Commentary for the Week of March 8

With the world in the throes of an unprecedented credit blowout, gold’s failure to crack $2000 barrier can sometimes seem mystifying – the moreso as the correction begun in 2011 stretches on, now into an eighth month. Gold has acted more like wheat or corn than like money. Shouldn’t it reflect the fact that dollars, euros and yen are available to an insatiable group of borrowers, mainly large banks, at no cost and in practically unlimited quantities? Indeed. And yet, lately, gold has been unable to muster the ire, even, of crude oil, which appears to be gathering thrust for its first foray above $120 since 2008.  Meanwhile, Comex Gold has been lazily backing and filling since last September. If gold is not oblivious to the steady and relentless destruction of currencies, it seems unpersuaded that this is what the central banks are accomplishing by design. From a purely technical standpoint, gold’s reluctance to get in gear with crude, and to start acting like it knows what the central banks are up to, is not so mysterious. Let me explain.  I have written here many times that it is not bullish buying that drives stocks relentlessly higher in bull markets, but short-covering by bears. This was a dynamic I got to observe first-hand in the dozen or so years I spent on the trading floor of the Pacific Exchange. While bulls often rationalize their buying strategies by citing “fundamentals,” they probably understand at a gut level that PE ratios are no more useful a predictor of where a stock will be trading in six months than tea leaves. Small wonder, then, that bullish sentiment alone cannot summon the kind of torpedoes-be-damned buying it takes to drive shares through massive levels of supply.  But short-covering can, since the buying is rooted

Is the worst over for silver? From a technical standpoint, both the Comex futures and Silver Wheaton shares have done exactly what we might have expected of them if they were carving out a durable bottom.  On Monday, the mining stock came with a single penny of a 27.97 correction target where we’d told subscribers to get long using an 8-cent stop-loss. Then, yesterday morning, May Silver futures trampolined from a low that lay just 1.5 cents from a correction target also identified using Hidden Pivot analysis. In both instances, powerful rallies began from within a hair of the targets, raising the odds that an important low is in.  Our 29.940 price objective for the May Comex contract was flagged three weeks ago when the futures were trading above $31 an ounce.  Yesterday’s explosive bounce from 29.925 carried them all the way to 30.740 -- an 81-cent surge that would have been worth $4000 to any trader lucky enough to have caught the entire ride. As for Silver Wheaton, subscribers have been instructed to hold onto half of any shares they may have bought when the stock bottomed Monday at 27.96.  Yesterday, tracking the ballistic move in bullion futures, Silver Wheaton traded for as much as 29.79.  That represents a gain on paper of more than 8% in less than a week, since subscribers were told to take a partial profit near 28.61. With our cost basis effectively reduced to 27.47, we can afford to let our profits run. But will the move continue? It’s impossible to be sure. However, based on the energetic leap that these two silver vehicles have taken so far, we are encouraged to hold onto at least a small portion of our original position in Silver Wheaton for a potential four-bagger.  We should note in

An amusing coincidence: I was posting to the Rick’s Picks forum a moment ago about how exchange trading has come to resemble a sleazy carnival operation, and lo, the E-Mini S&Ps have shot up six points in mere seconds. This was an after-hours move – the best time to stage these heists, since there is little legitimate buying or selling to get in the way of the perpetrators. I don’t wish to insult carny operators by comparing them to exchange dealers and market makers, by the way, since the guys and gals who work the midway at least come face to face with the rubes they are ripping off.  Not in the world of electronic trading, though.  The pros who are doing the fleecing operate under a veil of secrecy that can be lifted only by securities regulators or the FBI. The forum thread concered trading against phantom bids and offers that seem to be there only when you don’t need them.  Café Americain’s Jesse had posted the following at his own blog: “I am not trading nearly as frequently or aggressively as in the past because a) I am getting older b) these markets are almost ridiculous. It’s like playing cards with the little girls. If I put in an order for a few thousand shares, the liquidity from a large offered set of multiple positions evaporates instantly and I close on maybe 100 shares. If I offer to buy above market but below ask I get ten ‘friends’ appearing instantly along with my bid.” Phantom Markets Just so. This has been our experience as well, mainly in the equity option markets. On a Level 2 trading screen, one might see 5000-up bids and offers for call options that rarely trade. So who would be offering thousands of them,

