Grandich's Blog

“We live in a fantasy world, a world of illusion. The great task in life is to find reality.” Iris Murdoch

Back in October, 2007, I became profoundly bearish in part because I felt the markets were living in a fantasy world that was set to crumble. Despite the worse financial crisis in the modern era that has left  poor Uncle Sam broken and on life support, I find the “Don’t Worry, Be Happy” crowd on Wall Street once again leading what’s left of sheep investors to the wool factory.

It doesn’t seem to matter that literally hundreds of millions of investors worldwide have suffered horrific harm that many can never fully recover from. The very so-called experts whose very job was to prevent the unthinkable from happening are once again wearing blinders and holding their noses while making their prognostications.

This is unlike any other time. To compare this to past recessions, markets, etc., is just plain foolish. It’s beyond extraordinary times. We’re in unchartered waters and have undertaken actions we’ve no real idea what the results are going to be. Yet, most of the financial services industry is right back where they left off, hoping their clientele consider what has taken place as just a bump in the road. The ultimate audacity of these “happy” people has been an ad run by Morgan Stanley/Smith Barney. They’re are urging investors to use their services as they “Rethink Wealth Strategies.” Why do you rethink something? Because your original thought failed! I’m truly a shame to be part of an industry that can’t even admit it was wrong at the absolute worse time. Shame on them!

With two major holidays in North America upcoming, window dressing into months end, and a key U.S. economic release at weeks-end, market moves over the next week may not represent the truer longer-term direction.

U.S. Stock Market – The $64,000 question is are we witnessing consolidation, a correction or market top? My technical work suggests we’ve not witnessed the birth of a new bull market. At best, the DJIA could get to 10,500 and we see several years of a market locked in a wide trading range of DJIA 6,500 – 10,500. The more likely scenario for me is we work our way back to the lows in 2010 and then flat line for the foreseeable future. But I also see a Giants/Jets Super bowl so I’m the ultimate dreamer.

Precious Metals – The $940 area on gold appears to be the “Battle of the Bulge”. Someone or group has seemingly drawn a line in the sand there and doesn’t want us bulls to get across it and stay there. Who could that be? Hmmm. Commercial traders on the Comex have clearly become more bullish the last two weeks based on the COT Report so who else is there? Hmmm. I’ve stated $940 is a key technical point and Friday’s trading clearly proved that. It took trading in the Access market to get gold below $940. Who on earth would be so aggressive on a summer Friday afternoon? Hmmm.

Base Metals – A trading range is the most likely scenario going forward and with most base metals at or near their upper range, I would withhold any new capital into base metals until they move closer to the bottom of their range.

Oil – I suggested a couple weeks ago that only very sophisticated traders could consider some bearish call spreads on oil and oil stocks on a belief that oil had reached its highs and could correct back to the 50s if we close below $68. I continue to like that idea.

U.S. Dollar – Despite one of the biggest oversold technical readings in years, the mortally wounded U.S. Dollar couldn’t even managed a countertrend rally back to the 83 area on the U.S. Dollar Index. Much of that oversold condition has been corrected so don’t be surprised now to see a resumption of the decline to below 78 on the Index. Poor Uncle Sam, he’s dead only no one has the decency to put him out of his misery. At least some of his former friends around the world are calling for him to be retired as their leader and allowed to die gracefully.

Opportunity is about to knock again in the Treasury market. If the 10yr. gets below 3.5%, I would add to or make new short positions in the 10 and 30-year.

Model Portfolio – I’ve updated my model portfolio and am making the following recommendations to it:

Sell IRC, FNX, HWP and NCU on Monday. While they all can go higher for the rest of the year, I continue to believe the huge gains achieved in them in a relative short period of time would be best served by going into the official win column. The portfolio has had tremendous gains and with expectations of tough times for several years to come, I believe these gains will put followers in a very good position to act when others won’t be able to (or can’t bring themselves to).

On the buy side, I continue to like:

NAK between $6 ¼ -7 NAK recommended on BNN
KMK up to $1.20
NSU (I bought shares this past week up to $1.25 U.S.)
TGB up to $2