"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, January 13, 2014

Stocks Drop on Goldman Note - Safe Haven Plays come on

Goldman was the catalyst for a near seismic wave that struck the US equity markets in today's session. Their analysts felt stocks were overpriced and that earnings were going to have to be quite strong to push stocks signficatnly higher based on my reading of their notes. Surprise... sounds like maybe some are waking up to smell the coffee.

My comments have to do however more with the reaction of some of the other various markets, rather than the equities. Stocks needed a significant correction but no one was sure from what level it would come or at what point. Well, we got a decent correction today. If it turns around and goes right back up tomorrow, who knows? What struck me about the safe haven trades that went right back on, in typical knee-jerk fashion, was the US Dollar was left out of the party.

We had bonds moving higher today with interest rates on the Ten Year dropping down to 2.827. That is no surprise given the steep fall in the equity world. What we usually see happening on a day like this did not occur today. What I mean by that is that while the Japanese Yen moved sharply higher ( I will never understand why the Yen can remotely be considered a safe haven currency), the US Dollar did not rise but fell instead! That is rather remarkable when one is used to seeing the Dollar benefitting from any sort of risk aversion/save haven trade.

I am not sure what that might mean but it is only a one day affair at this point so I do not want to read too much into it.

Gold seemed to experience another one of those "melt up's" as I have dubbed them with some safe haven buying coming into the market, especially as the US Dollar weakened but also somewhat in response to news of Goldcorp's unsolicited takeover attempt of another mining outfit. Some are thinking that the gold shares, which have been beaten with the proverbial ugly stick, might have been mangled severely enough that the long-anticipated consolidation/ acquisition phase is now at hand in the sector. That would tend to benefit some likely takeover candidates which generally lifted the sector higher even while some of the majors were weaker, notably GG, which was down over 1% at one point today.

The news tended to lift some of the pall that has been hanging over the sector. Of course it did not hurt any to see a near 1.4% plunge in the S&P 500 as part of a safe haven bid.

I have mixed emotions about this stock market fall today. If it is coming on expectations that while the US economy might be improving it is not going to be growing fast enough to justify multiples on equities near current levels, then I can see where it would actually tend to bring more selling pressure into gold as deflationary forces reassert themselves. Then again, we might be back into that nightmarish scenario where we are sitting around on pins and needles waiting for every single economic data release and reading the entrails to discern whether the Fed will taper or back off and not taper.

I am still of the view that if the latest round of MBS and Treasury bond buying by the Fed has not generated solid growth, then what will? If the Fed were to be forced to put any tapering on hold, would it not signify that deflationary forces are reasserting themselves? Why would that not put downward pressure on the gold price? Yes, I know that many in the gold market would view any Tapering on Hold action by the Fed as bullish gold but pray tell, for what reason? Two years have done nothing to generate any significant inflation in the mind of the market - why would another 4-6 months or another year or more do anything different?

From a technical perspective, the volume in gold trading today was quite lackluster - another reason I referred to today's move higher as a melt up. It just seemed that the eager sellers were not there today more so than eager buyers were chasing prices higher. The result was a lack of offers over the market and that allowed prices to "melt" higher.

The market did run into some selling near $1,255. That is the bottom of the resistance zone noted on the chart. The top is close to the $1260 number but also extends a tad above that. If gold can push past that level and keeps its footing there, it would turn the chart friendly in my view and portend a test of $1,280. Above that would be psychological round number $1,300 where the "handle" would change.

I personally do not see what the reason might be for gold to reach that point given the apparent resurgence of deflationary views ( the last jobs number got the ball rolling which Goldman kicked down the hill today) but the key in my mind still remains the US Dollar. If it weakens further, gold will stay supported. If the Dollar rebounds and begins moving higher, look for selling to intensify in gold, especially at these levels.

We'll see what the market gives us.


  1. How many times has this played out?

    Step 1: Sell off the stocks and get the gloom and doom bears growling

    Step 2: Boost gold and silver so that GATA rocket launches appear everywhere

    Step 3: Make it seem like the beginning of a 1929 crash so guys like Hussman who have been wrong for 5 years can suddenly seem to be right

    Step 4: Holler out "This Is It, It Is Now!!!!"

    Step 5: Encourage virtually every bearish newsletter writer to start calling for "Mother of All Tops", "Sell Signal Heard Around The World", yada, yada, yada

    Step 6: Move key indexes underneath the 50-day moving average

    Step 7: U-Turn stocks right when it looks like the elevator shaft just opened up, and close stocks green the next day right back up over the 50-day

    Step 8: On the next major high, "Wash, Rinse, Repeat"...


    1. Mark and who is the puppet master that controls the entire DOW?

    2. True, Mark...until it eventually is not.
      People get used to a trend.
      The longer it gets, the more they think it will stay like that forever.
      And one day, they get caught on the wrong way and can't even close their losing positions.
      I hope you won't get caught :)
      Until then, enjoy the ride :)

  2. Dan:

    The robot checker does a great job screening out ( you guessed it ) robots.
    Now how do we, Twitter Style, restrict the reader comments on this to 140 ( or let us be generous 280 ) characters.

    Twitter was great learning experience for me ( a very wordy guy that I am) because it has forced me to only consider each word used as precious and to extract and publish the essence / main theme of my message.

  3. so Dan I think your a pretty smart guy and if you can't quite figure the how or the why of what's happening then I don't feel so dumb because I don't have a clue myself. I still gotta just sit and watch. I have a good cash pile but I can't figure how to use it right now.

    1. Northwind,
      Whatever you do with your money, be careful not to throw it in these holes in the ground somewhere in South America as I have done (it's still lying there as I didn't cut down the losses as the smart traders advise).
      Sorry, that's all the advice I could muster.

    2. cash pile : imho, don't try bottom picking with a big cash pile.
      Depending on your time horizon of investment, wait for a confirmation that at least the downtrend has stopped and the bulls are back. Then it will be easier to buy on some supports during corrections which will inevitably happen.
      On the short-time units such as daily, gold is already giving some possibilities to go long. But the weekly time unit is still quite threatening and going down. Conclusion : going long now can be done if you don't forget that you are playing against the trend of the longer time unit, and so you must remain extremely careful, and make sure you make a bit of profit quickly with close targets so that your trade can't make you lose money. That's why I took 1/3 profit at 1238 from a long trade at 1220, and raised my stop loss already back at 1220. There is too high a chance still that we meet those prices again, and I don't want to take any risks.

  4. Dan,
    I learn from you, but my observation is there is inflation in most every phase of living today. Why it is not measurable is better question but it is there.

  5. Have real interest rates gone negative yet?

  6. This will be the end of the beginning as Darryl Schoon gives his thoughts on financial and monetary crisis. Wondering if there's worst is still to come.

  7. Schoon is interesting and colorful guy; ask him for an audited 3 year track record; that is all from sparks; swb

  8. The velocity of money as presented by FRED is still declining which as I understand roughly 1/2 of the fed's printing isn't in circulation. It's staying with the banks, for a number of reasons.

  9. Dennis Gartman goes long in Gold for second time .


  10. So much for gold

    back to the firing squad

  11. 1255 resistance = top of the day.
    Nice one, Dan :) :)
    Let's see what happens with the ma50 daily that you are following closely.
    Positive thing, though, is the ma20 is reversing up.

  12. Thanks for all your work. The change is slow in coming, but they are coming. I posted this link on our blog site because it is one of the best articles I have seen on why things are happening the way they are.



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