Commentary for the Week of March 8

Bullion prices adjusted violently to a new reality yesterday. Now, if we can only figure out what that reality is. From a deflationist’s point of view, it could have been landfall for the perfect storm we’d all been expecting.  To wit, some important news stories roiling the waters in recent days: 1) China’s economy is weakening, putting enormous pressure on commodities and resource-based currencies; 2) U.S. output, employment and income appear to be falling as well; 3) Draghi evidently thinks that European countries in need of financial rescue should surrender their gold, for starters; 4) military spending fell globally in 2012 for the first time since 1998; and 5) Japan’s last-ditch attempt to inflate seems more likely to end in bankruptcy than to pump up anything of economic value. Concerning that last item – op-ed speculation at this point, we’ll admit – bullion markets gave BOJ’s hail Mary pass a big thumbs-down yesterday.  Our take is that although making the yen nearly free to carry-traders a decade ago helped inflate financial assets around the world, it won’t work this time, even in Japan.  With respect to the global carry trade, who needs to borrow yen when Big Players can borrow all the dollars they want – fungible in ways that the yen is not -- for almost nothing?  All Japan will have succeeded in doing is driving its savers elsewhere – into U.S. Treasurys, for one, where they can hope to survive a global banking meltdown for perhaps 90 minutes longer than the fools who have put their faith and savings in the euro. Next Stop $1188 From a technical standpoint, we ran out of bearish targets yesterday when June Gold pulped a $1414 Hidden Pivot support in the early going.  The intraday low was $1348, which as it turns

[The Sunday night massacre has exceeded my worst-case Hidden Pivot target, with the June Comex contract hitting a so-far low of 1385.00. Switching to conventional technical analysis, there are now two numbers we should keep in mind as possible bear-market lows: 1) 1341, representing a 50% retracement of the rally from 2008's watershed low of 732; and 1188, a 0.618 retracement. RA] Gold fell hard on Friday, pushed to its worst loss in more than a year. The Comex June contract settled at $1501, down $63, after having traded as low as $1476 intraday. Adding insult to injury, Goldman Sachs – aka the Bad Guys – had seen it coming and told investors to get short two days earlier.  We’d seen it coming ourselves, having projected a decline to at least $1487.90 when the futures were trading $80 higher.  A headline here a week ago noted that Gold Has Trashed a Key Support.  As indeed it had. Our plan was to bottom-fish near the target with a very tight stop-loss, and although gold took a promising bounce from $1491 that lasted four hours, our implied long position from there didn’t survive the second wave of selling. Goldman is still bearish on gold -- and so are we, because of the ease with which sellers demolished our “Hidden Pivot” support at $1488. Because of this, we are now projecting further downside to at least $1414.50. That would represent a 7% fall from these levels and a 28% correction from the $1933 all-time high recorded in September of 2011. The target is not of the highest quality according to the proprietary technical system we use, but, as we told subscribers, it is “good enough for government work.”  What that means in practice is that it can serve as a reliable minimum downside

The chart below comes from Doug Behnfield, a friend who is also the savviest and most successful financial advisor we know. Doug has been a bear’s bear for years, and to stay on the cutting edge, he talks almost daily with guys who turn up regularly on the network business channels and in interviews with major-league financial publications. He has produced stellar returns for his clients, mainly by keeping them well weighted in Treasuries. That strategy might seem like a no-brainer these days, especially with the long-term bonds in a vertical climb for the last month. But he has held this position through thick and thin, even at times when such savvy bettors as Pimco’s Bill Gross were throwing in the towel. No doubt, Doug likes to keep most closely in touch with economists and gurus who share his bearish point of view. It’s not a matter of misery loving company, either.  The stock market has indeed vexed bears by climbing a steep wall of worry.  And now, flouting the palpable threat of a downturn in corporate earnings, the Dow Industrials are making new all-time highs regularly.  More than ever, the question tormenting bears is: How could investors be so stupid?  For the permabear, there will always be comfort in talking to guys who can reel off a dozen good reasons why stocks are about to collapse. But that’s not why Doug talks to them.  Rather, he does so because he has the rare ability to reduce a hundred well informed opinions into a compact and logical set of facts that will consistently make his clients money. A Key Resistance So what do we make of his chart, which shows price action for the S&P 500 going back 20 years? Doug is laser-focused on just one detail: the intersection this

