"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
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It has been several years since I last posted a chart of the Euro-Yen currency cross. Quite frankly, there has been no reason to monitor it in my opinion, not with the ongoing crisis that had engulfed the Euro Zone through most of this now fading year. However, with the strong move lower in the Yen of late, I have been examining this cross once again to see if it can provide us with any signals of upcoming events.
You will note its collapse back in 2008 - this was the year in which the big Japanese Yen Carry Trade was unwound as nearly every hedge fund on the planet was taking part in tthat particular trade. When it was time to unwind it during the panic, there was literally no one on the other side of all those trades involving the Carrry.
During that Carry trade season, as this currency cross moved higher, the price of commodities in general tended to track right along with it. Gold in particular was strongly influenced by this cross. As it moved higher, indicating the presence of a strong appetite for RISK, gold moved right along with it to the upside.
If, and this is a big IF, we begin to see this appetite return ( and remember, it first occured because hedge funds were looking for a way to obtain yield in a strongly low interest rate environment - Sounds familiar doesn't it?), then this cross should continue to move to the upside.
The chart shows a picture of a market that looks as if it is very close to ending the 4 year downtrend. If this cross can end this month of December above the 25% Fibonacci Retracement level shown on the chart, then I think we can begin to say with a great deal more confidence that the risk trades are going to return in a much larger way in 2013. I would be about 99% convinced of that if the cross does indeed move up past the 38.2% retracement level.
If this move is for real, and this cross continues higher, it should indicate that any deflation fears are behind the market and that the Central Banks have won their war against it ( at least for the time being). The cost of that victory however will be a repeat of what we saw leading up to the credit crisis of 2008 - namely, soaring commodity prices driven higher by huge speculative inflows from cash rich hedge funds chasing yield. Who among us can forget $150 crude oil back then?
Either way, gold will benefit strongly, and silver will as well, if this is becomes the trade of 2013.
Time will tell. As I like to say, The Central Banks had better be careful of what they wish for - they are liable to get it and more!
Apparently we now live in world in which lawmakers squabbling over how to avert tripping over an anthill instead of plunging down into the abyss gives reason to buy stocks while selling nearly anything that appears to be a safe haven.
I find it ironic to say the least that the market analysts continue to be so fixated on the non-sensically named, 'fiscal cliff', when the country is on track to have a national debt of over $20TRILLION by the end of the next 4 years and how many more trillions in unfunded liabilities. Economic growth is so anemic that the Fed will be conjuring the sum of $1.02TRILLION into existence over the course of the next year in order to buy mortgage backed securities and US Treasury obligations with the sole purpose of keeping interest rates ultra low so as to encourage additional debt. Yet everything is okay now because Obama and Boehner are talking and moving closer.
Oh well, it is what it is and there is not much sense in even looking at things in bewilderment anymore. The new era of "PRINT YOUR WAY TO PROSPERITY" apparently is now fully entrenched in this generation.
Just look at the following chart of lumber - this market is forecasting a big recovery in the housing market. Ultra low interest rates are apparently predicted to have their intended effect.
Here is the point in this; one cannot be successful as a trader by arguing with the markets. As I have said many times on these pages and elsewhere - they are going to do what they want to do no matter what you or I or anyone else thinks.
The problem that many of us who are long term gold bulls have is precisely that - we are "LONG TERM" thinkers. In the meantime, our markets today have become completely short-sighted forums. Hedge fund algorithms respond to short term signals and then take over. Remember, there is little thinking involved at this point in the markets - they are governed by computer algorithms and those things will either buy or sell based on the short term signals that they get. Get on the wrong side of them and your trading career will be a short lived one. Instead, learn to either get out of the way if a support or resistance level is taken out or be prepared to weather the storm that will then follow.
Take a look at the bond market. Here is the long bond chart. Notice how this safe haven has been thrown out in favor of equities as money flows out of bonds and back in stocks based on the assumption that the fiscal cliff deal, combined with the Fed's easy money policy, and other decent news from abroad has traders currently expecting a recovering economy. Thus, no need for safe havens and back into equities for gains.
