Monday Market Movement - Where Else?


Phil’s Stock World

Courtesy of Phil of Phil’s Stock WorldI read the news today, oh boy

I need to remember not to do that when I’m trying to get bullish.  Fortunately, we already grabbed a new set of “5 Trades that Make 500% in a Rising Market” to follow up on our original set, now just about 2 months old, that have already hit their cumulative 5,000% target gains in this totally ridiculous, always rising market. 

We may complain about HOW the game is rigged but if practically every single roll of the dice comes up seven or eleven – you can’t blame us for betting on the trend.  As the United States of Zimbabwe barrels forward on Ben Bernanke’s hyper-inflationary crazy train – we will go along for the ride – just don’t be surprised if we jump out before the rest of the riders hit the final terminal, with terminal being the operative word.

Take silver (please) as an example.  There are now $102 Billion tied up in metals ETFs and the silver ones now hold 4 full years of US production.   This is not including stockpiles that have been added to Central Banks and private investors (JPM is rumoured to be one) and it makes us wonder – what is the exit strategy.  How do you sell 4 years worth of production in a single year, or in two years?  Do you try to undersell the miner’s production costs (for silver, that would be about $5) to get them to shut down production while you unload or do you form some kind of cartel that controls the flow of silver for the next 20 years?

Gold is just as bad with speculators now holding more gold than all but 4 of the World’s Central Banks.   2,028 metric tons of gold, worth $88Bn are now held by ETFs.  They accounted for 21% of all global demand last year and, despite hedge funds (the “smart money”?) cutting their positions by 42% since October, the net long float of futures contracts is STILL 151,000, almost 3 times the 18-year average.  That, my friends, is a lot of bull! 

Investing into commodities, like high-flying stocks, is easy.  The trick is getting out.  That’s why we’ve been using short-term bearish bets to cover long-term bullish positions – you never know when this ride will come to and end and there’s no guarantee that we’ll be able to get out with our bullish trades intact.  Still, the bullish trades we continue to take in our aggressive portfolios are still inflation-based as that does seem to be the story that is not going away…

We were into gold since March of 2009, when we set a $875 entry target in our public article – “Spinning Straw Trades Into Gold.”  Gold hit our $875 entry point ($859.90 was the low) and we rode that baby to the moon – or at least to $1,200 in October, when we decided we were on the boarder of greed and led the charge of the hedge funds out of the metal.  I have since been looking for a pullback to $1,150 for a re-entry but, at this point, I’ll settle for $1,200 – but we might not even get that the way our Central Bankers have been talking (“Mo Free Money!”).

That’s why you’ve gotta love those “Secret Santa’s Inflation Hedges” which, as noted in the weekend post, is also way outperforming our expectations although, of course, not on the level of our more-leveraged “Breakout defence” plays.  The unusual “up every day” aspect of this market is KILLING our short-term bearish plays. 

We like to see SOME corrections – just to let us know how firm the bottoms are but no such luck in SUPER Market, which is up, up and away almost every day – but especially on Mondays.  Does that mean it’s time to give up and go 100% bullish?  No, that would be dumb.  As I said over the weekend, this is the same pattern we went through last December – first leading off with some aggressive bullish plays, like our Breakout defence Trades and then layering in more upside, inflationary trades like the Secret Santa set – in addition, of course to our usual, sensibly-hedged, long-term positions we like to base on the actual fundamentals of the companies we invest in (I know – what is that?). 

So if we are out of gold along with 42% of our hedge fund buddies then who is buying?  If we are (and I hope we are!) the “smart money,”  who is the “dumb money” that has taken gold 10% higher than our exit?  One candidate I see is Hosni Mubarak and other nervous World “leaders” who are shifting their assets to something more “transportable” while the peasants mass outside their gates, holding signs like “bread or heads.” 

Mubarak alone is (shown sitting on his favourite gold chair) good for an estimated $50Bn – just 10% of his assets moving to gold would represent 10% of all ETF hoarding last year.  How many Mubaraks are stocking up, not only on gold but silver, oil, copper, wheat, even NetFlix – whatever it is that oppressive regime leaders feel is going to help them safely set up a new life as a man-about-town leisure-class investor in another country?

If we are going to try to get more bullish – we need to know who our co-investors are so we can contemplate where they are likely to begin stampede for the exits but, as I noted last week – the dumbest money on the planet has the deepest pockets of them all – our beloved Uncle Ben and his multi-trillion dollar printing machine.  That machine can keep spitting out bills forever as it has a hose on the back end that sucks the money right back out of our bank accounts through currency devaluation and inflation.  

As Bloomberg states: “The Federal Reserve’s Treasury purchases already have succeeded in driving investors to junk bonds and stocks. Now, policy makers are focusing on benchmark government securities, helping contain rising yields that set rates on everything from corporate debt to mortgages. More than 40 per cent of the government bonds the Fed bought in January for its so-called quantitative easing were auctioned in the previous 90 days, up from 20 per cent in December and 15 per cent in November, according to Bank of America Merrill Lynch. ” 

Oops, sorry – trying to stay bullish!  

– Phil

Top chart by Gordon T. Long  


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