Monthly Archives: March 2012

31st March 2012 — An interesting opportunity in gold

I am planning on launching a new newsletter service very soon through www.technicalforecasting.com. This is my first entry

Newmont Mining (NEM) 31st March 2012

Prev Close: 51.34 Day’s Range: 50.68 – 51.70
Open: 51.61 52wk Range: 50.47 – 72.42
Market Cap: 25.38B Volume: 6,089,331
Free Float 494.43 Avg Vol (3m): 6,794,650
P/E 52.79 EPS 0.9713

 

Please click for full image

 

Launch Date

Current Level of support/resistance

Distance

14/11/2000

44.572

13.06%

19/11/2008

51.751

-0.94%

 

Being bullish on gold isn’t exactly an original investment strategy. In fact some say that because so many are bullish on gold this is a clear contrarian indicator that the market has peaked. I don’t believe this.

The record printing operations of central banks around the world have surely created the right monetary conditions for the rally in commodities to continue for some time yet. All this extra liquidity has already had an inflationary impact on financial assets. Just look at the stock market’s performance, while the real economy has suffered the “jobless recovery”. As currencies are debased, gold’s appeal as the primary international reserve for the storage of wealth increases by the day.

Even though the price of gold has been treading water for several months the conditions suggest that we are heading to the all-time, inflation-adjusted high at about $2,450/oz.

There are problems with trading gold though. The speculative nature of the market has meant short term-moves are increasingly pronounced. It is all too easy for retail investors to get impaled on spikes or stopped out by sudden reversals.

Which brings me nicely to the topic of this newsletter – Newmont Mining. Continue reading

19th March – Cloud Watching (Part II)

Today Greece will attempt to settle the outstanding €3.2billion of bonds, which must be repaid in full having triggered Credit Default Swaps after this month’s “bailout”. You could have been forgiven for thinking this might be the end to this crisis. After all the fanfare from European politicians and the IMF this was certainly the message they wanted us to believe.

It was no such thing.

At best time has been bought. The latest Greek bailout may take us through to 2013, but I expect concerns to start filtering through to the market before then. The IMF has already warned that Greece will require further support as they are already falling behind in meeting the agreed targets.

How can a country, whose economy has contracted aggressively for 5 years and whose political class is clearly inept (at best), suddenly be expected to return to growth within two, whilst engaging in swingeing austerity?

As Iceland served as clear warning of imminent financial collapse in 2008, now Greece serves as warning of the parlous state of modern government.

It is all too easy to dismiss Greece as a failed state. There is some statistical evidence to support this view, such as the gross inefficiency of tax collection, poorly enforced regulations and excessively generous working conditions in the public sector.

However, as unpalatable as this may seem, Greece also shares crucial similarities with other Western governments. Continue reading

16th March – Cloud watching (Part I)

I have to be a little careful.

Since last August I have been wrong in my specific predictions for the outcome of major events. I couldn’t believe that Congress would fail to overcome the Debt Ceiling Crisis and I thought Europe would fail to reach agreement on Greece. In November I thought the Super-Committee would agree on deficit reduction in the US and then finally I believed there was a very chance that the Greek deal wouldn’t go through. I also expected a sell-off in response to the triggering of CDSs after Greece’s default.

This has all given me pause for thought!

Given that I have been wrong every time on the specific outcomes of events, it has been somewhat amazing that my stock portfolio is doing as well as it is.

Looking back over the last six to nine months I have been pretty spot-on in my reading of market conditions. The trading tools I use help a great deal, but I also have spotted that the monetary conditions are right for an amazing secondary bull run.

Even so I am conscious of darkening skies. Continue reading

14th March 2012 – An inside view (as if we needed it)

I have picked up some more writing work recently, hence the lack of posts in the last week. I will post the article to the blog when I have finished it.

In the meantime I couldn’t resist writing a small response to today’s open editorial from ex-Goldman employee Greg Smith in the New York Times. Titled “Why I am leaving Goldman” Mr Smith laments the moral decline of the company he has worked for, for twelve years.

None of this really comes as a surprise. I have been writing about the social-consequences of the financial world’s absence of morals since I started this blog. Thanks to the fallacy of “too big to fail” we are stuck with this system until it eventually does what it is meant to be too big to do.

