Greece is Fixed so Let's Buy Everything

Greece managed to secure itself a bailout which takes the problem off the radar screen of hedge fund managers for the time being so it was back to "RISK ON" in a big way in today's trading session. Between China's 50 basis point lowering of its Reserve Ratio Requirements for its banks yesterday and today's money printing to throw at the Greek debt problem, it was "Happy Days are Here Again" as the equity market perma bulls wasted no time in bidding the price of stocks higher while the inflation camp decided to buy nearly anything that moved on the commodity exchanges with the grains being the notable exception to the party.

This buying resulted in copper and silver both EXPLODING higher while gold managed to finally take out both the $1740 level and the $1750 level in one fell swoop. Resistance - forgettaboutit! It evaporated with this rush of hot money into the markets again. This is money that has been sitting on the sideline waiting to see how the European sovereign debt situation was going to unfold. Once that particular stumbling block was removed out of the way, the path of least resistance in this pitifully low yield interest rate environment was higher for risk assets.

Notice on the chart that gold has finally managed that CLOSE over $1750 which it needed to set up a run towards $1780. The trick for the yellow metal will be to see if it can HOLD TWO CONSECUTIVE CLOSES over this important technical resistance level. If we see additional follow through buying in tomorrow's session, gold will go on to test the upper boundary of the zone noted on the chart as "Heavy Resistance Zone". That upper boundary is $1780 where the price capping bullion banks will be ready to attempt to stem the advance. If they fail there, we are going to see a handle of "18" in front of the gold price relatively quickly.

Downside chart support is initially near $1740 followed by $1720.

Let's also look at silver which finally managed to CLOSE ABOVE $34. This is the first signal that the consolidation pattern of the last few weeks is close to resolving itself. If silver can take out the initial resistance level noted on the chart, it will very  likely embark on a visit of significant resistance centered between $35.00 - $35.35. I would like to see a close above this level, preferably above $35.50 to indicate that silver is headed to $40.

Downside chart support is at the bottom of the recent consolidation pattern near $33 which is where buyers have been busy accumulating the metal for the last three weeks.

Here is a picture of the fallout coming from this nearly unlimited money printing that seems to be the order of the day (issuing new debt to pay off old debt) - look at what is happening to longer term interest rates. While still low by historical standards, the yield on the 10 year note is now above 2% and moving towards 2.10, the upper boundary of the recent trading range. If interest rates were to break out strongly to the upside, the multiplier effect on the gargantuan amount of US debt would begin having a keen impact on the US fiscal condition. The US monetary authorities want to have their cake and eat it too - by that I mean that they want to be able to artificially keep short term interest rates at ridiculously low levels to encourage consumer borrowing as well as keeping the cost of servicing the US debt load low.

However, if the Central Banks, particularly of the West, are going to keep this insane game of kicking the can down the road by basically adulterating their currencies, then those who lend their respective governments the money are going to demand higher rates of interest to compensate them for the fallout of all this, namely increasing risks of inflation originating from the debauchment of their currencies.

Crude oil has firmly broken out to the upside and is trading well above the key $105 level. Gasoline is going beserk to the upside. It looks like we are going to see $4.50 gasoline in most cities across the nation by Memorial Day and possibly $5.00 at the rate which it is soaring.

Gasoline is at a key crossroads on the long term montly chart. If it pushes through this level near $3.08 - $3.10, odds will then favor it running to $3.40 which will the last level of chart resistance before it revisits its all time high. The American consumer is now reaping the combination of Obama's stupidly inept energy policies along with the fallout from the Federal Reserve's near zero interest rate policy with a wild card kicker of Iranian tensions. What has me extremely concerned is that we are NO WHERE NEAR the PEAK DEMAND period here in the US which kicks in as we near summer and the driving season.

At some point, even the Johnnie one-note equity bulls are going to have to consider the fact that their beloved liquidity dumps are poisoning the well from which they are drinking. Energy prices that soar are a TAX on the entire economy and work to depress growth and confidence and no amount of spin from the
"BUY STOCKS ALL THE TIME" financial analysts that infect our financial media is going to be able to prevent that.

China to the Rescue Once Again

While the markets are closed for the President's Day holiday here in the US, the futures are open for trading in some markets. Those markets are reacing to overnight news that China is lowering the Reserve Ratio Requirement for its banks after having spent most of last year raising it.

Market watchers are interpreting this as a loosening of the monetary strings in China and reading it as bullish for the commodity sector as a whole while the equity guys (who never need a reason to be wildly bullish) are using the news to goose the S&P futures higher.

Risk aversion is getting tossed out on the news with the Dollar getting whacked lower, gold and silver moving higher and the long bond getting sold off and moving closer to the bottom of that multi-week trading range.

