Dollar At A Critical Juncture

TheDailyGold - Thu, 2012-03-08 14:40

As we go through the first significant pullback in the market for 2012, the dollar seems to be at a turning point that should influence market trends for the next few months.  Going all the way back to 2002, there has been a strong inverse correlation between stocks and commodities, and the U.S. dollar.  For the most part, the dollar has been falling during this period, which has helped drive cyclical bull markets in stocks and commodities.  More recently, the stock market panic of 2008 and the first Euro crisis of 2010 drove significant countertrend rallies in the dollar, and corrections in stocks and commodities.

Almost one year ago in April of last year the dollar put in another significant bottom and has been rallying ever since.  The stock market and commodities suffered while the dollar moved higher in 2011, until the stock market put in a bottom in October.  Since October, the dollar and stocks have been rallying together, and commodities finally put in a bottom in December 2011.  And so far in 2012, we’ve seen a marginally lower dollar, and moves higher in stocks and commodities.

Now that we are at this pullback point in the market, the dollar clearly has a couple choices: 1) either go on to make new highs and most likely drive a deeper correction in stocks and commodities, or 2) fail to make new highs, and stoke a continued rally in stocks and commodities.  Looking at a weekly chart of the dollar, from a Stage Analysis perspective the dollar is still rising above a rising 30-week moving average, which is bullish for the dollar.  But momentum is clearly slowing to the upside, and both previous major rallies in the dollar failed when the TRIX momentum indicator rolled over to the downside on the weekly chart.  Notice too that if the dollar rally were to fail here or close to here, each successive dollar rally since the panic in 2008 has carried less momentum to the upside.

Another upcoming test for the dollar is whether it can get back into “bull mode” according to the 14-day RSI.  The 14-day RSI is used by some technicians as a bullish or bearish indicator depending on whether it oscillates in a 80-40 range (bullish) or 60-20 range (bearish).  This essentially is a representation of the strength of the trend.  In a market strongly trending higher overbought readings above 70 occur more frequently and oversold readings rarely get below 40.  Conversely in a bearish trend the market typically can’t get above 60 on a rally and spends more time oversold on the 14-day RSI with readings in the 20s or lower.  On the current daily chart of the dollar you can see that the dollar was in bull mode up until the end of last year. But since then it hasn’t been able to get back above 60 on the 14-day RSI.  A failure to retake that level on the RSI would be another signal of a weakening dollar.

Going back multiple decades the 80 level on the dollar index has been a key level from a technical standpoint.  Obviously the makeup of the dollar index has changed during this time period, but it would be pretty interesting if 80 held as resistance for the dollar here since support tends to turn into resistance once it is penetrated.  There is also a confluence of resistance around the 85 level that repelled both the 2008 and 2010 dollar rallies.

Switching gears a little, it’s often constructive to look at other markets to see if they provide corroborating evidence when formulating an opinion.  Both of the charts of brent and west texas intermediate crude oil still look bullish, with recent breakouts on high volume.  They both have also consolidated into tight flag patterns on the recent pullback.

Finally certain currencies such as the Australian dollar are trying to stay in “bull mode” with an upcoming test of the 40 level on the 14-day RSI.  The Aussie is also poised to breakout to new highs if it can get back above 108 and stay above it.

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Wal-Mart to Offer "Permanently Low Prices" Instead of Rollbacks; More Self-Checkout Lanes Coming Up

Taking a page out of JC Penney's "Every Day Low Pricing" playbook, Wal-Mart to Offer "Consistently Low Prices" Instead of Rollbacks.
Wal-Mart is now pushing its grocery suppliers harder to offer consistently low prices, instead of timed promotions or "rollbacks." That means food companies are unlikely to be able to pass through more price increases and will be forced to pull other levers, such as cost-cuts to protect margins or product innovation to drive sales.

"I think we reached the wall in terms of raising price. Consumers can't take any more," said Edward Jones analyst Jack Russo, citing recent Nielsen data showing correlations between price increases and declines in sales volume.

"A lot of these companies are going to have to get back to basics and not raise prices much, and if they want to grow sales they're going to have to do it through innovation, or being razor-sharp on pricing."

For example, General Mills' sales volume fell 11.3 percent in the 12 weeks ended February 18 after the cereal maker raised its average selling price by 11.5 percent with a combination of price hikes and a mix of higher-priced goods, Russo said, citing Nielsen.