We used to pay closer attention to the charts of Google, Apple, Amazon and other world-beaters because for years their shares led the stock market higher. No longer, though. The charts below show how the Dow Industrial Average has left the formerly unstoppable Nasdaq Index choking on dust. Few would have imagined that Wall Street could go on a bullish rampage without the participation of stocks that represent the very best that America has to offer. And yet, that is exactly what has occurred. The “Naz” heavyweights have stalled or fallen while the Dow’s rally has gone vertical. The first inkling that such a startling divergence was possible was the Dow’s resilience in the face of a devastating bear market in Apple that has reduced its share price by 40% since September. This represents an enormous loss to investors, most of them institutional, since Apple was the most valuable company in the world before it fell from grace.  But investors simply shrugged off the loss, throwing Apple to the wolves before training their still-considerable buying power on the 30 Dow stocks.  This damn-the-torpedoes attitude has continued even amidst concerns that Q1 earnings about to be reported will be less than stellar.  Under the circumstances, the bold stewards of Other People’s Money would seem to have abandoned the pretense that earnings even matter. ‘Don’t Fight the Fed!’ Undoubtedly, what has made them so cocksure is the prospect of more Fed easing until…forever?  “Don’t fight the Fed!” is one of the most time-honored rules in the investment world. With the Fed easing more aggressively than at any other time in its ruinous history, going with the flow is not exactly rocket science.  The result is that every Dow stock except Caterpillar and Exxon is showing a gain for the year.  Most are

Aren’t stocks supposed to rally on “bad” payroll news? If so, the Dow should have soared Friday on word that our allegedly recovering economy generated a sickly 88,000 jobs in March.  If that weren’t good/bad enough to inspire a psychotic buying spree on Wall Street, there was further news that a drop in the unemployment rate to 7.6% had been caused entirely by a huge exodus of workers from the job market. This stampede of the  despairing pushed the labor participation rate to 63.3%, its lowest level since 1979, undermining whatever  brazen claims the spinmeisters are making these days concerning the economy’s supposed re-awakening. Until just a few months ago, rotten news like Friday’s would have sent stocks soaring, since it meant, according to the popular wisdom, that the Fed was likely to ease even more, and for longer.  Instead, the Dow Industrials spent the entire day struggling to recoup a 170-point loss registered on the opening bar. Alas, the effort failed, leaving the Indoos 41 points shy of unchanged even after a last-ditch attempt to short-squeeze stocks in the final 30 minutes of the session. Stimulus Has Failed Is it possible the stock market’s glumness on Friday was due to a growing recognition that stimulus has accomplished little or nothing to create jobs? Sure, the banks are awash in funny money that has no place to go besides stocks and bonds. And home prices have temporarily stopped falling, cushioned by untold trillions of dollars in monetary stimulus. But as should be increasingly clear to all, even to Obama’s cheerleaders and spinmeisters, these trends have manifestly failed to lift the working man, and therefore the U.S. economy, in a way that is meaningful, much less sustainable. Meanwhile, the news media continue to propagate the destructive lie, absurd on its face,

[We'll finish out the week with the commentary below, since it has generated such a lively response.  If you're interested in Bitcoins, a popular form of digital currency, be sure to click on the link beneath forum remarks from 'Robert' on the subject. It will take you to Max Keiser's web site, where the discussion really took flight.  Regarding gold, this week's price action has left me quite confident that the Comex June contract is on its way down to at least $1487. However, although I have plenty of company in the bearish camp, I don't see this selloff getting much worse than that, at least for now. A detailed technical assessment is contained in a trading 'tout' for June Gold that I have made publicly accessible below. RA] With a scary bank crisis in Cyprus driving the headlines a couple of weeks ago, gold could barely muster a rally. Notice in the chart below that the high of the move failed to clear a minor peak at 1619.70.  Had it done so, we would have given bulls a fighting chance, since it would have created a bullish “impulse leg” with the potential to power quotes as much as $120 higher in just a few weeks.  Instead, buyers showed themselves to be gutless, allowing the April contract to relapse down to within inches of the lower trendline. It could hold, but we doubt it. [Note:  I have updated the chart to show that the breakdown we'd expected has in fact occurred, and decisively.] Still worse is that a breakdown is likely to send the futures down to at least 1553.50, a Hidden Pivot support identified here a couple of weeks ago when the futures were trading above 1600. If that “hidden” support should fail as well, look out below, since

