From Business Insider:
“The dollar will weaken to $1.55 versus the euro in three and six months, the bank said, revising previous forecasts of $1.45 for both periods. The U.S. currency, which has fallen versus all of the 16 most-traded currencies this year, will recover to $1.35 in 12 months, Goldman Sachs said”
Goldseek radio has an interview with Robert Prechter here.
Prechter’s 2002 book, “Conquer the Crash,” predicted the current economic collapse and this is an interesting and wide-ranging interview. Prechter is a renowned Elliot Wave theorist and a long-time prophet of depression.
Summing up his most important points:
*We have been in a developing deflation since 2002
*Debt is the problem, not paper-printing.
*Gold will hold value and do well, but it won’t go to the moon
*Cash is a good place to be
*The market will go down for a replay of 2008, in spades
Stocks, Futures, and Options Magazine will be out with an article in December on its top ten trading books for 2009 – the list includes Mobs.
This really tickles me, because at heart, I’m a trader, albeit an amateur. Nothing like watching the charts – the heart-beat of the great capital markets. There’s a real romance to it. Had I been born some place else, I think I’d have run away from school and gone to work in one of the exchanges.
I also just saw that Mobs was on the list of top ten best-selling finance books on Amazon for 2008. That’s great news, but a bit of a surprise, because there were so many books published on the economy that year, I thought it would get edged out. Hopefully, the book will sell well this year too, because it really does have a lot of good information for anyone who trades/invests.
I’d advise you to especially read Chapter 16, which is a mini-manual that’s as insightful a look as you’ll find anywhere about what it takes to make good decisions on trades (It’s my co-author’s work, so you know that’s an honest opinion, unbiased by my problems with the book’s promotion, about which I’ve written at length before).
My contributions – such as they are – to “trading psychology” are Chapters 10 and 11 of Mobs, where I deal with “herd mentality” and how it affects and eludes quantification in economics. It’s more of the macro view. I think parts of that can be found on the web in articles I wrote for Endervidualism..
The rest of Mobs is more historical and less immediately relevant to trading per se. although the history of the housing and credit bubble will help give you the background you need to understand what’s going on now.
All the bugs who were rah-rahing and telling people to buy gold over $1000, instead of cautioning them to take profits and watch out must be feeling subdued. Despite the thrust upward to yearly highs, the gold action this year never struck me as spectacular at all. Considering everything that’s gone on, it’s been rather staid.
The most common explanation for that from the gold bug community is manipulation. GATA has recently got confirmation of Federal Reserve gold swap arrangements that would certainly fall under the category of market intervention.
A second reason is that we still haven’t come out of the deflationary movement of the economy. We had the first wave of contraction last year, followed by an artificial bounce provoked by stimulus money and a lot of happy talk from the pundits. Now the second contraction has begun. Gold might do well in a deflation relative to other commodities, but so far it’s tended to sink when the market sells off, and that’s precisely what happened yesterday. No surprise there for me at all.
But it seems to have been a surprise to some traders out there. Rick Ackerman at Rick’s Picks expresses his puzzlement over the rush to dollars – it’s a rush to the Titanic, he argues.
Well – that’s why fundamental analysis is something you need to put on the back-burner when trading. I don’t care how bad fundamentals are. Nothing moves in a straight line down or up. Besides that, Ackerman, like many American commentators, assumes that his view of the dollar is the world’s view. That simply isn’t so. The dollar has terrible problems, but at least for now, there aren’t that many currencies that are free of problems – some of them worse than the dollar’s. And since the dollar is the currency used in a majority of transactions, moving out of them (which would be the case if you felt the economy was contracting) would entail buying dollars. It’s simple logic.
Finally – never pile onto a trade that has too many people on one side. That’s logic too.
Gold rose, but only wishful thinking would call it as powerful an upthrust as the gold experts have claimed it was. If you watch gold prices regularly, you’ll know it’s nothing for gold to move $40-50 in a day. It’s volatile. That’s its nature.
