Archive for March, 2008

It’s Been a Long Time…

Sorry everyone.

I haven’t posted in a few days now. Been very busy here in the office. But I’m caught up again, so I can go on and talk about this wacky market we’ve been dealing with.

Today, the Dow Jones moved higher. Why? Only god knows. But we have a slew of economic reports coming out this week which could push the Dow down a little lower.

Expectations don’t look too unreasonable, so I wouldn’t be shocked if the news came in a little worse than expected. Of course, this would fit in perfectly with my theory of the market moving down for the next week or so.

Precious metals have taken quite the hit. This was expected and I won’t be buying until early August (seasonal demand, my friend). Anyone buying now might have to wait a while before seeing any gains.

And lastly, we had our beloved Treasury Secretary issuing a whole slew of regulation changes to the way the government deals with the financial industry.

Some of the changes were combining the SEC and CFTC (Commodity Future Trading Commission), giving the Fed more power, and creating a whole new branch of government.

Did he talk about the $500 trillion derivatives market? Nope. he suggests we let them police themselves.

Hey, wasn’t this the same strategy that gave birth to the housing mess? I thought so.

I don’t expect half his recommendations to ever see the light of day. Too much politics involved in taking power away from some, giving it to others, and then creating a new branch of government (when deficits are soaring).

Oh well, to think government would act logically is to think that Paris Hilton would keep her top on.

When Did Eggs become Classy?

I just ran across ‘breaking news’ on Market Watch.

According to them, a dozen eggs cost $2 or more in most U.S. cities, up about 45% in just eight months.

Wow, a 45% increase in just eight months. This makes scrambled eggs classier than they’ve ever been before.

I never thought I’d feel ‘refined’ and ‘distinguished’ by buying the jumbo sized eggs at Publix. I thought that was a feeling I’d only feel at Whole Foods.

But hey, my shopping trips are getting ‘classier’ by the month.

With milk at nearly $5 a gallon, and my never ending thirst for cold chocolate milk (which makes my bones strong), I think I’ll end up spending $50 a month on milk alone by the end of this year!

I’d hate to think how much I’d spend the day I have kids. One of my colleagues, Rick Pendergraft, has three kids. He buys a gallon of milk every two to three days. So I guess he’s already spending about $50 a month.

Too bad there aren’t any milk or egg futures (at least not that I know of) because if there were, I’d be betting your next door neighbors money on prices shooting higher for the next year, at least.

Looking for a Dollar Rally…

That’s right, i’m a little insane to be saying it, but I wouldn’t be shocked to see the dollar rally for the next week or two. In fact, I hope it does for a little bit.

I have to be honest, there’s nothing good about a currency that’s dropping as fast as the dollar is. Over the last year it already lost over 12 percent in just the past year.

That’s a little scary, really. It’s scary because it makes foreign governments think two… sometimes three times before funding our deficits… and wars.

If the U.S. suddenly can’t sell bonds to fund it’s deficits then you know what that means? Interest rates will have to rise in order to lure those governments in.

Will rates have to go back up to five percent? My guess is probably more like eight or nine percent.

And it already seems like everyday another country decides to buy less bonds. Just the other day South Korea’s national pension fund decided not to offer U.S. bonds anymore. And can you blame them?

Interest rates are at a back-hand-my-face-two-times low… The dollar is falling faster than a 400LB man skydiving without a parachute… And the U.S. is spending more than a pothead in an Amsterdamn ‘coffee shop’.

In the end, I dont blame everyone for selling dollars. Hell, I would too.

But I have this feeling that the recent correction is a little overdone. I’m not calling an end to the dollar bear. Nowhere near it, actually. All i’m saying is that the dollar should rally a few cents before heading back down.

And once it rallies – if it could hit its 100-day moving average – Then i’m shorting with as much borrowed Yen as I can find.

Just to let you know, if you want to see a chart on the dollar just go to www.stockcharts.com and type in the symbol $USD.

This is the dollar index, which is the dollar versus six major currencies (british pound, yen, franc, etc…). If you pull up a chart, you’ll notice that the dollar loves to rally up to its 100-day moving average and then fail to break past it.

That’s been going on since atleast 2006. Seems like a solid trend to me. And the U.S. isn’t showing signs of turning around yet. until it can do that, i’m bearish on the dollar.

But, my friend, once the U.S. economy starts turning around, you better buy dollars like they’re gallons of gasoline in the 70’s oil crunch.

I say that because the U.S. will jack up interest rates quick (it seems like Bernie’s style to do quick volatile interest rate movements. He is quick and dirty indeed.) Plus better growth will support the outlook for the U.S. economy. As that happens, people will once again bet on the dollar and you’ll see it rally.

