Commentary for the Week of March 8

There’s no point in pretending it’s those sleazy, child-molesting bullion bankers at Morgan Stanley, Goldman Sachs and  J.P. Morgan who have been pounding on mining stocks and bullion futures in the last few months.  Lately, it has felt like the whole world has been dumping them.  For the record, we are ourselves cautious buyers of bullion futures and select mining stocks at these levels, since many popular trading and investment vehicles that we track are closing on important Hidden Pivot correction targets. (Want to find out the exact prices at which were are doing the buying? Click here for a free trial subscription to Rick’s Picks, including real-time guidance and a 24/7 chat room where the discussion never stops.) When bottom-fishing in markets that have been falling as steeply as gold and silver have been falling, we recall the advice of our friend, the late Malcolm Watts: “When attempting to catch a falling piano,” Malcolm, a PSE option trader and gifted technician, used to say, “wait until it has bounced three times.” (It was not a falling piano that felled our friend when he was in his thirties, by the way, but the stresses of the market on an apparently defective heart.)  So, have bullion futures bounced the required three times yet? By our count, there have been more like four bounces since February. And although that may not mean it’s perfectly safe to buy the precious-metals complex at current levels, it does imply that those who waited are happy they did. By and large, however, precious-metal bulls are probably feeling shell-shocked by now, since many of the stocks that they hold dear  – quality companies like Silver Wheaton, Newmont and Yamana – have been sold nearly to death.  The shares of these firms and many others looked like great

[Gary Leibowitz frequently raises hackles in the Rick’s Picks forum with his mantra that business is great, stocks are underpriced, and -- at least for the time being -- the U.S. economy is going great guns.  Who knew that he is also expecting a global depression that will last for more than a decade?  In the guest commentary below, he explains why – but also why, with two caveats, gold is likely to be  one of the best places for investors to be for at least the next six years. RA] I must confess that I’d been a gold bear for many years. When I reevaluated my position, I surprised myself when my conclusions made a 180-degree turn. On average gold has an 18-to-20-year life cycle, which implies the bull run will run until 2018-20. The cycle doesn’t necessarily mean a huge run-up, but it does mean there should be very little downward pressure. The other factor that is encouraging is how most gold cycles, when there are strong signs of upward movement, terminate with an even larger and steeper rise near the end of the cycle. If history is a guide, we should therefore expect the most dramatic phase of the rally to occur six to eight years from now. My longstanding macro view has been that as debt became unsustainable, a severe deflation period would ensue. That argument still holds.  However, I did make some unsubstantiated assumptions that because of the severity of this debt cycle, the deflation cycle would be deep and long. As it turns out, that has never been the case. On average deflation has an 18-month window. It is during times of strong contraction that cash outshines all other investments. I also believe that gold will experience a downturn as well, but not as

Paying subscribers get to see quite a bit more of Rick’s Picks than lurkers might infer from reading the free commentaries that go out each day to many thousands of readers. A headline that will have caught the eye of the latter was this one, from the May 2 edition: Gold’s Nastiness Hints of a Major Bottom. Comex June Gold subsequently fell $76, and we were therefore unsurprised to receive e-mails from lurkers who evidently had been caught flat-footed by this supposedly unforeseen (by us, anyway) bout of weakness. In fact, the daily “trading touts” that lie behind the Rick’s Picks subscriber wall have been far more cautious than outsiders would likely know. Just yesterday, in fact, we offered a projection for GDXJ, a proxy for junior mining stocks, that may have caused some subscribers’ scalps to crawl. (Click here for a free trial subscription if you want to see just how low we think this favorite of gold bulls could conceivably go.) So which is it:  Are we bullish on gold, as our headlines would seem to imply? Or do we privately shrink from the risk of owning bullion? The answer is that, although we are bullish on gold and silver for the long-term and have been socking away bullion coins for years, we are not so certain that it will achieve the stratospheric heights that some gurus have predicted. However, what we are most confident in saying is that, come hell or high water, gold’s purchasing power will more than hold its own relative to all other classes of investable assets.  We would concede, however, that the fantastic price targets of some bullion superbulls have a few things going for them.  For one, the U.S. dollar is already intrinsically worthless, and that implies that real money – i.e.,

