Monday, May 25, 2009

Gold Rejects the Key 850 Area:Remaining on the long track $900 proves to be a good level to be in gold.

By Joshua E. Stone

Gold came within just a mere $10-15 of my target in the 850 area at 865 and promptly rejected it and now mere weeks later gold is soaring well above 900 dollars an ounce; validating a previous post suggesting the 900 area is a good place to have longs positioned in the commodity. In yet another post I suggested targets for the golden metal, and the key fib supports identified in my study played out nicely. This is only because the stocks have had a marvelous rally from the lows seen in the first part of this year. I think the gold price would have gone lower if not for this long rally we have seen in stocks. We did not have the anticipated hysteria largely expected by many with the highly publicized so called “stress tests”. Also the behavior of the stock market is reflecting what a good recovery if not rebound we will experience in the economy. Hence the gold has gone up on anticipation of inflation fears even though we don’t have any inflation at the moment. This is not to say we are not still in a bear market and we will not see retests if not even new lows (though unlikely) in S&P and DJIA.
I think gold will continue to play out like it did last summer, moving higher in the next month or so; though clearly we don’t have the one way momentum we had last year in the decline of the dollar. It is a fact the dollar did not fall as fast in the first part of this year as it did last year. This most know is because of the flight to safety status the dollar has enjoyed on the hills of the manufactured crises that the paid off politicians let transpire over the last several plus decades. All with their cronies who make all the money from these periodic scams on the tax payer in the endless plot to hand our sovereignty over to the international banks. This flight to safety will continue to drag on the gold and eur/usd as well as the overall decline of the dollar. To many the question is not whether the dollar will continue to fall; the question is how fast it will fall.
Not only is the eurozone facing some severe headwinds and not so nearly as resilient and fast a recovery as their allies across the pond, the fact is the New Administration has been at the helm of the fastest and strongest recovery in the dollar I have ever seen in my relatively short time trading. I think its safe to say it was an amazing event and all the traders I talk with were all just as surprised by the overwhelming strength that the greenback has flexed with the advent of the crises last year. Many will say it’s just the crises that have resulted in the rise of the dollar. But I don’t believe that’s the only reason. Also the fact remains: the current Administration has enjoyed a strong dollar, as did the previous Administration at times during its eight year term in power. I have even talked with some traders who think the eur/usd is going to go below parity again.
Which brings me back to the point made earlier about how the dollar has done very well under the New Administration. Apparently the trend for the dollar under the new President is favorable for the resilient buck. This is something to take note of in my opinion. It could very well be that it’s all a matter of circumstance and confluence; on the other hand it is also possible it is part of a larger plan to save the dollar from extinction. Another thing I learned in the summer of `07 with the merciless carry trade unwinding: when everyone knows about a trend it is usually over. Everyone is talking about the death of the dollar and has been for some time now. Yet the dollar is actually not falling as much as many have expected it to. Again I know people will point out the crises and the dire straights of the eurozone…I would just gander it is not unwise to wonder if something else might not be at work on top of all these extenuating circumstances. It’s not like some have not seen and been warning everyone about all these economic troubles coming for years in advance.
By now you are probably asking where I am going with this. It’s simple: the Undertakers of the dollar are in for a long haul. If things are done correctly to mitigate the debt and energy problems in the USA; the Undertakers might even be looking at having to resize their coffin for another unexpected and unrepentant client. If history continues to repeat itself this summer or fall will bring something new to the market to shake things up again. What the catalyst will be exactly is hard for me to say as my sources of information are the same as most everyone else’s. I am just going to say that the last two summers were very volatile to say the least and if there is one thing I have learned up to this point is trends do not end easily.
So what else could possibly be out there? To get an idea we need to look to the real and most immediate crises at hand: the massive debts. We need to ask the question: what are ways this problem can be solved? As of the writing of this article the current US President has said “we are out of money”. One’s first and natural reaction would be “the tax man cometh”. But wait, were in a recession; raising taxes in a time like this is not wise. Monetizing the debt is one idea that’s been thrown out there. But wait, were in a recovery; it’s not wise to build a superhighway to hyperinflation in such precarious economic times. What are some other options? I am sure there are more, perhaps many I have not thought or heard of. But one solution I have mentioned in a previous post is revaluing the dollar. How could this be done? Monetizing debt as mentioned before; or valuating the dollar against something else besides the very volatile and unstable price of gold. These are just two possibilities…as I mentioned already. I am sure there are more solutions and ideas out there.
One more note on the debt and all the spending at the risk of being laughed out of the classroom: it’s a hoax and a scam. We have lots of money in the US still. You’re asking: even if that’s true, what do I mean by that? I have talked to a few folks about this subject and found out something interesting that makes sense to me: the Governments in the USA from the Fed to the State have what one could call“asset income”. This is income from returns on investment and existing infrastructure like tolls and fees for museums to name a few. This is how the congress pays things on the spot like bailouts and emergencies etc. After all, have you not ever wondered WHERE they get all that money on the spot? It is not like the Congress decides to unload 750 billion dollars by selling treasuries at that moment. No everyone knows that treasury auctions are scheduled in advance and the revenue from them is used to pay for the debt we have already planned on going into for the future plans of a budget that is projected into the future.
I could be wrong about this, but I have run into this concept in more than one place when talking to folks on the street, traders and non-traders alike. If it’s true, then it adds a whole new dimension to the politics of debt and what really is the motivator behind making everyone think we are out of money.
I think that at some point before the end of the year the New Administration will have no choice but to address this most important of all issues beside the energy crises. Oh yes, the REAL problem: the energy crisis…that’s a story for another time.
Since this post coincides with Memorial Day in the USA, I want to take a moment to extend a gratitude that words can never express to all those who have served and died in the service so that me an others have the freedom and time to twitter, blog, trade and run businesses large and small in this the greatest country on Gods green Earth.