For Walmart, the biggest grocery seller in the United States, lowering prices on a long-term basis can help it convince shoppers that it is the best place to go for everyday items.

With gasoline prices climbing and many shoppers living from paycheck to paycheck, Walmart wants to win a larger share of shoppers' limited spending , after having lost some customers to dollar stores during the last recession.

"We want to work with vendors on that to see if we can take a price lower and leave it there permanently," Wal-Mart Chief Financial Officer Charles Holley told reporters last month. "The price image for a customer is very important."

Last August, Clorox raised the price of Clorox bleach by 12 percent in the United States, but Walmart kept the price tag steady.

Wal-Mart said margin declines are likely to persist. Walmart U.S. is cutting $2 billion of costs over two years, trimming spending everywhere from construction to staff scheduling. Greeters on overnight shifts, for example, were moved to roles such as restocking shelves.

Wal-Mart's urge to maintain low prices rather than offer short-term sales puts more pressure on vendors.

"For most categories that Wal-Mart competes in, they are in the driver's seat, they can make or break a manufacturer's year," said Telsey Advisory Group analyst Joseph Feldman.More Self-Checkout Lanes Coming Up

Reuters reports Wal-Mart to add more self-checkout lanes.
Wal-Mart Stores Inc will add more self-checkout lanes at its Walmart and Sam's Clubs stores as it continues to look for ways to lower costs and prices, Chief Financial Officer Charles Holley said on Wednesday.

Holley said he was "very pleased" with traffic and sales at Walmart's U.S. stores this quarter, which started in February. Shoppers using their tax refund checks helped drive some of the sales, he said.

While Wal-Mart expects inflation to moderate this year, gasoline prices remain a "wild card," Holley said. "If oil continues to go up, I think that can be a drag on economies around the world."

Pushing more shoppers to scan their own items and make payments without the help of a cashier, has the potential to save Wal-Mart millions of dollars. For every one second in average transaction time at the Walmart U.S. chain, the company said it spends about $12 million in cashier wages.

The company will not eliminate cashiers, but it does plan to open more self-checkout lanes at Walmart, where some 1,600 of the more than 3,800 U.S. stores already have them. At the Sam's Club warehouse chain, about 80 out of 611 stores already have self-checkout lanes and another 220 will get them this year, Holley said.Price, Job Pressures Everywhere You Look

More self-checkout lanes equals fewer hires, no matter what Holley says. It's one of the ways Wal-Mart is handling its own price squeeze. Suppliers have their own margin issues to deal with.

Price paid in the service sector have gone up 31 consecutive months as reported in the ISM Non-Manufacturing Report . Prices received are another matter as Wal-Mart shows.

For a look at JC Penney's pricing scheme launched in January, please see Chart of the Day: Apparel Import Data in Square Meters and Dollars; J.C. Penney's Slashes Prices on All Merchandise by "At Least 40%", Offers Every Day Low Pricing

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.

Gold Remains in Consolidation

TheDailyGold - Thu, 2012-03-08 13:58

With Gold’s failure at $1800, it should be obvious that the market is in a protracted consolidation. This is actually similar to 2006-2007 and it is something we wrote about in a missive in early January. At the time, Gold had bottomed and had the luxury of very strong support nearby. We believed Gold would be range bound, but because it was emerging from support, it would have an upward bias. With Gold’s failure at $1800, now we can say range-bound with a downward bias.

Before we get to today, I wanted to look at the 2006-2007 consolidation once again. Note that Gold had a nice rally from point C to point D. After a more than 50 retracement, Gold rallied from point E to point F. The lows were clearly in but the consolidation continued for several more months.

A similar pattern to 2006-2007 continues to unfold. If the pattern continues then Gold should bottom at point E, which is slightly above the 300-day moving average. The same happened in early 2007.

Judging from the price action and moving averages, Gold should have very strong support at $1600-$1650.

After a rip roaring two year period in which Gold advanced from about $950 to $1900, the metal is in consolidation and digestion mode. After strong advances a market needs time to attract new buyers and new demand. Profits are taken and resistance emerges. This is why and how a consolidation develops. Then the market moves back and forth between supply and demand. Gold has been consolidating for six months. That is hardly enough to digest a 24 month move. At a minimum, we’d expect three more months of consolidation and perhaps five.

