave decline in gold) and north for the dollar.

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  17. Gary, I also echo what DG and others have said: I am the lucky one to have found your blog and subscribed!

    Happy New Year to you and to all your subs! May 2011 bring you huge profits!

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  18. Gary

    The SMT subscription is the best financial decision I've made all year. This says alot because I also subscribed to Marc Faber & Jim Dines. Thanks for all you do here and happy 2011.

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  19. Gary,

    I feel so lucky to have found this blog and the quality of the traders and people here...There is not a day that goes by that I don't feel like a boy amongst men.

    Everyone on this blog treat each other with so much respect too.

    Thank you so much Gary. This toast is for you.

    Happy New Year

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  20. watch dollar carefully, a little bounce here

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  21. speaking of little bounce on the dollar...

    Gary, will you wait for a bounce in the dollar (and possibly pullback in PM's) to add positions?

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  22. Thanks gary, i couldn't find appropriate words to thank you.Great great great blog.To new year.

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  23. THANK YOU GARY;

    Can't say enough or more than has already been said here. You and your blog have been a tremendous find. Your philosophy echoes mine and you clarify the picture like no other. Have a GREAT year.

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  24. Gary

    I also want to tell you that I found you in July and subscribed in August (under a different email address). I didnt know cycles, and now that You're here- I find them so valuable in 'timing' risk in the market! It is another tool in my toolbox of investing...and Thank you Much.

    ALSO- this blog is more than a financial aid...It is CLASSY. Occasionally a rude (and very uninformed)opinion is made toward you, and your PATIENT reply is a lesson all on it's own. You trade with patience, and your CHARACTER is solid.

    Thank you! ( my grandparents lived in Vegas and I used to visit yearly, but they have since passed away). If I get back to Vegas in 2011-I would love to buy you a drink or 2 (and Mexican) :)

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  25. gary

    just to clarify that you went all in believing that the dollar collapse has begun, but you have a stop at 1361 in case you are wrong about the intermediate decline not happening?

    not

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  26. Gary: Most of the picture you paint makes perfect sense to me, but I find it hard to believe the SPX won't drop between now and late March. With the weak A/D, volume, and other divergences and the over-the-top bullishness, lower prices ought to come sooner than that. Do you really feel it is that unlikely for the dollar to drop and stocks to drop as well? If people get concerned about a dollar crisis might that shake confidence enough for the SPX to drop too? I am still short the Q's near the NDX high and plan to hold it or possibly add, so this is more than an academic question.

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  27. slw need to catch up with SIL & AGQ?

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  28. I love how the markets usually trigger and toy with the obvious stops and then reverse. The dollar breaks 78.82, wooshes down to 78.78 right away triggering the stops, and then bounces higher.

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  29. DG,
    I'm going to go over the coil in the S&P and how I think it will play out in a runaway move scenario in the weekend report.

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  30. Greed,
    I'm certainly not all in as in maxed out on leverage, but yes one could start adding back their leverage but keep the stop below $1361.

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  31. DG,
    I suspect the day traders buy into those extremely oversold short term conditions. That's probably why we see these bounces soon after critical levels are broken.

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  32. gary,
    you must be a very good poker player (like bill gross).

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  33. Gary

    Will you be adding leverage today?

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  34. DG,

    Traders in the futures like to run bottoms and tops. As long as they trade size they can push through the bottom and run stops but they have long orders on the dome for the fill.

    they do the reverse on tops.

    A delta indicator will usually show a divergence on the push (delta indicators are based on the bid/ask)

    or

    you can watch the dome and the size will show up on the bid

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  35. Gary - Thank you! Words can't express how grateful I am. I don't know much about investing but I have to manage my money. I was going about it blindly relying on "experts." Lost a big chunk in 2008. I have learned a lot from you. Thank you. Happy New Year Gary! And Cheers to all!

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  36. Jerred. Thanks for the info. I don't trade that sort of stuff, but I do get a kick out of watching how the "obvious" in the markets always trips up those who act on it (at least for a little while---long enough for the savvy ones to make some money off it).

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  37. The failed daily cycle definitely means it's time to short more dollars and have more than core PM exposure. However, using leverage without the benefit of a panic sale is dicey, IMO. I still believe stocks and gold can unravel intermediate declines even as the dollar falls. I'm not predicting that will happen, but rather just noting that it's a possibility.

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  38. Where are you guys seeing /DX at 78.xx? I use Think or Swim and on the DX the low I see is 79.025.

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  39. Gary-

    New to the Blog in November. Having spent the greater part of the last 2 years in primarily technical trading, I felt somewhat adrift in terms of trends and likely spots for short term and longer term reversals. So I've embraced your work in cycles (and related commentary)like a starving man would a biscuit.