Of course, the dollar trend will always be down. Fiat currencies always devalue over time. To deny that is like denying that Michael Jackson is a freak.

Digging in for the long haul

Up until now the big debate I had in my head was ‘how bad is this recession going to get?’

Would we just have slow growth for a month or two, followed by better numbers? Today we found out the answer to that question is no.

The numbers on durable goods for February came out this morning, and they surprised economists by dropping 1.7%. Bloomberg went on to say ‘durable goods unexpectedly fell in February, led by the biggest slump ever in demand for machinery that indicates companies are becoming more reluctant to invest as the economy heads into a recession’.

So it looks like consumers AND businesses are starting to cut back on buying. This is something that will continue to work its way through our economy for at least the next few months.

In other words, looking for a bottom right now would be the wrong thing to do. Obviously the economy is still slowing and disappointing analysts. So long as it does that, the overall trend should still be down.

Remember when I told you last week that I’d be shorting the bejesus out of the Dow at this level? Well it’s true! I don’t think the Dow will make it past 12,800. On the other hand, it could fall to 11,800 or even 11,600.

That’s a 1,000 point drop in the next two weeks.

Of course, the only thing that will make me wrong is if I’m wrong! I don’t expect to be wrong simply because I hate being wrong. But, according to my mind numbing addition and subtraction skills, this market should move down for the next few weeks.

So damnit, that’s what I’m going to play.

One thing to always remember is that you have to be willing to make a trade when you’re scared you might be wrong. In the end, trading based on charts is system based (with a little bit of gut instinct involved).

My system tells me the Dow should fall further. And my gut tells me this market can’t go much higher. Everyone is swearing that we hit a bottom. But they don’t realize that a bottom isn’t always V-shaped. Sometimes, they take forever to play out.

So you know what? I’ll trade based on what I see. And you should too.

Snooze Material

Today’s market is snooze material.

That’s right, the market opens up… I take a look at how not exciting it is… and I hit the snooze button and go back to sleep for ten more minutes.

Right now, the markets are slightly up (they could be slightly down in two more minutes) and they don’t look willing to charge anywhere in particular just yet.

I guess this coincides with an overbought market. Plus, the Dow is actually sitting slightly above its downward trend line. I’m not worried yet, unless I see the Dow break through 12,800.

Precious metals are higher on the day and the dollar is moving back down.

It’s a shame really – I’d love to see $850 gold and an overbought dollar. I’d be buying gold and shorting the dollar like crazy.

But that’s not the case.

As far as trading goes, it’s doing well today. Our Ag pick went up today and our short went down. You can’t ask for more than that.

And thankfully I’m hearing that there will be a smaller crop this year, thanks to bad weather. You know what that means? High food prices and a continuation of the bull run in agriculture.

One thing I want to mention here. Ag is in a very strong position. We’re running out of land and we’re converting food to energy. This spells higher prices for everything for years to come. And as we use even more corn for ethanol, we’ll see even more pressure on food prices.

This is a big difference from what’s going on in base metals. With the U.S. economy slowing down, demand will take a hit. It might not be the hit we normally see (because China, Russia and India are still growing), but at the very least we won’t see much higher prices from here on out.

That’s why I’m staying away from base metals like copper and nickel. I’m sticking with agriculture and precious metals for now. You should too.

XM-irius

According to briefing.com, the merger between XM Radio and Sirius has FINALLY been approved by the U.S. Antitrust Department. FCC approval should follow shortly.

I’m a little shocked and a little not.

I’m shocked because a merger was prohibited by the FCC. But apparently both groups were able to make it past this.

I’m not shocked because this potential merger has been going on since last February! I figured if it was going on this long, there must’ve been alot of negotiating behind the scenes, making the chance of a merger better.

Honestly, I love Sirius radio. And I love the fact that this new merged company will provide a la carte service (where I can choose which radio stations I want and pay a lower fee).

Honestly, I thought that Sirius was the stronger company. But XM isn’t half bad. Now they can lower their costs while offering even more value to everyone else.

In the end, the combined company should see more sales, and i’m very excited to see what becomes of it.

Finally, I can start looking to buy either shares of XMSR or SIRI!

An Important Breaking Point…

I hope everyone had a great Easter weekend.

Me – I drove out to Lehigh Acres, Florida on a family emergency. My nephew’s father has a malignant tumor, the operation is this week and we’ll find out exactly what’s going down.

My heart goes out to him.

As if the weekend wasn’t bad enough, my cat Mango decided that he wanted to eat something up off the floor in the middle of the night. When I woke up, I saw that he vomited like five times (and some had blood).

