“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
I thought you might find the following article of interest as it indicates this new event mostly unreported bodes very bearish for Treasuries.
From Marketwatch:
NEW YORK (MarketWatch) — Dresdner Kleinwort Securities has withdrawn from the Federal Reserve’s primary U.S. government security dealers, the U.S. central bank said Friday.
The change is net neutral in terms of numbers as a new dealer just came online, but in general this is a major net negative for the Treasury market.
Why? Because being a primary dealer is, in general a license to print money. You get to field customer orders for Treasuries and make your spread, and you have a privileged trading position with The Fed.
There’s only one fly in the ointment, and that is that the position comes with a requirement that you bid. This is distinct from most other nations where no such system exists, and essentially guarantees that there can never be a “failed” Treasury auction.
There was no reason cited for the withdrawal but one can surmise that the issue is that they’re stuffed to the gills with Treasuries and are finding it difficult or impossible to earn their spread, think there is a material safety risk in their participation (e.g. getting stuck long with a deteriorating position), or both.
Either way there is no possible means to read this as bullish. While the issue may be with their liquidity demands and thus not reflect severely on the Treasury market with the issuance that has gone on this year and will for the foreseeable future I wouldn’t take that bet.
The “Chosen” or “Protected” dealers will of course never withdraw but if the changes made to reporting of indirect bid are in fact concealing deteriorating demand and these folks have detected a potential problem in the offing we are fixing to get a severe spanking in our government debt issuance in the near future.
Beware.
thanks so much Peter on this beautiful Saturday morning for sharing your sage free advice.
This says it all. No truer words ……………..
“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.”
My thought about the two Japanese carrying the bonds is propheticaly telling America where the U.S. dollar is going and the debt of each American citizen. How sad that America has forgotten God.
I would like to pose two questions; according to one analyst the U S gov’t issued a directive to all embassies worldwide to buy massive amounts of local currencies, enough to last a year. In most cases the U S sent funds to enable the embassies to make the purchases,is it FEAR OF COLLAPSE OR WHAT ?
2. Do we need a graded forecast for the dollar demise, will it be life on the planet without people or tough times like the thirties. The infratructure of the U S will be there, and so will the desires and efforts of the people . So what degree of doom is forecast ?
Thanks for the market update.
Quoting from the avowed atheist Iris Murdoch, who categorically denied the existence of a personal deity and sought a secular means to satisfy human beings’ superstitious(religious) instincts! I’m stunned. You’re making progress!
Eddie One of the many talents of my friend PG is his ability to use the good parts found in everybody and everything. I’ve never known him to rule something or someone completely out without first seeking any benefit. Perhaps that’s why he succeeds where others fail.
Great update as always. I reside in Canada and follow the TSX more often than the US stock market. Any thoughts on the TSX outperforming the US stock market in the years to come?
Oh…almost forgot…is there any chance of providing a regular update on the Canadian stock market along with the US market. Would appreciate your take as would alot of your readers would, I would imagine.
Cheers from the rock
Peter, I am a loyal follower, I am looking for chances to add more PST and TBT too,
u said this in the model portfolio:
12/29/08 PST-NYSE $51.88 Buy $50.50 – $50.75
Is this a typo? as PST was never that low 50.5-50.75? it is still $56.53 right now, think u mean buy under $56???????
BTW, there are 3X bond bears now, TMV, would u buy these? as TBT is only 2x
There are indications from the past but it seems most people prefer to believe it won’t be that bad … when the Roman empire lost its steam because of too much debt thet city of Rome who had aquaducts and indoor plumbing systems and 1,000,000 citizens lost 950,000 of those citizens who needed to find ways to subsist in the country side … where a more agrarian lifestyle allowed them to eat etc.
Expect the worst because it is coming … a permanent degradation of lifestyle of a substantial narture.
the prophet
Couldn’t agree with you more Orgprophet. I suspect that any efforts to prepare, short of returning to an agricultural existence are futile. Guess I’m too lazy and spoiled rotten to return to the soil for an existence.
Imagine coming home one nite and telling the wife…”Honey, we just bought a 50 acre farm with our life’s savings, get packed.” What other realistic alternative is there if you follow current events?
Peter – I noticed that Bloomberg is carrying a story this weekend that “top currency analysts” are predicting the USD to rise big time by year end – they are predicting the USD strengthens against the Euro to 1.20 or about 17%. They cite the reason as the US economy will recover more quickly than Europe’s. There are few predicting the reverse in that the Euro/$ goes above 1.50. Also, Bloomberg is carrying another story that the Chinese reiterated a stable USD. Yet another story says that the worst is over for treasuries based on recent demand. As someone who sees hyper-inflation coming and a much weakened dollar, this talk is making me crazy. I think that the USD weakens going forward as do US treasuries. I think that you would agree with me. Right?
10 yr US T yield is at 3.48 today.
Peter, in your model portfolio what is your asset allocation in terms of asset class? Cash, Bullion, Precious metal stocks, energy stocks, etc…
Thanks
Robert
TIBETANS TO PROTEST: VOW ESCALATED PRESSURE ON CANADIAN COMPANIES MINING IN TIBET
Vancouver, BC –(MetalsNews, June 18 2009) — Tibetans and their supporters are planning protests in the lead-up to and during Vancouver-based Continental Minerals annual shareholders’ meeting on Wednesday, June 24th to intensify pressure on the company to cease mining operations in Chinese-occupied Tibet. The protests closely follow reports that Tibetans in Tibet have successfully stopped a Chinese mining company from moving forward with plans to drill at a sacred mountain in eastern Tibet. Tibet advocacy groups are calling on Continental Minerals to withdraw from Tibet until Tibetans are in a position to freely consent to the exploitation of their land and resources, an internationally recognized right denied to them under Chinese rule. They are also urging the Canadian Parliament to pass John McKay’s private member’s bill C-300, aimed at ensuring that Canadian extractive companies honour basic human rights and environmental standards when operating abroad. Tibetans and Tibet supporters from across British Columbia, and from Portland and Seattle, will converge in Vancouver for a rally on Saturday, June 20th. A protest is also planned at Continental Minerals annual shareholders’ meeting on June 24th. For more information, please visit: http://www.stopminingtibet.com
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Here is why.
TASEKO Great Gold Copper Mining Story