Add to its inherent volatility, the other things going on – the G20 meeting, much talk about altering the SDR’s backing, Bernanke’s comments about the recession ending, international tensions over Iran, the fact that September is usually a strong month for gold, Chinese comments about walking away from derivative contracts, China’s instructions to its population to buy gold — put all of that together and it’s not surprising that gold should have moved up by about $70.
If you bought earlier, you should have taken profits and you should be watching to see how things play out. I didn’t buy earlier, so I’m just watching.
I still firmly believe we are due for a correction – and a relatively big one. I’ll buy then (with reluctance – since I think it’s a terrible industry in many ways). But what if we don’t correct, and gold shoots up?
Well, what if? Then I’ll be out. So what? if it goes up, it’s likely to go to $1200 or so. That’s a 20% upside. It could also go down to $800. Equal downside.
That’s not a good ratio of reward to risk. There are any number of stocks which will give you that kind of movement if you like gambling. But if you’re investing – and not gambling – then you should act like an investor and ask if you really want to buy at prices that high at the end of a long upthrust.
It doesn’t make investing sense. So wait and buy on dips.
That said, I’m prepared to eat my words…
PS: Seems like Ackerman is in the deflationist camp (along with Shedlock, Prechter and others) – as opposed to the hyperinflationists like Schiff. [Correction: I accidentally had this in reverse, with Shedlock as inflationist. I’ve posted on why both Schiff and Shedlock are correct – and why that sort of face-off is misguided. Deflation in some areas and over a certain time frame can certainly take place with inflation over other areas. But if you consider inflation to be only the kind that shows up in CPI and on the grocery shelves then obviously, we haven’t see the kind of hyperinflation that gold bugs are waiting for. One thing I fail to see from a lot of people is an awareness that what’s anticipated from the Fed might already be priced into the dollar.]
Rick Ackerman’s Response:
RE: gold and the titanic?
From: Rick Ackerman
Sent: Fri 9/25/09 10:00 PM
Hey, Lila!
I’m using a $1074 target for Comex December Gold and have told my subscribers, many of whom are hard-money guys, that I can’t promise them any higher than that, at least not based on the evidence of GCZ’s daily and weekly charts. My gut feeling is that this is not the rally cycle that will take gold into the Promised Land, assuming it gets there at all. I’m still a hard-core deflationist who believes hyperinflation must ultimately play out, but not in time to save 80 million underwater U.S. homeowners from going through the ringer.
No matter what happens, the Baby Boomers’ retirement plans have already been deflated away to nothing. And concerning the dollar, I’ve moved beyond the idea that the currency is fundamentally worthless, accepting the reality that it trades, simply, as a share in USA, Inc.
With kind regards,
Rick
That’s a pretty good take on things from one of the more astute traders around.
Here’s a zinger that might explain gold’s sudden spike since yesterday:
“Some of the State Owned Enterprises that stated their potential intentions to default were Air China. China Eastern and Cosco. Mainly in part because they took major derivatives losses over the past year but also, concerns are arising that the derivatives that they were sold by these foreign institutions are garbage, underwater and may never see the light of day. So why continue to pay for them? So the concern in the financial world is that holders of these losing products may just walk away, not unlike a home owner with a $600,000 mortgage on a home valued at $475,000 deciding to just hand in their keys. However, read on…this has nothing to do with morgtgage backed products. This time, the concern may be over Oil.
They (Reuters) cited 6 foreign banks. Where the story gets really intriguing is that among the major derivatives providers according to Reuters but also widely known in the industry, are Goldman Sachs, UBS and JP Morgan.
Here is the looming problem. These products are worth billions. One report that a good friend of mine did showed that if Goldman Sachs for example were to take this one up the rear, they could stand to lose 15 billion dollars. (This number is by no means confirmed)……. I would imagine that China, being the biggest purchaser of US debt, could surely collapse the US institutions that were at one point deemed too big to fail if they decide to go ahead with this plan.
This is why I don’t take tonight’s news that China purchased 50 billion dollars of IMF bonds lightly. In fact, I take it very seriously. This is why I take the buzz on the floor over the past two days very seriously as well as I do the incredible spike in Gold today. Most importantly, I do not take lightly the recent 25% correction we have seen in the Chinese Stock Market. Can all these events be interconnected some how? Is the Chinese stock collapse giving us a hint?”