Fear not gold investor. You should appreciate these consolidations. They will make you a better investor. You will learn how to buy lows and not get excited near highs. Buying lows is exactly what you should focus on. Gold has strong support at $1600-$1650 and that is an area to accumulate. Make a short list of your favorite companies and evaluate potential high reward/risk target prices. Now is the time to focus on your favorites and get ready to buy. Not when the market is surging to new highs. If you’d be interested in professional guidance in this endeavour then we invite you to learn more about our service.

Jordan Roy-Byrne, CMT
The Daily Gold

The $100 Billion Club - Thu, 2012-03-08 13:09

Forbes recently released its 2012 list of the world's billionaires, so we figured we'd post a list of the public companies in the US that are hundred billionaires.  There are currently 24 public companies in the US that are worth more than $100 billion.  As shown below, Apple is the biggest at close to $500 billion, followed by Exxon Mobil (XOM) at $400 billion, Microsoft (MSFT) at $268 billion, and IBM at $230 billion.  Chevron (CVX), Wal-Mart (WMT), General Electric (GE), Google (GOOG), Berkshire (BRK/B), and Procter & Gamble (PG) round out the top ten.

For each company, we also show what its market cap was ten years ago.  Apple (AAPL), now the largest company in the world, was by far the smallest company on the list ten years ago at just $8.7 billion.  General Electric (GE) was the largest company on the list ten years ago at $403 billion.  GE's market cap has fallen 50% since then.

Bullish Sentiment Drops to Lows of the Year - Thu, 2012-03-08 12:46

Apparently Tuesday's 1.5% decline in the S&P 500 did not sit well with individual investors, as bullish sentiment dropped again this week.  According to the weekly survey from the American Association of Individual Investors (AAII), bullish sentiment declined by 2.1 percentage points to 42.4.  Even as the S&P 500 is off to its best since 1998, bullish sentiment is now at its lowest point of the year.

Individual Investor bullish sentiment is typically considered a contrarian indicator, but before everyone goes and dismisses it, we would note that in early 2011 individual investor bullish sentiment also declined as stocks prices rose.  Although the market is higher now than it was then, the drop in bullish sentiment did precede a big correction during the Summer.

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Currency Looniness and Reserve Currency Madness; What Should the Global Reserve Currency Be?

Given the clearly dire consequences associated with Greece being in a currency union with no control over its own currency, one might think such results would put an immediate halt to new currency unions and momentum of countries instituting new currency pegs as well.

Yet, about a week ago, the Globe and Mail commented Canadian envoy to Iceland sparks loonie controversy.
For 150 years, the rest of the world has shown scant interest in the Canadian dollar – the poor cousin to the coveted U.S. greenback.

But now tiny Iceland, still reeling from the aftershocks of the devastating collapse of its banks in 2008, is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls.

Officially, the Icelandic government is targeting membership in the 27-member euro zone. But support among Icelanders is slipping.

In a recent Gallup poll, seven out of 10 Icelanders said they would happily dump their volatile and fragile krona for another currency. Their favoured alternative is the Canadian dollar, easily outscoring the U.S. dollar, the euro and the Norwegian krone.

Iceland is in a bind. The country imposed strict currency controls after its spectacular banking collapse in 2008. A major downside of those controls is that foreign investors can’t repatriate their profits, making Iceland an unattractive place to do business.

Those capital controls are slated to start coming off next year. And many experts fear a return to the wild swings of the past – in inflation, lending rates and the currency itself. Iceland is the smallest country in the world still clinging to its own currency and monetary policy. The krona soared nearly 90 per cent between 2001 and 2007, only to crash 92 per cent after the financial crisis in 2008. Iceland's Problem

Why is it the problem (and unintended consequences) that you don't have, always look better than the problems you do have? The fact of the matter is Iceland is recovering from its crisis quite nicely.

Hopefully Iceland learned something from its recent crash and burn. Moreover, given Iceland's willingness to do the right thing (default), hopefully the foolish investors who drove up the value of the krona learned something as well.

Argentina's Ruinous Currency Peg

Entering a currency peg with no control over monetary policy, interest rates, or currency demand as Iceland is considering, has a history of spectacular blowups.

Argentina is a classic case although it made numerous flaws in its attempts to maintain a peg to the US dollar between 1991 and 2002. The peg blew up spectacularly as described in the Wikipedia article regarding the Argentine Currency Board.