    Thanks much for your work, and best wishes for a Happy New Year.

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  40. Gary,

    Was it just important that the 78.82 level was breached even if it reversed (albeit slightly today). Is the main point that it shouldn't have been breached regardless of what it does shortly thereafter?

    Thanks.

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  41. A breach signals a failed cycle.

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  42. RB

    You're looking at /DX, i.e. dollar futures. You have to look at the actual dollar index, such as here:

    dollar index

    Just as there's a difference between SPX and /ES, there's a difference here.

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  43. Here's a URL for the dollar index

    http://www.goldseek.com/quotes/charts/usdollar/usdollarindex24hour.php

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  44. Gary,

    I'm going to jump on the gratitude bandwagon. With your guidance this was the first year that I earned more trading/investing than I did in my career. I really appreciate the tutorial on cycles, sentiment, Old Turkey tactics, and being open to reassessing market conditions if things don't go as expected.

    I gave 10% of my profits to a local educational facility which fullfills part of my mission to take money out of the market and give it to a deserving local agency..bucking the greater trend so to speak.

    I hope you are enjoying your holidays and wish you a healthy and prosperous 2011.

    Mitch

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  45. Gary, as I think probably one of your first 100 subscribers, I would like to thank you for another great year. Since I found your comments on the old Lauriston Letter, you have been a calm and studied voice within the blogesphere. The goal, as you stated, is not to be right every time, but to understand the character of the market, and make educated investments/trades based on these while catching the overall secular trend.

    Thank you again and have a wonderful New Year!

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  46. Thanks onlooker and DG! Appreciate the pointing on the dollar index.

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  47. RB,
    If I remember right you were one of the first 25.

    Happy New Year my friend.

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  48. DG, you holding your NQ short position over the weekend?

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  49. DG,

    OEX options are nearly 4 to 1 in favor of puts. Low volume, so maybe not that important, but even so, that's a very lopsided ratio, no?

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  50. Hi DG and Pima,

    On the CBOE call/put site, how do we know if the calls/puts are being bought or sold

    I see that the ratio of puts to calls is 4:1...what if all of those ppl are selling puts?? that would be see same as buying calls...how do we distinguish if it is being bought or sold?

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  51. FWIW the dollar cycle should have about 8 more days before it bottoms (and it could/should start to accelerate into the bottom).
    That would take the market to just about the start of earnings season.

    Barring another catalyst I kind of dubt traders are going to come back to work next week prepared to fight the trend.

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  52. If someone is buying someone has to be selling.

    The edge would come if we knew who was doing the buying and who was doing the selling.

    Unless one just assumes that a very lopsided ratio is due to smart money. Which would make sense maybe, because smart money is also big money and when they take positions it should show up as big volume.

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  53. nikeboy,

    good question, but I believe the answer is that for every buyer there is a seller and vice versa, so all we are seeing there is the number of options that traded during that time frame. It's a good point though that we're seeing OEX traders not only BUYING puts but traders are also SELLING them.

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  54. Pima: Yes, I am holding the NDX short. January is usually a miserable month for that index. Re the OEX traders, yeah it's huge. I have often noticed that the last day of the year, however, has odd numbers. Maybe it's a tax thing or something, but I discount it somewhat.

    Nike: You don't unless you dig, but over time those things work out. Since the 5-day, 10-day, and 21-day averages are all heavy on the puts I take that as meaningful.

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  55. Gary, thanks for the under 100 confirmation! I hope to meet you one day, either in Vegas or Hawaii, sorry I missed the trip this year!

    Don't you also have a thesis about the market being at or near 52 week highs and coming into earning season? That they rarely advance much more if anything?

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  56. That should be true I'm just not at all confident it will play out with the dollar collapsing down into a three year cycle low.

    Like I said in the report the other night in a dollar crisis one can't hold dollars. Selling or especially selling short is the equivilent of holding dollars.

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  57. Gary: With all the others let me add my best wishes for 2011. This is an excellent blog with terrific posters. I'm a newbie to cycles but a 20-year futures trader; never too late to learn and have more fun. Congrats on 2010.

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  58. just wondering

    Did anyone buy FTK at the close yesterday after out conversation?? I have it up currently 17%.

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  59. Just curious why REE & GMO went down today?

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  60. Anyone know what time the after market in equities closes today?

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  61. It's electornic so I would assume it wil be the same as always. Liqudity will probably be extremely thin.

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  62. Don't normally post other blog opinions, except I find the very understated Jessie to be spot on consistently and bias to this message :) Happy new year all, see you on the other side.

    http://jessescrossroadscafe.blogspot.com/2010/12/bull-breakout-can-carry-silver-to-3750.html

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  63. Last one, Gary did you add margin positions today?

