March 2007

Will Iran attempt to throttle the 17 million barrels of oil that come through the Persian Gulf each day? If so, energy traders have been acting so far as though a blockade affecting a third of the world's seaborne supply is possible but not likely. Even though April crude surged sharply yesterday, its intraday peak failed by eight cents to breach a 62.37 Hidden Pivot target we'd been using as a minimum short-term price objective. April Gold similarly failed by a small margin to break above a bullish threshold at 667.60 that we've been monitoring closely. We should view both of these numbers as 'fail-safe' limits, since, once they've been exceeded, both crude and bullion will be off to the races. There has been much speculation about whether a war with Iran is coming. The nuttiest prediction so far was headlined 'War in 30 Days!' at a Web site known as much for its virulently anti-Israel views as for its coverage of the precious-metals sector. We strongly suspect the prediction arose not from any genuine certitude about an impending war, but rather from the author's desire to vent his well-documented, deep hatred of Israel in an editorially permissible way. (Click on map to enlarge) While the author expressed (feigned?) absolute confidence that Israel would launch such an attack, I can tell you for a fact he was not so confident that he was willing to bet $500 on it. The prediction was preposterous for a dozen reasons, including the obvious fact that, even if it were tactically advantageous ' an assumption open to dispute, given Iran's recent acquisition of state-of-the-art defensive hardware from the Russians -- Israel could never launch a war against Iran without the approval of the U.S. Moreover, were war with Iran to become unavoidable, the U.S.

In the sci-fi classic The Day the Earth Stood Still, the extraterrestrial scientist Klaatu demonstrated the technological prowess of his civilization to the bellicose citizens of Earth by making every powered device on the planet stop working for an hour. On Friday, one could have imagined that Klaatu was back, this time training his dark magic on the New York Stock Exchange. With the ticker tape crawling at the pace of a centipede after knee surgery, even Hidden Pivots seemed to be working in slow motion. Friday's obligatory headless-chicken act popped the Dow slightly above one such pivot shortly after the opening, implying that an additional hundred points of upside was possible. Four hours later, though, the Indoos were still oscillating aimlessly within an unnaturally tight 30-point range. Gold futures turned just as moribund after spiking briefly in the early going. The bulls got winded quickly, sending the April Comex contract into a sharp dive. But the kamikaze threat stalled a few dollars shy of a 652.50 threshold that would have created a bearish impulse leg on the hourly chart. Our short-term forecast for gold had been bullish, but there was nothing in Friday's price action to reaffirm the positive signs we'd seen in the run-up since mid-March. However, technically speaking, gold's weakness did only minor damage to a picture that I would still rate as mildly promising. Seldom Mistaken That said, I heard from two particularly astute gold bugs yesterday whose hunches have seldom proven wrong -- and both are bearish on bullion at the moment (albeit for different reasons). 'I have so many reasons for being suspicious of gold at this point, and I am inclined to wait until I see the whites of its eyes,' wrote Phil D, using a battlefield metaphor that many of us do not need to

Comex Gold has been a real tease whenever it has gotten near our Hidden Pivots in recent weeks. In late February, for instance, it flounced around for a few days within a dime of an important rally target at 690.60. We figured that once it got past that Hidden Pivot it would blast off to Mars. Well, the futures did poke above 690.60 for one or two bars on the hourly chart, recording a high of 692.50 -- a nearly $2 overshoot that seemed as good as a mile in our book. Up we go? That's not the way you'll remember it if you bought the breakout ' a risky move that in any event we did not advise. What actually happened was that the Gold price subsequently took one of the nastiest headers we've seen in quite a while, diving to 634.50 in the space of a few days. We recall this treacherous head-fake because April Gold's come-hither dither yesterday near the apex of a $10 thrust similarly vexed, bedeviled and teased a Hidden Pivot target we'd proffered as important to the near-term picture. The target lay at 667.10, but the powerful rally that had begun the previous day and continued into the night session seemed unable to penetrate it. The hours wore on, inspiring us to post the following in the chat room Thursday morning: 'Having missed a rally target by a fraction of a point this morning, April Gold has not spent the last five hours consolidating just to eke out that fractional difference in a final head-fake. My guess is that, either [that the rally] fails here or it pushes significantly higher.' Gem-Turned-Zircon No sooner had we hit the 'send' button on this gem-of-an-observation than the futures popped to 667.60, a missile just off the launching