A degree in journalism is the worst college investment you can make, according to Salary.com.  Fresh out of college, your kid could expect to earn $37,393 working as a reporter. That would add up to a measly $2.2 million over a 30-year career, for a return on one’s college dollar of about 17%. Even social workers, pastors and dieticians do better than that. At newsroom pay, it might take one 50 years to sock away enough for retirement. Of course, that’s assuming one keels over dead at 82, before one’s savings have been depleted. Death would have to come even earlier to leave enough for a decent funeral. Actually, starting pay of $37,393 sounds pretty good to me, since my first job, working on the rewrite desk of the Atlantic City Press, paid $120 a week. That was in 1971, and I was living like a king, even though I owned a vintage BMW whose maintenance costs consumed about half of my discretionary income.  The apartment I shared was $225 a month and offered spectacular views of New Jersey’s marshlands and sunsets on the bay. I and my 20-Something cohort partied till dawn every night after the morning edition had been “put to bed.”  Gotham was just two hours north on the Garden State Parkway, and a big night on the town might have included a Broadway show, drinks at Sherry Netherland’s, and a limo ride to Lutece. Years later, after I became a family man, my big night on the town was Tuesday night.  That’s the night when kids ate free at Lyon’s. Appetite for News Undiminished My fellow reporters at the Atlantic City Press were the brightest and most talented bunch I’ve ever worked with.  Two of them, Joe Donohue and Tom Turcol, went on to win Pulitzers.

San Francisco Real Estate Housing Bubble Home prices are rising at the fastest pace since before the housing bubble and crash, according to the Case-Shiller Index.  Data for January showed a 10-city composite up 7.3% over the last 12 months and a 20-city index gaining 8.1%.  A bullish sign for the housing market?  More like a death rattle, we’d say.  In our estimation, the collapse in residential real estate prices begun in 2007 is only halfway to a bottom, implying that valuations will eventually fall a further 35% from their 2007 housing bubble peaks. Check out the Mountain View, CA home pictured below if you want to know why, even after the real estate collapse of 2007-09, California home prices in particular are still egregiously out of line with incomes. We rented this house from 1995-1999 for about $2400/month before moving to Colorado like so many other Californians seeking twice as much home for half the price.  The three-bedroom rancher was worth about $525,000 at the time, and we wondered who would be so foolish to buy it at that price. With just 1150 square feet of usable space and a small back yard, it had sat unimproved since 1952, when it sold new for around $12,000. The only feature in the house that might be considered an upgrade was the quiet-flush toilet in the half-bathroom. Otherwise, fixtures, carpets and structure were original and well worn. Termites could be heard munching on the garage. Smelling like a San Francisco housing bubble?  Unbelievably, the home is currently valued at $1.1 million on Zillow. Anyone who buys it at that price would have to be either crazy, extremely desperate, or confident that a greater fool would eventually appear when it’s time to trade up.  In 1952, before the San Francisco housing bubble,

As of yesterday, Cyprus was on its way to becoming a distant concern, pushed off the front page by news about New Jersey’s $338 million Powerball winner and the Supreme Court’s likely endorsement of same-sex marriages. And yet, with euroland’s latest banking crisis out of the way for now, investors acted surprisingly subdued yesterday, pushing the Dow to a modest gain of 113 points.  Our guess is that Wall Street is quietly gearing up for a rip-roaring short squeeze to finish out the week. The broad averages have been hovering near record highs to begin with, but by the time Friday rolls around, we’re betting that stocks will be trading well above these levels, demonstrating yet again that investors haven’t a care in the world. The flip side, unfortunately, is that gold prices are about to head lower, having failed to register much of a pulse even during the most worrisome phase of negotiations to “rescue” the Bank of Cyprus. Not to rain on speculators’ parade, but here’s a number to watch if you’re crazy enough, after all these years, to still be looking for a top:  1617.48, basis the S&P 500 Index.  That’s a proprietary Hidden Pivot target of ours (see chart above), and although we must concede that no such target that we’ve proffered over the last four years has shown fatal stopping power, this one seems likely to produce at least a short-able high. The purpose of these Hidden Pivot numbers is not only to provide precise swing points to get short or long, but to gauge the strength of the underlying trend. In this case, and generally speaking, if a clear “hidden” resistance such as this one gives way easily, it is a sign that considerable buying power remains to be spent. Thus, we would regard