Gold “Could Correct to $1600″ with “Buyers Reluctant”, India Strike Sees Physical Activity “Slump”, 2013 Fed Rate Hike “Now Priced In”

TheDailyGold - Mon, 2012-03-19 20:09

Monday 19 March 2012, 09:30 EDT

Gold “Could Correct to $1600″ with “Buyers Reluctant”, India Strike Sees Physical Activity “Slump”, 2013 Fed Rate Hike “Now Priced In”

THE SPOT gold price held above $1650 per ounce Monday morning in London – staying within $10 of where it closed last week, but over 4% down on the month so far.

“The market feels a bit top-heavy, which may imply a further correction on the downside to $1600,” warns the latest note from Swiss precious metals refiner MKS.

The silver price fell as low as $32.34 per ounce during Monday morning’s London trade, but rallied back above $32.50 by lunchtime, while commodities were broadly flat on the day.

“Physical [bullion] market activity…has slumped,” says Standard Bank commodity strategist Marc Ground, citing the closure of Indian bullion markets as gold dealers held a three-day strike following the government’s announcement last Friday that it is doubling import duties on gold, as a percentage of the gold price, for the second time this year.

Over in China, the world’s second largest gold consumer after India, average property prices fell last month in 45 of 70 cities surveyed an official report published by the National Bureau of Statistics on Sunday finds.

European stock markets were broadly flat this morning ahead of news that Apple plans to pay a dividend of $2.65 a share and launch a stock buyback program, while US Treasury bonds gave up early gains.

Investment bank UBS cut its gold price forecasts on Monday. UBS’s one-month forecast was cut from $1775 per ounce to $1550, while the three-month forecast fell from $1950 to $1600.

“We see gold now in a challenging environment,” says UBS precious metals strategist Edel Tully, who won last year’s London Bullion Market Association gold forecast competition.

“In as much as higher US [Treasury bond] yields reflect an improvement in sentiment towards growth, rather than nervousness about sovereign credit or inflation, we think gold buyers will be reluctant.”

Economists at Barclays Capital meantime argue that recent falls in the US unemployment rate are in part down to people dropping out of the labor force, and that this could force the Federal Reserve to tighten monetary policy sooner than previously expected in order to combat inflation risks.

“If the goal became to restore the employment-to-population ratio to where it was prior to the recession, we’d need an unemployment rate of about 3%, and that would clearly lead to monetary policy being too easy for too long,” Dean Maki, Barclays chief US economist, tells newswire Bloomberg.

“We think this is a factor contributing to medium-term inflation risks.”

The Fed revealed back in January that most of its policymakers expect interest rates to remain near zero until at least late 2014.

Monthly US consumer price inflation meantime rose to its highest level in nearly a year last month, data published on Friday show.

“The market no longer believes that ‘late 2014′ is when rates will rise,” said M&G Investments’ Bond Vigilantes blog on Friday.

“The market is now pricing in a Fed rate hike in 2013.”

Here in the UK, the British government plans to take on the pension fund of the Royal Mail, subject to European Commission approval, in preparation for privatizing the state-owned postal service.

The move would guarantee postal workers’ retirement benefits, writing off around £1 billion of the Royal Mail’s debt and taking over an estimated £4.6 billion pension deficit, the Financial Times reports.

“The liabilities,” writes the FT’s Tony Jackson, “will vanish off the government’s balance sheet…that is, no doubt, fiscally imprudent.”

Jackson argues that the move is another example of financial repression by the British government.
“The government,” adds Philip Booth of think tank the Institute of Economic Affairs, “would not allow a private sector company to get away with such shoddy – indeed, underhand – accounting practices.”

On the gold futures and options markets, the difference between bullish and bearish contracts held by traders on the New York Comex – the so-called speculative net long – fell for the second week running in the week ended last Tuesday, dropping 5%, figures published by the Commodity Futures Trading Commission show.

“We expect that [even] more speculative length has been removed after last week’s sell-off,” says Standard Bank’s Ground.

The volume of gold bullion held to back shares in the SPDR Gold Trust (GLD ) – the world’s biggest gold ETF – dipped slightly last week to 1293.2 tonnes. Silver bullion holdings in the world’s largest silver ETF, the iShares Silver Trust (SLV), remained static at 9752.7 tonnes.

In emerging markets meantime, central banks have been buying gold in recent weeks to take advantage of falls in the gold price, the FT reports.