This is precisely what the Fed intended when it announced its plans - it wants the stock markets moving higher to boost consumer confidence so that the consumer will take on new debt. Also, businesses love a stock market moving higher as it inflates the price of their shares.
The breakdown in the bond market has sent the price moving down towards the bottom of a 5 month or so trading range. It is interesting to say the least to see this move lower in bonds, particularly with the announced $40billion/month purchasing program, QE4, being just recently announced. That program however is not targeting bonds of this duration however. Still, if longer term rates continue to rise it is going to work crosswise to the Fed's purpose of deliberately pushing rates lower to not only spur more consumer spending but also to keep the US government's borrowing costs obscenely low.
Take a look at the Japanese Yen - another favorite SAFE HAVEN which has obviously severely fallen out of favor. Most of this is due to the new political situation in Japan in which traders expect a strongly negative Yen policy to be FORCEFULLY advocated by the new governing powers. Still, that in itself does not completely explain the weakness in the Yen. Just like the bonds are being discarded in favor of equities, the Yen is being discarded in favor of currencies with a closer relation to risk assets.
As you can see, the Yen is probing into a region of strong chart support. If it cannot muster much of a bounce from this region, chances are that we have seen a major long term top in the value of Yen against the US Dollar. We might even see the start up of the YEN CARRY TRADE in a large way just like we did prior to its collapse in the summer of 2008. One does not see the Yen Carry trade come into being during a period in which market participants are concerned about DEFLATION.
That is why this currency has my attention. Right now it is signaling that there is a move towards risk assets underway. so far this move has consisted almost entirely of equities. But if history is any guide and we see the risk appetite get whetted, look for the commodity complex to follow as money flows will move into the sector in a much larger way to start off the new year. We will see any evidence of this in the charts.
So far we are seeing it in the Lumber market, Cotton market, and the Copper market. We are also seeing it in the Livestock markets. The grains have not experienced it due to the expectations of a very large corn and bean crop out of South America but if these hedge fund computers go beserk in January, at some point we will see some of that money make its way into the grains.
We will keep a close eye on the CCI ( Continuous Commodity Index ) as a forewarner of such an occurence. Today it is sinking lower but if this risk appetite is real, it will find support sooner rather than later. In this sort of environment, it will be tough to be short of anything that looks like a commodity.
We will just have to wait and see what the New Year brings us and then deal with it accordingly.
As for gold, well, what more can be said than it failed to attract the usual strong buyers that have formerly been coming in between $1690 - $1680. They stepped back and as a result, there was an enormous air pocket below the market without any bids of size. Down went the market with locals pushing it along further until they found the sell stops which they did in a big way.
Volume today has been absolutely enormous, especially during a time period in which liquidity begins drying up and volume normally shrinks. That environment allowed the bears to finally reach those downside stops that they have been salivating after. The question now becomes whether or not Asia comes in this evening and begins scooping up gold.
If we truly are seeing a shift towards inflation concerns ( bond market breakdown) gold will stabilize sooner rather than later. I am still watching the HUI for any hint of this but so far, at least in today's session, nothing doing.
Gold has attracted some buying here later in the afternoon and is bouncing off its 200 day moving average. That level seems to be a pretty good support region as it also happens to coincide with the 50% Fibonacci Retracement level from the October top near $1800 and the May low near $1530. Bulls will not want to see this level violated without a quick, intraday recovery occuring as it would mean the market will likely drop to $1640 before any serious buying would emerge.
Even with all this flight away from safe havens today, it does seem to me like this downside move in gold has been overdone a bit.
One month ago, the HUI managed a nice bounce off of an important chart level of support coming in near the 440 level. The following two weeks it then respected that support with the market finding buyers on any approach towards the region. Last week that all changed with those former buyers apparently on strike as they did not show up in sufficient size to offset the selling pressure on the sector. The result was a downside close below 440 last week. This week the market looked as if it was going to finally get something going to the upside on Wednesday but by the close of the week it appears that those buyers on the back of the QE4 news had wavering convictions.