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  64. Since everyone is busy smowing bloke up Garys crack, I may as well too;

    Noice work Garola! As has been said; calm, cool, collected & disciplined as fuck!

    Happy New Year Gary ... and one and all!

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  65. Gary

    I don't see an intraday SMT report on your margin moves.

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  66. I didn't make one. I'll just put it in the weekend report. You'll probably get a better entry than me on Monday anyway.

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  67. Great job this year, Gary! I'm just really sorry it took me so long to come across your blog.

    I hope your next year (and mine) will be great, and a ton of thanks for your hard work.

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  68. Happy New Year to Everyone!

    Thanks to Gary for a great blog and a great value. I came here from the slope after seeing a post that described exactly how I blew up my account over there.

    Thanks for your disciplined approach Gary, it keeps me steady and profitable, even after my mistakes.

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  69. 21:3' now and already "high".

    Sicily wine at will...

    Happy new year to everyone, see you when i get up, Jan 3rd :)

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  70. This comment has been removed by the author.

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  71. Yes, Gary, Thanks for your work and committment.

    Wishing you a Happy and Prosperous New Year!

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  72. How will this impact the price of anything?

    IMO, flu panic in Europe portends very shortly.

    The Flu: UK has 1600+ hospitalized patients, with 800+ in ICU. There are 120+ reported deaths (only 36 have been publicly acknowledged). 40+ of the severe/fatal cases have had the H1N1 vaccine (either as monovalent last season or trivalent this season).

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  73. Gary, thanks for another great year. I can't even imagine how lucky I was to run across your blog! All the best to you and yours in the new year!

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  74. Gary, any thoughts on the recent gap in GLD? Thanks.

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  75. Since I don't believe in triple tops I suspect it is a breakaway gap that won't be filled.

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  76. I might be one of the few that is still holding my RUT short (Profitable now). Both the NDX and RUT broke down into the close. Gold might be sniffing a dollar collapse, but if that's the case the recent leaders (NDX & RUT) are not buying it.

    We got quite a few false moves by the dollar lately. I think today is going to be another one.

    Have a happy New Year everyone.

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  77. Gary,

    I won't categorize recent action in gold as triple top. It looks more like topping thrust action. Similar to May to July of 2010.

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  78. Pretty risky to play this as a top with the dollar breaking down.

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  79. Gary

    Why are you not talking about negative divergence between Gold and HUI?

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  80. If I remember right this was the big discussion in Sept too. That the miners hadn't moved to new highs and somehow that meant that gold was topping.

    Now gold is 160 points higher and miners have moved and held above the March 08 highs.

    With the dollar cycle breaking down I don't want to try and find reasons to doubt.

    I've got news for you in every bull market you can find a reason for why you should jump ship. If not it would be easy to ride the bull.

    I'm going to ignore minor things like that and continue to operate under the theory that the dollar's decline into the 3 year cycle low is going to drive the final leg of this C-wave.

    My stops will protect me if gold throws us a curve.

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  81. Gary,

    You said that the dollar is due to bottom in about 8 days. So we should get another (left translated) daily cycle. Do you anticipate 1 or 2 more daily cycles before the dollar finally collapses into the 3 year low?

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  82. A Happy and Prosperous New Year to one and all!

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  83. Gary, Since we really didn't get an intermediate decline, does this sideways action since October-November qualify as a T1 pattern?

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  84. Brian,
    Were you looking over my shoulder as I was writing the weekend report?

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  85. Yes...we got a 'running correction' in the last month. Gold is now projecting to 1600 and I think that's were it is going. The last month was a halfway point.

    Happy new year all.

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  86. It is possible that we are putting in an upward wedge pattern (daily gold; top around 1440), which would suggest a correction down. However I more suspect the wedge is simply a result of gold supression (and the same reason we didn't get an INT low) and that the overwhelming cash around the world is gonna power this higher...just like the LAST wedge in gold.

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  87. >The last month was a halfway point.

    Halfway point from 1200 in aug roughly where the most recent segment up started.

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  88. Each segment up in the most recent C has been about $220 in gold.

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  89. GARY,

    I'm assuming with your recent comments that you found a competent tech person you can work with and you have already solved your site/billing/programming issues. Right?

    Congrats if so. You life will be easier and it will be money well spent.

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  90. MATTERHORN

    http://www.zerohedge.com/article/matterhorn-closes-year-style-hyperinflation-will-drive-gold-unthinkable-heights

    This is the real deal. The real info. Vast quantities of what the world holds as 'assets' are worth almost nothing and will never get paid. The game is over...it's just a question of when the music stops.

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  91. Gary,

    Happy new year!

    Thank you for sharing your outsanding insights with the rest of us. All the best to you and your loved ones.