Ben Traynor

Gold value calculator   |   Buy gold online at live prices

Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Best Starts to the Year for the Nasdaq - Mon, 2012-03-19 17:07

Last Friday we noted that this year was the 8th best start that the S&P 500 has seen since 1928.  With a year-to-date gain of 18.16%, 2012 has been an even better year for the Nasdaq Composite.  Since the Nasdaq was created back in 1971, this year's gain ranks as its fourth best ever through 53 trading days.  Below we highlight the Nasdaq's percentage change through 53 trading days for every year since 1971, sorted from the best starts to the worst.  We also highlight how the Nasdaq did for the remainder of each year.

Argonaut Gold Inc. Provides Notice of Fourth Quarter and Year End Financial Results on March 30, 2012

TheDailyGold - Mon, 2012-03-19 16:15

Argonaut Gold Inc. (TSX:AR) today announced that its fourth quarter and year end financials will be released before market open on March 30, 2012 followed by a conference call on March 30, 2012 at 9:00 a.m. ET.

Q4 and Year End Conference Call Information: Toll Free (North America): 1-866-226-1792 International: 1-416-340-2216 Webcast: Q4 and Year End Conference Call Replay: Toll Free Replay Call (North America): 1-800-408-3053 Replay Call: 1-905-694-9451 Passcode: 1634095

The conference call replay will be available from 12:30 p.m. ET on March 30, 2012 until April 6, 2012.

About Argonaut Gold

Argonaut is a Canadian gold company engaged in exploration, mine development and production activities. Its primary assets are the production-stage El Castillo Mine in the State of Durango, Mexico, the La Colorada Mine in the State of Sonora, Mexico, the advanced exploration stage San Antonio project in the State of Baja California Sur, Mexico, and several exploration stage projects, all of which are located in Mexico.

Creating Value Beyond Gold

Contact Information Argonaut Gold Inc.
Nichole Cowles
Investor Relations Manager
(775) 284-4422 x 101



Just in Time for Summer Driving Season: Brent - WTI Spread On the Rise - Mon, 2012-03-19 15:53

After finishing off 2011 down by 70% from its high of the year, the spread between the price of Brent and WTI crude oil is back on the rise in 2012.  After starting off the year at $8.55, the spread between the prices of a barrel of Brent and WTI is now up to $17.55.  Although this is down from last week's high of $19.54, at current levels the Brent-WTI spread is now up 105% on the year.  Given the fact that gas prices are closely tracked to the price of Brent Crude oil, the rising spread between the two benchmarks is all the more painful due to the fact that it is coming right ahead of the Summer driving season.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

The Smart Money Indicator - Mon, 2012-03-19 15:51

The "Smart Money" Indicator suggests that the so-called "smart" money trades at the end of the day, while the "dumb" money trades at the open.  Below we highlight the average hourly percentage change of the S&P 500 since the start of the year to see how the index has gotten to its 12%+ gain on an intraday basis.   Since the index opens at the half hour mark at 9:30 AM ET, we use the prior day’s close through 10 AM ET as our first “hour.”

As shown, the index has posted gains...

Continue reading...  (Must be a Bespoke Premium member to view.)

NAHB Sentiment Unchanged From February - Mon, 2012-03-19 14:46

Bulls on the housing market received a bit of negative news this morning as the NAHB Homebuilder Sentiment Index came in weaker than expected at 28 (expectations were for a reading of 30).  Although today's report was weaker than expected, it was unchanged from February and remains at its highest level since June 2007.

The table to the right shows the current readings of each of the NAHB sentiment index's subcomponents and regional indices, as well as the readings for the prior month.  As shown, while Present Sales were down slightly from last month, Future Sales were at their highest reading since June 2007 and Traffic was unchanged.  

In terms of the regional indices, sentiment was up in three out of four regions.  The West was the only region to see a decline in the month, and it was a large one at that.  For the Northeast, Midwest, and South, this month's readings were at or near multi-year highs.  Continue reading for charts of the NAHB Sentiment Index and each of its subcomponents...

Reflections on Buying Time: Did the ECB Buy Time? Time For What?