For the sixth straight month, the Fed did nothing, but we'll take Bill Gross's word for it that this particular instance of nothingness signifies easing just ahead. We can't say we were much surprised by this, having predicted here in January that not only would the Fed start to loosen again, but that it would do so sooner and much more vigorously than anyone appeared to expect. With Helicopter Ben talking incessantly about the supposed 'threat' of 'inflation,' it didn't take a rocket scientist to figure out that inflation was the least of his concerns. Like the rest of us, the Fed chairman has known all along that the 'good' kind of inflation ' the kind that pumps up everybody's assets so that those assets can be hocked to the moon ' is all that stands between our spectacularly overleveraged economy and a Second Great Depression. My advice to permabears is to go with the flow for now, since it is not only the inexorable rise of stocks that you will be fighting, but a bullish stampede in the bond markets as well. No doubt, the hedgies are already gearing up for yet one more blissful avalanche of free money. When you're in the business of borrowing short ('Hello, Japan!') and lending long, nothing could sound sweeter than the tacit promise of a Federal Funds rate about to come down, down, down How far? Well, we speculated here a while back that mortgage rates would have to fall to record lows under four percent to get home buyers and mortgage lenders salivating again. A crucial question is whether loosening can occur fast enough to negate the already considerable drag of the real estate implosion and incipient recession. My strong hunch is that the effort will fail. But because it will

While no one can say exactly when this bull market, now in its 25th year, will finally succumb to gravity, it is still possible to get short whenever we please, and with relatively little risk. Take yesterday, for instance. In the Touts section of Rick's Picks we recommended shorting two especially juicy targets, Goldman Sachs Group (GS) and Time Warner (TWX). Although both ended the day sharply higher, that didn't hurt us one bit. In fact, we actually booked a partial profit on the Goldman trade, allowing us to remain short the stock without being the least bit nervous about it. How, you might ask, is it possible to make a few bucks being on the 'wrong' side of a bull stampede? Chalk it up to Hidden Pivots. We used some very promising ones that allowed us to short Goldman within one cent of its intraday high and TWX within four cents. However, long experience has taught us that when a short position goes our way, it is always advisable to take a partial profit before patting ourselves on the back. This always pleasurable task was easy enough yesterday in Goldman, since the stock plunged a blissful $2.43 after kissing our target. The less-volatile TWX proved more challenging, though, and we opted out of the trade even though the May 20 puts I'd suggested buying never went lower than our bid. No Predicting Tomorrow Two bullseyes, but what about tomorrow? In fact, there is no predicting 'tomorrow'. For all we know, the Dow could be up 500 points by day's end. And that is why our goal is never to try and call" The Top,' but rather to continue leveraging promising tops such as the ones that occurred yesterday in the shares of Goldman and Time Warner. Nor should we

A round of applause for globetrotting guru Jim Rogers, who has forsaken the nurturing bosom of respectability to join the wild-eyed crazies in the housing-bust camp. "Real estate prices will go down 40-50 percent in bubble areas;' he recently told Reuters. 'There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history." Rogers evidently is putting his money where his mouth is, having listed his $15 million mansion on the Upper West Side for sale. So steeply have New York real estate prices risen in the last couple of years that we were somewhat surprised to learn that one could still buy a storied mansion in that neighborhood for a paltry $15 million. Across the park, even pieds-a-terre are fetching upwards of $20 million. Rogers also said he has sold out of emerging markets except for China, notwithstanding the fact that he expects markets there to collapse by 30-40 percent. 'China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline.' Say this for the guy, he sounds like a risk-taker who knows what he's doing. But will America's homeowners be able to weather a similar decline in property values with Rogers' aplomb?

