Daily Updates

“The junior market just got way oversold. We saw things come down to levels that their projects were just worth so much more than the current market cap…The problems that I’m hearing from the corporate side, is the concern on these companies now is that they’ll get taken out before they get to a valuation that’s really worthy.”

The New Year rally in global stock markets saw the S&P gain four per cent in its best January since 1994. But 10 and 19 per cent gains respectively for gold and silver comfortably beat equities hands down.

Silver rose above $34 an ounce in Asian trading yesterday while gold is above $1,750 again. The bulls are talking about how long it takes to exceed the $48 and $1,923 highs set last year.

Dubai Souk

The talk of the Dubai Old Gold Souk is that silver will hit $58-60 an ounce by September (click here), though it is still hard to find anybody prepared to stick their neck out beyond $2,000 an ounce for gold, albeit possibly within a couple of months.

Global equities have rallied in thin trading on the back of economic data that is already history. When the statistics for January come out they will likely confirm a global slowdown in trade and exports. The eurozone crisis and particularly cold winter weather will see to that.

Market traders have also become bored stiff with the Greek debt crisis. However, it still threatens to drop another Lehman on to bullish complacency that flies in the face of the reality of a recession in Europe and slowdown in Asia.

Manufacturers now reporting increased output may find themselves with goods left in their yards this month, and anecdotal evidence of further redundancies suggests unemployment is still moving in the wrong direction.

Will stock markets soon be plunging from their current six-month highs? The notion of an economic recovery is surely an obvious illusion when we know that the world’s largest economic bloc is already in the midst of a double-dip recession.

Greek gifts

Boring as it is the interminable negotiations of the Greek crisis are not going well. They should have wrapped up almost a week ago. Never trust Greeks bearing gifts as the Trojans learnt to their cost.

That probably means the precious metal price surge is going to reverse alongside a re-run of the 2008 global financial crisis, unless the ECB can pump so much money into its banking system that a Greek default can be easily absorbed and then all that liquidity will push up gold and silver to even higher levels.

For precious metal investors this could be the annus mirabilis when everybody piles into hard assets because they are running scared from paper.

 

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group. 

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner inwww.ameinfo.com, which later became the Middle East’s leading English language business news website.

1. First and foremost, it should represent a year of deleveraging, i.e. deflation.
 
2. Key Rationales why we believe US growth disappoints:

Debt overhang-approaching 100% debt/gdp
Export headwind
Fiscal stimulus deceleration
Falling Consumer Real Wealth
Limits of monetary policy
 
3. Thinking linkages it doesn’t look pretty

Flat US demand pressures China model
Slowing Chinese growth hurts German exports (ditto US growth)
Eurozone recession pressures Chinese exports
Eurozone banking crisis hurts Asian trade finance
Slower European and emerging market demand hurt US exports

 

Why We Don’t Swing for the Fence Trading Gold

 

Anatomy-of-a-gold-trade-e1328062642757

Although we’d be thrilled to be able to brag a year from now that a trade we recently advised in Natural Gas futures caught a bear-market low within two cents, we’re not prepared to bet the farm on it. Similarly, a winning gold trade that got stopped out earlier in the week may have caused us to miss a moon shot, but we’re not about to look back. For when all is said and done, we’d rather not be prayerfully holding our breath or losing sleep as gold in particular swoons, leaps, caroms and careens its way higher. Aggravation and stress aside, on a simple risk:reward basis there is never justification for buy-and-hold speculation. Yeah, we’ve heard the story about the commodity whiz who made $50 million riding a brahma bull in soybeans/cattle futures/crude oil all the way to the top. But the guy couldn’t possibly have made all of that money without experiencing devastating setbacks along the way. And he could not have kept doubling down on subsequent trades without giving it all back. In our book, it is slowly but surely that wins the race, and the massage we preach to subscribers and students who take the Hidden Pivot Course is to never risk more than $1 to make $3. This applies along the entire route of a trade, from entry to exit. Moreover, we recommend that positions be constantly  “worked” so that s trader’s hard-won gains will not be entirely and constantly at risk.