Gold has been testing the limits of our endurance lately. A week ago, when we tried to buy shares of GDXJ, a proxy for junior mining stocks, it ran away from us, seemingly headed into the wild blue yonder. At nearly $24 a share, it was difficult to justify jumping aboard, since, just a couple of days earlier, we’d blown an opportunity to do so at a bargain-basement price of 21.52. We sat tight nonetheless until yesterday, when GDXJ dove into our lap, then trampolined off a 19.66 correction target that had been spotlighted in the “trading touts” section of Rick’s Picks a month ago. Here’s the recommendation exactly as it went out to subscribers the night before, with GDXJ settled at 21.09:  “An important [Hidden Pivot] target at 19.66, last mentioned here on April 5, appears to be this vehicle’s immediate destination. I’ll recommend bidding for 400 shares at 19.75, no stop-loss, day order. Camouflageurs can start looking for the turn now, seizing the advantage if it should present itself.” The chart tells the rest of the story.  GDXJ made its intraday low at 19.62 in the opening minutes of the session and never looked back. And  neither did we.  An hour later, with the stock on its way to a remarkable 8% gain from the low, we told subscribers to take a partial profit. Here’s the advice we sent out via an intraday alert: “Our longstanding target has caught this morning's 19.62 low nearly perfectly, allowing us to buy 400 shares at the suggested price. Now, on a good-till-canceled basis, offer 200 shares (or half of the position if you bought more than 400 shares) to close for 20.60.”   Any subscriber who did so would now be sitting on 200 shares with a cost basis reduced by profit-taking

Rick’s Picks occasionally offers option trades suited to novices and experienced traders alike. Typically, these gambits go against major trends, since our proprietary Hidden Pivot System is especially useful for nailing turning points very precisely.  Yesterday, for instance, we recommended buying QQQ June 65 calls if this proxy for the Nasdaq-100 index fell to within a dime of a 63.53 price target. That implied a wicked plunge from  the previous day’s settlement price of 64.76. In the actual event, panicky sellers obliged by pounding the bejeezus out of QQQ on Tuesday. It opened 43 cents lower, at 64.33, on its way to an intraday bottom at 63.48 – just a nickel from the low we’d projected.  This allowed us to buy June 65 calls for as little as 0.98; however, we used an official price of 1.03, since that was the worst fill reported by a subscriber in the Rick’s Picks chat room. Later in the day, the calls rebounded to 1.42 as QQQ trampolined from our downside target. (In the feverish promotion-speak of the guru world, the paper profit on the calls worked out to “AN ANNUALIZED GAIN of 13,800%!!!!!!!!!!”). As QQQ screamed higher, we sent out a bulletin telling subscribers to take profits on half the position. Some reported fills as fat as 1.36, but we used a more conservative 1.25, effectively reducing the cost basis of our remaining position to 0.84. Our #1 Trading Rule Now it’ll be hard to lose, right?  In fact, stranger things have happened. And that’s why we always recommend taking at least a small partial profit early in a trade if possible, whether in stocks, options or futures.  Of the three vehicles, options are arguably the toughest game to beat, especially for the retail customer. We say that after having traded puts

Europe’s doomed experiment with the politics of austerity went down in flames over the weekend as voters across the region veered sharply to the left in savaging incumbents. Elections in six European nations on Sunday promised to end any pretense of fiscal sanity. However, it remains to be seen how quickly and drastically the new leaders will act to further unbalance their nations’ books, ostensibly in the name of economic growth. Whatever they decide, there’s a Catch-22 that could make any promises of budget-busting relief for pensioners and public workers impossible to keep. Recall that even the socialists in Greece’s parliament were forced to support austerity measures a few months ago, because without such measures the country would have been unable to borrow enough cash to meet payroll. In fact, despite several bailouts in the last two years, Greece remains so close to the edge financially that even hard-core socialists might find themselves forced to play ball with the bankers. The “middle way” for them, as has been the case all along, will be to talk austerity while practicing fiscal profligacy. Eurobank president Draghi offered a preview of how this would be done, cribbing a page from Goebbels’s handbook. At a “whisper campaign” meeting in Barcelona over the weekend, he was quoted as saying (whispering?) that Europe could hammer out a “growth compact” to go along with deficit reduction. Like Bernanke, he evidently thinks people are stupid enough to believe such claptrap. But even if it is unworkable as policy, it will used to “manage expectations” in the same cynical way that the Fed chairman manages them. Draghi’ s task will be more difficult, however, because he will be at odds not only with Germany’s conservative bankers, but with a German press that harbors no useful idiots like Nobelist Paul

