Commentary for the Week of March 8

(Today’s guest commentary is from our friend V.R., a management consultant who incidentally was a student of ours before the term “Hidden Pivot” was coined.  Some may find his essay heavy going at times, but the reward for bearing with it, as your editor has found, is that you will have a better understanding of why complex systems, most particularly political and economic, fail.  Not all of them do, for sure, and V. elucidates the factors that can make the difference.  RA) Process Management appeals to companies that recognize its value.  Essentially, it is a scientific approach to managing  because, like all science, it is based on empirical measurement.  As we have learned in life, there are many ways of measuring things, and the less concrete they are, the more we dither over them and risk bringing progress to a halt.  This is especially true of politics, where hyper-emotional debate very often obscures the underlying issues.  In the corporate world, the ability of a firm to sustain and grow its business is related to its ability to stay on course despite changes in personnel,  market conditions and on stormy seas.  Carnegie Mellon institute is a leader in defining the software development process.  They created something called the Capability Maturity Model, or CMM, which uses a 0-5 scale to determine how well software companies use best practices to ensure the sustainable quality of their product or service. This ties directly to the sustainable efficiency of their profit-making efforts.  For example, a company rated “zero” uses ad hoc, shoot-from-the-hip means to accomplish things more than a level-5 company, and uses more subjective means of ‘measuring.’  This leads to less concrete operating methods, poor perceptions and an inconsistency of approaches.  Level-zero companies also waste effort developing their capabilities because they oversimplify the demands of

Silver Wheaton shares lost a sixth of their value in mere hours yesterday when they reversed sharply after spiking to a record high. Fortunately, we were a step ahead of the plunge, prepared to short December in-the-money call options if the stock came within ten cents of a promising Hidden Pivot target.  The actual high, at 37.20, was just four cents from the top we’d projected. Going into Tuesday’s session, anyone holding SLW would have been concerned, as we were, that the explosive rally of the last two weeks was too steep to sustain. The stock had risen by nearly 30% in just the last week alone, and it began the day yesterday on a take-no-prisoners, $2 gap, peaking at 37.20.  As it happened, that was just four cents from the Hidden Pivot rally target we’d disseminated to subscribers the night before.  Here is our advice, exactly as it went out to them late Monday night: “We hold a long-term position of 800 shares with an adjusted cost basis of 13.07 and a theoretical profit of $17,600.  One can never be certain exactly where a parabolic rally will crest, but let’s use a Hidden Pivot resistance at 37.16 as a possible target.” The trading advisory went on to provide a detailed strategy for protecting our gains if the stock’s ballistic surge terminated at or near our number. The idea was to leg on a “butterfly” option spread at prices that would leave us with no risk if SLW eventually went much higher lower, but which would yield profits of as much as $500 per spread if the stock dropped back to around $30 and stayed there for a few weeks.  Here’s how we laid it out for subscribers: [Determining precisely where the stock is most likely to top] will give

[ In today’s guest commentary, Rick’s Picks forum regular Doug Graham sounds a note of deep despair over the political economy.  There are too many incentives, he says, for our corrupt and deeply dysfunctional system to stay just the way it is.  And even if we possessed the fortitude and resolve to put things back on track, the looming inflation of the dollar to the point of worthlessness will render any such efforts moot. RA ] Pretty weird having front row seats to the destruction of the dollar, but here we are.  The leaders keep claiming they have a strong-dollar policy, yet the price of nearly everything, excepting housing and perpetually deflating technology, is now rising.  Every metal.  Grains?  Fuggeddaboutit. Energy?  Well natgas kind of threw us a curve, but even it is double its price from ten years ago.  We can argue the deflation debate forever, but the fact is your dollar buys you less of nearly every single commodity than it did in the Nineties.  Some, as much as 80 percent less.  You could not say this in the Eighties or the Nineties. At the same time we have a government which evidently can do nothing but stimulate inflation, insisting on growing.  It is widely stated that governments produce nothing.   This is not entirely true.  Other than dollars, they also can produce national security and they do provide some services such as moving mail around.  In general, however, they do produce nothing.  If they were a part of the human anatomy, they are more like the colon (my apologies to the colon, an effective and efficient organ)  than the quadricep: vital for the whole to function, but not all that pleasant.   And yet, the only significant job-growth sector of the economy in the last two years has been government.