At the rate these guys are chasing stocks higher, we are going to see the S&P 500 over 1400 before Spring arrives. Ah yes, nothing like more liquidity to take care of everything. I really think we need to throw out all the old economics textbooks and rewrite them. Matter of fact, it would be a very short book containing only 4 words that one would need to know to become a world class economist: "LIQUIDITY CAN FIX ANYTHING".

Debt good; Savings bad.

Next question.

Gold has resistance that can be seen on the price chart near the $1740 level. That has held the metal in check for last few days. It ran to this level overnight but could not penetrate it so let's see if it can push through Monday evening here in the US or Tuesday morning. If so, it will set up a run towards $1750 which is where the next test will be. Bulls MUST clear that level and HOLD it above there to set up the critical challenge of the next resistance zone.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/7rc862u

S&P 500 once again bumping up against 1350

The 1350 level in the S&P 500 is becoming a rather significant resistance level on the technical price chart as the market has rallied to this point several times over the last two weeks and stalled out. Bulls are counting on further liquidity blasts from the Central Banks to provide them with enough ammunition to dislodge the selling originating at this zone.

I find it rather odd to see how the broader market is apparently ignoring the surge in gasoline prices as if soaring energy costs are not going to have the least impact on consumer spending  in terms of disposable income or transporation costs across the entire economy.

Central Banks are attempting to ward off deflationary pressures from issues arising from massive amounts of debt in the system so what we have here is a battle between the forces of liquidity and those of debt. From what I can see of the price chart, the liquidity forces are apparently able to trump everything. It also goes to show you how utterly disconnected the stock market is from the reality of most citizens.

This rally in the equities is what is pulling silver and gold off of their lows in today's session. It is also pulling copper off its worst levels as well. If the Fed wants inflation, they are going to get it. A strong upside performance in the S&P will guarantee that the metals all begin moving higher, whether or not any fundamentals justify the move or not as hedge funds will bid up everything tangible and send those prices soaring.

The  Fed had better be careful however that their gambit does not allow the long bond to drop below the bottom of its nearly 4 month old trading range. That would be a No-No for Uncle Sam for if long term borrowing costs were to begin rising, the cost of servicing this idiotic mountain of debt that has been heaped upon our nation will becoming unbearable. No doubt orders will go out to Goldman and Morgan to buy bonds if it looks like the bond technical price chart might be breaking down.

General Comments

Gold is holding firm in today's session but has retreated from its best overnight levels. You will notice that within the larger time frame on the chart, gold has made a nice run to stiff resistance beginning near $1760 and then retreated. Buying on the downside coming in near the support level marked (close to $1720) has been extremely consistent over the last two weeks however. The result has been a constricting triangle forming which is a consolidation pattern.

Bulls cannot take it through resistance at this point but neither can the bears break it down. I happen to believe that the reason the latter cannot accomplish their intent is the reality of gold strength across a variety of other world currencies. Bluntly - the price of gold is holding in terms of all of the major currencies as savvy investors/traders are well aware of what the monetary authorities are doing to their respective currencies in order to keep the game of musical chairs, aka - the global economy - going.

Central Bankers and monetary authorities are doing what they were born to do, namely, destroy the value of their nation's currencies to benefit the big international banks within their midst. Gold is all too well aware of that and is doing what it always has done and always will do - function as a currency of last resort and a refuge from their depradations.

What we want to watch for in gold is a breach of this triangular pattern with a close preferably above the $1750 level to kick this thing up into that heavy resistance zone noted. Obviously gold bulls would want to see dips below $1720 meet with strong buying and an almost immediate return back above that heavy red line shown.

As another quick note of reference, check out the price of Gold compared to the price of the US long bond in the following chart. Note that going back to early 2009, when QEI was still in force, gold was the asset that investors favored in relation to the US bond market. After a brief dip lower in this ratio during the middle of 2010, when investors were fearful that another round of QE was not going to be forthcoming, the ratio returned in favor of gold until it peaked just after QEII expired and the Fed had nothing really significant to replace it. From that point on, bonds have been a better investment than gold.

That might possibly be changing at this point as interest rates crawl along at abnormally low levels and investors become more fearful of currency debauchment. The downtrend line in this ratio has been broken but has a bit more work to do in order to look more convincing. A move through the heavy blue line shown would do the trick.

At some point in this now multi-year game of constant liquidity doses and other quick fixes which solve nothing, investors will begin to dump bonds and move much more strongly towards gold. That will signal the beginning of the end game as the ratio will be flashing the loss of confidence in the political and monetary authorities to deal with this massive papering-over of the problem.

Here we go Again...

We had strong downgrades all across Europe and a total jettisoning of risk trades in Tuesday's session with the result that we had a sinking Euro and a surging Dollar. Overnight we learn that now China promises to join the money rain parade and pour its wealth into bailing out Europe to protect its export markets.