Without intending it, Rick’s Picks may have become an oasis for gold and silver bulls who are at the point of despair over the mining sector's relentless, and presumably unjust, plunge. We have good news for you:  Using technical tools to tweak your timing and risk management, it’s possible to buy “crap” stocks all the way down without getting hurt if you’re early. We use the word “crap” ironically, of course, since it is only when stocks have been beaten down as badly as those in the mining sector that they become screaming bargains. And that pretty much sums up the situation as far as we’re concerned. Not that the blighters who have been doing the selling couldn’t bludgeon bullion shares even lower before they relent. In the meantime, wouldn’t it be lovely to take all that stock from their undeserving hands -- and to do so without penalty or punishment if we are premature? On the subject of mining-sector “crap,” a perfect example is the execrated and abhorred GDXJ, an Exchange Traded Fund (ETF) that tracks the shares of junior gold mining companies.  Although it has an ardent following among Rick’s Picks subscribers, GDXJ has unfortunately proven treacherous to the financial health of long-term investors. Some of them may have thought GDXJ looked like a great bargain a couple of months ago when it was trading for around $30 a share, down from a high of $43 in 2011. We told subscribers to hold off on buying, however, warning that the stock could eventually fall to $20 or even lower. That is still a possibility. Nonetheless, to avoid missing a possible long-term bottom, we started nibbling at 23.93, a “Hidden Pivot” target first advertised in the newsletter when GDXJ was still above $26.  The buy at 23.93 proved timely

A winter-less winter has given way to the most pleasant spring weather imaginable here in Boulder, Colorado.  A cloudless day in the low 70s brought the crowds out in droves on Pearl Street Mall Sunday afternoon. Boulder has been in a precipitation drought for as long as I can remember, and yet there have been no water restrictions since I moved here in 1999. That’s because there has been ample snowfall on the mountains immediately west to provide sufficient runoff for all purposes, including recreation. White-water rafting is extremely popular hereabouts, and in years such as 2010-11, when snowpack was at near-record levels, it was a case of too much white water, at least for rafting novices. This year’s snowfall was below normal, however, and so most of the ski resorts had to make do with artificial snow.  It takes about 30 inches mid-mountain to keep the crowds coming, but the resorts have become so good at making the stuff that, in the worst year for skiing anyone can remember, total skier visits in 2011-12 appear to have been down only 15-20 percent. That’s a nasty hit for the resorts, to be sure, but it will be easily recouped next year if snowfall is normal. I feel blessed to live here. Coming from one of the greatest cities of them all, San Francisco, and having grown up on a island resort in New Jersey -- I had my doubts initially that I would grow to like land-locked Boulder as much as I do. Now, I can even envision settling down here, getting immersed in the local scene, and contributing what I can to make it a better place.  My dream is to produce plays on a small scale, and to help Boulder reach the “critical mass” needed to attract the

[Our friend Doug Behnfield, the savviest financial advisor we know, is skeptical about the dividend mania that has captivated Wall Street of late. In the essay below he explains why investors seduced by dividend-paying stocks may be overlooking more-than-offsetting risks and better opportunities. Doug works exclusively with high-net-worth individuals, many of whom are undoubtedly grateful for his prescient skew toward Treasury paper since the beginning of last year. To contact him about his services, click here and I will forward your message. RA] As you read this essay, keep Bob Farrell’s Rule #7 well in mind: "Markets are strongest when they are broad and weakest when they narrow to a handful of blue chip names." Most stock market participants can remember back to 2000 if they really try. It was common back then for typically risk-averse investors (like retirees) to be insistent that half of their portfolios consisted of Microsoft, Intel, Cisco and Dell. The price of each of these stocks had gone parabolic and none of them paid dividends, which was a good thing because that left them with all those earnings to plow back into their business. If the investor needed to buy groceries, they could just sell a few shares for cash flow. My, how things have changed. Today, "dividend paying stocks" are all the rage. McDonalds, Proctor & Gamble and Johnson & Johnson are emblematic. Apple has just begun getting into the act by declaring its first dividend and Intel and Microsoft are now on the list after ramping up dividends soon after the tech stock meltdown in the early 2000s. What these companies have in common is that they are blue chip names and they have taken on a "one decision" aura. For example, Proctor & Gamble has raised its dividend every year for 55