Monday through Thursday, join me for a live pre-market look at bullion, index futures and whatever else is interesting in order to develop a trading plan for the day, particularly the opening hour. The focus will be on Hidden Pivot support and resistance points that show the most promise for trading with as little risk or stress as possible. Click here to register for these sessions.

(This week, Rick’s Picks will be featuring commentary from some forum regulars who for the most part are mad as hell and not going to take it any more. Today’s commentary is from Tom Waldenfels, a former broker and semi-retired management consultant who goes by the handle “fallingman” in the forum. Tom is skeptical, to put it mildly, that the recent election is going to change things. If the voters want real change, he says, it can only begin  with changes in the way they conduct their own lives. RA) I’m writing this essay a few days prior to the election, but I already know how the vote’s gonna turn out.  The new Congress will be composed of ... pause for dramatic effect … Republicans and Democrats. Doh! “Meet the new boss … same as the old boss.”  We just got fooled again. Yeah, the balance will have shifted some and many of the newcomers are unquestionably more honorable human beings than the people they’ll be replacing.  How could they not be?  But, as Doug Casey says, “Political power tends to attract the worst people … the four percent of the population that’s sociopathic.”  It ain’t like the Congress is goin’ all Jimmy Stewart on us.  We’ll be stuck with essentially the same crew and pretty much the same “leadership” in both parties that we’ve had, rump movements notwithstanding.  And how’s that arrangement been workin’ for us?  As we say in the south … “Not too good.”  Rome will continue to burn. Corporatism will continue to rule the day.  Promises will continue to be made that can’t be kept.  The Constitution will restrain no one.  Borrowed and newly conjured money will continue to be wasted on everything ranging from the merely idiotic and counterproductive to the truly criminal and completely

(Wow!  Are we getting rich already, or what!? Yesterday's 219-point rally in the Dow was a windfall downpayment on the "wealth effect" that Ben Bernanke's latest gift to all humanity is supposedly going to create. For our part, we're doing our patriotic best to spend every dime of our anticipated share of QEII, pulling our sons out of the horrid public school system and enrolling them at Le Rosey. We've also put a good-sized chunk of change down on a candy-apple red Veyron,  although it set us back an extra $75k to bump a few Hollywood types down the waiting list.  Because the commentary below attracted a slew of great responses in the forum – see, for one, Roger Erickson’s post on how QEII does not actually create money -- we're running it for a second consecutive day.  To those of you who are taking the Hidden Pivot Webinar, see you tonight in class...  RA) The Dow finished up a measly 26 points the other day on word of that the Fed plans to "buy" $800B of Treasury debt over the next eight months. The news caused pundits round-the-world to breathe a nervous sigh of relief.  The turgid action in stocks was taken to mean that there were no surprises for investors: not in Tuesday's election results, which saw Republicans take solid control of the House of Representatives, though not the Senate; not in President Obama’s subsequent press conference, which appeared to have cracked the door open ever-so-slightly for compromise on Obamacare and cap-and-trade; and not in the announcement itself that the Fed is about to rev up the money supply at a prodigious rate.  Could it possibly get any better than that? We ask the question facetiously, since anything one might find to like about the day’s major news events could be spun negatively. We’ll concede nonetheless that the Republican landslide in the House is probably

