Timing & trends

Bonds Nearing a Great “Shorting Opportunity” – Oil Heading Much Lower

I’ve held out shorting U.S. bonds on a belief there will be QE3 of some sort. It has been wise to do so up until now. 10-Year T-Bond could see 1.50% yield. Hard to imagine passing up on that as a shorting opportunity so stay tuned.
 
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Also looking to go long oil on a break below $85. Will consider using UCO and USO if and when time appears right.
(ED Note: Jack Crooks of Black Swan has been double short Oil and is sitting on open gains of up to 41%. Jack expects Oil to fall much further but is taking some profits today.  
 
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The above from Peter Grandich via his section just posted called “Things”. 8 more “Things” are posted HERE

Big Opportunities Setting Up in Gold, Oil & Copper

Michael Campbell: David Bensimon declared we were in a commodity driven, prosperity driven boom, and to adjust yourself accordingly. Then coming out of the big disruption of 2008, in the last quarter of 2008 and early 2009 Bensimon said “don’t worry the Commodity Bull Market is going to reassert itself in a magnificent way”. Obviously there was major money to be made following that advice.

Now we have seen real weakness across the board in commodities,  what do you see now? Specifically is the commodity bull market over?

Whole interview begins at the 19:17 minute mark. Basic predictions transcribed below {mp3}mtmay26{/mp3}

Bensimon: The quick answer is certainly not. The commodity bull market is really a multi-decade really long term cycle. Of course in the course of any large scale long term movement there are going to be swings within that trend that go in both directions. What we are in right now is a corrective movement in a larger uptrend.

As far as some technicals and fundamentals. I am looking out the window here in town in  China and I am seeing building after building of unfinished projects that have clearly halted. So the facts on the ground are that there is a visible slowdown here in China in the construction industry which is a major part of China’s economic growth, in Europe you have a real crisis on the debt side, and these kind of forces is what is driving a pullback in commodity prices.

On specific commodities:

1. Copper

I mentioned 6 weeks ago in my quarterly report that copper is vulnerable to a 25% drop. That sounds like a big drop but in the context of markets that move in the  100’s of percentages going up 25% going down is not that large on a relative basis. The expectation was a drop from $4 back to $3 driven by the fundamentals of a slowing China and technical elements supporting a retest of that low at $3. The market in fact fell quickly to $3:50 and is now hovering around $3:40 and there is really no change to my expectation that we are in the middle of this downswing and we should reach another 10-15% to that $3:00 area, probably in mid-July.

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2. Oil

My view back in the April report about Oil which is an even larger industrial commodity, that it would very precisely drop 14-15% from $103 to $89, which the first downleg of a slightly larger movement. It would be driven by the fundamentals of a removal of the risk premium of Iran, my expectation being that the Iranian problems would ameliorate and not explode as was being expected at that time. Also the technical elements were favoring a retreat, and as it turned out the Oil market did drop exactly that %15 from $103 to the low of $90 so far. My view here is that on a short term basis we could see a little bit of consolidation, but the general movement has not completed and I would be looking for a continuation to the low $80’s by around the middle of July as well.

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3. Gold:

There is a very interesting situation here. In our last discussion back in January, my expectation was for a decline to a particular timing window in April. I think it is important to always highlight that price targets and time targets are always predicated on certain other technical elements that need to be invoked or triggered to confirm those particular price or time windows. In the case of Gold, the view that the market would decline to a window of opportunity in April was predicated on the market breaking through a major channel that had been guiding the market since 2008, and the last touch of that channel occurred in December 2011 just a month before we spoke. The expectation was that if that channel gave way we could fall to an important low in April. As it turned out the market did not break that channel, as the low from December held initially and the market pushed up inside that channel. But the larger fundamental forces that were evolving in the world around that time did assert themselves and pulled the market for Gold, as with all other assets, back down to that base of the channel which by then had crawled up the the $1,600 level. What happened then was that the market did break decisively through that channel at $1,600 and plunged very quickly once that trigger had been invoked. It fell to the next natural level of support which was the double bottom at $1.520 and that’s exactly where the market halted.

Its a very natural expectation that once you reach that historical support that you’ll get a reactive bounce and that is what we have seen in the last week or so with the Gold market bouncing to the high $1,500’s. This territory that we are in right now, conceivably could push as far as $1,620 without voiding the structure of the downtrend that we are in. But the very serious implication of having broken that major several year uptrend, notwithstanding whether it hits $1,620 or not, the market is going to continue now down to the next lower support below $1,520. The next lower support has two price levels, the $1,400 and $1,300 levels that I mentioned back in January. Those pricing levels are very much in play and the two timing windows are very particular dates in July and August. Any one of those combinations could be the one that materializes.