Wolfgang Münchau, Financial Times columnist says There is no Spanish siesta for the eurozone
If you think the European Central Bank’s policies have “bought time”, you should ask yourself: time for what? Greece’s debt situation is as unsustainable as ever; so is Portugal’s; so is the European banking sector’s and so is Spain’s. Even if the ECB were to provide unlimited cheap finance for the rest of the decade, it would not be enough.

On my estimates, Spain’s house price adjustment is still less than halfway complete. In real terms, the US housing boom has been almost completely cancelled out. The graphs of historic bubbles, if expressed in real prices, have nice bell-shaped curves. This makes sense, since domestic property is an unproductive real asset. In Spain, as elsewhere, it would be reasonable to assume real prices will eventually fall to where they were in the mid-to-late 1990s.

The Spanish government has forced the savings banks to write down €50bn in their property portfolios this year. This will only be a small part of what will ultimately be needed if the housing market falls as I expect it will. Official estimates assume mild price falls and a quick rebound in the economy. Both assumptions are delusional. How can the Spanish economy rebound if the private and the public sectors are deleveraging at the same time, and are likely to do so for many years?

The deleveraging of the public sector will be vicious. The deficit was 8.5 per cent of GDP last year. This was a big overshoot, but the reason was not fiscal indiscipline. It was necessary to avoid a bigger slump. The recently-revised target is 5.3 per cent for this year and 3 per cent next year. So the total public sector adjustment needed under the European deficit rules is an incredible 5.5 per cent over two years – this, in the middle of a recession. If you look at the extent of total deleveraging that lies ahead, in both private and public sectors, the question is not whether the Spanish economy rebounds in 2012 or 2013, but whether it can rebound at all before the end of this decade. Market Trumps Central Bank Arrogance

Münchau is not really stating anything new. Many have been commenting on the plight of Spain for what seems like "forever" now. With every passing day it becomes increasingly difficult to say anything new, so we all struggle to say the same thing in new ways.

Does anyone even remember how little the writeoff would have been had Greece been kicked out of the eurozone two years ago? What was once a 40 billion euro problem became a 300 billion euro bureaucratic nightmare because the ECB and EMU insisted on "buying time".

ECB president Jean-Claude Trichet emphatically said "We say no to default". Well guess what Mr. Trichet? The market trumps central bank arrogance, that's what.

Trichet now looks like a complete fool. Hopefully he feels like one as well, but odds are he doesn't. Fools never see themselves for the fools they are.

ECB Buys Time For Bigger Disaster

The ECB under a new president, Mario Draghi, has circled the wagons to contain Spain and Portugal. The markets are (for the time being), cheering the success of "Super Mario" in doing just that.

I must point out that for a time, Trichet appeared successful in containing Greece. However, time is fleeting.

History will show that the ECB did not buy time for anything but a bigger disaster, just as happened with Greece.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Trading Range Screen for the 30 Largest US Stocks - Mon, 2012-03-19 13:11

Below we highlight our trading range screen for the 30 largest stocks in the S&P 500.  The stocks are in order from largest to smallest.  At the moment, 21 of the 30 largest stocks are in overbought territory, while just one is oversold -- McDonald's (MCD).  While it may seem like Apple (AAPL) would be the most overbought stock on the list, there are nine stocks that are actually more overbought.  

General Electric (GE) is actually the most overbought of the bunch, as it is more than two standard deviations above its 50-day.  Bank of America (BAC) is the second most overbought, followed by Abbott Labs (ABT) and Wells Fargo (WFC).  Berkshire (BRK/B), JP Morgan (JPM), QUALCOMM (QCOM), Citigroup (C) and Verizon (VZ) are the five other stocks that are more overbought than Apple.

Looking at the year-to-date performance of these names, Bank of America (BAC) ranks first with a gain of 79.23%.  Apple ranks second with a gain of 46.78%, followed closely by Citigroup (C) at 44.28%.  

Five of the thirty stocks are down year to date -- Google (GOOG), Johnson & Johnson (JNJ), Verizon (VZ), Pepsi (PEP), and McDonald's (MCD).  McDonald's has been struggling to get above the $100/share level.

Subscribe to Bespoke Premium to receive more in-depth research from Bespoke.

Transports, Small Caps Hit New Highs - Mon, 2012-03-19 12:25

For a month or so now, the bears have been arguing that the Dow Transports as well as smallcap stocks have been underperforming and therefore not confirming the new highs being made in the Dow Jones Industrial Average (DJIA) and the S&P 500.  Today, however, both the Dow Transportation Index and the Russell 2,000 (smallcaps) are back to their bull market highs.  The fact that these two sectors of the market have now cleared this hurdle should make the bulls happy.