Inquiring minds should also consider Confiscatory Deflation: The Case of Argentina by Joseph Salerno on the Mises website.

Existing Currency Pegs

Nonetheless, there are many existing currency pegs that for now seem to be working. Please consider the following chart from Wikipedia on Currency Pegs.

Legend: dark blue - EUR users; dark green - USD users; light blue - EUR pegs; light green - USD pegs (including cascaded like Macao->HK->USD); orange - AUD users; brown - NZD users; lila - ZAR users; yellow - INR users and pegs; red - GBP users and pegs; light pink - XDR/other currency basket pegs; dark pink - two-country usage/peg, multiple cases (CHF in Liechtenstein, ILS in PNA, Singapore/Brunei)

Reserve Currency Madness

Regardless of what Iceland does or does not do, Iceland is essentially irrelevant to the global economy. Nonetheless, every time we see a story like this, someone manages to blow it up way out of proportion to reality.

For example, please consider snips by ZeroHedge from Iceland Wants To Adopt The Dollar... No, Not That One, The Other One
According to the Globe and Mail tiny Iceland, "is looking longingly to the loonie as the salvation from wild economic gyrations and suffocating capital controls...And for the first time, the Canadian government says it’s open to discussing idea.

It is a huge slap in the face of those statists (and the United States of course) who keep repeating no matter the facts that the USD will never lose its reserve status. Here's a hint: it can and it will.Bogus Threats to US Reserve Currency Status

Not to belittle Iceland (as I wish them well and  also commend them for telling the IMF and EU to shove it) but the United States does not care what Iceland does, at least it shouldn't because Iceland is statistically meaningless in terms of global trade.

The irony is the US would gladly give up reserve currency status. Please consider Bogus Threats to US Reserve Currency Status: No Country Really Wants It!
In spite of all the hype regarding the Yuan as a reserve currency I have stated many times recently that discussion of the Yuan as a reserve currency is nothing but ridiculous hype.

My reasons are:

  • The Yuan does not float, and there is no indication China is prepared to allow the Yuan to float any time soon
  • China is a command economy
  • In China, property rights and civil rights are questionable
  • Chinese banks are insolvent because of malinvestments in infrastructure and an enormous property bubble

Michael Pettis at China Financial Markets has a similar list of reasons, phrased slightly differently. Pettis does add one key item I overlooked: "Very deep and open domestic bond markets"

From a recent email post Pettis writes ....
Is it time for the US to disengage the world from the dollar?

Last week on Thursday, the Financial Times published an OpEd piece America Must Give Up The Dollar I wrote arguing that Washington should take the lead in getting the world to abandon the dollar as the dominant reserve currency. 

My basic argument was that every twenty to thirty years – whenever, it seems, that the American current account deficits surge – we hear dire warnings in the US and abroad about the end of the dollar’s dominance as the world’s reserve currency.  Needless to say in the last few years these warnings have intensified to an almost feverish pitch. 

But I think these predictions about the end of dollar dominance are likely to be as wrong now as they have been in the past.  Reserve currency status is a global public good that comes with a cost, and people often forget that the cost is much higher than most countries are willing to accept....No One Really Wants Reserve Currency Status

I am quite sure that Pettis has this correct. After all, if reserve currency status was such a gift, why doesn't China take the steps that would make it possible. Why doesn't Europe?

The fact is, for all their bitching, nearly every country on the planet does not want to relinquish their "export growth model". Every week there is some trumped-up report by someone about how China is trading more in the Yuan with Russia and Southeast Asia countries. In the grand scheme of things such trade in Yuan nearly meaningless, not representative of a significant adjustment.

Mathematically, the fact remains, the US runs a huge trade deficit, and countries accumulate US assets, most frequently US Treasuries.

The Fed is fighting back by attempting to force the US dollar lower. Mathematically every currency cannot be weak relative to each other. Central bank actions to achieve the impossible are behind the rise in commodities, especially silver and gold.

Unstable Mess

The irony in this mess is those cheering the demise of the US and the US dollar look at baby-step moves countries like China make in that direction as if that would hurt the US.

The reality is the US would be better off (and so would the world), were the US to lose reserve currency status. Nonetheless, don't expect it any time soon. China is not ready and Europe is in the midst of a sovereign debt crisis that will not go away for years. .... Who Doesn't Want Reserve Currency Status?