What do we get as a result of this? A complete reversal of the risk aversion trades with all the money that came pouring out of the markets Tuesday now turning around and flooding right back in again.

Up goes gold and silver after both sold off on Tuesday and up goes the Euro and down goes the US Dollar. Presto chango; wave that magic wand and all the woes of the financial world have just disappeared.

The promise of more bond purchases by China of European debt has sent the S&P 500 futures through very significant chart resistance at the 1350 in the Asian trading session. It looks like the drunken binge continues with no fears, no worries in sight now that China has become the lender of last resort. Apparently what the Central Banks could not do, China has.

I wonder how history is going to record all of this madness. I just hope we all live long enough to be able to tell what it was like living through it and watching it unfold day by day and week by week. No one from the future will likely otherwise believe that a generation of humanity was this ignorant. On the other hand, maybe it is those of us who actually believe DEBT is generally something to be avoided unless it is carefully managed and respected who are the fools here and those who just shrug it off as nothing to be concerned about are the truly wise among us.

Up is now down; down is now up; light is now darkness and darkness is now light; bitter is now sweet and sweet is now bitter. Welcome to the brave new world in which prosperity can be created by piling up massive loads of debt without the slightest bit of concern for how that debt will ever be repaid.

Gold Shares continue to lose ground against gold itself

The gold mining shares, as evidenced by the HUI, continue to lose ground against the price of gold bullion itself. They are approaching the three year low in this ratio that was made 3 weeks ago. One would think that they would find some buying support soon for valuation reasons.

The hedge funds continue to ply that ratio spread trade which they will do until they can no longer make any profits off of it. Maybe we are seeing a bit of a delayed reaction to news that the Obama budget contains a hefty 5% royalty tax on their revenues. That budget has zero chance of passing in its current form but it could be that the mere mention of such a thing has gotten some owners of these shares nervous especially if those risk aversion trades come back in vogue.

Once again it comes back to the desire on the part of investors to gain LEVERAGED exposure to the gold price. If they can do this by using the ETF and not have to concern themselves with risks of a political nature such as what is being attempted by the current Administration, they why bother buying these things at all is the thinking that is currently in vogue among the larger part of the speculative community at this point.

The mining shares are also now seriously underperforming the broader stock market continuing a pattern that has emerged since last summer.

Some of the readers wrote to expres their desire to see a tax of this sort hit the mining sector. My only response to that is very simple - a royalty tax comes right off the bottom line of any company involved in mining here in the US. The lower the net profits of a company, the more it impacts their share price. Be careful what you wish for if you hold these shares in your portfolio and take the side of the Administration that this is a good and necessary tax. That is your portfolio and your wealth that is going to take the hit. If you are willing to lose your money over it - fine and dandy - but then do not complain and bitch when you see your portfolio going nowhere or actually moving in the wrong direction.

Hedge funds are not going to acquire mining company shares out of the supposed "goodness" of their hearts. They will only buy them if they think that they can make a profit on them and that necessitates continued strong and rising profits from these companies. Anything that might impact that will be part of the equation in calculating whether or not they meet these criteria.

In Related matters...

This story illustrates something so eggregious that I felt compelled to post it so as to let the readers know what the fallout from this meddling Administration's policies is across this country.

We apparently now have Kathleen Sebelius's Department of Health and Human Services feeling that they have the right to POLICE your childrens' lunch boxes.

Take a look at the following story and tell me that we are not losing our freedoms in this nation. This is what Obamacare has wrought and what we can expect to see more of should Americans be foolish enough to empower this group of control freaks for another 4 years come this November.

The next thing you know these people will be telling us when we can wipe our rear ends and with what kind of paper.

Make no mistake whatsoever about it - Obamacare has nothing to do with Health Care - it is all about government control over your life. From its trampling on the First Admendment rights of Catholics here in the US to this "policing of lunch boxes", we are witnessing only a small foretaste of what is going to happen in this country if they are not defeated at the ballot box.


Carolina Journal News Reports

Preschooler’s Homemade Lunch Replaced with Cafeteria “Nuggets”

State agent inspects sack lunches, forces preschoolers to purchase cafeteria food instead

By Sara Burrows

Feb. 14th, 2012

RAEFORD — A preschooler at West Hoke Elementary School ate three chicken nuggets for lunch Jan. 30 because a state employee told her the lunch her mother packed was not nutritious.

The girl’s turkey and cheese sandwich, banana, potato chips, and apple juice did not meet U.S. Department of Agriculture guidelines, according to the interpretation of the agent who was inspecting all lunch boxes in her More at Four classroom that day.

http://www.carolinajournal.com/exclusives/display_exclusive.html?id=8762