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  92. The BURJ in Dubai for New Years. Tallest building in the world.

    http://cache.gawkerassets.com/assets/images/4/2010/12/n28_26468177.jpg

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  93. Gary-
    In your weekend report at the bottom you listed GDX. I am assuming you meant GDXJ?
    Thank you.

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  94. Another little treat for everbody. PVC pipe performance

    http://www.youtube.com/watch?v=qIBsoeK11fI

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  95. Anyway, back to finance....

    Of interest, a comment I ran across:

    The THIRD year (2011) of the 4-year Presidential cycle is the strongest seasonally of all. Furthermore, the early half of the year is where most gains are concentrated (again...seasonally). Finally, the month of January is the strongest of all the months.

    So...seeing as how we have rallied into the end of 2010 and the fed is still printing lots of money and we are now undersway of the first month of the third year of the presidential cycle, you now have one more reason to not necessarily expect stocks to drop in the near future.

    (I'm not short or long stocks. I'm big on metal futures. But we still discuss the S&P nevertheless).

    2nd chart here is interesting:
    www.tradersnarrative.com/the-presidential-cycle-2nd-year-performance-3963.html

    Note that the end quarter of year 2 (what we just had) is also very strong - as we indeed saw.

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  96. He Gary!

    Premium site looks great

    B

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  97. I really like the new look of the Premium website. Have a Happy and Prosperous 2011 everyone.

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  98. TZ: I believe the Presidential cycle has worked for decades because the President pushes the Fed to do the tough stuff early in his term so he can ease later and get reelected (What? I thought the Fed was independent?") Given the Fed running wild already I am doubtful things will progress as they usually have. That's not to say, of course, that we won't follow that script, just that with the Fed-created gale force monetary winds already in place, the usual pattern of easing and contracting will likely be disturbed.

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  99. DG and Gary,

    What do you think the prospects are that the government will bail out the states in 2011? If you think this will happen what would that do to the dollar? Also, will it come in the form of more QE or something like TARP?

    thx,

    e

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  100. Elaine,
    The dollar is working its way donw into the three year cycle low. The bounce out of the major cycle bottom should corespond to the next deflationary period and the next lef down in the secuylar bear market.

    Municpality and state bankruptcies should be one of the fundamental drivers for that along with surging inflation tipping the economy back into recession.

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  101. To me the details don't matter. The world is broke, there are a ton of assets that need to be written down, and the Fed and world governments will fight this inevitability as long as they can. All of that moves us inexorably to currency debasement. Whether its TARP, QE VII, "asset purchasing" or whatever, and which area goes broke next (states? cities? Spain?) the end result is $3000+ gold and inflation followed by deflation.

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  102. Gary, the basis of your trading model is cycles, correct? Where can I leearn more about this? Do you have free material explaining the basics of cycles? Or do you mind doing so here please?

    The last time I looked, 2 yrs ago, looking back in history (30 yrs), I saw that cycles were not precise. Yes markets move in waves, but the periods are not precise. So I currently think of them as I do EW, something that has some merit, but like many trading tools, it's inconsistent enough that I don't trust it for actual buy/sell signals.

    Can you please take a sec to explain why you trust cycles, and give an example or 2 I can research to see if it works, or not.

    I myself enjoy blogs like this as a I learn a lot, but no way would I subscribe to a service that I didn't believe in. Same as you don't subscribe to EW or astrology, I imagine for example.

    Thanks much.

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  103. Trying to explain cycles in a comment isn't possible. They are too complicated and require charts. I have fairly detailed explanations in the terminology document if you are a subscriber.

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  104. DG,

    Almost everything you mention is actually deflationary. I see commodity prices rising because of the mania over inflation, but I see no true inflation.

    QE has been going on long enough to cause some inflation if it was ever going to cause any. Why can't someone point to something besides high commodity prices and say "this proves inflation".

    I suspect there is actually no inflation, will not be any anytime soon, and the mania this time around is the inflation call.

    I'd love for someone to prove me wrong. Don't blow smoke, actually document inflation if you can.

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  105. Inflaition is an expansion in the money supply. That manifests as rising prices as too many dollars start chasing too few goods.

    One can certainly manufacture a definition of inflation that somehow ignores rising commodity prices but that doesn't really change the fact that the expansion in money supply (QE1+2) is causing commodity prices to rise.

    They will continue to rise as the dollar drops into the three year cycle low. At which point the inflationary shock should be enough to send the economy back down into the next recession.

    Because of the unusual fundamentals in play at this particular time in history I doubt we will see the wage price spiral we saw in the 70's.

    This time inflation will most likely remain confined to the commodity markets which will put huge downward pressure on profit margins as the high unemployment problem will constrain demand and wages.