  • Bernanke would love for the US to lose reserve currency status. He wants a weaker US dollar and his actions prove it.
  • Congress is threatening to label China a currency manipulator, seeking to force China to revalue the RMB higher. By its actions, Congress would gladly see the US lose reserve currency status.
  • President Obama and Mitt Romney both want a weaker US dollar.
  • Brazil does not want a rising currency (see Brazil Declares New Currency War on US and Europe; Japan Losing Balance of Trade Battle)
  • Switzerland does not want a rising currency and pegged to the Euro to prevent it
  • Japan clearly does not want a rising Yen
  • Europe wants to increase exports to grow its way out of its mess. A rising Euro would hinder that idea.
  • China does not want a rising Yuan

The Big Picture

  1. The US will be better off, not worse, were the US to actually lose reserve currency status.
  2. The Fed, Congress, Obama, and Presidential hopefuls do not want the US dollar to have reserve currency status.
  3. No other country wants reserve currency status
  4. The US has the largest economy and the only bond markets outside of Europe deep enough to support being the world's reserve currency
  5. The US is stuck with reserve currency status as a result of Bretton Woods II, and president Nixon halting gold convertibility.

ZeroHedge missis the big picture. That said, I very much agree with ZeroHedge on one point: The US will indeed at some point lose reserve currency status, possibly as a result of a massive global currency crisis involving the US dollar, Japanese Yen, Chinese Renmimbi, and the Euro.

Such a day of reckoning is indeed coming, and from my perspective the sooner the better. In the meantime, just keep in mind that trade agreements between Canada and Iceland, and China and Timbuktu (or whoever), are not worth the massive amount of hype given to them by most writers.

What Should the Reserve Currency Be?

Fiat money, fractional reserve lending, inane fiscal polices, and central banks all acted together to create the global financial crisis. None of them can be any part of a lasting solution.

Thus, as for what should replace the US dollar as the world's reserve currency, let me suggest real money, gold.

Gold would also cure these trade imbalances in a flash. For a discussion, please consider Hugo Salinas Price and Michael Pettis on the Trade Imbalance Dilemma; Gold's Honest Discipline Revisited.

Who Doesn't Want Gold as the Reserve Currency?

  1. Governments who want to print money to fund warmongering without raising taxes
  2. Bankers who benefit from inflation because they are always bailed out by central banks when they get into trouble
  3. The wealthy because they have first access to money and get to bid up the price of assets before the greater fools rush in.

The housing bubble is the classic example of point number three. By the time money was available to anyone who could breathe, home prices were so high that an outright crash was inevitable.

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.

Bespoke's Commodity Snapshot - Thu, 2012-03-08 12:10

Below we provide trading range charts for ten of the most widely followed commodities.  In each chart, the green shading represents between two standard deviations above and below the 50-day moving average.  Moves to the top of or above the green zone are considered overbought, while moves to the bottom or below the green zone are considered oversold.

As shown, while oil has pulled back a bit over the past week, it is still closer to the top of its range than the bottom.  Gold has moved back into the middle of its trading range after hitting the top of it at the end of February.  Silver and platinum have moved from the top to the middle of their ranges as well.  Unsurprisingly, natural gas continues its trek lower.  It hasn't been in overbought territory in ten months.  And finally, it's worth noting that coffee has completely collapsed in recent days, and it's more oversold now than it has been in at least a year.

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Mitt Romney's Foolish Pledge to Re-Fight the Cold War

On the basis of Mitt Romney's latest appeal to the far right, including a vow to "teach Iranians the meaning of American resolve", and also on Romney's pledge to start a trade war with China, I am now willing to state that I would just as soon see president Obama reelected as Mitt Romney be elected.

I do not say this lightly. It will likely cost me readership. So be it. Consequences be dammed, I speak my mind.

No Hope Elsewhere

Rick Santorum and Newt Gingrich are at least as bad. With those statements, I just offended most of the country. So be it.

At least I took a stand. Most economic bloggers stay away from politics in fear of offending anyone.

Re-Fighting the Cold War

Please consider Romney's op-ed in the Washington Post How I would check Iran’s nuclear ambition, in which he promises to teach the Iranians “very painful lessons about the meaning of American resolve.”

Romney stated “My foreign policy will be the same as Ronald Reagan’s: namely, ‘peace through strength’.