How does that advice relate to the chart above?  To begin with, when we advised buying eight gold contracts in two places below current levels, we “knew” exactly how much we stood to make on the trade because our proprietary technical indicators said a 1771.50 target would be reached come hell or high water. We took partial profits when the futures rose as anticipated, but we reluctantly kissed the last piece of our position goodbye when it tripped a stop-loss during a particularly vicious after-hours swoon. Although our confidence in the 1771.50 target had verged on certitude – still verges on certitude — we were not about to let ego and greed supersede the boring math of sound risk management. And that is why we exited the last 25% of our long position when the futures did their fake kamikaze dive.  Now, although it could prove difficult to climb back aboard (as we intend to do), the hard work and diligence that may be required is preferable to seeing our profits gyrate wildly from day to day, and possibly evaporating entirely if price action turns even more rabid.

Step-Swoon-Step

While we’re on the subject of managing risk, there is one more elemental point to be gleaned from the chart. Notice that April Gold made a series of  marginal new highs over the last week or so. If one were long at the first of those highs – 1734.50 on January 26 – he’d have made an additional $8.50 per ounce (on a 100-oz. contract) by holding the position till 1743.00 was achieved the next day. However, the intervening swoon to 1717.20 would have subjected the trader to a paper loss of $17.30 per ounce – more than twice the gain that would have resulted from holding peak-to-peak.  Although holding the position for another two days would have gotten one to the next, 1750.60, for a further gain of $7.50, the intervening swoon to 1718.80 would have subjected the trader to a paper loss four times that, or $31.80.  What this implies is that, over the course of the trade, the trader gambled more than $4 to make $1. You don’t need to be a trader to understand why taking those kind of odds will never make you rich. And it is why we prefer to move in and out of long positions as gold moves higher rather than swinging for the fences with a buy-and-hold, damn-the-torpedoes swagger. No bull market is going to be so generous and accommodating that traders can simply forget about their positions and let them run.  While it’s possible to strike it rich once or even twice with that approach, the odds that you will eventually go bust are overwhelming.

 

Who Is Rick Ackerman?

 

Barron’s once labeled Rick Ackerman an “intrepid trader” in a headline that alluded to his key role in solving a notorious pill-tampering case. He received a $200,000 reward when a conviction resulted, and the story was retold on TV’s FBI: The Untold Story. But to the gang at CNBC, he’s been a pariah for the last ten years – a shoot-from-the-hip kinda guy whose irreverent style got him banned from the show after an interview on Squawk Box was alleged to have gone awry.

His professional background includes 12 years as a market maker on the floor of the Pacific Coast Exchange, three as an investigator with renowned San Francisco private eye Hal Lipset, seven as a reporter and newspaper editor, three as a columnist for the Sunday San Francisco Examiner, and two decades as a contributor to publications ranging from Barron’s to The Antiquarian Bookman to Fleet Street Letter and Utne Reader. His detailed strategies for stocks, options, and indexes have appeared since the early 1990s in Black Box Forecasts, a newsletter he founded that originally was geared to professional option traders.

Rick Ackerman is the editor of Rick’s Picks and a partner in Blue Fin Financial LLC, a commodity trading advisor.

What happened to market volatility? Seems to have gone the way of all NFL teams, except the Giants and the Patriots. (Go Blue!)

That said, the major US equity markets — the S&P 500, the Dow Jones Index, and the Nasdaq  — had a rare down performance last week and seem to be having trouble pushing higher after a nice run. Coming up on February, often a market loser, technicians far and wide are expecting, if not praying, for a market correction. Is this a buy-the-dips kind of year? Starting to look that way.

Lloyd’s Wall of Worry stands at 21 this week. Click on the graphic below for a specific comment about each worry still facing investors and access to our archives of past walls. A text-only version of this column and explanation of how it works also below:

 Lloyd’s Wall of Worry (text version below – for graphic version go HERE)

QE: Back-pocketed for now as the US economy improves, but it will come out Quickdraw McGraw if and when needed. “And *don’t* you for-git *it*!”
 
