Goldman Weakness a Noose Around Bulls’ Necks

In a moment, I’ll get to the deadness of Goldman shares and the fatal implications this may hold for U.S. stocks. But first let me share with you a link to “The Day the Dollar Died,” an extraordinary (and scary) script for a day that is probably coming. The author is a blogger named John Galt, and he has described in detail what will happen when the dollar collapses. Readers of these commentaries will know that we expect this to happen in mere hours, not weeks or months.  Galt’s scenario, as the title suggests, plays out so swiftly that no one has a chance to react. 

Goldmans-two-rally-attempts

The good news is that he has implicitly provided some excellent defensive strategies for those who would take steps now to protect themselves against economic calamity. For one, he sees the stock markets and currencies of resource-based economies such as New Zealand’s and Australia’s taking off when investors scramble to convert their dollars into anything with tangible value.  Obviously, this will be impossible when it suddenly dawns on the world that the U.S. dollar is just a phony IOU. This is irrefutably true now, as most of you already know, but the fact that only a relatively few have acted on it so far suggests there is still a last-ditch opportunity to get one’s house in order. 

The Top Is In 

Concerning Goldman shares, I’ve advertised the stock not merely as a stock-market bellwether, but as THE bellwether for the bear rally begun on March 9.  Now, because Goldman has probably topped out, it seems unlikely that the broad averages will make much headway from this point forward.  I’ve reproduced a chart of Goldman above that shows how heavy the stock has become since hitting a recovery high of 190.40 in mid-October. I expect this to be The Top, but not for purely technical reasons. Based on the  charts, one might have expected the stock to go somewhat higher before sputtering out.  But at this point, it is my strong feeling that the bullish hoax concerning the banks’ return to “health” has been milked for all it’s worth. Americans must surely sense by now that the financial sector cannot continue to prosper as long as Main Street and tens of millions of households remain economically comatose.  Americans also understand that the moral logic of still hugely profitable bank trading-desks will not long abide billions in trading profits each quarter as long as bill-paying humanity remains mired in a catastrophic debt deflation.  

However, since we should never count out the scumballs who manipulate Goldman shares for a living, we will allow for the possibility of a resurgence to new recovery highs.  But the odds don’t look so good right now, and they will lengthen if the stock trashes a Hidden Pivot support at 171.63 that I flagged for subscribers yesterday.  As of Thursday’s close, Goldman had bounced twice from within pennies of our target, yielding a profitable day trade for anyone who followed this recommendation in Thursday’s touts section: “The daily chart has been looking too weighty to suggest that [a strong rally] imminent, but we’ll have a chance to test this theory when the stock pulls back to 171.63, the nearest midpoint support of consequence.  You can bottom-fish there with a stop-loss suited to taste, but if it’s hit look for the weakness to continue down to as low as 161.84.”

The bounces were not very impressive, though. And there things stand. The stock seems likely to fall another $10, and soon, because it has been unable to trampoline off support as it used to do in the good old days of summer. If this proves to be case, it seems extremely unlikely that the broad averages are about to forge higher. 

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  • mthomas November 23, 2009, 9:36 pm

    I just saw that a junior gold mining company that I like a lot, San Gold reported a new high grade gold discovery near its Hinge project. This article also says that the company is starting to draw comparisons to Goldcorp based on the numerous excellent discoveries the company has recently made. San Gold’s stock has performed exceptionally well this year, and while I would not necessarily be a buyer right now given the recent large run up, I would definitely add on a 10-20% pullback. Over the next few years I think the gold price is headed much higher, and San Gold could be a big beneficiary of this.

  • joe-- November 23, 2009, 6:40 pm

    So, explain how the USD can die and we get deflation.

    You can have deflation predominating but gold headed up. The stock market is also inflating and dittos for most commodities

    Gold (physical) is the ultimate safe harbor in a deflationary panic with bond defaults. The USG could default on its commitments though California and other states would do it first. I could see a USG default taking the shape of —- All US bank deposits are altered overnight so that one third to half of your savings are now in US Treasury bonds with 5 year maturity. CDs would be dealt with the same way

    In a deflationary panic billions could jam into the gold markets which is not very big anyway. Would make au rise in an amazing fashion. Destroying the US dollar is a very risky game because this makes the hoi polloi doubt all fiat currencies

    I’m sure Vlad Putin and China’s leader understand this 100x better than untutored 0bama

  • joe-- November 23, 2009, 6:24 pm

    I saw the movie “Rollover” within days of it coming out.
    That was almost 30 years ago
    Back then the problem that was going to bring down the financial system was the recycling of petro dollars that the Arabs were suddenly awash in due to quadrupling the price of oil to $12/barrel. The amount that had to be recycled was 25 billion per year. For the most part recycling meant the Arabs bought our stuff and our gov’t paper. Europe’s too

    These days the problem is in hundred’s of trillions of dollars and the SHTF that I and others were worried about back then is actually taking place today

    Another fun fcat is Shea Stadium was built for 15-20 million in 1966
    Citifield is replacing it and cost nearly one billion…a true testimony to the bubble year’s excess and worship of the golden calf

  • Paul November 23, 2009, 12:44 am

    Re: The Keith–Rick debate:

    As I recall from reading about the Weimar Republic, stocks did pretty well. The biggest problem with holding any intangibles (stocks, bonds, etc.) is when the time comes to sell them after the currency collapse. What are you going to receive as the proceeds from the sale, worthless paper? Ameros?