Monday, May 11, 2009

US Economy & Fed What a feeling: how emotions may yet save the economy

By Chrystia Freeland
Published: May 7 2009 20:35 Last updated: May 7 2009 20:35
An influential Democrat who was also one of the world’s top-ten, highest-paid hedge fund managers last year thinks he knows which book is at the top of the White House reading list this spring: Animal Spirits, the powerful new blast of behavioural economics from Nobel prize-winner George Akerlof and Yale economist Robert Shiller.
Judging by the upbeat economic message we have been hearing from the White House, the Treasury and even the Federal Reserve over the past six weeks, that is a shrewd guess. The authors argue that “we will never really understand important economic events unless we confront the fact that their causes are largely mental in nature”. Our “ideas and feelings” about the economy are not purely a rational reaction to data and experience; they themselves are an important driver of economic growth – and decline.
Q&A: Stress test jargon explained - May-07
Interactive graphic: Stress tested - May-08
Banks turn to markets in effort to plug holes - May-08
BofA aims for $34bn in fresh capital - May-08
Morgan offers $2bn in common stock - May-07
US Treasury yields soar on poor demand - May-08
Since mid-March President Barack Obama and his team have mounted a sophisticated effort to brighten those “ideas and feelings”, reassuring the nation with “glimmers of hope across the economy” and the assertion that “we’re starting to see progress”. The much bally-hooed stress tests – whose comprehensively leaked results were fully unveiled after the markets closed on Thursday – are both an important example of this confidence-building campaign and its toughest challenge.
The sunnier rhetoric of recent weeks marked a sharp shift both from the bleak mood of the fin de regime administration of George W. Bush and from the first weeks of the Obama White House. The outgoing president’s political capital was so low in his final months in office that the mere fact of his public appearances seemed to have a depressing effect on the markets. His secretary of the Treasury, Hank Paulson, enjoyed greater confidence, but he needed to convince lawmakers the situation was dire enough to merit his $700bn Tarp programme.
Likewise, Mr Obama needed the nation to be worried enough about the economy to pass his nearly $800bn stimulus plan. And too much good cheer in the first days of his administration could have wasted one of his most powerful trump cards – the country’s belief that this recession is owned by president number 43, not number 44.
But once the stimulus bill was passed, the White House calculated that, as Mr Obama told the Financial Times, lawmakers and US voters had reached their limits. No new money to rev up the economy or revive the banks would be forthcoming until the president and his team could demonstrate concrete results from the first instalment.
Since then Americans have been hearing a decidedly more optimistic vibe from Washington. It has seemed to work. A Google search for the term “economic recovery” turned up 6,991 references to the term in January and 7,831 in February. In the first week of May the phrase occurred 24,443 times.
More traditional yardsticks show the same result. According to a recent ABC/Washington Post poll, Americans’ belief that their country is heading in the right direction has soared from 19 per cent, just before Mr Obama’s inauguration, to 50 per cent, the highest in six years. In what could be a textbook example of behavioural economics, the stock market has followed the same curve, recovering from what rightwing commentators were calling “the Obama bear market” at the beginning of the year to a healthy rally.
Thursday night’s verdict on banks’ balance sheets will also be a stress test of the administration’s experiment in behavioural economics.
Washington has clearly learned the lesson of one of its rare, early failures. In contrast with the disastrous media management of Treasury secretary Tim Geithner’s maiden economic speech, the results of the stress tests have been so thoroughly previewed that by Thursday financial pundits and punters seemed almost bored with the exercise. Ennui is not the same thing as conviction – one of America’s biggest money managers on Thursday described the exercise to me as “the feather tests” and it is hard to find anyone who doesn’t work for the government, or one of the banks, who believes the tests have been rigorous.
But, like Washington, Wall Street really does want the scheme to work and the markets to recover. Over the next few weeks the administration will be hoping those feelings are powerful enough to drive the economic data.


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