So where are we for now? While the market did hold above the previous week's low it still did not manage to regain that former support level of 440 as it ended the week at 437. Next week therefore will be critical for the sector. If it cannot attract enough value based buying to take the index back above 440 to end the week, it is likely to drift lower to close out the year with the very real possibility that we might see a move to 420. That would basically move the index down to revisit the downsloping trendline, which the index did manage to breach this summer. Ideally, if it were to move this low, the index would then bounce from this line (near 420) and go on to recapture 440. That would be a pretty reliable sign that the selling is exhausted.
For this index to have any chance of actually improving the technical posture, it would need to push above 460 to end a week.
One has to hope, for the sake of the long suffering share bulls, that 420 can stem the bleeding if last week's low does give way.
The horrible news out of Connecticut this morning should help us all to put things in their proper perspective. It is not possible to find the words to describe the anquish, pain, despair, anger, grief and desolation that has now engulfed the families of all those impacted by the contemptible actions of a worthless maggot whose warped mind somehow convinced himself that the methodical slaughter of innocent human beings, especially little children, was nothing of consequence.
"...Whoever causes one of these little ones who believe in Me to stumble, it is better for him that a heavy millstone be hung around his neck, and that he be drowned in the depth of the sea. Woe to the world because of its stumbling blocks! For it is inevitable that stumbling blocks come; but woe to that man through whom the stumbling block comes". (Matt 18: 6-7).
Just the other day it was another senseless shooting in an Oregon mall. Not all that long ago we remember the terrible shooting at the movie theater in Aurora, Colorado.
These tragedies remind us of the brevity and uncertainty of life and of our own mortality. They are also a sad testimony to the decay in our culture and the decline of our nation. We are witnessing a breakdown in ethics, virtue, and morality, as well as the loss of the sense of righteousess versus sin, and the blurring of the lines between good and evil that has marked the fall of every great civilization throughout history.
Sadly, there is NOTHING politicians can do to deal with the moral rot that has now infected this land. Changing the human heart lies solely in the province of the Almighty. But as more and more He is banished to the outskirts of society, as His laws are treated with contempt if not indifference or even mockery, what can one expect? Human nature, left to itself is no different than a dead fish - it cannot swim upstream but always follows the path of least resistance and that path always tends towards corruption.
I fear for our nation's future in a way I have never feared for it before at any point in my life. What area of our society has not been coarsened? Whether it is in the financial realm where far too often these days it seems we witness fraud, decadence, vice, etc. or in the culture, in its music, which seems to become more degraded with the passing of each year, or in so many of its movies which empitomize the empty souls of an increasingly larger and larger share of our population. Everywhere one looks it seems as if the nation is spiraling downward.
"Righteousness exalts a nation but sin is a disgrace to any people" says the Scripture. Nothing further can be added to that except this:
"The law of the Lord is perfect, restoring the soul; the testimony of the Lord is sure, making wise the simple. The precepts of the Lord are right, rejoicing the heart; the commandment of the Lord is pure, enlightening the eyes. The fear of the Lord is clean, enduring forever; the judgments of the Lord are true; they are righteous altogether.; they are MORE DESIRABLE THAN GOLD, YEAH, THAN MUCH FINE GOLD; sweeter also than the honey and the drippings of the honeycomb. Moreover, by them Thy servant is warned, in keeping them there is great reward." (Psalm 19: 7-9).
Please keep these things in mind as we are reminded that it was at this season the Son of God came into this earth, to suffer and to die in the place of guilty sinners and to thereby offer His own spotless life as the REDEMPTION for all those who believe in Him. At times like this we are made mindful of the fact that we are all sinners and only but for the grace of God, there is no level to which we all might stoop were we left to ourselves.
Sadly, one wonders if that is not EXACTLY what the MOST HIGH is indeed doing to this nation. As He turns HIS BACK on us, in response to the nation turning its back on Him, I see no hope for any restoration of this once great nation's future.
Watching the late session price action in the Emini S&P 500 is quite disconcerting if you were expecting the market to greet the Fed's announcement of another $45 BILLION/Month in Bond purchases with a hearty round of wild-eyed buying.