The market is talking out of all sides of its many mouths:
- USD/JPY is rallying and most currencies strengthened against the dollar, except the pound, suggesting a return to the risk trade.
- But……the pound sank..suggesting risk aversion
- But…the stock markets are up, suggesting an increase in risk appetite
- But……. the bond market is teetering as long bond yields are soaring, an indication that bond traders are skeptical about the future outlook
- But…..gold and silver prices are hitting resistance and falling back, suggesting either technical exhaustion or some return of risk appetite
- But….gold and silver prices are still high, especially for the season, which suggests widespread uncertainty about the economy
- But….jobless claims are down, which is good news for the economy
What does your earnest blogging-trader do on a day like this? She sits on the sidelines and spends the day printing charts of the indices. She also reviews her most recent trading sins and repents. Here’s her mea culpa.
I repent that I entered a trade with panic rather than reason.
I repent that I entered it on a Friday morning before a long weekend (last week) when the markets were thin and volatility greater than normal. I also didn’t calculate the spread and bought higher than I should have.
I repent that I forgot about position size and just dumped whatever I could into it
I repent that when the trade moved in my favor, I didn’t sell the whole position but left half in
I repent that I didn’t do the fundamental analysis but did a multicultural trade – picking 12 currencies that sounded good to me.
I came out alright, but it was pure fluke.
Your blogging-trader did not lose money. She made a bit. Enough to pay some pressing bills. She should be thankful, but being a trader, she knows that making money on a bad trade, is not the way to go.
Update: Non-farm payrolls came in at negative 345k after an expected negative 525k – signaling that the recession could have bottomed. This should feed the risk trade, which means my multi-currency trade (Koruna, Nordic currencies, and Singapore dollar) should end up alright (I’m a bit in the red now). The time frame is one more week or two)
Mike Martin has a piece on speculation at Huffington Post today arguing that the movement of oil prices is just the result of supply and demand and that speculators are taking the rap unfairly.
Read the Article at HuffingtonPost
This was my comment:
Good piece.. We all speculate, to different degrees, and over different time frames. Some of us do it consciously, others do it more unconsciously.
I think it’s fair to say that speculation in certain things – food and land, for starters – has social consequences we shouldn’t brush aside. But as long as money is not being priced correctly (the interest rate is held artificially low), people have an incentive to get a better return.
The underlying problem is created by the government….
Insiders are selling this rally like crazy, so says The Pragmatic Capitalist:
“I recently wrote about reports that insider selling was at record highs and buying was practically non-existent. The selling has become even more alarming in the last week and the buying has slowed to an absolute trickle. Below you’ll find the list of latest insider buys and sells. The sells are staggering with the amounts ranging from $3MM to $63MM (and I was only able to copy one page). The buys, on the other hand, are meager and range from $100K to $635K (the $800K purchase is a few months old and shouldn’t be in the data). You’ll also notice that the screen came up with just 18 total purchases vs 170 total sales (the lowest of sell screen data were sales of over $400K which is not shown here due to the large size of the results…”
My Comment
Wall Street, as well as the administration, both want to boost the market for reasons that partially overlap. The administration wants to be able to justify the bail-outs and retain some of the shine of of the pre-election rhetoric of “change”. But too much optimism will work against legislation/reforms that need a certain amount of panic to be passed.
Wall Street, on the other hand, doesn’t want panic at any price. It wants stability and optimism. And is eager to jump at any positive news it gets.
Mike Martin at MartinKronicle has a long and interesting interview with Victor Sperandeo (of “Trader Vic”), who calls it – as most informed commentators do – a bear market rally. Sperandeo’s voice is a bit hard to follow but Martin’s questions are searching and cover a lot of ground.
Two points:
Sperandeo (like nearly everyone else) thinks currency depreciation is inevitable and massive inflation around the corner.
He’s pessimistic about the Middle East situation and anticipates more friction with Iran.