Mark Leibovit: In truth we were focusing on interest rates and the bond market and we were actually starting to see some accumulation in the bonds pointing to higher prices and lower interest rates a couple of weeks before the Fed’s decision not to taper. So I think the smart money realized we weren’t going to see a continued rise in rates and we might go the other way. Which is frankly the way that market looks to me right now, which is contrary to what everybody is thinking.

 

I think in the near term we’re actually looking at the high side on the bond market here from a trading perspective. It could be a one month play, a three-month play, maybe it’s a big return we don’t realize that but right now we are positive on the bonds. We started to see the accumulation come in around the 26th – 27th of August which is really interesting and the bonds really bottomed August 22nd so we’ve been trending up since then in the bond market with rates ticking down during that period. So the technicals were warning way ahead time Mike, to answer your question. 

 

MC: This is a key point for people who are interested in interest rates, as what happens in the bond market translates into what people are going to pay for their mortgages and many other lending rates. 

 

ML: Maybe the action in the bond market any means the market is anticipating a much more aggressive Fed stimulation,  which is what a lot more people out there say is probably the case. Instead of QE at $85 billion, Bernanke may have to go to a $100 billion because things really haven’t changed. Unemployment is about same, the velocity of money hasn’t really increased, all these various fundamental reasons that the there hasn’t really been an impact. GDP has been pretty stable and hasn’t really increased the way they had anticipated, so yes there may be more aggressive stimulation coming on the part of the Fed, maybe that’s what the bond market telling us. It also could be a defensive play perhaps as smart players are thinking the equity markets need to correct here a little bit more which is my thinking, that we need little bit more or correction here. Not necessarily a bear market, I am not in that camp yet. 

 

So bonds might be forecasting that as well,  so anyway I am a buyer of bonds here on a trading basis and sometimes trades become more near-term plays, we will do what we always do, take it a day at a time.

 

MC: I was calling that May action a bottom in interest rates and a top in the bond market, have you seen anything that reverses that? 

 

ML: I think you’ve seen the big big high in the bond market, this could just be a technical recovery and a pullback in rates here. I’m not saying that we’re going to see new highs in the bonds just be a bounce after a big downtrend. What we are saying is that rates bottomed back earlier in the year, they started to uptick for a while and people thought that the big turn had come and rates are going to the moon & mortgages are going higher indefinitely. That may not be the case here. I guess there’s a real case, which would surprise everybody, that rates actually go to new lows. That things are really that bad out there economically that the Fed really shocks everybody. Those bond highs are so far from where we are right now its a little difficult to think we’re gonna go blasting through them. So I think its more of a bounce and we will fine tune it as we go forward. 

 

MC: What do you think of the Canadian Dollar & the US Dollar?

 

ML: The Canadian dollar is looking good, I have a technical signal I call a volume reversal and that flashed back on Sept 4th and again on September 16th. If you look at a big chart for last year, yes we’re in a downtrend and we haven’t broken that big downtrend line to say this is the beginning of a major move. But the volume is starting to come into the upside so I would say if the Canadian Dollar can get about that 97.50 area and stay there we may have seen a bigger bottom, at least to the end to the year. I’m not trading it per se but that’s telling me its going higher.

 

At the same time the US dollar has got negative volume in here and I think if you’re taking a three month or so time frame I think that it could break that a 80.50 area and get into the mid 70’s. In short I’m constructive on the I’m Canadian dollar and negative on the US dollar here looking at the volume patterns. 

 

MC: Are you standing aside Crude Oil right now?

 

Crude Oil is very difficult for me here, there are conflicting signals. I could give you some parameters, if we take out $112 on the high side then we go to $116 – $120. If we take out $102. on the low side and we’d be back down to the mid $90.’s.   

 

I guess if you push me to the wall know I still think we’re in a deflationary environment and that’s one of the reasons why rates will probably stay down for a while. That’s also probably why we see negative action in the commodities including the precious metals. The deflationary environment will put a little bit of a lid on the crude oil market with the variable of course of the Middle East and all those kind of things changing day to day.

 

Again if I am being pushed to the wall I might say crude will go lower rather than dramatically higher but I’m standing aside for now until things really clear up.