[So much for going out on a limb.  Shortly before 1 a.m. Eastern, the rally in index futures has reversed and the market is now flat.  It's possible this reflects a similar flattening of expectations arising from the election.  Although the Republicans made spectacular gains in the House, their failure to capture the Senate is likely to impose gridlock on Capitol Hill for the remainder of Mr. Obama's term.  While this is arguably cause for true celebration, it seems unlikely to generate the burst of exuberance on Wall Street that we had expected in predicting a 175-point rally. RA] The polls don’t close for another three hours, but we’ll go out on a limb with a prediction that the Dow will rally at least 175 points when stocks open on Wednesday morning. The exuberant reaction will be a variation on Barack Obama’s Hope and Change-inspired landslide in the 2008 election. Now as then, revelers will be so worked up about the very prospect of change, any kind of change, that they won’t much care about the details.  But they’ll care about them soon enough, and that’s why we’re also predicting a Thursday morning hangover; for at the end of the day, it takes just as many Republicans and Tea Partiers to screw in a light bulb as it does Democrats. Mind you, even though there isn’t ultimately much difference between the two major parties as far as how they govern, there are differences enough that we’ll be rooting, sight unseen, for anybody-but-the-Democrat in virtually all Congressional races.  Running as a Socialist Worker? No Problem-o.  Symbionese Liberation Army?  You can count on my vote. La Raza? Where can I find your name on the ballot?  Tupamaros? Sure, but please don’t forget me when the repeal of Obamacare comes up for a vote.

Stocks took a nasty reversal off yesterday’s fleeting high after falling an inch shy of a benchmark where we’d warned that bears would have to start worrying. Specifically, we’d said that if the E-Mini S&P futures exceeded 1196.50, that would set them up for an even more vicious short-squeeze that could last for weeks if not months. In the actual event, the E-Mini topped Monday at 1192.75, four points beneath our bullish trigger threshold, after rallying the equivalent of 100 Dow points Sunday night on near-zero volume.  Low-volume rallies have been the bulls’ modus operandi since the Mother of All Bear Rallies began in March of 2009.  Typically, index futures that trade round-the-clock get squeezed higher on extremely light volume in the dead of New York’s night. It is no great trick for firm traders to accomplish this with relatively modest capital outlays and very little risk – especially on quiet Sunday nights when there is but a mote of faintly positive economic news on the tape. Once the short-squeeze fuse is lit, DaBoyz sit back and wait for bears to come stumbling out of their lair, choking and coughing on smoke, when the NYSE opens.  Typically, bears will be in a panic to catch up with the index-futures rally that has occurred overnight. The sure-fire money-making scheme concludes with DaBoyz selling into the rally that they themselves stirred up. Often, the short-covering is sufficiently urgent to keep stocks buoyant even after bears have thrown in the towel and taken their losses. The “big news” out Sunday night was that consumer spending had risen a very modest 0.2% in September. There was also this kicker: manufacturing activity expanded faster than expected in October.  Taken together, these two items don’t add up to a hill of beans.  But in a market where

Solving the world’s debt problem dominated the discussion in the Rick’s Picks forum over the weekend, with the final word going to “Jill,” who congratulated the group for “putting on their thinking caps and devising some kind of solution rather than just abandoning all hope.”  From where we’re sitting, however, it is only those who have abandoned hope who truly understand the problem.  For in fact, there is no more a “solution” to the world’s debt problem than there is a perpetual motion machine or cold fusion generator to remedy the world’s energy problem. In the end, to restate C.V. Myers’ dictum, every penny of every debt must be paid – if not by the borrower, then by the lender. It’s as simple as that. And much as we’d like to believe that some financial genius will come up with a way to spare us the pain of a Second Great Depression, it ain’t gonna happen. Because the world’s debts total in the many hundreds of trillions of dollars, there is simply no discharging those debts without ultimately ruining the financial lives of most creditors, debtors, or more likely, both. However the unpayable sums are dealt with, as long as contracts are strictly enforced, deflation will continue to attend the process. Under the circumstances, the bankruptcy courts -- as opposed to a political system that may well eventually succumb to an anti-bank, populist tide -- will remain responsible for sorting out which creditors get paid, and how much.  By and large, this would visit pain on borrowers and creditors roughly commensurate with their respective sins of greed, stupidity and recklessness. A Wacky Idea In the forum over the weekend, the wackiest-sounding solution for the debt problem would have the U.S. Government print “debt-free money” that would be distributed to all