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  106. I think DG has a good point - 2 in fact - 1) that we're probably in a deflationary period, and 2) that we need better facts/data to prove/dis-prove it.

    I myself think the world is in a deflationary cycle, because the money supply (if it includes credit) is not rising fast enough (despite QE, etc.) to offset the debt, and the rising cost of debt. Kind of like bailing out the Titantic with buckets - water is being bailed out, yes, but more is coming in than out. Way more. And we're sinking.

    But yes to DG's point we need numbers to prove it. Something like, total world money supply, total debt, the net, and trends of the net for the last 30 yrs or even 100 yrs.

    Gary, if I believed in cycles the way you do, yes I'd be a subscriber. How can a non-subscriber learn enough about cycles to know if it's legit or not? Perhaps some part of your cycles terminology doc can be made publc? Enough to make one see that cycles do work, and that as a cycles guru it's thus worth investing in your knowledge, type thing? Pls consider.

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  107. Gary,

    First of all, the money supply is not expanding faster than normal. MZM is currently growing at a 1.78% annual rate. The 3 year rate of growth is 6.28% and falling fast.

    As for too few goods, the factory utilization rate is historically low and rising only modestly. This is why the commodity inflation cannot be passed on to the consumer and thus the PPI is much, much higher than the CPI.

    I'll bet that the average person here is of the Freidman school and, like me, believes that if the Federal Reserve were put in charge of running the Sahara Desert that in five years there would be a sand shortage.

    Yet, that same group of people on this blog, who wouldn't normally trust the Federal Reserve to do anything right, believes it can cause instant runaway inflation simply because it is trying to inflate a little.

    I find that amusing.

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  109. Gary, what level would the dollar have to rise back up to for you to change your mind? And any thoughts on how to position yourself ahead of potential volatility this Friday?

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  110. Gary,
    I can't get on to the premium website. It says my email is not valid. Can you help?

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  111. The Fed's balance sheet has expanded by over 2 trillion dollars. They most certainly are printing.

    like I said one can certainly manufacture some definition of inflation that ignores commodity inflation but that doesn't mean it will magically go away. Any of us whou have to buy gas or food certainly know that inflation is real. And it will destroy the economy again just like it did in 08.

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  112. Todd,
    I've only made it up to the R's so far. If your last name starts with an Ror later I just haven't gotten to you yet.

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  113. It's clear that we have inflation in some areas (commodities) and deflation in others (real estate, wage arbitrage).

    This is the irony of the Fed's powers: they can create liquidity but they can't control where it goes. They would like to direct liquidity towards areas in distress (i.e. balance sheet repair) but new money has a tendency to go where it is being treated best. For instance, the liquidity in 2003-2007 went into housing, not into technology.

    At the moment, it is being treated best in gold, followed by other commodities and risk assets like stocks.

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  114. Gay, the total amount of money in circulation exceeds $10 trillion. The Fed's expansion can only cause the money supply to grow if the banks can loan it out.

    So far, there are few takers.

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  115. Gary, $2T is a lot, no doubt, but my understanding is that "unfunded liabilities" in Soc Sec, Medicade/care are over $50T. 2 buckets of water out, and 50 in. We are sinking. And this is just the beginning, as one has to consider all worldwide debt. Must be $200T or more. But, I'm no economist,and having correct/complete/accurate numbers is critical. Rising copper prices is a symptom - of either inflation, or speculation. I live in Asia, and I believe it's speculation. The US consumer is dead, and so who will China sell to? Answer: no one. Hence high inventory now, and high unemployment and falling asset prices later, I believe. Well see.

    It's true that asset prices are rising - copper, ag, energy - but prices are a symptom, not a root cause, as you well point out. What we need are total dollars vs. total debt, to know the true picture. Make sense?

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  116. Happy New Year to Gary et al on the blog.Thx for all the great info and insights.I'm almost fully invested through my rrsp in bza,cuu,exn.ipt,ngd wta,pnp wtb and sea.Hope 2011 is as good to us as the last half of 2010 was to me.

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  117. William,
    Ask yourslef why would the banks lend money in a high unemployment environment where the chances are high the loan will default?

    Now if the banks are wary of making loans then what do you think they will do with that capital?

    That's right instead of making loans they are putting the capital to work in asset markets.

    Obviously as a whole the market is usually pretty smart and that is why we are seeing more and more of that liquidty finding its way into the commodity markets where it is getting the best return.

    And now you know why wages aren't rising and jobs aren't being created and more importantly now you know why commodity prices are rising.

    And yes Will prices are rising because of speculation. Free money is coming into the market on an almost daily basis. That money has to land on something.