Carmageddon: European New Car Sales Crash, Worst February in History


Truth About Cars reports European New Car Sales Have Worst February Of The Millennium

The European new car market crashed in February. According to data released by the European manufacturers’ association ACEA, new car sales were down 9.7 percent in February. Two months into the year, car sales in the EU are down 8.3 percent from the same period a year earlier.

The harmless looking percentages hide the fact that this February was the worst of the millennium. Only 888,878 units changed hands in the EU27 in February, the lowest level since comparing months made sense (going back further is futile, the EU was much smaller then…) Even during carmageddon, European had not seen a February as bad as this one.

EU basket cases Greece and Portugal saw their new car sales nearly halved. These are relatively unimportant markets, by now, tiny Luxemburg has more car sales than Greece. If Greece would leave the EU, it would not even register in the car statistics. What hurts much more is the deterioration of the volume markets. France is down 20.2 percent, not boding well for PSA and Renault. Italy is down 18.9 percent, putting pressure on Fiat. Flat sales in Germany spared Europe a double digit tanking.I commend author Bertel Schmitt for an excellent report. Click on the top link for model specific data.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

More Bulls Than Bears - Mon, 2012-03-19 09:04

Bespoke readers are as bullish as they've been in the month that we've been conducting our weekly market poll.  As shown below, 56% of our survey participants over the weekend said they expect the S&P 500 to be higher one month from now.

Below is a chart of the weekly results since we began conducting the Bespoke Market Poll in mid-February.  As shown, investors have gotten increasingly bullish since the start of March as the market has traded to new bull market highs.

Is There a Bubble in Treasuries? Both Sides of the Case; Explaining the 2011 Treasury Rally (It's Not What You Think); Where to From Here?

People have been calling a bubble in treasuries for at least a decade. The shocking result, especially to hyperinflationists, has been a stair-step decline in yields for 30 years. That's quite a long time.

Here is a chart going back 20 years from Steen Jakobsen at Saxo bank in Denmark.

Click on Any Chart in this Post for Sharper Image

$TYX 30-Year Long Bond

Operation Print-Money-Like-a-Madman

Via email, Steen writes
I think higher interest rates are for real, and not a fluke.

The move down in US yields below its long-term channel was an unusual move - as can be seen in the above chart - 30 year US has been in solid down-ward slopping channel since 1980s. There have now been two breaks to the down-side: One in 2009 when the stock market crashed to 666 in the S&P - and now since 2011, when Fed initiated Operation Print-Money-Like-a-Madman with QE, QEII and Operation Twist plus “low rates forever”.

These moves were the exception not the norm, a function of the “unconventional measures” all the central banks has been pointing to forever.

We are entering an extremely dangerous period. Valuations are stretched, even my internal bull, Peter Garnry is getting conservative. The divergence is bigger and bigger – actually to me this is beginning (on charts) to look at lot like end of 2007 into 2008.

Let’s hope I am wrong, again, and this is merely a pause before the world is saved and we can all believe that more debts creates growth and reforms. Bubble of Modern Banking

I happen to agree with Steen in his implied suggestion the world is not saved, but that is not the same as a treasury bubble (and Steen did not use that word).

However, James Grant, publisher of Grant's Interest Rate Observer is willing to state flat out that treasuries are a "Bubble of Modern Banking, a Desert of Value".
In case you missed it, please click on the above link to see an interesting Bloomberg video with James Grant and Deirdre Bolton. Here is a key transcript snip.

Deirdre Bolton: How is a bond investor to deal with this current environment? You are calling actually for a bear market in bonds, am I correct?.

Grant: I have forever. So I am no help there. But it seems to me a bond investor is almost better off in cash. If you were to go out 10 years in a US treasury security you earn yield of approximate 2%. To remain in cash and be flexible you sacrifice those 2%. The bond market is a desert of value.

Deirdre Bolton: What does this mean for gold?

