Commentary for the Week of March 8

The yellow flag is out for two popular trading vehicles that Rick’s Picks tracks closely – Comex Gold and the E-Mini S&Ps.  Is a major top in the offing?  We’d say the odds are against it for stocks, since there is little evidence that the promiscuous Fed easing that has pumped the stock market full of hot air is going to end, even if it is officially slated to do so in June. In any event, we’ve told subscribers to expect a peak of at least tradable significance in the June Mini-S&P contract at exactly 1371.00. We routinely identify such peaks, and provide detailed recommendations for getting short at each, although we don’t do so with the expectation of catching the exact high of the Mother of All Bear Rallies. You might just as well bet on a 30-to-1 horse that hasn’t finished in-the-money for two years.  Because the stock market has been chugging relentlessly higher since March 2009, “picking the top” is never going to be an odds-on bet.  That is not to say that picking “a top” is particularly difficult, as our subscribers would readily attest. In practice, we always advise taking a partial profit if the pullback we expect from a Hidden Pivot rally target is generous enough to allow it.  Traders invariably make better decisions once they’ve taken some of the house’s money off the table, and that is why we try to take partial gains, however small, when a trade goes our way. This also allows us to widen the stop-loss on whatever position remains -- and, in theory, to come out of the trade with a small profit even when we are wrong about the bigger picture. Concerning Gold, minor, technically-derived targets have kept us quite bullish the whole way up. But the most

Just when I thought it was safe to set the Hyperinflation vs. Deflation debate on autopilot, along comes Gary North with a smugly condescending essay posted at lewrockwell.com  that put my name in the headline and unspoken words in my mouth: “Rick Ackerman Defects to the Hyperinflationists Camp After 30 Years.” Not so fast, Gary. I’d still back anyone with a good deflation argument, of which there are many, and I can still take the deflationist side of the debate against you or anyone else without fear of getting pushed around. Nor will I ever be comfortable sitting in the same pew as Liro Gonzala, Jim Willie and a few other inflationistas who go “all-in” every time someone even mildly contradicts them. And just because I was impressed with FOFOA blogspot’s hyperinflation arguments is no reason to infer that I cannot find holes in them. Even he doesn’t claim to have a crystal ball, or that the debate is over. There will always be room for doubt. Take his counterintuitive assertion that the bankers who hold our mortgages would fare better in a hyperinflation than a deflation.  While deflation would likely reduce them to bag holders in a tidal wave of bankruptcies, the mere whiff of hyperinflation supposedly would set them scrambling for tangible assets before the rest of us even have time to panic. FOFOA convinced me that this is indeed plausible with a step-by-step argument much clearer than any I had come across. But even he would concede that things might not go so smoothly for the Masters of the Universe.  For starters, there’s the assumption that they will be cashed out at 100 cents on the dollar and have time to trade the money for real goods just ahead of the dollar’s collapse. Although there is precedent

[Responses to this commentary have been so illuminating and provocative that I am going to let the discussion run for another day.  If you read them all, you may come away believing, as I now do, that neither the hyperinflationists nor the deflationists can claim to know for certain how things will play out. That said, I consider FOFOA's hyperinflation arguments to be the best offered by either camp. RA] So, it looks like I’m a hyperinflationist after all.  Reminds me of the joke about the cowboy who chats up a woman at a bar – a lesbian, as it turns out. She tells him she spends her days thinking about nothing but women. “As soon as I get up in the morning, I think about women,” she says. “When I shower, I think about women. When I watch TV, I think about women. I even think about women when I eat. It seems that everything makes me think of women."  The cowboy goes home that night thinking that maybe he’s a lesbian too.  Another tavern, another night:  A stock broker strikes up a conversation with a stranger who seems obsessed with the idea that hyperinflation is about to wreck the economy. “From the moment I open my eyes in the morning, my head is filled with worries about how the financial system and the world’s currencies are hurtling toward disaster. Watching the stock market rise relentlessly, I grow more certain each day that it can only end badly.  I think the real estate disaster has barely begun and that, for tens of millions of us, the American Dream is about to turn into a nightmare.”   “Hmmm,” says the stockbroker.  “I guess that makes me a hyperinflationist too.” And so it goes. A conversation between a hardcore inflationist and an