It is ridiculous for Mr Smith to eulogise about Goldman’s “decline”. Wasn’t it twelve years ago that Goldman helped the Greeks cook the books to enter the Euro? Before that weren’t they one of the key protagonists in the Dotcom boom?

Perhaps the predatory behaviour has become more open, but I doubt it is any worse than it ever has been.

On reflection maybe there is one key difference between now and five years ago. Continue reading

6th March – The Greeks don’t appear to understand

Having said I didn’t want to write about Greece, I have just spotted this on Ft.com.

It is all well and good for the Greeks to threaten to default, but have they considered this is exactly what the holdouts want.

I wrote, a month or so ago, an item wondering if Hedge Funds, which owned CDSs also had built up enough of a blocking stake in Greek bonds to ensure a payout no matter the outcome. In many ways this is the ultimate hedge and it looks like we could be about to witness its conclusion.

Perhaps the ISDA will still find some way of saying Greece has not defaulted.

I go to bed now, happy that I have reduced my risk. I have the feeling an immense buying opportunity is just around the corner.

6th March 2012 – ECB overnight deposits explode as Greece implodes

Ideally I would prefer not to write about Greece this week. Frankly I am bored of it.

As I have said before, what will happen, will happen, but things are reaching a climax. I am not convinced the Greeks will be able to reach a deal with their creditors without invoking the Collective Action Clauses (CACs). However even if they can’t avoid using the CACs it is by no means certain that ISDA will deem this a credit event. And even if they do deem it a credit event the world is now awash with liquidity.

What I cannot ignore is the huge spike in use of the ECB’s overnight deposit facility. If you read my article on February 28th you will know what this is. If you didn’t I am not going to explain again!!!!

Last night the amount parked with the ECB reached a staggering €813billion. This is up from about €410billion immediately before the latest LTRO was released. Remember that in the following month after the ECB issued the first LTRO (which was €489billion) the overnight deposits went from about €230billion to €520billion. Exactly the same pattern has repeated itself.

The LTRO charges an annual interest rate of 1%. The overnight deposit pays about 0.25%. This tells me two things. Continue reading

3rd March 2012 – A rigged game part III

Well this is starting to become a bit of a theme.

Usually a visit to this topic reveals the latest manner in which average investors end up holding the short end of the stick. Today’s instalment offers us a very different take on one of my favourite leitmotifs. For once the system is shafting hedge funds and reaffirming the primacy of the banks (as if that has ever been in doubt).

On Friday the International Swaps & Derivatives Association (ISDA) announced that the losses on Greek bonds would not trigger credit default swaps (CDS). Apparently the door is still open for a credit event if Greece makes use of collective action clauses. However this first ruling is ludicrous. A 75% write-down on debt is a default. It really is that simple.

I find I am in a bit of a tricky position on this matter.

On the one hand I recognise that CDSs are dangerous and threaten the whole financial system. They will bring with them a great deal of pain. On the other hand, though, they are also the clearest manifestation of one of the market’s most vital roles; namely to bring down what has failed.

This ruling by the ISDA is a con. Continue reading

1st March 2012 – Liquidity, liquidity, liquidity and two targets I am watching out for

As if were in any doubt it would happen, markets were again flooded with more liquidity yesterday as take-up for the ECB’s Long Term Refinancing Operation (the cheap loans), topped expectations at €530billion. What I found interesting was the 800 banks took these loans. I had seen commentary that suggested take up would be low so that banks avoided the stigma of taking what amounts to state aid. Such a broad rate of participation suggests that a lot of this stigma has now been removed and the banks are happy to take free money wherever they can get it.

One day I am going to try figure out exactly how much money central banks have created in the last three years, but I think it will now easily be more than $4,000,000,000,000. When we look at the figure it is incredible to think this has happened and has not caused rampant inflation. Interestingly Zerohedge today published an article about the theme I spoke about a few weeks ago. In short their view is we are likely to suffer a temporary deflationary collapse, followed by a rapid inflationary catastrophe.

I accept this is a very bleak view and also that I am vague on timings, but I believe the outcome is inevitable. Central bankers have created the conditions for the next crisis and the rest of society has allowed them to do this.

It is absurd that ECB President Mario Draghi can claim with a straight face that the ECB is not printing. How else have they been able to launch two phases of LTRO? Continue reading