Crikey! Although we declaimed here the other day that gold appeared to be carving out an important bottom, getting airborne could be bumpy.  One reason we “feel” a bottom is near is that it has been relatively difficult to stay long in gold.  Getting aboard has been no problem, of course, since traders can attempt it at any time, albeit not always with confident expectations of success. And so it was early Thursday morning, when we put out a “buy’ recommendation in Comex June Gold in the dead of night, shortly before 5 a.m. Eastern.  The rationale was purely technical and involved placing a bid at the target of a corrective pattern we’d expected to reverse at exactly 1637.40 -- $7 below where the futures were trading at the time. However, our Hidden Pivot support evinced no discernible bounce as the futures made a violently choppy descent toward an intraday low of 1631.30.  In the Rick’s Picks chat room, a subscriber reported having made a few dollar trading from the wrong side of the move, but this feat – catching a falling piano, so to speak -- would not likely have been duplicated by any but the nimblest of traders. So how much lower might we expect gold to fall before a bottom is in? Our guess, worst case, is 1574.30 for the June contract. Using Thursday night’s price of around 1637.40, that would represent a fall of approximately 3.8 percent from current levels. We say that would be a “worst case” target because gold looks pretty feisty on the hourly chart and could come alive at any time. Bulls have not ceded ground easily, and it would take a rally to just 1648.00 today  -- $11 above current levels -- for the good guys to regain the offensive short-term.

How’s the U.S. economy doing?  Although you couldn't tell from the muted reaction of the stock market, yesterday’s headlines were as discouraging as we’ve seen in a while. For starters, the supposed recovery generated a feeble 119,000 private-sector jobs in April -- less than half the number required to recoup positions lost during the worst years of the still-potent Great Recession. The usual bunch of “experts” had “expected” 175,000 new jobs, but even with seasonal adjustments and some other statistical hocus-pocus, the Guvvamint’s able spinmeisters failed to deliver the kind of numbers that get incumbents re-elected. There was also news that factory orders in March fell 1.5% from February. Although this datum reportedly was in line with expectations, it hardly supports the Recovery drumbeat that has been growing louder and louder with each passing week. So loud, in fact, that it has prompted speculation that the Fed might raise interest rates in, um...2014. This is the kind of idiotic blather that gives the mainstream media its comic appeal. We can understand why Bernanke and the White House would want to put the story in play, and why a lazy, economically ignorant press would eagerly swallow it like a fish tossed to a trained seal.  The story is intended to make all of us rubes think the Fed actually believes its own story that the economy is recovering. If this were true, however, why would They wait until 2014 to put a lid on inflation?  Managing expectations is all the bankers are trying to do, of course, but sometimes the way in which they do it feels so clumsy that we can be forgiven for thinking that Bernanke and The Powers That Be take us all for fools.  As for the notion that the Fed is planning to raise interest rates: 

[This commentary has elicited such a spirited discussion, including ruminations on the inflation/deflation conundrum, that I'm letting it run for a second day. RA] Are gold and the bloodied mining stocks at an important turning point?  So it would appear. Persuasive evidence of this came together for us yesterday after we ran into an old friend, a real estate developer with a commodity-trading jones, who asked whether it might finally be time to buy the stuff.  “Buy it?” we replied.  “We’ve been trying for a week to buy anything gold-related but it’s like trying to catch a jackrabbit.” Hmmm. Is gold trying to tell us something?  Signs had been accumulating. When we turned in late Sunday night, we felt comfortable with a futures “tracking” position in gold acquired near Friday’s lows. Using a Hidden Pivot “camouflage” strategy, several subscribers reported buying the Comex June contract for around 1654.30, based on a playbook sketch accompanying Friday’s trading touts.  Later in the day, with gold in a strong rally, we advised taking partial profits that would have reduced the theoretical cost basis of the position to 1641.50.  With the futures trade near 1665.00 Sunday night, how could we lose?  We advised subscribers to use a 1649.10 stop-loss for what remained of the position. The chart above tells what happened next. Although June Gold was practically unchanged as we went to press Monday night, an intervening swoon of $40 -- $20 down, then $20 up – had taken us out on the stop-loss Monday morning, as it must have many other traders who fancied themselves sitting pretty Sunday night.  Now the task of climbing back on board will be doubly difficult, since gold is taking increasingly radical evasive maneuvers to disabuse its growing fan club of the notion that it will be easy