US ECONOMY: The best house in the developed world’s economically bad neighborhood. And yes, it’s upside down on its mortgage.
 
UNEMPLOYMENT: Bottom line, if you’re under the age of 30 and looking for a job, you might consider looking for a new planet to find it on.
 
INVESTOR SENTIMENT: Mom and Pop still watching from the sidelines with disdain…and with a 0% interest rate in their checking accounts.
 
HOUSING CRISIS: You gotta love a country where the only hot real estate sector is the cash-only market for homes over $50 million. “God bless America, land that I love….”
 
CENTRAL BANKS: Volcanic, Tsunam-ic, Avalanche-ic, Berserk-ic Blizzard-ic metric F’tons of liquidity being pumped into the markets. Historic.
 
HUNGARY: Market looks to be writing this off as a firecracker at worst. But as the Wall of Worry Zen Master says: “Even the meek firecracker can blow off mighty finger.”
 
EUROPEAN ECONOMY: The Boss as European economist: “I’m going down, down, down, down. I’m going down, down, down, down. I’m going down, down, down, down.”
 
THE EUROPEAN UNION: Still the best place in the world to get wine, cheese, and a men’s suit cut so slim that no American male will ever be able to fit into it. Hey, I’m trying here!
 
SOVEREIGN DEBT: Pay me 6% to buy the paper of a country that is insolvent 11 million times over? Sure!
 
JAPAN: Their trade deficit goes negative for the first time since 1980. Coincidentally, the same year the song “Turning Japanese” hit the Billboard Hot 100 list. Meaning? None whatsoever.
 
GREECE: They have agreed to most every ECB austerity demand except turning over the budget reigns to a Eurozone Committee and the request to change the spelling of their name to “Grease…Grease is the word, is the word, is the word, it’s got groove it’s got meaning…”

SUMMITS: Calendar starting to fill up again. First stop, Davos 2012. Wo ist das nächste restaurant, bitte? (Where is the nearest restaurant, please?)
 
BANKS: European banks are not in great shape yet but they are waking up early, drinking the raw eggs, doing some road work, punching a side of beef…cue Rocky theme song.
 
VOLATILITY: Said the hypnotist to the VIX, “You are getting sleepy, very, very sleepy….”
 
HIGH FREQUENCY TRADING:
Lloyd: Why so glum, chum?
HAL: Volatility low, correlation low, volume low.
Lloyd: Try repeating a mantra that lifts your spirits.
HAL: I’ll give it a shot. “May 6, 2010. May 6, 2010. May 6, 2010…”
 
CHINA: Taking the week off to celebrate the Year of the Dragon, which is the top year for “luck” among the 12 types. I’m hoping that 2012 will be the Year of the Bull over yonder in the West.
 
STOCK MARKET TECHNICALS: The technicians are screaming for a breakdown or at least a correction. Why? So they can buy, buy, buy!
 
EARNINGS SEASON: Good numbers and you’re up 10%, bad numbers and you’re down 10%. Beats last year’s up nothing on good, down 40% on bad.

BALTIC DRY INDEX: Dry, bone-dry, arid, parched. Hasn’t been this low since (gulp) 2009.

CREDIT WATCH: The downgrades keep coming in as regular as the tide. And, just like the tide, no one much cares.
 
IRAN: Still not backing down. Did they get a signed copy of Kim Jong Il’s playbook in his Last Will and Testament?

What Is Lloyd’s Wall of Worry?
by Lloyd Khaner

Welcome to my at-a-glance guide to the issues facing investors this week — a unique tool for traders and money managers.

Typically the term “wall of worry,” refers to the entire body of concerns influencing stock market action. When the wall is high, meaning the market is nervous, stocks tend to get cheaper.

This wall of worry is even more specific. Every week I list the exact concerns in the marketplace and use the list to help me make buying and selling decisions. As I like to say, “Buy fear, sell cheer.”

In other words, once the the wall rises above 15 blocks, start looking for deals. If the worry count sinks below 10, consider selling; prices have likely peaked.