 

MC: One of the things  I look forward to on a weekly basis is Mark’s VR gold letter. Its a great read on gold and precious metals. He outlines stocks and specifically what he’s doing there as well. Mark I’m looking at the gold market right now and there’s a seasonal pattern that’s been pretty good as one of the indicators. Could you share with us what’s the seasonality aspect of gold right now?

 

ML: Well its a very general statement but we tend to bottom in the summer months and we tend to zig zag our way up into the following year, let’s call it February. Sometimes there is a shake out in October along with the equity markets if there’s a October event, but the general seasonal pattern tends to be up going forward here. It doesn’t say we are going to see a dramatic move, but that’s what the cycles say. That’s just one piece of the puzzle of course. 

 

MC: Do you find that there’s pressure on you as an analyst to be bullish on gold? 

 

ML: That’s an interesting question. I guess maybe in a certain sense because so many people have gotten themselves caught in the gold market and their trying to rationalize their position because obviously its been in a downtrend the last couple years.  You know I try to be as objective as I can and I think some of the comments I put in my newsletter talk about the downside and what the risks are and we have occasionally traded the short side. There is such compelling long-term fundamental reasons to own it, there are so many things that are wrong out there and we see so many smart people, smart countries like Russia and China accumulating the darn thing. You just feel like this is a bigger trend and at some point there will be a big turn and you want to keep your foot in the door. 

 

I guess I am more biased to the upside but you have to follow the technicals and trade accordingly. You don’t want to get in too early, you don’t want to catch that falling knife. Thats if you are trading, of course if you’ve got the coins in the vault the last 10 years all these comments are irrelevant. 

MC: Talking about about short term, what does Gold have to get above in order to signal that we are in that next leg up, or what does it have to drop below to signal the next leg down?

 

ML: My breakout points a little higher than most, its around the $1375 level which is the high we saw back on the 19th of the month. After shaking out down towards support at the $1300 level, and if the dollar remains weak which I think there is a good shot of here over the next couple to three months I think that should be positive. We haven’t broken out big time, if you want a big number that would be $1432. from August 28th. If you take that out I really think we’d be cooking with gas here and I think we’d have a shot at  $1500. plus. On a trading basis I am long Gold here, in the newsletter we are long GDX, GDXJ and the miners with the appropriate stops thinking we could trade higher. Whether we’re going to take out these numbers or not time will tell. If we are wrong we are stopped out. 

 

Sentiment is so negative here and we did hit some support in the $1300 area and some of the internal readings I see show a bit of an uptrend unfolding here. 

As far as the downside if we take out the $1275 -$1300. area from a practical point of view the risk is to those lows down at $1180. 

MC: Let me ask you about Silver. 

 

ML: We’ve got that the big big support down there at $18. I have to tell you that I am very disappointed in the action in Silver, volume just didn’t come in to the upside like I was hoping. The big breakout number is well above the market at $25.07 and the big number under the market will be first at $21.20 then that $18 low that we saw. 

 

If I was looking at the Silver market just by itself and I wasn’t influenced by Gold, inflation or anything else I would say this puppy is still in a downtrend. I think we are going to get a technical rally then we are going to see Silver under $18 in the months or years ahead. So I’m not super excited about it just yet, I think we need more confirmation. So either there is manipulation or its just not what everybody thinks it is in terms of a speculative play quite yet. If you push me to the wall I wouldn’t be surprised to see Silver at $15 in the next year. I am just not excited about playing the Silver market here at all. 

 

MC: What’s your view on in the stock market? 

 

ML: Very short term I am a bit bearish here. I think we could see a bit more of a correction but I don’t think the bull market is over yet and I think they’re going to try to take it higher. There is a theoretical projection on the S&P up to about 1800 or so and even the Canadian market, the TSX could trade up to 13000 – 13300. I think the trend is still there and what we are experiencing is the september/october indigestion which by coincidence is suddenly tied to the Debt crisis in the US and the Obamacare issue all coming in at this time. 

 

The short term signal is a little negative here, I was hoping for more of a correction maybe 10%.  I don’t know if we are going to get it, we monitoring it day to day but I think you’re gonna see that year end rally or that rally into next year and more likely into our new highs. My overall view is that you are going to probably see a big top either later this year or in early 2014.