So we had to take him to the emergency vet. Four hours and $500 later, he left the hospital with drugs to help his stomach and prevent the nausea. Thankfully, he passed whatever he had swallowed, so no surgery was needed.

And that brings me to today.

Today the market rallied on the back of a better buyout offer for Bear Stearns. Why this matters to the market, I will never understand.

But what’s true is that today is an important day – at least that’s what the charts tell me. Remember when I told you not to lose focus on the bear market in the Dow Jones?

Well today, the Dow Jones is sitting at its downward sloping trend line. While the Dow could pass this line and still be in a downtrend, it certainly shouldn’t stay above the trend line for more than 3 days.

Also, the Dow is pretty close to being overbought. It seems to me like there might not be much more upward momentum left. But, if the Dow does break through its downward trend line and can hold it, we could see a move higher.

Right now it’s best to stay balanced until the trend is defined again.

As far as the precious metals markets go, both gold and silver are moving higher. Curiously, so is the dollar. Typically the dollar moves opposite to the metals. Could the metals move lower? It’s quite possible, but I expect a lot of sideways movement until we get another big inflation report (or another blowup in the financial sector).

With that said, the green light is on for small accumulations, when the price is right. With gold over $900, I’m no buyer. But with silver just above $17, I’m lovin it, and this is why.

Everybody, This is HUGE!

Today I got wind that the North West Territorial Mint, Monex, Kitco, and the US mint ALL RAN OUT OF SILVER!

Not only that, but another 17 dealers can’t ship the stuff… BECAUSE THEY DON’T HAVE IT!!!

You know what that means?

Alot of investors are going to freak out and start buying silver in droves. The investment demand alone could double the price of silver in the next year… maybe even more.

I’m glad I bought some coins (and have them in custody), but today i’m going to call my silver dealer and see if they have any left… because I have this feeling (a feeling deep inside!) that silver prices are just starting to move higher.

If we get a full blown panic… and especially if manufacturers (who need silver to make products) start trying to order huge amounts of silver (to guarantee they have enough to continue production)… silver prices are sure to move higher, much faster.

This also bodes very well for companies like Silver Wheaton (SLW).

If anyone has tried to buy silver lately, let me know if you’ve been able to find it.

Comment below!

Metals are Dropping

And I have to say it’s about time…

I’ve been watching the climb precious metals have been having and wishing I had put all of my money into them.

And I should’ve known better, too.

I always know that precious metals start moving higher after August. Why August? Because that’s just the way the world works!

Indian wedding season hits and jewelers place their orders for the holidays. Plus, of course, there’s the little known fact that alot of traders expect this to happen, so they buy and it becomes a self-fulfilling prophecy.

So why didnt i buy? Not quite sure, really. Maybe I was still reeling from excitement of turning 25 on August 12th. Or perhaps I was reeling from the excitement of leaving for Paris (for the first time) in September of that year.

Whatever it was, I regret not getting into it. And I can’t wait for this August, because i’m using my 2 birds and cats, my car, and probably my girlfriend too as collateral on a loan so that I could buy as much gold and silver as humanly possible.

that way, around this time next year, i’ll be writing you from a gorgeous loft in downtown Paris.

Ok, maybe I won’t go to Paris. But regardless, I do hope you’ll join me, so that you could make sick amounts of cash too!

Don’t Lose Focus!

Everyone – I know Scrooge helped us see a really great market day yesterday.

But I don’t want you to lose focus as to what’s really happening. So I’m here to offer you some perspective so you don’t get sucked into all the optimism that’s flooding the markets.

We’re in a bear market! The financials are crumbling under leverage. Consumers aren’t buying because they’ve seen the price of milk and gas skyrocket. Consumers are having a hard time getting any new credit at all. 30 year mortgage rates don’t want to drop. Manufacturing in the US is sinking. Foreclosures are still rising.

You get the point. Now here’s a chart to take a look at – and it’s what I’m basing my future decisions off of:

Click on that chart and make it bigger if you have to. You see how there’s a downward sloping trend line (which shows the Dow in a downtrend)? Well, the Dow hasn’t been able to stay above that trend line since early October. But the Dow also hasn’t been able to go under around 11,750 (support). This has formed a descending triangle pattern, which is one of those distinctly bearish patterns.

In this pattern, the stock (or index) normally goes on to break under its support and the downtrend resumes. I’m looking for the same thing to happen to the Dow Jones as the economy continues to weaken.

But if the Dow Jones breaks above its resistance (and stays there for a few days) then that means we could see another swing higher.

It’s tough to say what will happen. If you want to be safe, wait for the break under support before you get into bearish positions. If you want to take some risks, then start inching into bearish positions starting today.