Bullion quotes continue to ratchet higher, even as silver bulls (of all people!) warn that the rally has come too far, too fast. Ahh, there’s that old wall of worry  What could be more encouraging to long-term investors?  For it is only when silver’s most ardent supporters become cocksure, loading up aggressively for the next supposedly inevitable rally, that the trend will perhaps be in jeopardy – and then presumably only fleetingly.  For now, though, we need to remind ourselves that great bull markets are supposed to scare hell out of bulls and bears alike -- just as this one has been doing since last autumn.  Check out the amazing spike in Silver’s weekly chart below.  While we wouldn’t attempt to argue that its parabolic pitch can be sustained indefinitely, we suspect that, no matter how ferocious the inevitable corrections yet to come,  they will look relatively innocuous years from now. For it is only at that point that we will be able to see them in the context of a long-term bull market that will have achieved heights as yet unimagined by most investors. The chart may wind up looking much like one drawn today that shows the 1987 Crash. At the time, we thought the world was ending that Friday, October 16, as the Dow plummeted an unprecedented 108 points.  To the amazement of all, and the devastation of many, that proved to be just a warm-up for Monday, when a 508-point collapse brought the blue chip average down to 1739 – a 22% drop.  But look at the chart below and see if you can even find the ’87 crash.  While it is more than a blip, for sure, in the visual context of the spectacular bull market that was to follow, it looks like no more

[I alluded here earlier to a class of investable assets with the potential to grow in value more spectacularly, even, than gold or silver. In the guest commentary below, my friend Tom McCafferty, a commodity trader and author of numerous books, makes the case for Canadian farmland as the best place to sock away money for your grandchildren. Obviously, this would require more capital than you might sink into precious metals or stocks. But, as Tom puts it, if you’ve got “a couple of million” to spare, this is arguably a very good place to bury it. RA] If you’re worried about the economy your children, grandchildren and even your great grandchildren will inherit, there is an investment that has the potential to help all three generations.  It should even be rewarding in your life-time as well. I’m talking about Canadian farmland.  Not the beautiful mountains along the coasts, but the real, dirt farming, i.e. wheat, corn, oats, sunflowers, soybeans, sorghum, barley, etc., in the center of the country.  But first things first:  Why Canada? Global Warming—no matter whether it is caused by carbon dioxide or natural time cycles, the growing seasons in the higher climates is getting longer.  The yield of prime exporting crops, such as corn and soybeans, are getting better as faster than the climate is rising. Water—Canada has plenty, unlike India and China.  And it is clean water.  Ever wonder why China put so much effort into controlling Tibet?  The five major rivers that supply water to China originate in little old Tibet.  When you read that China is importing more and more soybeans, they are actually importing water.  And water, unlike oil, cannot be economically moved—imported or exported—from one country to another.  It can only be used where it is.  In the years to come,

Here’s an upbeat, dog-bites-man story concerning the neighboring town of Lafayette, Colorado, where a major piece of the retail economy has been on the skids for years. Wal-Mart and Albertson’s long ago vacated the city’s biggest mall, hollowing out two cavernous buildings and all but snuffing what little business had remained for the small shops and restaurants that once lined the plaza.  Although the city was hoping to redevelop the site with a mix of offices, residential and retail, when recession hit full-bore a couple of years ago commercial interest dried up.  Let’s skip ahead to the present: The site has just received a $22 million refurbishment; its huge, weed-sprouted parking lot has been repaved and a new, 4-acre lot added; the big-box stores have been joined under one roof, creating a 130,000-square-foot room; and, the facility has been drawing 10,000 visitors a week, many of whom are spending money at neighborhood restaurants and stores, although not at the “main attraction” itself. Can you guess what “business” this new operator is in?  Here’s another hint: millions of dollars went into the installation of stadium-sized video monitors, state-of-the-art sound and light equipment, and seating for 4,000.  If you guessed “concert hall,” you’re close, since the place really rocks on weekends.  But this operator is in the business, not of rock concerts, but of redemption, since it’s a house of prayer -- Flatiron Community Church (FCC), it’s called, with a congregation of 10,000 that is the second biggest in Colorado. And it is succeeding in such a big way that it has begun to revitalize a section of town that was commercially dead a year ago.  “Ten-thousand people have to buy gas, groceries and hamburgers somewhere," says Jim Burgen, the tattooed and energetic lead pastor of the non-denominational Christian church. Reluctant to