Are Atlantic City's casino headed for hard times? That's the story I get from a childhood friend of mine who's lived in the resort all his life, has owned some nightclubs there, and is pretty plugged into the local scene. He even thinks there's a chance that The Donald, who has actually run a casino into bankruptcy, is making plans to bail out. Immediately below is the straight skinny from my friend, Glenn.: ' Some of the casino operators are trying to bail out now because of a stiff competitive breeze from Pennsylvania's brand new slot parlors. For the months of January and February, Atlantic City's 11 casinos reported and average drop of 8% in the take from slot machines. This is just the start, and it is occurring with only two minor and fairly distant Pennsylvania parlors in operation. When the huge slot casinos open in South Philly two years from now, all hell will break loose in Atlantic City. Trump is already considering selling and rumor has it that Colony, which operates Resorts International and the Hilton casino, will follow. (Click on image to greatly enlarge) 'The casinos evidently are not prepared to compete in a declining market, so all of those rosy real estate statistics and forecasts you've been seeing for this region are very old news. For the short- and long-term it's over for Atlantic City. We saw one casino, The Sands, sell this year, and a replacement isn't slated until 2012, if ever. I predict that we'll see a huge shakeout over the next few years, with the loss of up to a third of the present 12 casino licenses. That could ultimately mean the loss of 15,000 or more jobs. Tourism has thrived locally over the last thirty years because of casinos, but it's

We've watched the shares of homebuilders unravel for more than a year, but what if I were to tell you there's a side to the construction business that's still going gangbusters? Well there is, evidently, and my source, a subscriber whose company achieved 25% growth in the last fiscal year, says he's intent on extracting all of the lucre he can while the good times last. Here's the note I received yesterday from John D., whose against-the-grain observations have been featured here before: 'I know you are blown away by my comments about construction,' he writes. 'The latest real estate mania in Southern California is a commercial/industrial condo craze. We've been involved in over a million square feet of these type units over the past year-plus, and we also have about another 500,000 square feet under contract. $360 per Foot! 'An industrial/ commercial condo is a 2,500-10,000 square foot shell meant for 'end-users.' The deal works like this: A business will purchase a unit, do its own interior improvements, move in and make mortgage payments just like a homeowner. You pay association dues, etc. These 'shells' sell for between $130 to $300 per foot! Plus, there are the tenant improvements, which can run from $40-$60 per foot! Quite a price tag for a 'condo,' eh? No doubt, there's going to be a huge inventory of these units with no buyers somewhere down the road. But as long as someone is going to pay me to build them I'll keep cashing the checks. 'Another sector that is very strong in Southern California is multi-family housing. I have a good friend who owns several apartment buildings with, effectively, zero vacancy rates. There is a huge shortage of rental units. 'Doing What I Know' 'I love the construction business -- I know I

A sharp plunge yesterday might have brought emetic relief to a stock market bloated with indigestion, but it was not to be. Instead, shares teeter-tottered most of the day, eventually ending up on the plus side, with the Dow Industrials registering an unpersuasive gain of 57 points. The reason the market was unable to do what might otherwise have come naturally is that European and Asian markets had remained relatively placid Tuesday night, alleviating such feelings of panic and disquiet as must have permeated Wall Street at the close of business on Tuesday. Despite the complacent lull in the financial world's fight-or-flight response, bears made a good-faith attempt to return things to their natural order, pushing the Indoos about 130 points lower by mid-day. But with global fears evidently in short supply, hapless sellers soon exhausted themselves, allowing Da Boyz to perform their trademark levitation trick with relative ease. (Click on chart to enlarge) The illusionists will have an even better opportunity to impale shorts today and tomorrow, since it would require only a modest levitation to turn mellow stochastic indicators now evident on the daily chart into turbo-thrusters. Notice in the chart above how a second, ascending stochastic bottom was starting to form beneath yesterday's price low in the Dow. This incipient saucer pattern would be aborted by any weakness today, since a decline in share prices would turn the stochastic lines downward. However, one more rally like yesterday's would bend the lines higher, affirming not only a bottoming pattern, but one whose ascending lows would diverge quite bullishly relative to the corresponding price lows labeled in the chart.. I have a gut feeling about how things will turn out, and I explain why in the Touts section of Thursday's Rick's Picks . Be sure to check it out if you