Grant: The price of gold is the reciprocal of the world's faith in the deeds and words of the likes of Ben Bernanke. The world over, central banks are printing money as it has never been printed before. The European Central Bank has increased the size of its balance sheet at the annual rate of 89%. It's amazing. The Fed is far behind at only 15%. The Bank of England 67% over the past few months. These are rates of increases in the production of paper currencies we have never seen in the modern age. It takes no effort at all. They simply tap the computer screen.Recession 2012 Means Lower Treasury Yields Says Lacy Hunt

I certainly agree with Grant on gold, but what about the idea a recession is coming in 2012, and if so what does it mean for treasuries?

Lacy Hunt at Hoisington Management in the 4th quarter 2011 review says High Debt Leads to Recession. It's the last paragraph that is of most interest to the treasury bubble debate.
The long end of the Treasury market witnessed a decline in yields from 4.34% at the beginning of 2011 to 2.89% at the end of the year. To most, this 35% return was a surprise as there was near unanimity of opinion that rates would rise in connection with the higher real economic growth rate that was expected for 2011. Similarly, faster growth seems to be embedded in most rate expectations for 2012, and concomitantly expectations are for interest rates to rise. If recessionary conditions appear in 2012, as we expect, then even lower long-term interest rates will be recorded.

Van R. Hoisington
Lacy H. Hunt, Ph.D.There you have it, Lacy Hunt one of the biggest treasury bulls you can find vs. James Grant a perpetual treasury bear. Let's step back a bit and look at the last 10 years.

Treasury Bubble Calls

$IRX 3-month treasuries
$FVX 5-year treasuries
$TNX 10-year treasuries
$TYX 30-year treasuries

Except for the 30-year long bond (and that divergence could be significant), the rest of the yield curve has made lower lows for 30-years. Eventually that trend will break, but is this the time and are interest rates really as low as people think?

Explaining the 2007-2011 Treasury Rally

With the above, albeit lengthy, introduction let's take a look at some housing related charts. Yes, at long last this is the second half of my Home Price Index Post How Far Have Home Prices "Really" Fallen? HPI Upcoming Changes; HPI and the CPI

To quickly recap, I asked Doug Short at Advisor Perspectives to make a housing related change to the CPI. Specifically, I asked to see a chart of "real" inflation adjusted yields, were the BLS to substitute actual home prices in the CPI for Owners-Equivalent-Rent (OER).

If you missed the post you certainly need to read it to understand what follows, and you may need to take another look even if you have seen it.

Here is one of four charts from that post.

click on chart for sharper image
The Fed kept interest rates at historic lows between 2002 and mid-2004. The last two rate cuts by Alan Greenspan were not justified at all, by any measure, and downright absurd considering the bubble brewing in housing prices vs. rent.Two Year Treasury Yields

Five Year Treasury Yields

Ten Year Treasury Yields

"Operation Twist" Unwinds

Those three charts explain nicely the massive rally in treasuries since 2007. Global central bank printing, various QE and "Operation Twist" moves certainly helped, but "real" yields were far higher than most thought.

For a discussion of "Operation Twist" and the recent rise in treasury yields, please see Treasuries Hammered as "Operation Twist" Unwinds; Another Triumph of the 1% Over the 99%.

Note that HPI-Adjusted rates are still positive on the 10-year treasury note. Is this the making of a bubble?

The answer of course depends on the definition of bubble. That said, Grant is certainly correct that treasuries are devoid of value. Moreover, a 30-year rally in treasuries is quite long in the tooth. There is no value here.

Where to From Here?

Even if the 30-year long-bond does nothing more than rise to the top of that channel shown in the first chart, treasury holders will be massacred.

If the recovery is real (I do not think it is, others do), yields should rise to the top of that channel at a minimum, probably sailing even higher.

Moreover, it's certainly possible rates go sailing even if the recovery is not real. Should that happen, the US dollar will likely strengthen as well. Those are the two key take-aways at this juncture.

One thing is certain. Treasury bubbles sure take a heck of a long time to form, with many premature calls along the way.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Raucous Caucus: Largest Missouri Caucus Shut Down Before Delegates Chosen

Those awaiting complete returns from the Missouri caucus may be in for a long wait. The St. Charles County caucus was shut down before delegates were even chosen.

St. Louis Today reports Raucous GOP caucus in St. Peters is shut down
In St. Charles County, which was to have been the biggest single prize of the day, the caucus was shut down before delegates were chosen after a boisterous crowd objected to how the meeting was being run, including an attempted ban on videotaping. Two supporters of presidential hopeful Ron Paul were arrested.