It sure looked like that is exactly what it did when the news came out but from that point onward, it has been SELLING and not buying which is dominating. I am not sure whether this is a classic case of "BUY THE RUMOR; SELL THE FACT" since it was no secret that the Fed was going to announce a replacement program for the expired Operation Twist and since the number had already been in the market for the previous couple of weeks.
The bulls had better hope that is all that this is (BUY THE RUMOR; SELL THE FACT) because if it is not, and IF this is the market basically yawning in the face of what amounts to a relatively open-ended HALF A TRILLION in Dollar creation over the next year from this round of QE4, then we are perhaps witnessing something that should be sending tremors into the FOMC.
Keep in mind that each successive burst of QE has had less and less of an impact on the markets and particularly on the economy in general as those rounds have made their impact. One has to wonder if this is the case.
Again, it is too early to speak too dogmatically about any bearish reaction but the bulls had better get a strong close in the S&P in tomorrow's session and especially on Friday of this week or we are going to see a good sized round of profit taking by longs emerging, especially with the end of the year fast approaching and the window to realize any paper profits under this year's lower tax rates rapidly closing.
By the way, gold and silver are both undergoing some tremendous selling pressure in Asian trading as I write this. It seems to me there is a similar reaction in the metals to the reaction in the equities on the QE 4 announcement.
When the sum of another TRILLION DOLLARS (combined QE3 and QE4) over the next year (it will last at least that long) is announced and gold cannot take out its overhead resistance, that is all the excuse that some needed to head for the exits and take what profits they had from any longs put on ahead of the FOMC release or at the very least, cut short their paper losses on a trade gone sour.
I have to wonder also if some of the same suspects that had been beating gold down in the aftermarket hours early last week are surfacing once again to try a repeat of that same stunt. We will have to see whether or not that selling is met with improved physical market takeoff.
Gold is thus far responding to news coming out of the FOMC meeting as could have been expected. It is moving higher as traders build in a more inflationary scenario due to the addition (not at all unexpected by now) of a $45 billion/month Treasury purchase program by the Fed to replace the expired Operation Twist.
Again, this is old news as most pundits were already anticipating exactly this amount for last few weeks now. My guess is that the FOMC was afraid of disappointing the markets with anything lower as the last thing they want heading into the end of the year is a disappearing equity market, which is exactly what they would have gotten had they done anything less than $40 billion.
With the $40 billion in MBS buying from QE3 and this $45 billion in what amounts to QE4, the Fed has now committed to $85 billion/month worth of dollar creation out of thin air for the foreseeable future. Annualized that comes out to $1.02 TRILLION in magic money. Any wonder why the Dollar is dropping today? The only marvel is that the thing has not disappeared into the abyss already. Were it not for the fact that the Japanese are planning on adulterating their Yen into the nether regions and that the Southern Euro Zone is a basket case, the Dollar would have already dropped through 76 on the charts on its way to the all time low.
Either way, what we are getting in the way of cheers for a further continuation of this monetary madness from our Central Bank reminds me of a scene from the old Sci-Fi "Logan's Run". In that mid-seventies movie, there is a scene in which all those whose time is up and whose palm red light is flashing (meaning that they are scheduled for ascension) cheer as their bodies float upwards into the termination zone where they explode and fizzle away into nothingness.
It sure seems to me like Wall Street is cheering while the collective red lights of the palms of the US citizenry are blinking. Make no mistake about it - it is the average citizen who is going to pay the price of this folly in banking madness as the hedge fund crowd will now have a green light to further plow money into "risk assets". That means higher prices lie ahead as the Dollar is further eroded by its keepers.
The only thing that really matters however to our monetary lords is that the equities market will continue to take the path of least resistance and that means higher. Don't forget the level of the US stock markets are now national security issues to our central planners meaning that they will not permit bear markets, ever, even if it means creating trillions in funny money and making it almost impossible for seniors and those living on fixed income investments to earn a decent rate of return on their life's savings. What the Fed believes it can do, and thus far one would have to agree that it has, is to permanently prevent BEAR MARKETS in equities. Mourn for what is left of "free market capitalism". It no longer exists having died in 2008 when the monetary madness sprang into being.