Global Banking System Collapse [We have argued here before that it is lies, systematic fraud and blatant duplicity by the central banks that have kept the global economy afloat in recent years.  In the essay below, a regular in the Rick’s Picks forum who goes by the handle ‘Buster’ provides as succinct and elegant an explanation of this as we have seen. His thoughts were originally published in the forum, but we are reprinting them below because they deserves a wider audience. RA] America is a great country. As with any business, its success is based on the balance of its assets against its liabilities. Its assets are a plentiful supply of natural resources; land & minerals, plus 300 million specimens of the most creative creature on planet Earth. These assets are hindered by one main liability, a ruling class who imported a monetary system of theirs from Europe a while ago. It is a non-free market system which is enough of a hindrance to negate all the positives of any country in time. A simple enough system to understand, yet very seldom understood, even by the most intelligent among us, it would seem. It operates on the simple rule that currency is borrowed into existence with interest bearing on it at a given rate. The critical point to recognise is that the interest owing is not issued by the lender, only the principal, thereby meaning that the interest either has to be paid out of the sum of principal borrowed, or by confiscation of real physical assets, i.e. “real wealth”. The only thing keeping this eventuality from occurring is if a new borrower adds more money, borrowed as yet more debt, into the economy. This is why such a monetary system requires ever more investing manias to perpetuate itself.

Europe’s bankers will need to think really big the next time they try to construct a proper “mother of all firewalls.” A nearly trillion-euro package that was on the table a few weeks ago would combine €440 billion of uncommitted funds from an existing credit “facility” with  €500 billion pledged toward a new one. Those may sound like big numbers, but they evidently were not big enough to prevent market forces from roiling Europe’s stage-managed bond markets last week. The result was a surge in yields on Spanish debt  that spooked U.S. stocks, among others,  into their worst weekly decline of 2012. Although the world’s bourses had celebrated in the weeks leading up to and immediately after the February bailout of Greece by central banking’s wizards and alchemists, stocks have been falling steadily since the beginning of April. Clearly, the specious extravagance of a trillion-eurofund doesn’t buy much peace of mind in financial circles these days. That's notwithstanding the obvious fact that the countries charged with funding the "facility" would have to pony up only a small fraction of the marquee sum. As much should be clear to all the players, since even the ostensibly solvent likes of Germany, Holland and Finland don’t have that much good money to throw after bad, nor the will to import austerity by-the-empty-truckload in support of a doomed euro and a bunch of sovereign deadbeats. Private Lenders Flee Spain For their part, U.S. stocks looked dismal last week, with the Dow off 1.6% and the S&Ps down 2%.   However, such relatively mild selling may prove to be just a warning tremor if Europe’s debt crisis is about to return to the headlines.  On Friday, investors’ fears ratcheted into the red zone when it became apparent that a tidal surge of borrowing from the European

First things first, for those who don’t already receive these commentaries by e-mail: If you’d like to be entered in a weekly drawing to win a three-month subscription to Rick’s Picks worth $106, click here. What do paying subscribers get that lurkers don’t?  Plenty. Yesterday, for instance, they were advised to cover half of a bullish position we’d staked out in GDXJ, a vehicle popular with the gold crowd that tracks junior mining stocks. We paid an average 1.85 for some August near-the-money call options, but because the stock has been strong this week, we were able to exit half of them yesterday for 2.25, a nickel off the high. The implied 40-cent profit has effectively reduced the costs basis of the calls we still hold to 1.45.  Considering that the options have more than four months till expiration, odds of making a profit look pretty good. Ordinarily, the odds are horrendous for retail customers who simply buy puts or calls based on hunches. How bad are the odds?  If it’s a bearish hunch your playing, you’ve got a better chance of making money by matching three numbers on a lotto ticket. I’ve been trading options for nearly 40 years, twelve of them on an exchange floor, and have yet to meet a single person who has made money on put options over time. The odds aren’t much better for buy-and-hold call buyers, either. All options are “wasting assets” because their value decreases as their expiration date draws near.  Because of this, options positions must be “worked” to produce a profit. The Option ‘Sweet Spot’ One way we might work our August call position is to sell other calls against it. For example, if the stock continues to rally, we might be able to sell August 25 calls for 0.45