January 2009

Our colleague Mish Shedlock did quite a hatchet job on hyperinflationist Peter Schiff the other day - much of it deserved, if the evidence that Mish presented is to be believed. The two have never seen eye to eye, since Mish, like us, is an unreconstructed deflationist. But his indictments against Schiff have less to do with the Inflation vs. Hyperinflation argument than with allegations that Schiff's actual performance as an investment advisor has not been so stellar as one might have inferred from his high-profile exposure as a doomsdayer.  Mish says that while Schiff has been essentially correct about doomsday, his actual investment portfolio got the details completely wrong, especially in its short-dollar orientation. (The same could probably be said of another world-class self-promoter, Jimmy Rogers.) We won't go into Mish's case against Schiff, since it is quite detailed and can speak for itself. (You can access it at your leisure by clicking on the link at the bottom of this commentary.)  However, we would like to say a few things about hyperinflation, since, on this score, we think Schiff got it right.  He believes that the Fed, having explicitly committed itself to holding interest rates down by purchasing unlimited quantities of Treasury debt, has put the U.S. on a hyperinflationary course. We agree. In fact, and as we noted in an earlier commentary here, Schiff has laid out such a strong case that it is hard to see how he could be wrong. That said, however, we stand solidly with Mish, who notes: "I called for deflation and it is here right now. I do not have to wait for it. The only debate is how long it lasts." Hey, Bozo! We have been calling for deflation ourselves since the early 1990s - in fact had the topic

If GDX is ready to rock and roll, the correction off Monday's high should reverse today from 33.18, a Hidden Pivot midpoint as well as my minimum downside target for the very near-term. However, we'll play it conservatively with a bid at 31.93, the 'D' target associated with the first number. If our bid misses the turn, we can play catch-up later, using a with-the-trend entry strategy.

I don't want to get anyone raped with a market order to buy calls on the opening, so I'll make this recommendation catch-as-catch-can. Goldman Sachs, fated to trade $29 or lower at some point in the distant future, looks like it's headed up to at least 84.40 over the near term. The very clear midpoint pivot associated with that target lies at 78.59, and so a decisive breach of that number would raise the odds of completion to the target. I suggest you allow yourself to get as bullish on the stock as your appreication for the pattern shown in the chart will allow. It looks pretty promising to me, but that is not justification for jumping on call options willy-nilly. _______ UPDATE: The nasty little sonofabitch opened at 84.42 (!) on a huge gap, trading as high as 85.93 in the first seconds. So much for that idea.

Someone in the chat room mentioned that Jim Cramer -- a power-drunk maniac who can move a thousand bozos with just a few words -- has put a hex on Barrick. He evidently thinks the stock is going to fall 20%, but I say: Jim, get a grip! As far as I can surmise, Barrick is about to rally by 24%, to a Hidden Pivot target at 45.97. Odds of the stock collapsing after having created the beautiful impulse leg shown in the accompanying chart are slim to none. Incidentally, I have been thinking about adding a "Cramer's Korner" at Rick's Picks. We would take his specific recommendations and re-calibrate or reverse them to do something he only very rarely does -- i.e., make money with them.

A Hidden Pivot at 8302 (shown in the chart) beckons as a minimum upside projection for this rally. The pattern is somewhat obscure, and so I can recommend shorting at the target with a 4-tick stop-loss. The chief risk here lies in the close proximity of the target to round-number resistance at 8300. There is "structural" resistance at 8315 that you could use to place the stop-loss, but 12 ticks seems too expensive, since any progress above the target will bring the futures into the magnetic field of the 8392 peak recorded on January 18. There is also a more conservative play -- shorting 8282 with a 4-tick stop-loss -- that I can also recommend. It leans on the one-off 'A' at 7872. ______ UPDATE: A 4-tick stop-loss would not have worked, not quite, since the futures topped overnight at 8294 after a 201-point rally. Cancel the 8302 offer, since YM seems unaccommodating this morning.

DaSleazeballs are effortlessly achieving this evening what they were unable to accomplish during the regular session -- i.e., running the futures up to at least 862.50, a Hidden Pivot target that seemed certain to be achieved after a short-squeeze on Monday blew past four intraday peaks. So spirited is the bidding tonight that we're going to raise our benchmark to 873.75, a Hidden Pivot that can be shorted with a stop-loss as tight as two ticks. Nightowls could try to get long on an abc pullback, but so far there's only been one this evening that could be called an opportunity. _______ UPDATE: The futures peaked overnight at 863.75, then pulled back to 856.50 befopre finding traction. The higher target remained valid -- and short-able.

The bar chart below, of the Dow Industrials, is about as packed with tedium as you could find over a two-week stretch. We’ve been projecting a bullish outcome, although for purely technical reasons and only for the very short-term. But with the economy hovering miles from a bottom, perhaps a little boredom on Wall Street is as much as we could hope for? Even so, it seems curious that stocks been having such difficulty giving up ground lately. (Our target for the Dow is 6883 – a 15% decline from these lofty heights.) If we had to guess, we’d say that a steady stream of merely bad economic news, including 65,000 layoffs announced the other day by a bunch of Fortune 500 companies, has numbed investors to reality. Surely things are certain to get much worse, since mounting layoffs cannot fail to have a domino effect. But it has seemed as though any day on which we are not greeted with news of yet another mega-bank failure produces little net gain or loss on Wall Street. While the day-to-day survival of the banking system is not exactly cause for exuberance, neither, it would seem, is it deemed reason to inflict damage on shareholders. We stopped shorting the bank stocks ourselves when we realized that the ones that remain are not going to fail. The bad news is that they are all certain to be nationalized, probably within a year, and that this could not conceivably be good for capitalism. In the meantime, 90 minutes seems to be the investment horizon for most who are actively buying and selling stocks these days, Even those “investors” who could pass for visionaries on CNBC seem not to be looking much further out than a week or two. (If you’d like to have Rick’s

The rally from last Friday's lows already looks pretty promising, but we'll have a clearer idea of how much steam is percolating beneath the surface if and when buyers take on the 1.3364 peak recorded on January 18. My hunch is that, other than the peak, no serious resistance will turn up below 1.3828, the Hidden Pivot midpoint of a Big pattern that goes back to December 4's 1.2542 low.

With clear sailing to at least 952.30 forecast for April Gold, this vehicle looks poised for an even more impressive run-up. My minimum upside target for the next 8-11 days is 40.40, which implies in percentage terms a thrust more than three times as powerful as the expected gain in bullion. Buying of calls in anticipation should be done at these levels, since 33.78 is the midpoint pivot associated with the 40.40 target. However, let's begin the day with a conservative bid for two March 35 calls (GBJCI): Buy two of them if GDX approaches 32.99, the nearest Hidden Pivot target below. Also, more speculatively, bid 33.72 for a round lot of stock, stop 33.64._______ UPDATE: Bottom-fishing for stock proved premature, but we lost only pocket change attempting it at 33.72. I'll revise my advice to take into account this sign of short-term weakness. ay