    Finally yes debt including SS and Medicare is way over 100T but those bills come due gradually over many years. If we all of a sudden had 100 T in debt to fund then the Fed would have to print much faster and we would head into a hyperinflation.

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  118. All correct Gary. An asset bubble is forming from banks investing. I'm just saying that this is not inflation, but rather spectulation. I think we agree 100% now.

    Side note: I think gold/silver are good plays because they are sound money, and are a safe haven. I have core positions in gold/silver (CEF), and speculate in copper (FCX, BHP, etc.).

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  119. Gary
    I wish I had the conviction to be 185 percent invested without freaking out. You've got. cajones man.

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  120. Well I'm not actually borrowing 85%. Some of my leverage is because AGQ is a double fund. But I'm only borrowing 30% so I won't be getting any margin calls. The stop at $1361 will prevent that.

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  121. For a little New Year cheer, here's a link to how I plan to allocate my assets in the 2011.

    http://www.dropshots.com/runninginaz#date/2010-12-14/13:50:53

    Hope Gary approves ;-)

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  122. William: "I myself think the world is in a deflationary cycle, because the money supply (if it includes credit) is not rising fast enough (despite QE, etc.) to offset the debt, and the rising cost of debt."

    This is the argument Mish used, too, years ago to support his deflationary argument. I was a rabid inflationist.

    What's more important, the cost of the constructed house or the raw materials going into it?

    The raw materials rose, right? What's that? Is that not the dimunition of the USD as a store of value as measured by those commodities? Yes or No?

    Ah, but inflation is not a rise in the cost of commodities according to you and Mish. It's the free availability of credit, of access to the bigger pile of fiat.

    In your view, you dismiss the rise in the price of PM's and other commodities.

    Let's just be straight here, there are both inflation and deflation occurring at the same time.

    Depending on what you look at, and what your purpose is in achieving your definition, the glass is emptying or filling.

    To be successful at this game, IMO, one must accept and embrace the irrationalities that appear, repeatedly. Welcoming the irrationalities opens the way to making profit.

    When silver was below $8, it was irrational. Everyone who traded dollars for silver viewed the risk as low. It dropped 25%+ from there, and then recovered. Was that not deflation in silver? But the economy was expanding and housing prices were rising irrationally. Was that not inflation? Now that the opposite is occurring, we again have both occurring at the same time, only inversely. There's no discernible difference.

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  123. Wes: Where are your numbers saying there isn't inflation? Don;t just claim it. The CPI is a joke. Almost anything you name has gone up 10% at least over the past few years. If inflation is about zero as they claim, then there must be an offsetting deflation in an equal number of items to make the average work out. Name the items that have gone down in price. Other than housing everything is going up. No inflation? Ridiculous. Saying it is only showing up in "everything anyone uses to make anything" (commodities) is silly. Why "just?" If corporations can't pass those costs on they will go broke as their profit margins cannot absorb their raw materials costs rising 30-50% (food, oil, and copper) are up even more than that. I agree that capacity utilization is low, so they are screwed. I have spoken with lots of people and not one has felt that the inflation rate is less than 5%. Do you ever buy anything? I just now got back from Peets Coffee and they had a big sign apologizing for raising their prices because coffee prices have gone up 30% recently.

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  124. Gary: "Gary said...

    Inflaition is an expansion in the money supply. That manifests as rising prices as too many dollars start chasing too few goods."

    IMO, the store of value shifts in very large waves. There are only a handful of choices in which to hold the store of value.

    The game is to identify into which asset the store of value is then about to shift or is then shifting, and if one wishes to be short, to identify the asset which is about to be dropped as the store of value. As well, every iteration of the trust in the then accepted store of value reaches the insane parabolic zenith which has as a backside outcome a collapse.

    My phrase is, "Stay away from the backside of the parabola", but in fact, it is wisest to recognize the parabola in formation, ride it up from the elbow to the ecstatic top (or bottom) and then switch direction for the very fast elevator plunge (or rise) along the backside.

    The most recent switch out of RE was obvious back in 2005, and the crush of the discretionary retail market was also obvious, from boats to boutiques, and "arrived" in 2007.

    The switch into commodities is the current game, well along, but not yet completed.

    Gary's seeing this happen and it's very welcomed.

    I'll leave my econ degree in the circular file where it belongs. William, IMO, what you're doing is an academic exercise, and I believe it very dangerous to not look at dual actions, nearly mirror actions, as the store of value will continue, in something, be it water, bullets, gold, houses, whatever. It's why this blog is popular and Gary's success is so probable.

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  125. Apologies if this has been answered but how do we view/subscribe/post comments on the new site?

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  126. William: "Rising copper prices is a symptom - of either inflation, or speculation. I live in Asia, and I believe it's speculation. The US consumer is dead, and so who will China sell to? Answer: no one. Hence high inventory now, and high unemployment and falling asset prices later, I believe. Well see."