At other caucuses, participants gathered outdoors as the appointed locations turned out to be too small to accommodate crowds or waited for hours as organizers worked through procedural questions.

Even before the day’s events took a rancorous turn, state Republican officials said the winner of the caucus would not be officially known until next month. But with the confusion surrounding St. Charles, and many more delegates available in a pair of caucuses next weekend, the primary picture for Missouri may have only become murkier Saturday.

In Ballwin, participants were shut out of an appearance by White House hopeful Rick Santorum because the City Council chambers had reached its 118-person capacity.

The caucus in St. Charles County, which was held at Francis Howell North High in St. Peters, was adjourned after police said they were going to “shut us down,” according to Matt Ehlen, the Republican activist who was named chairman of the meeting.

However, several individuals at the caucus said much of the consternation revolved around Ehlen himself. Ehlen became chairman after a voice vote, but the head of the county GOP organization failed to recognize any other candidate.

“All of sudden he’s the chairman and the place goes nuts,” said Tim Finch, a Paul supporter from Dardenne Prairie. “This is not how it’s supposed to work.”

Some of Paul’s supporters were also irked by an announced ban on video recording, with organizers asking police to help enforce it.

When the objections reached a fever pitch, the meeting was shut down without any delegates being awarded.I received an email from a cameraman who was arrested at the caucus for videotaping the event. Here is the footage.

Link if video does not play: Missouri Caucus Rigged Fraud

Second video showing the fraudulent selection of caucus chairman.

Link if video does not play: St. Charles MO Hijacked Caucus

Real Clear Politics now shows Missouri Caucus results moved from March 17 to April 21.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Precious Metals are Decoupling from the Stock Market

TheDailyGold - Mon, 2012-03-19 01:01

Normally, decoupling from the stock market is a good thing. In recent turbulent times, many have wondered if emerging markets would decouple or if gold stocks would decouple. Its surprising to see gold stocks decouple from a strong stock market. Many wondered if the sector would decouple from a weak market. Yet, the decoupling now could be positive long-term provided the decoupling continues when the stock market peaks just below the 2007-2008 highs.

Below we plot the S&P 500 and the HUI Gold Bugs Index. At the bottom we show the 100-day correlation between the two markets. Note that the correlation has been trending down since the end of 2010. The broad stock market (S&P 500) appears to be headed for a test of major resistance at 1500 while the large cap gold stocks just closed at a 52-week low.

Although large cap gold stocks have closed at a new low, the rest of the sector has not followed suit. The chart below shows GDXJ, the CDNX (Canadian venture exchange) and SIL (silver stocks ETF). While the HUI has closed at a new low, the other markets remain well above their December lows. The CDNX and SIL are showing a strong divergence since October.

Should most of the precious metals sector hold its December lows then it will be very encouraging for the sector even with the large caps breaking to new lows. One can recall 2007-2008 when the speculative side of the sector fell to new lows well ahead of the metals and the large cap gold stocks. One should also keep the 1970s in mind. Large cap miners experienced significant gains at the start of the bull market but not at the end. Sure, the large caps performed well from 1974-1980 but it was the speculative side of the sector that captured the vast majority of the gains.

Presently, the precious metals sector has underperformed badly as the stock market has continued to move higher. We know that it is highly unlikely the S&P 500 is going to make new highs. In fact, in two of the previous three secular bear markets, the market in the second half of the bear rallied to within 5% of the all-time high before falling back into a mild 4-5 year bear market.  This happened in 1909 and 1976. Profit margins, the most mean reverting statistic in finance are already at record highs. Higher interest rates and higher inflation will cut into profit margins.

Everyone loves stocks now and the masses can forget about gold stocks. This is a perfect contrarian opportunity for precious metals investors. The S&P 500 is nearing resistance and the precious metals sector is testing its December low. A successful retest of the low in many markets (juniors, metals, silver stocks) should be a signal that the market has confirmed its bottom. Unless you feel the bull market in precious metals is over then you should use this opportunity to be a contrarian. We may not get another buying opportunity like this for a few years. We invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT

China Halts 10 More Airbus Orders; Global Trade Wars Not Winnable and Should Not Be Fought

In retaliation for the EU's Emissions Trading Scheme, China Halts 10 More Airbus Orders
China has suspended the purchase of 10 more Airbus jets, two people familiar with the matter said on Thursday, raising the stakes in a potentially damaging trade row over European Union airline emissions charges.