But the larger structure of the Commodity Bull Case is very much intact and if we do get that low of $1,400/$1,300 at the end of the summer that would be a beautiful, a really very structurally strong entry point to acquire positions in Gold with a view to continuing this long term bull trend that will take us up to the long term objective I’ve had for more than a decade of reaching $2,600 in 2014.

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David Bensimon correctly called dramatic market movements throughout 1998-2012. David runs Polar Pacific which you can reach HERE

Lots of action and profit opportunities!

Over the last couple of weeks, we’ve seen plenty of action, fortunately following right along with my forecasts. So let’s take a quick look at the charts.

This will be a bit of an abbreviated video today because it is a holiday, but I still want to show you the charts of the main markets.

Let’s start with gold. As you can see here on this chart of gold, gold has indeed slid quite sharply down to around the $1,526 level, testing the low from late December 2011, and it is finding some technical support there.

We should see a bounce, bringing it back up to say $1,600, $1,610. But I do believe, based on all of my indicators, that we will see a break below $1,500 down to around the $1,440 level in the coming weeks. So I remain bearish on gold.

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Now let’s also take a look at silver. Silver has been following gold quite closely and is falling actually even sharper than gold, which is to be expected.

Silver’s finding some technical support in here, but I do expect silver to break through the $26.60, $27 support level and move lower still.

All of my indicators remain bearish in silver.

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Let’s take a quick look at the U.S. Dollar Index as a proxy for the U.S. dollar. Indeed, in the last video update I did for you, I did indicate that I expected the dollar to break this resistance line here, mid-channel, and move above the 81, 82 level.

That’s precisely what happened. I wouldn’t be surprised to see a little pullback then a further rally up to 84. This is largely being driven by the meltdown in Europe and the European sovereign-debt crisis, which in the short term is bullish for the U.S. dollar.

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Now let’s take a look at the Dow Industrials. We have begun to see a rather sharp sell-off here. However, we’re coming into some very important support levels in the Dow. More specifically around 12,250.

As long as that level holds, we should probably trade back up to the 12,900 level. And we’ll have to see what happens at that point. If 12,250 gives way on a closing basis, we could see further losses in the Dow — down to about 11,800 or maybe even 11,500. It’s a little too early to say.

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Right now I want you to enjoy your holiday. We’ve got a lot of action-packed markets that will probably continue right after the holiday as they open tomorrow morning and heading into June. I see lots of volatility and lots of trading opportunities.

So stay tuned. This is Larry. Again, have a nice holiday today and a good week.

 

Larry Edelson has over 34 years of investing experience with a focus in the precious metals and natural resources markets. His Real Wealth Report (a monthly publication) and Power Portfolio provide a continuing education on natural resource investments, with recommendations aiming for both profit and risk management.

For more information on Real Wealth Report, click here.
For more information on Power Portfolio, click here.

 

 

Mark Leibovit: How To Profit On This Current Seasonality in Markets

Ed Note: Mike’s Guest Tomorrow is David Bensimon:

Mark Leibovit spells it out in a quick 6 minute comment below. In short, Mark went on a Sell Signal back on March 5th and continues to think Markets are in a normal Negative Seasonal pullback that has further to go. Mark thinks there is still time for the bears to bring the Stock Market, as measured by the S&P 500, down below the recent low of 1292 and if he were an investor he would remain in Cash waiting for a confirmed low sometime between now and July. 

As for agressive traders he would be biased to the short side.  

Click on either image or HERE for all the details:

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Click on image or HERE for all the details:

 

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An Argument for a Contrarian Investment

While it might not look like it now, the most investable trend over the next 20 years is going to be in the resource sector, the renewable and non-renewable resources, the minerals, ores, fossil fuels and biomass a wealthier and growing global population is increasingly demanding from finite supplies and already strained production capabilities.

For example:

The metal content of copper ore has been falling since the mid 1990s. A miner now has to dig up an extra 50 percent of ore to get the same amount of copper. As grade drops the amount of rock that must be moved and processed per tonne of produced copper rises dramatically – all the while using more energy that costs several times more than it use to. With the lower grades of ores now being mined energy becomes more and more of a factor when considering economics.

The average grade of gold deposits has been dropping as well.

“We took the nice, simple, easy stuff first from Australia, we took it from the U.S., we went to South America. Now we have to go to the more remote places.” Glencore CEO, Ivan Glasenberg in the Financial Times describing why his firm operates in the Congo and Zambia

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Ed Note: Richard Mills entire argument & charts to support the conclusion posted below can be read in its entirety HERE 

Conclusion – Junior’s, An Argument for a Contrarian Investment

Our reality – we’re living on a relatively small planet with a finite amount of reserves and a growing human population.

The world’s major miners are making immense profits but they are having an extremely difficult time replacing reserves let alone growing them. Mining is the story of depleting assets, that asset must be constantly replenished, miners that want to stay in business must replace every pound, oz and gram taken out of the ground.