    What's happening IMO is not what you say. What's happening is an intentional policy on the part of the USG to debase the value of the USD in terms of commodities, especially manufactured goods.

    And why is that? The goal of every country is full or fuller employment. It is the sine qua non. To achieve this in the USA, the cost of all commodities relative to labor must rise dramatically, in fact, stupendously. And that's what's happening.

    The outcome, over time, will be the loss of the economic edge by Asia in the area of manufactured goods due to the loss of the labor price factor combined with the rise in the cost of energy.

    I consider this plan to be brilliant and necessary. China has failed the world to release its claim on mercantilism, and it will pay by the loss of at least half the store of value symbolized by its accumulated reserves.

    When their President recently stated he would not lift the price of the RMB against the USD because it would mean the loss of jobs, he ratified my understanding and he poured manure on value of his foreign reserves. He got it right when he focused on employment. But he has it dead wrong if he thinks he can force the Western world to submit to his cheap labor advantage.

    People must work, or the economies will not function. On a nation-state level, I'm in full agreement with what's happening. On an individual stakeholder level, I am protecting and accreting my store of value as this game proceeds forward.

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  127. Wes

    I believe shadowstats is showing real inflation (using the same measuring methods as were used in 1980) at around 8%.

    The Bernank has said that his main goal is to create price inflation of around 2% measured of course by CPI (lies, damn lies, then statistics).

    He has also said it's easy for the fed to create price inflation (it obviously is) by dumping money from helicopters.

    If I were you my last concern would be price deflation exceeding 1 or 2 percent. It's next to impossible for an extended period. It's easy to conjure unlimited fiat from thin air. They could create 900 quintillion with a few key strokes.

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  128. There will be no posting on the subscriber site. One is enough

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  129. Got it. Thanks. I read your description of the nightly reports being posted to both sites. I just didn't see how we will know WHEN they will be posted. Again, apologies if this was answered. Will we get an email, continue to get the IM notifications, or just have to check?

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  130. The things we need are getting more expensive; medicine, education, food, energy. The things we want are getting cheaper; flat screen TVs, cars, computers.

    I think this is an arbitrage between finite supply and increasing population. Demand for commodities is expanding through population growth (3rd World-ers becoming 2nd, etc.) *and* speculation (China), while production is expanding at an equal (automation) or greater rate (China again).

    Agree that it is somewhat irrational. De-inflation or something like that.

    If we look at it more simply, it is a race to get out of dollars and all their baggage (debt obligations).

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  131. DG,

    I wouldn't disagree with anyone who says the true rate of inflation is 5%.

    But, on this blog I think the average poster believes inflation is running many times 5%. That is what I find fault with.

    Demand for commodities (I think mainly because of a misplaced fear of inflation) has greatly exceeded the supply, driving up prices for those commodities. But this is not inflation, but simple supply and demand imbalances.

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  132. 5-8% sounds about right to me.

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  133. Umm, if prices are going up that = inflation, regardless of the reason.

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  134. Elaine, I think you are going to do real well with that asset allocation!

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  135. Wes: "Rising copper prices is a symptom - of either inflation, or speculation. I live in Asia, and I believe it's speculation. The US consumer is dead, and so who will China sell to? Answer: no one. Hence high inventory now, and high unemployment and falling asset prices later, I believe. Well see."

    I'm a real buyer-consumer of cotton and polyester, throwing down hundreds of thousands at a whack, and I'll tell you my position for the past year has been buy my future consumption needs as far up front as I'm willing to bankroll. Wholesale customers are accepting and expecting the price rises (and they're not your 5% or even Gary's 8%; there was 7% announced last month, alone. Here's a helpful comparison: high quality US polar fleece, what you wear, not the garbage from China, was $5.50 in '02. It's now $8.50; and this week, it will be $9.10.)

    I'm the real deal, and I'm paying and hoping the rises will stop. I don't even know how to respond to your inequality of demand argument. It's my reality, and so it will be the consumer's as well. The manufacturing function will not disappear. The consumers will be pushing wheelbarrows before manufacturing vanishes.

    And with oil at nearly $92, the staple producers are very gunshy to assume any risk of stabilization at lower prices; they're passing on what you call the speculative pressures nearly immediately.

    This game is not unlike the housing game in the West back in '03++. It hasn't even begun to go parabolicly "up". IMO, there is no end game until we see vertical parabola. Then I'll chime in and say "Gee, this is a tulip bubble." Meanwhile, like Prince, for my biz, which as a US gov supplier, is many people's biz, I'm dancing and the prices are going up at retail, finally, after I've absorbed the first round as a courtesy. The price rises are and will be passed along at cost throughout the vertical manufacturing and transportation scale.