    Most “bite-sized” tangibles have a practicle, barter-exchange utility for purchasing necessities if we have The End Of The Dollar As We Know It.

    Good companies, like Rick mentions, will survive unless we have the ultimate Black Swan, major nuclear exchanges. Let’s hope Rick’s holding cumulative preferreds!

  • Paul November 22, 2009, 4:52 am

    From Rick, above:
    “Americans also understand that the moral logic of still hugely profitable bank trading-desks will not long abide billions in trading profits each quarter as long as bill-paying humanity remains mired in a catastrophic debt deflation.”

    Echoing Rick’s thoughts are Galt’s from Galt’s 2-Oct-09 essay (“An Exhausted Nation Cries For Help”):

    “You see similar scenes throughout the Southeastern states in the small and large towns, where the grocery stores are often backed up with lines of women holding their crying children attempting to pay for their groceries with the government food stamps or sitting in the parking lot asking for handouts. It begs a question to the ivory tower economists and their ilk; is this the ‘recovery’ you claim is under way or is it just because you were able to scalp another 15% by manipulating retiree stock accounts for one more churn and putting more citizens out into the streets?”

    Best of luck to all.

  • keith November 22, 2009, 3:05 am

    [Simultaneous deflation and grocery-store inflation, yes; HYPERinflation and deflation, no. RA]

    Rick,
    Then how is it possible to have a crashing stock market and hyper-inflation at the same time as Galt’s scenario suggests? I assume hyper-inflation, as the way you define it, must include housing and almost all other goods and services. So then why do you (or they) leave out stocks? If the dollar was melting down I would rather have stock in a viable company than to own dollars. And what faster way is there to dump a bank account or bond portfolio for the average Joe than to buy into the stock market?

    &&&&&&&

    I agree. I’d rather hold IBM, Johnson & Johnson or Proctor & Gamble preferreds than Treasurys. RA

  • keith November 21, 2009, 8:58 pm

    It’s not out of the question to have hyper-inflation and deflation happening at the same time. “Flationists” are too black and white.

    &&&&&&

    Simultaneous deflation and grocery-store inflation, yes; HYPERinflation and deflation, no. RA

  • zippythepinhead November 21, 2009, 6:20 am
  • James from Carroll County, Maryland November 21, 2009, 4:52 am

    So, explain how the USD can die and we get deflation.

    James

    &&&&&&

    It’s you inflationists who need to do the explaining, since we are IN a deflation and the U.S. dollar IS dying. RA

    Nice non-answer, Rick. Let’s try again. If the USD crashes and burns, how does that result in deflation?

    For the record, I am agnostic when it comes to -flations, so try to avoid argumentum ad hominem.

    James

    &&&&&&

    How long can hyperinflation be sustained? What would be the likely outcome? RA

  • Paul November 20, 2009, 8:55 pm

    To piggy-back on Doug’s comments:

    Does it occur to the smartest guys in the room that after they take advantage of the next market cratering, that “GAME OVER” could be glowing on their quote scenes?

    Galt’s stimulating scenario doesn’t propose a trigger mechanism. What concentration of “market order” sales on the dollar will be the tipping point? It’s interesting to see that the dollar has rallied from the high 74s to high 75s) this week, while gold prices are, basically, undented.

    Rick, excellent link to Galt’s piece. Thanks. Anyone who has waited until the last minute to prep for an in-bound hurricane can appreciate the “Walmart” scene vividly presented by Galt—lots of frantic shoppers scrambling to find “survival” supplies.

  • James from Carroll County, MD November 20, 2009, 8:26 pm

    So, explain how the USD can die and we get deflation.

    James

    &&&&&&

    It’s you inflationists who need to do the explaining, since we are IN a deflation and the U.S. dollar IS dying. RA

  • Paul Revere November 20, 2009, 6:42 pm
  • jennifer heaven November 20, 2009, 6:30 pm

    Dear Rick

    After reading the Galt essay, I was wondering if anyone was making a market in toilet roll futures!

    Actually all I need is one of those sea containers used for storage, stick it in the back field, buy the stuff and wait!

    regards

    jennifer

  • Doug November 20, 2009, 5:27 pm

    I’ve wondered if the obviously egregious Wall Street abuse of financial bonuses this last go around was a response to the realization that they had really screwed the pooch, this time…not a conspiracy, but each individual and firm scanned the lifeboat situation and realized decent morality would need to be very suspended if they were going to live. They realized that their distortion of the markets with their unsustainable complex risk obfuscations delivered a monster hit – a palpable, mortal hit to the entire system…and they knew it. The whole thing was going up in flames and they better grab some dry powder before none was left. Do a quick sleight of hand on the dopey taxpayer and voila! almost whole again. And now, GS seems to be trading as if even they aren’t eating their own cooking, leading the banks. Last time it was the worst, first. The subprimes fell apart in 2006(remember New Century? Gone by Spring ’07) GS rose all the way up until Fall 2007. Maybe they are the smartest guys in the room, after all.

  • john hartmann November 20, 2009, 3:57 pm

    The story of the collapse of the dollar was depicted in a movie, “Rollover” with Jane Fonda.

    &&&&&

    Final scene, with a room full of PC monitors blinking into the quiet darkness of a deserted trading room, is a good guess at how things will end for Wall Street. RA