The move to delay the purchase of extra A330 planes brings to $14 billion the value of European aircraft caught up in tensions over the EU's Emissions Trading Scheme, which has angered countries including China, India and the United States.

It comes amid urgent efforts to find a solution to the row, which airlines fear could provoke an aviation trade war capable of causing travel disruption and hitting air traffic rights.

The row is over a cap-and-trade scheme which could levy charges for carbon emissions for flights in and out of Europe.

Foreign governments say the EU is exceeding its legal jurisdiction by charging for an entire flight, as opposed to just the part covering European airspace.

"Aircraft sales are different from selling wine or cars, you can't switch the sales button from off to on from one day to another. A red traffic light in aircraft sales can destroy years of sales efforts and damage-repair will take years," said Rainer Ohler, head of Airbus public affairs and communications.Trade Wars Not Winnable and Should Not Be Fought

This is exactly the kind of spat Romney is bargaining for when he threatens to label China a "currency manipulator".

China is of course a "currency manipulator". Then again the Fed is an "interest rate manipulator" hoping to sink the US dollar. The EU wants the euro to fall (just not collapse), and Japan has intervened to sink the Yen. Switzerland's central bank has intervened to suppress the value of the Swiss Franc.

In short, every major nation on the planet is manipulating currencies either directly or indirectly via interest rate policy.

Global trade wars are not winnable. If Mitt Romney is elected and he does what he says he will do, expect a devastating collapse in global trade.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Pimco chief Mohamed El-Erian expects 'second Greece' in Portugal

Ambrose Evans-Pritchard - Sun, 2012-03-18 18:32
The giant bond fund PIMCO said Europe has not yet tamed its debt crisis and will soon face a 'second Greece' in Portugal as the country's economy spirals downwards.

IMF chief Christine Lagarde fears oil spike poses serious threat to global recovery

Ambrose Evans-Pritchard - Sun, 2012-03-18 15:04
International Monetary Fund warns that surging oil costs pose a serious risk to the global economy, threatening to smother expansion before a fresh cycle of growth is safely under way.

Stress Test Farce Shows Bank Shares Still Are Not Cheap

Last week the Fed conducted yet another "Stress-Free" test purposely designed to conclude banks are in better shape than they really are. The parameters seemed strict.

  • US recession marked by a 50 percent drop in stock prices
  • 21 percent drop in housing prices
  • Joblessness soaring to 13 percent
  • An even worse recession in Europe

15 out of 19 banks passed based on a measure of "regulatory capital". The four stress test failures are Citigroup, Ally, Suntrust and MetLife.
"In fact, despite the significant projected capital declines, 15 of the 19 bank holding companies were estimated to maintain capital ratios above all four of the regulatory minimum levels under the hypothetical stress scenario," the Fed said.

The exercise opened the door for some of the most capital-flush banks to immediately announce new or higher dividend payments to shareholders, after the Fed prevented or limited such payouts by a number of the banks last year following a similar examination.

JPMorgan Chase announced a 20 percent dividend hike and a $15 billion share buyback program, while Wells Fargo also sharply boosted its planned dividend.Bank with Negative Tangible Equity Passes Stress Test

Anyone who can think knew in advance the stress test would be a farce, but Jonathan Weil dug up the real dirt in his Bloomberg report Class Dunce Passes Fed’s Stress Test Without a Sweat.
The most important thing to understand about the Federal Reserve’s latest stress tests is what they were not intended to do. Their purpose wasn’t to test whether the nation’s biggest banks could survive a financial blowup like that of 2008 without government assistance.

Rather, the Fed designed its tests to measure the effects a hypothetical crisis would have on banks’ regulatory capital. Capital is the financial cushion a company has available to absorb future losses. While the Fed would like for us to believe that regulatory capital is the same thing, it’s quite different. And too often it bears little resemblance to reality.

Citigroup Inc. (C) was deemed well capitalized under the government’s methodology when it got bailed out in 2008. So was CIT Group Inc. when it filed for bankruptcy in 2009.

How stressful were the Fed’s tests? One anecdote stands apart: Regions Financial Corp. (RF), which still hasn’t paid back its bailout money from the Troubled Asset Relief Program, passed.

