June 2010

For spin-free analysis of the global economy, the Australia-based  The Privateer is one of our favorite reads. Amidst a cacophony of hubris and unwarranted optimism, its editor, William Buckler, provides a fact-filled perspective that reduces the mainstream media’s reports of “recovery” to drivel. Buckler notes drily that “the signs that the party is indeed almost over are all around us and becoming very difficult to ignore.”  The same goes for the U.S. dollar. When Nixon cut off foreign holders from redeeming dollars for gold in 1971, says Buckler, the U.S. initiated a reckless global experiment with fiat paper. “Forty years later, the bill for this adventure has come due,” he warns, “and there is nobody to pay for it.” Like Rick’s Picks, The Privateer regularly finds something to amuse in mainstream-news headlines on the topic of the economy. Here’s one that caught his eye -- and ours as well: “China Makes Good on Flexibility Vow – Yuan Falls”. As if any of the central banks actually support flexible markets. If it had been Hitler’s invasion of Poland that was being reported, the headline might have read, “Hitler Makes Good on Vow to Seek More Room for Germany”. Ominous Signs Recall that U.S. stocks got barely any lift from the news.  Abetted by short sellers caught on the ropes last Sunday night, DaBoyz and their pigeons were able to pretend for only a few hours that China’s decision to let the yuan rise was good news. Stocks all around the world rallied sharply if fleetingly, but by Monday morning most traders seem to have figured out that a pricier yen would subject global financial markets, particularly the U.S. dollar, to killing stress. The Dow Industrials fell steadily for the rest of the week, failing to attract even one decent short-squeeze rally the

From Spengler, a trenchant assessment of a President who, in the space of just 18 months, bids fair to marginalize America's influence in the geopolitical world. The essay is written from Israel’s point of view, but its scope encompasses the menacing implications of an alignment between Turkey, Iran, Syria and Russia, with Turkey's Erdogan the catalyst. "Whatever the failings of the Bush Administration—and there were many—the world accorded U.S. priorities a grudging respect born of fear. In just two years Obama has become a figure of astonishment and contempt. In every field of foreign policy—Middle East peace, nuclear proliferation, dealings with the Russians, the Korean peninsula, relations with Japan, management of Latin America— the once-stable pillars of U.S. foreign policy are melting down." Click here  for the complete essay.

Bears can take their pick from among a dozen fetching patterns that all point lower, some of them much lower. One I rather like implies the futures could fall to as low as 992.25, and quickly, if DaBoyz pull the plug. The sibling midpoint support of that target is 1060.75, and we should therefore look for a bounce from that number to confirm our worst suspicions.  The pattern is shown in the accompanying chart. Since we should never rule out the possibility of a well-orchestrated short squeeze, let's use a print at 1084.25 today to warn of trouble.

The futures look atrocious, although they have somehow avoided the collapse that feels almost like the electrical tingle in the air that precedes a lightning strike.  Bears should take encouragement from the fact that, on the hourly chart, the E-Mini S&Ps haven't generated a single bullish impulse leg since Sunday night, which really doesn't count.

Silver got out of a jam Thursday, in the processs exceeding our bull-trigger threshold by an impressive 4 cents. At day's end the July contract looked bound for a Hidden Pivot resistance at 19.250, provide it can bust past midpoint resistance at 18.930. As of around 10:30 p.m. EDT, buyers were looking pretty feisty.

A little greed is good here, since we don't want to sell our puts prematurely, just as the party as getting under way. We hold two August 98 puts for 1.06 and four July 96 puts for 0.70. The paper gain on the position at yesterday's closing prices amounts to a little more than $400. Continue to offer four July 90 puts short for 1.40, good-till-canceled. If you want to see how far DIA would have to fall to get us filled on the order, check out the accompanying chart.

Although August Gold's sharp intraday recovery yesterday exceeded an imposing resistance peak at 1247.40, the rally failed by three ticks to get past a Hidden Pivot at 1249.70 that I'd implied was even more important.  Not to worry, though.  The pullback from the day's high at 1249.50 has been shallow so far, hinting that bulls are ready to take on whatever supply the bad guys throw at it on Friday. A thrust past 1250.50 will indicate liftoff toward two bullish targets: a minor one at 1260.90, and a more important one at 1272.60 flagged here earlier.

[Gary Tanashian writes a technical and macro-fundamental analysis blog, is the publisher of financial website Biiwii.com and the premium-content, market-analysis newsletter Notes From the Rabbit Hole. In the essay below he explains how the interplay between inflation and deflation is used as a monetary policy tool by the Fed and U.S. Treasury. For the record, Rick’s Picks has long predicted a deflationary depression, but with a precipitous and devastating hyperinflationary phase. RA] I would like to thank Rick Ackerman for the opportunity to continue a conversation that began in 2005 with an email I sent to him in response to an article he wrote about deflation that I felt was beyond the usual boilerplate that keeps insisting that a deflationary depression will bring all asset prices down. In fact, Rick’s constructive view of gold hints that he is not a knee-jerk gold booster like so many gold bugs, but rather a realistic believer in the idea that not all assets are created equal, especially during times of great monetary stress. There are several notable deflationists who absolutely hate gold, which makes sense since they have been micromanaging its “price” demise since 2002.  While they may be right for limited periods during an ongoing secular deflation against which ever more exponential inflationary policy is brought forth, they will never be right about gold’s “value proposition” in relation to assets positively correlated to growing (or more accurately, contracting) economies, at least during the current secular trend. The garden-variety deflationist preaches global depression and cash-as-king.  Well, he may be half right: cash is good for short-term liquidity and can play court jester, but gold is king of enduring value in the current system as policymakers fight the dreaded deflation beast ever-further off the macro balance sheets. More astute deflationists do not focus on asset prices, instead

It's hard to know what has been propping up the market, although it might be something as simple as that there are still one or two bears out there who have survived thus far.  I've provided a number in today's E-Mini tout that can warn us of yet another bull trap, and it looks simple enough to work, so check it out.