"Just as Reagan sought to defend the United States from Soviet weapons with his Strategic Defense Initiative, I will press forward with ballistic missile defense systems to ensure that Iranian and North Korean missiles cannot threaten us or our allies," said Romney.

Nowhere did Romney say how he would pay for his vow to re-fight the cold-war that has already been won. Nor did Romney provide any sensible discussion on the merits of  ballistic missile defense systems.

Romney cannot discuss the merits of new ballistic missile defense systems for the simple reason there are none. Plane hijackings and suitcase bombs smuggled in via diplomatic, unchecked luggage, are a far more credible threat than a missile attack from North Korea.

Worse yet, Romney proposes to a war-weary public to "go alone [in Iran] if we must".

Horrendous Fiscal Policy

Merrill Goozner writing for The Fiscal Times says Romney's Iran Policy Would Cripple the Economy.

Citing a decade of unfunded wars in Iraq and Afghanistan, Goozner asks, "is this level of domestic austerity, which would likely throw the U.S. economy back into recession, what a war-weary public wants or needs?"

War Not What the U.S. Needs or Wants

To answer the question posed by the Goozner, war is absolutely what the U.S. does not need and the citizens of the U.S. do not want.

If you disagree, can I please see a show of hands on a proposal to raise taxes to fight a war in Iran? Alternatively, please tell me how you will pay for it.

If Romney had the honest decency to pledge to raise taxes to support his absurd ramp in military spending, we would probably see the greatest landslide in election history, in favor of Obama.

Smoot-Hawley Trade Policy Yet Again

Let's switch gears to vitally important trade issues.

Mitt Romney is off his rocker by announcing support for a presidential decree that would label China a currency manipulator. History, namely the Smoot-Hawley Tariff Act, clearly shows how seriously misguided Romney's proposal is.

So far, president Obama has resisted such foolish measures.

Misguided Appeal to the Far-Right

The more Romney appeals to the far-right, the more leeway Obama has to move slightly to the right to capture the middle and thus appear marginally better.

  • If Romney wants war with Iran, all Obama needs to say is the "US prefers diplomacy but does not preclude anything"
  • If Romney wants a trade war with China, all Obama needs to do is act on a few items like steel and tout the imaginary results.
  • If Romney wants to trash Obamacare, all Obama needs to do is point out that hypocrite Romney is really trashing his own Romneycare plan.

This is certainly not an endorsement of President Obama because I will not vote for Obama under any circumstances. Rather, I take Romney at his word, and cannot stand a damn thing I hear.

Divided We Stand

In November, I will write in Ron Paul, because that is the only option that makes any sense. Many independents will feel the same.

That said, I expect Republicans to hold the House, and gain in the Senate regardless of who wins the 2012 presidential sweepstakes.

Sadly, a divided do-nothing electorate is the best outcome one can reasonably expect at the moment.

More Than Two Choices

There is little difference actually between Mitt Romney and president Obama. Many will end up flipping a coin. However, that is not a choice anyone has to make.

I can and will write in Ron Paul, just as I did four years ago.

Don't Blame Me

It's a sad state of affairs that a hopeless Democrat president might be reelected in spite of a faltering economy where real wages are declining and jobs extremely difficult to find.

Should that happen, don't blame me, the messenger. Rather, blame warmongers and the extreme-right "in-your-face" social moralists for hijacking policy far from what the war-weary, social-weary public wants and needs.

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.

Gold Below 200-Day Average, Technical Analysts Point Below $1600

TheDailyGold - Thu, 2012-03-08 00:20

Weds 7 March, 08:45 EST

Gold Below 200-Day Average, Technical Analysts Point Below $1600

THE WHOLESALE SILVER and gold price rallied from 6-week lows Wednesday morning in Asian and London, recovering 2.1% and 1.0% respectively as world stock markets also bounced.

Crude oil recovered from a 2-week low at $105 per barrel, but the European single currency failed to hold an early rise ahead of Thursday’s Greek debt-restructuring deadline.

Germany today reported a sharp drop in new factory orders, down almost 5% year-on-year in January.

Private-sector US payrolls rose faster last month than analysts forecast, up by 216,000 on today’s ADP report.

The official US Non-Farm Payrolls report – often a volatile event for currencies and the gold price – is due Friday.

“Another medium term top has been formed [in the gold price],” reckons technical analyst Axel Rudolph in London for Commerzbank, ” with further weakness to be seen in the coming months, taking gold towards the 1600/1500 region.”