The footnotes to the company’s latest financial statements tell the story. There, the Birmingham, Alabama-based lender disclosed that the loans on its books were worth $8.1 billion less than what its balance sheet said, as of Dec. 31. By comparison, the company’s tangible common equity, a bare-bones measure of net worth, was $7.6 billion.Weil went through Regions’ balance sheet, using the company's own footnotes as to fair-market values of their financial assets and liabilities and concluded "Regions’ tangible common equity was negative $525 million as of Dec. 31."
In short, the test was a joke, although it had its intended effect. Shares of Regions and other large banks soared, and Regions raised $900 million selling common shares on Wednesday. The company, which hasn’t reported an annual profit since 2007, plans to use the money to help repay the $3.5 billion it got from the Treasury Department in 2008.

Regions probably would have failed years ago if not for its federal backstop. Instead, it now has a stock-market value of $9.1 billion. Clearly the Fed wanted it to attract new investors, and those who put fresh capital into Regions this week believe the government won’t let it die. That about sums up the company’s value proposition. In other words, we’re all still on the hook. Bank shares may look "cheap" but they aren't. The latest "stress-free" test by the Fed proves as much. How much longer the market lets the Fed get away with this nonsense is anyone's guess. I would have thought silly season would have been over long ago.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Weekend Reading From Bespoke: Green for St. Patrick's Day - Sun, 2012-03-18 08:17

Each Friday, members of our Bespoke subscription services receive our Week in Review newsletter.  This report provides Bespoke's current market thoughts through commentary and the unique graphs and charts that our clients have come to love.  If you're looking to get a better grasp of the market, subscribe to one of our membership packages today and download our Week in Review newsletter.

In this week's newsletter:

  • Happy St. Patrick's Day: Market Style.
  • The pace with which Apple (AAPL) is topping 100 point levels reminds us of...
  • Which way are US stocks going versus the rest of the world?
  • Economic Scorecard.
  • One economic indicator that suggests the Fed won't be raising rates anytime soon.
  • Where analysts stand regarding earnings revisions.
  • Are analysts bullish or bearish?
  • VIX at 15: Should we be worried?
  • Does the low volume matter?
  • Relative strength of small caps and Transports versus the S&P 500.
  • S&P 500 performance during bull and bear markets in the US Dollar.

Proceed to newsletter...  (Must be a Bespoke subscriber to view.)

Public Union Wage Bargaining Ends at National Level in Great Britain

I am pleased to report the end of collective bargaining at the national level. Unfortunately, I am talking about the UK, not the US, and also unfortunately, local wage bargaining will remain in place.

The Telegraph reports National pay rates will be scrapped in budget.
Millions of teachers, nurses, civil servants and other public sector workers are to lose their right to national pay rates, the Chancellor George Osborne will announce in next week’s Budget.

George Osborne will say that public sector employees in poorer parts of the country should have their pay frozen until it is brought into line with local private sector workers.

Mr Osborne originally intended to introduce local pay rates in April 2013, but has decided to bring the plans forward by a year in an attempt to boost growth.

The move is likely to be met with a furious response from unions, which are already threatening industrial action over cuts to pensions.

The Chancellor will publish figures that show that in some parts of England and Wales public sector workers earn almost a fifth more than those in equivalent jobs in the private sector.

The Treasury argues that the pay gap leaves private companies struggling to compete for the best staff against public sector organisations, whose workers also enjoy better pensions and job security.

The National Union of Teachers said it was calling a one-day strike in London on March 28 as the next step in its pensions campaign. Mr Osborne, however, is determined to push ahead with the reforms to pay and pensions. The Treasury wants to base the plans on a local-pay system introduced for staff in courts under the previous government. This is a start, but if you are going to incur the wrath of labor unions, and Chancellor Osborne surely will, then you may as well go all out. The correct move is to end bargaining altogether. If unions don't like it, too bad. If they can make more in the private sector, they can go for it.

Public unions bankrupted Greece, they will bankrupt Spain, they have the UK and the US on the verge of ruin, and they have bankrupted numerous US cities already.

Correct Policy Trifecta

  1. End public union collective bargaining completely
  2. End all prevailing wages laws including Davis Bacon
  3. Institute National Right-to-Work Laws

Unlike parimutuel horse-racing bets, any order will suffice.

Mike "Mish" Shedlock
Click Here To Scroll Thru My Recent Post ListMike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit to learn more about wealth management and capital preservation strategies of Sitka Pacific.