Yes, welcome to the investing generation, forced by the Fed to shove its money into the stock market even if there are some who do not want anything at all risky and seek only conservative investments. Finding such investment vehicles in such an environment is a challenge to all but those who have the good fortune to be able to qualify for products offered only to those whose wealth meets a certain criteria. The rest of them are screwed. Love those high yields on one year CD's at the bank? Glad to hear it because that is all you are going to get for at least another full year and beyond!
The only thing keeping the commodity sector as a whole from powering sharply higher is the unpleasant fact that the economy is stagnant and going nowhere in a hurry. The moribond employment situation and small business fears over the future are preventing it from gaining any significant traction. All the while a rapacious central government continues to swallow up more and more capital in order to sustain itself. Just today the news was reported that the Federal Budget deficit for the month of November was an amazing $172.11 BILION. Try annualizing that and you come up with a number over $2 TRILLION. No worries though; everything is just fine as Ben and da boyz have spiked the punch bowl once again.
I have a big question for Bernanke and company - today they came out and stated that they have a target rate of 6.5% UNEMPLOYMENT that will give them a reason to change course on the interest rate front. Here is the question:
Does that mean if the size of the labor force continues to shrink, bringing the unemployment rate lower without necessarily translating to any true gains in the overall employment picture, that the Fed will raise interest rates if the unemployment number magically drops to 6.5%? What data are they going to use? Keep in mind that the labor force here in the US continues to shrink as more and more people simply have given up looking for a job. You get enough of this long enough and before long, the unemployment rate magically moves lower.
The other thing that Beranke and company stated was that they had a target inflation rate of being below 2.5% for "one to two years ahead" to maintain the current near zero interest rate policy. Which numbers are they going to use (we all know the answer to this already), the doctored and useless government's CPI or something more realistic with an actual connection to reality?
In my opinion everyone on that FOMC Committee should be unceremonially canned with the exception of Richmond Fed Governor Lacker who is in opposition to this idiocy of endless money creation. As I have stated many times before, if creating lasting prosperity was as easy as printing money into existence out of thin air, other nations, kingdoms or empires would have figured it out years before we did. History however has a way of clarifying such things and its verdict will be devastating to this band of elitists at the Fed.
Back to gold - the metal moved up on the news but could not clear resistance at the 50 day moving average near $1728. Until it does, rallies will be sold. If it can power through that level, some of the funds who had been shorting the market will cover. There will also be new money flows coming in from the momentum crowd that will let the market make a run at $1740. It will have to take that out before it can test $1760.
Downside support should be firm now in gold since the Fed is basically attempting to foster an inflationary environment and stave off the deflationary fallout from the excessive debt levels that still plague this economy.
As we enter further into the holiday period, look for liquidity at the Comex to begin shrinking as players square positions and take off for the holidays. We might get some pretty wild price swings as a result. Just be forewarned.
Next year promises to be interesting to say the least with over $1 TRILLION in freshly minted money looking for a home.
The mining shares are doing the same thing they did way back when the first round of QE was introduced in late 2008 - they are outperforming the metal to the upside. The HUI is currently up more than 3% as I type these comments having cleared not only resistance at 440, but also at 450. It has improved its poor chart by so doing but has yet to clear a big batch of overhead selling resistance that will come in near 461 - 464. It will take a weekly push through that level to confirm a solid bottom. For now, it appears that the floor is in with the most likely outcome moving forward being a range trade unless we get some more nervous shorts seeking to cover in the mining sector.
One last chart I will leave you with - if you think the Fed is debauching our own Dollar by design, you are of course correct. As bad as that it, is apparently is nothing compared to what the Japanese are doing to their currency. Take a look at this chart of Gold priced in Yen terms. It is closing in on a lifetime high. Kiss Japan goodbye - its aging population and failure to honestly address its fiscal excesses have taken their inevitable toll on its currency. The standard of living for the poor citizenry there will continue to decline, as of course will that of the average US citizen here. I will caution the readers with a bit of history - in such environments DEMAGOGUES always arise and find a captive audience more than ready to accept their rantings.
Silver continues to mirror the CCI with traders unsure of what direction to take things next.