“Big picture, the 3.5 year bullish trend line is now seen at $1591,” says Russell Browne at Scotia Mocatta.

“We expect sellers now on any move back to $1700.”

“With sentiment now on very shaky ground, it’s hard to identify where a floor might arise,” says UBS strategist Edel Tully.

The gold price “needs physical demand to step in, and in size,” she believes, “otherwise further downside seems inevitable.”

Today in India  – world No.1 for end-user demand – “Demand is pretty good as traders are finding these prices attractive,” Reuters quoted one Mumbai gold dealer.

Tuesday afternoon saw gold fall below the average of its last 200 London PM Fixes for the first time since mid-December.

Seen earlier this week as “very strongly supporting” the gold price by some chart analysts, the 200-day moving average – now at $1672 – has exceeded the Dollar price on fewer than 11% of all trading days in the past 10 years.

“On [Tuesday's] move, the best part of $1.5 million ounces changed hands,” notes Swiss dealer MKS Finance of the action in gold futures contracts.
Altogether, the open interest in US gold futures has shrunk by 6.2% over the last week, the same proportion as lost by the Dollar gold price.

Gold bullion holdings at the $71 billion SPDR Gold Trust were unchanged last night at 3-month highs near 1294 tonnes. Globally, gold ETF holdings ticked higher on Tuesday to a fresh record of 2406 tonnes according to Bloomberg.

“Gold has an out-sized mind share. It’s a teeny tiny asset class,” said strategist and author Barry Ritholtz to Daily Ticker on Tuesday.

“There are times to be bullish [on gold], there are times to be bearish and there are times to just watch,” writes trading tipster Dennis Gartman in the latest edition of his eponymous letter.

“We shall probably join the Bugs again eventually on the aggressive long side of gold but not right now.”

In Berlin today, Angela Merkel’s coalition government moved to ratify the European Fiscal Pact agreed without the UK or Czech Republic last week in Brussels.

It will need opposition support to achieve the two-thirds majority required. Data from the Netherlands and a speech by the Spanish prime minister have already said those EU members will breach the government deficit limit (4.4% of GDP) set by the pact.

Last night the Greek government warned bondholders who don’t agree to a 75% write-down of their investment that it “does not contemplate the availability of funds” to pay them anything.

Societe Generale SA, France’s second-largest bank, today said it will participate in the restructuring, joining 6 of Greece’s biggest banks as well as Italy’s Unicredit.

Athens needs 95% of its creditors to agree to the debt swap, aimed at cutting its obligations by €100 billion.

Adrian Ash

Gold price chart, no delay   |   Buy gold online at live prices

Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

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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.

Today’s Winners and Losers

TheDailyGold - Wed, 2012-03-07 21:17
 GDX gained by 0.42%  while GDXJ  gained by 1.70% and SIL gained by 1.20%


Here are today’s best  performing Silver and Gold stocks:

S&P 500 Sector Trading Range Charts - Wed, 2012-03-07 18:13

For those interested, below we provide our trading range charts for the ten S&P 500 sectors.  In each chart, the blue shading represents between one standard deviation above and below the 50-day moving average.  This is considered the sector's normal trading range.  The red shading represents between one and two standard deviations above the 50-day, while the green shading represents between one and two standard deviations below the 50-day.  Moves into or above the red zone are considere overbought, while moves into or below the green zone are considered oversold.

The recent pullback pushed all but four sectors out of overbought territory and into neutral territory.  Technology, Consumer Discretionary, Consumer Staples and Telecom are the four sectors that remain above their normal trading ranges, although they're much less overbought than they were just a few days ago.  Industrials and Materials appear to have rolled over the most during this pullback, and both are now below their 50-days.  Financials and Energy also took hits, but they've managed to hold above support at their 50-days.

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Triple trouble in Europe, US and China brings out the bears

Ambrose Evans-Pritchard - Wed, 2012-03-07 18:00
The blistering asset rally of 2012 has run ahead of economic realities in Europe, America and China. It is exhibiting symptoms of a schizophrenic market, with technical indicators flashing signs of exhaustion.

No Shortage of Oil Yet - Wed, 2012-03-07 17:06

The price of oil has been on a tear this year, and the commodity recently surged past $100 per barrel on concerns that geo-political tensions in the Middle East will disrupt supplies.  How the tensions between Iran and Israel resolve themselves is anybody's guess, but one consolation as the tensions escalate is that oil supplies are way above average.  