And now we learn that Standard & Poor’s, the same unprincipled hacks whose grossly inflated triple-A ratings made America’s real estate boom and still-busting bust possible, has downgraded the USA itself.  Or to be more precise, their long-term outlook fell from “stable” to “negative” – a Kremlinesque way of hinting that an actual downgrade from AAA is possible if the U.S. doesn’t get its fiscal house in order (as though that were even possible, given that the Federal debt is $14.3 trillion and climbing, and that the economy is on a permanent respirator). And whose payroll is S&P on, we wonder?  Until yesterday, we thought they were so busy putting the screws to Europe’s financial cripples that there wasn’t time or manpower enough to pore over America’s books. Now, it would appear, they’ve found actual fiscal problems to worry about even if the real worries eupted like Vesuvius three years ago. And another thing: Whenever they slam the PIIGS by taking their credit ratings down a peg or two, it is usually to buoy the U.S. dollar that day so that Little Timmy Geithner’s pep talk at some Rotary Club luncheon gets good press. Whatever the reason for yesterday’s downgrade – about as shocking to millions of Americans as the revelation that Liberace was gay – it was fun to watch the bond market react. Or rather, to not react. T-Bond futures ended the day down a few measly ticks, although the obligatory swoon on the “news” allowed predators who live off such volatility to shake down the rubes. The June contract plummeted more than a point-and-a-quarter on the opening bar, then spent the rest of the day making fools of those who had bailed out at the lows. Nice to see the bonds acting conflicted for a change. On

[My good friend Tom McCafferty is a veteran commodity trader and the author of numerous books about trading, including one of the very best primers available on the put-and-call game, Options Demystified.  More recently, he has written several guest commentaries for Rick’s Picks, among them an upcoming piece in which he will reveal his top choice for all investables – an asset class that has the potential to pay big dividends for generations to come.  In the essay below, Tom explains why he’s bearish on the economy – and on America – these days. RA] Recently, I was asked why I wasn’t as bullish as some of my fellow traders.  The market has gotten off to a respectable start for the year and I didn’t seem as excited as some of our group.  Short-term, I was as mostly long, but long-term I was Smokey the Bear.  These guys demanded to know why I was so low key.  My answer of course was:  “It’s all the deficits, stupid!”  More definitively, it is all the obstacles that may prevent the United States of America from tackling the problems, i.e.: •           Bipartisanship—I don’t think this country has been so divided since the Revolution or the Civil War.  Nothing gets done as all the politicians, special interest groups and powerful unions fight for their special interest and neglect the best interest of the overall population. •           The sheer size of government—you know you are in trouble when twice as many people work for the various levels of government than work in manufacturing, farming, fishing, forestry, mining and utilities combined.  You know you’re in trouble when the salaries and retirement benefits of public “servants” are more lucrative that those producing the gross domestic product.  Fifty years ago, these numbers were reversed. •           Education—why do less

Our recent discussion of whether deflation or hyperinflation will lay waste to the economy elicited hundreds of responses. Two of particular interest are featured below.  The first, from blogger Charles Hugh Smith, explains why it may be impossible to know with any certainty which of the two forces will prevail.  The second, the thoughts of a fourth-generation Texas rancher, suggests that in a crisis,  we may discover that our need for protein trumps concerns over gold, silver, Treasury paper and the dollar. Here’s Charles, in an excerpt from an e-mail I received from him several days ago: I certainly wouldn’t want to debate anyone because my arguments are those of a trader, basically, not an economist.  Maybe we will get hyperinflation, I don’t claim to know. What bothers me is the widespread conviction that hyperinflation is “guaranteed.”  This smells like a one-sided trade to me, even if it is more of a meme than a trade. As we’ve both said, the other issue is, how do the Elites benefit from hyperinflation?  The only answer I’ve ever received is “they’ve already bought gold.” Yeah, right. As I noted, there’s $7T in gold, total, half of which is owned by central banks, and there’s $160T in financial wealth to protect in the world. Even if gold went to $10K/oz there would be no more than $35 T in gold in private hands, and by that time, the gold in Fort Knox (or in the PBoChina vaults, etc.) would be enough to establish a gold-backed currency.  Meanwhile, the Financial Elites would have lost all their financial wealth.  Have they really transferred all their wealth out of all financial instruments and totally into gold and land?  If so, then owns the $160T in financial wealth? This explanation -- that the wealthy have already transferred