August 2009

I thought I'd overdosed on the inflation vs. deflation debate, but that was before I started reading Adam Fergusson's When Money Dies: The Nightmare of the Weimar Collapse. Fascinating stuff. Anyone who thinks it couldn't happen here is right in one respect: It won't take ten years to play out in the U.S., as it did in Germany.  Far from it. My guess is that our own hyperinflation nightmare - and we will have one once deflation has had its way with all who borrowed more than they can ever pay back -- will be over within ten days of the initial panic. Then it will be back to deflation for another 20-30 years. Are you ready for it? Investors shouldn't kid themselves about being able to avoid all the whipsaws. Just when you're patting yourself on the back for scoring some ingots for $2000 an ounce after bullion has shot up to $5000 in mere days, quotes could plummet back down to $2000 in a blink. That would hardly be a catastrophe for long-term bulls who have been accumulating the stuff since it was $300 an ounce. But what about the guy who bet the ranch at $5000, thinking he'd get $10,000 from some greater fool a week later?  Which raises another tricky question:  When you sell your gold, what do you accept as payment?  Do you risk taking dollars whose purchasing power could fall by half overnight, as the German mark did? Few Winners Fergusson's book makes clear that there were few winners and almost no big winners. Farmers made out pretty well, of course, because a potato was a potato no matter how many marks it took to buy one.  In fact, some who borrowed heavily to buy farms when hyperinflation took off in 1922 were able

Goldman's Friends in (Very) High Places seem to have cut the stock loose these last two weeks. We'll know soon enough whether they're just being coy, since there are two quite-clear Hidden Pivot supports not far below. They lie, respectively, at 156.34 and 153.57. Either number can be bottom-fished at your whim with the very tightest of stops, but you'll be on your own if you fill.

Someone mentioned in the chat room tonight that there are perhaps too many well-regarded bears out there for the market to collapse.  Indeed, quite a few of the pros I swap letters with are moving toward the exits right now. That doesn't mean we should arbitratily take a contrarian stance -- only that we should be more cautious than usual about being influenced by anything but our own good judgment.

We took a flyer on this stock a while back and lost $200, but there's a midpoint support where we can try again that will afford us better protection against risk. Bid 17.07 (3 cents above the actual pivot) for 400 shares, stop 16.97, day order.

I'd be tempted to recommend shorting a Hidden Pivot at _____ aggressively were it not for its close proximity to a visually obvious high at 31.63 made two weeks ago. Let's try it anyway, very gingerly, by naked-shorting a single September 32 call (SYJIF), stop ____, if and when SKF gets within a six cents of the target.  By rough estimate the calls should be offered for around ____ at the time, but you should try to do no worse than a price midway between bid and offer.

I've just mentioned in the chat room that the 13.805 target is still theoretically valid but unappealing as a place to try bottom-fishing, since the bounce from a somewhat higher low at 13.820 has gone on for so long. The futures would need to keep going all the way up to _____ to make a statement, but that appears unlikely because of the feebleness of the bounce so far. A bit of unexpected news could change that in an instant, but without it the futures appear to be headed lower -- presumably to test a moderately important low at _____ recorded on July 31.

A print at _____ this week would be needed to turn the hourly chart bearish again; failing that, the futures could grope their way down to early July's 907.60 low in search of traction. Once beneath the low, it would take an uninterrupted fall exceeding _____ to do even minor damage to the daily chart. More immediately, the rally off Monday's lows has shown no particular exuberance, having stalled at a 940.70 high that is just two ticks from the highest target we could have projected using the lesser charts. (A=931.80, B=937.60 at 11:15 a.m., 5-minute chart.)

From our friend Levente Mady, who tracks and recommends bonds for Bob Hoye's Institutional Advisors, here's a tactic you can use to beat the high cost of gasoline. (He is responding to a post in the forum by a concerned reader): "If you are worried about the price of gasoline, you should convert your car to run on propane.  If you look at the price relationship between crude oil and natural gas, it should cost you about 3.5 times less to fill up with propane than with gasoline these days.  In other words, if it costs you $100 to fill up your car with gas, you can get the same amount of mileage for less than $30 of propane.  There is hundreds of years' worth of natural gas supply in North America.  It is dirt cheap!  It is clean!  Why not put it to good use?   "A bit of background in terms of practicality:  the technology is there and it costs $3,000 to $5,000 to convert a larger automobile (SUV or truck) to run on propane.  Obviously, natural gas is the cleaner fuel and there is a massive abundance in North America -- that is why it is so cheap.  As a matter of fact, some states - Arizona, for example - provide tax credits for the conversion expense as well as for running the car on propane instead of gas.  Uunfortunately right now there just does not seem to be much talk about using natural gas as transportation fuel.  Natural gas is supposed to be used more or less exclusively for heating.  The choice fuels for transportation are crude oil derivatives (diesel, gasoline, jet fuel, etc.).  "The silly thing is that there is a ton of money spent on non starters that are decades away from making economic sense

The darned thing did practically everything a bear could have asked of it yesterday --except continue to fall after the overnight lows got taken out.  What could account for sellers' apparent faint-heartedness when they had bulls on the ropes? Lack of conviction?  More likely it is fear that was lacking, although we shouldn't rule out its emergence this week, since it could easily start to snowball if the futures fall even moderately over the next day or two without finding good traction.  Night owls will find moderate camouflage if the futures pop above _____ in the wee hours, but this might excite enough buyers to necessitate our entering after the first point 'C' has been stopped out.  I have sketched this scenario in the accompanying chart for your guidance.