Juniors, not majors, own the worlds future mines and juniors are the ones most adept at finding these future mines – majors do not make discoveries, juniors do, that’s their function in the resource food chain. Junior resource companies already own, and find more of, what the world’s larger mining companies need to replace reserves and grow their asset base.

Junior resource companies – the same ones who today are so oversold and undervalued – are the present owners of the world’s future commodities supply and, most important for investors seeking outsized returns, they act like leveraged exposure (with price gains many times that of the underlying commodity) to the specific commodity(s) investors want exposure to.

Are there a few junior resource companies, with exceptional management teams operating in politically safe jurisdictions, on your radar screen?

If not, maybe there should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you’re interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

No one can say that Bob Hoye of Institutional Advisors didn’t see the future clearly and in time to take advantage of a once in a generation market dislocation when he declared in October 2007 that:  “A credit tsunami the likes we haven’t seen in generations is about to hit”
 
Certainly each of the 500,000 listeners who heard Hoye’s warning on Michael Campbell’s Money Talks radio show had he opportunity to either get out of the way of the oncoming speeding economic/market train, or profit handsomely shorting the greatest market drop since the 1929 collapse. 
 
Bob Hoye was back on Money Talks a few days ago with some additional advice, some of which is pretty unnerving,  nevertheless Hoye was again very clear that we are now at another critical point in the markets and that its now time to either save your capital and get out of the way, or make some money. Whole interiew here beginning at the 24:30 mark or summary below {mp3}michael_campbell_sept_23-2011{/mp3}
 
First the background. Hoye thinks that there is no way that the Federal Reserve or other Central Banks around the world can overcome the Worldwide deflationary pressures. In other words no inflation as “the credit contraction is, and will continue to overwhelm interventionist Central Bankers” who “are not issuing credit that pushes prices up“. Why? Bond vigilantes in a word. 
 
As the Central Banks in Italy and Spain have found out they have to raise interest rates on their bonds to attract investors, and when interest rates rise Governments and businesses alike “cannot service the debt that is out there”.  Worse Hoye sees that the the latest recovery from March of 2009  “in North America  is rolling over, probably as we speak. Its already dead in Europe where they’ve had two quarters of negative GDP growth which defines a recession, and also perhaps really slowing down in China which shows up in your basic commodity prices.” With the economy contracting there is “nothing that government economists and Central Bankers can do to issue credit that is going to overwhelm the natural tendency for credit to contract.”
 
Hoye also uses history to prove his point there are situations where Central Bankers cannot generate inflation in Post Bubble contractions. Citing  John Law’s attempts to thwart the aftermath of the 1720 South Sea/Mississippi Bubble by replacing solid coinage with paper money he generated on 8 printing presses going in Paris at the time. Despite John Laws Central Bank effort he was unable to prevent the credit contraction he was trying to avoid. 
 
What does this all mean to today’s investors? 
 
1. Real Estate: 
 
In short Hoye thinks that real estate is not going to recover in this post bubble economy. Worse, very high real estate in places Vancouver are going to experience a fall in pricing like US Real Estate. Hoye points out that after the 1980 boom “British Properties in West Vancouver and and high end properties in Toronto fell to 1/3 of their 1980 highs. Hoye again cites history to support his post bubble real estate argument by looking back to a farm price index after the 1873 bubble in England.  That index of farmland values hit 58  at the height of the bubble in 1873  then fell consistently for the following 20 years down to 38.  In other words it was just a long bear market in land values after a typical post bubble economy. 
 
 2. Interest Rates:

Interest rates will remain low as long as confidence remains in the North American sovereign debt market.”You have this oddity in the US of 10 year notes at less than 2%, and the only way I can explain these low interest rates is that in a post bubble crash the serious money that’s still around goes to the most liquid items and that is gold, and it also is treasury bills in the worlds senior currency which is still the US Dollar. So its not the Federal Reserves policy to lower interest rates, its a post bubble condition that short rates fall”.

3. “The Gold Market is Extremely Oversold”
 
Buy Gold Stocks. “Just looking at the Gold Shares now, we have an index in Gold Shares going back to 1900 and there has been only one other time were it has been this oversold and that was in 1924. So one could say that this is about the most oversold you can get, and our advice on Gold Shares a few weeks ago  is that people should be accumulating good quality Gold Shares into weakness. It might take another week to set the low in here, but then the performance out of this oversold should be rather good. I am content buying either good exploration stocks where you know the story, or some of the senior Golds or Gold share ETF’s”.

 
4. The Overall Stock Market

 
Hoye was looking for  a rounded top market to occur around February 2012. As it happened the base metal mining stocks peaked in early February while other areas peaked through April. Hoye sees that the “last two weeks have really confirmed that we are in an intermediate sell-off” but that for “a short term trader, the S&P is getting oversold and we could look for a rally in here”. As mentioned above despite the potential for Stock Market weakness, Hoye likes the Golds.