    As an aside, check out the price rises that UPS has imposed on ground shipments, FTL, LTL and small package, if you think inflation is 5%. There's another one starting tomorrow, and each has been greater than 5%; I think there were 3 last year.

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  136. Last comment; 3 months ago, I offered the largest yarn supplier in the US to buy a position for delivery in the Spring. They wouldn't even consider such a thing. A customer asked for a lock in of price now for delivery in December. I said, nope.

    There are quite a few old hands in the fabric biz who swear this is an anomaly. They're still buying at spot and they've seen their margins squeezed mercilessly all year long. There's a polar fleece importer I know of who has 5 containers parked in China who won't take them because the Chinese insist he pays the increased cost of materials as they can't replace what they're selling, never mind profit, for the price they committed to. This will happen more frequently.

    The store of value is shifting away from fiat.

    Do you know where it's going? Hint: PM's.

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  137. Slumdog, you see clearly. The 'wave', as you put it so well, is indeed moving in the direction you noted. I think it will be like a tidal wave - building higher and higher as it approaches the shore of PMs. There is nothing left in the world of man-made paper which can contain it. The biggest tragedy will be when the largest store of value will fail: the bond market. That will be earth shattering.

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  138. Elaine, might that be just a tad heavy on the shiny white stuff?

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  139. 5-10% is still horrible. Let's not discount that. Not so much in one year, but as we can all do the math, within say 5 years and with no real wage increases these multiples can be very large indeed. And if Slumdog’s analysis is consistent amongst general areas it could be a matter of years before purchasing power has dropped 25%. Stats are not accurate ever. They are inherently biased tools used by the governments to obviously fool the public to continue spending; I would rather trust what is coming out of my own pocket. The big scary question is what happens when this new round of commodity surges pops? The Fed has done nothing, but cause bubble after bubble. Generally these bubbles pop as the economic usefulness for the item becomes too expensive for the consumer causing that pyramid to crash. The money sloshes to another area and continues. With no new area of real productivity, and with the apparent Fed solution to just keep borrowing and printing, it can only lead to larger and larger bubbles. Gold, I surmise, may be the last one…a speculation not a prediction, but it would seem to be the last area and last resort to hold one’s purchasing power. Agriculture, cotton, etc may seem like a good stop for purchasing power but these are limited to the point where price demand will fall as people simply die and choose to run around naked. At such a point, similar to oil above $140, the economic ability and public’s need for the item puts a ceiling on future money chasing, and then it crumbles. Gold is interesting though, it has no ceiling, except that it becomes overvalued relative to the economy that it fights against. So, I guess gold is the ultimate bubble, since it has no reason to pop until things get better (more like hits rock bottom, better in the sense that one can only look up), and such people can store their purchasing power in a better alternative to gold.
    I am going back to hiding under my rock, you guys got me depressed again. I think I am going to go buy some more gold tomorrow. LOL

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  140. Big picture-- I agree with Gary-- (and Keys.) we can argue ad infinitum about the deflation inflation argument again--frankly I enjoy reading the arguments. See you in the morning!

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  141. Slumdog,

    LOL, girls love bling, or sprinkles as the case may be.

    e

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  142. blammo,

    I completely agree about the "things we need" getting so much more expensive. My husband and I are self employed and have 4 kids. Our insurance through BCBS of AZ is basically a mortgage payment, and we still have a $2500 deductible. It goes up every year, about 16%. But, we can't afford to NOT have it. In the last 4 years my oldest son has had 4 surgeries on his leg to fix a growth plate problem and my youngest son who was playing varsity football as a freshman (yes I objected strenuously) broke his femur clean through in the last game of preseason.

    The deductibles and co-insurance are brutal on top of the monthly insurance, but if we had not had it, either we would be bankrupt or the kids would not have gotten the best medical care they needed.

    Higher education... that's getting to be a luxury.

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  143. Slumdog, good thoughts. Will think it over. Wish we had the numbers. Gas/food are not rising in Asia. Housing is, same as in the US/Europe 3 yrs ago.

    Also, some of what's causing prices to rise is supply/demand (reducuction in supply, rising demand).

    Anyway, many good thoughts for me to digest - thanks much.

    Trading-wise, I try to drop all of my opinions, and just follow the trend.

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  144. Silver's heading into a waterfall, imo, back to the low. It's 3064 and I'm short here. We'll see in the next 10 min. There it's starting.

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  145. After today's big move in silver the premium/discounts are:

    AGQ 6% premium
    ZSL 6% discount 

    It will be interesting to see how they trade tommorow if silver remains relatively flat.

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  146. Some Friday humor.  Great picture for any Ron Paul fans.

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