The chart below compares the current weekly supplies of crude oil and compares them to the historical average going back to 1984 and over the last ten years.  Whether you look at the last 25+ years or just the last ten, the current oil stockpiles are well above average.  At a current level of 345.7 million barrels, crude oil stockpiles are 6% above their historical average since 1984 and more than 8% above their average levels over the last ten years.  Additionally, there have only been six years since 1984 where oil inventories were higher than they are now.  An escalation of tensions in Iran would no doubt boost oil prices, but at least the market is relatively well prepared.

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Concerns in Germany About Its Gold at the NY Fed, London, and Paris; German Gold Off Limits, Greek Gold Subject to Confiscation

GoldCore has a pair of interesting articles on German concerns about its gold reserves. The most recent article regards gold held outside Germany.

Please consider Germany to Review Bundesbank Gold Reserves in Frankfurt, Paris, London and Federal Reserve Bank of New York
German lawmakers are to review Bundesbank controls of and management of Germany’s gold reserves. Parliament’s Budget Committee will assess how the central bank manages its inventory of Germany’s gold bullion bars that are believed to be stored in Frankfurt, Paris, London and the Federal Reserve Bank of New York, according to German newspaper Bild.

The German Federal Audit Office has criticised the Bundesbank’s lax auditing and inventory controls regarding Germany’s sizeable gold reserves – 3,396.3 tonnes of gold or some 73.7% of Germany’s national foreign exchange reserves.

There is increasing nervousness amongst the German public, German politicians and indeed the Bundesbank itself regarding the gigantic risk on the balance sheet of Germany's central bank and this is leading some in Germany to voice concerns about the location and exact amount of Germany’s gold reserves.

The eurozone's central bank system is massively imbalanced after the ECB’s balance sheet surged to a record 3.02 trillion euros ($3.96 trillion) last week, 31% bigger than the German economy, after a second tranche of three-year loans.

The concern is that were the eurozone to collapse, Bundesbank's losses could be half a trillion euros - more than one-and-a-half times the size of the Germany's annual budget.

In that scenario, Germany’s national patrimony of gold bullion reserves would be needed to support the currency – whether that be a new euro or a return to the Deutsche mark.

Jim Rickards has outlined possible plans by the Federal Reserve to commandeer Germany’s and all foreign depositors of sovereign gold at the New York Federal Reserve in the event of a dollar and monetary crisis leading to intensified “currency wars” and the ‘nuclear option’ of a drastic upward revision of the price of gold and a return to a quasi gold standard is contemplated by embattled central banks to prevent debt deflation.Currency Wars

It is difficult to separate fact from fantasy, and speculation from reality in such stories, but those wishing to learn more about Jim Rickards' ideas, might be interested in his book, “Currency Wars: The Making of the Next Global Crisis

In January, Eric King had an Interview with Jim Rickard on King World News.

Rickards' Biography

James G. Rickards is a writer, lawyer and economist with over 30 years experience in global capital markets. He is Senior Managing Director at Omnis, Inc., a consulting firm in McLean, VA and is the leading practitioner at the intersection of global capital markets and national security. His advice to clients from 2002 to 2006 included early warning of impending financial collapse, the rise of sovereign wealth funds, the decline of the dollar and the sharp rise in gold prices years in advance of these events. He has held senior executive positions at Citibank, Long-Term Capital Management and Caxton Associates. In 1998, he was the principal negotiator of the rescue of LTCM sponsored by the Federal Reserve Bank of New York.

German Gold Off Limits, Greek Gold Subject to Confiscation

The other article of note on GoldCore regarding German gold reserves was back in November when various proposals for Germany to backstop Greece and the EFSF with its gold surfaced.

Please see Germany to G20: German Gold “Must Remain Off Limits”; Italian Gold Sale Again Proposed in Germany for details.

Those proposals were shot down quickly. However, Germany did make Greek gold subject to confiscation in the latest bailout proposal by the Troika.

Greece is foolish to accept this parasitic offer of "help". Greek gold reserves may be the only thing that prevents all-out hyperinflation and complete destruction of currency when Greece returns to the drachma.

Please see Pact With the Devil Over Gold for further discussion as to sad state of affairs that may befall 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.

Credit Default Risk of Largest US Banks and Brokers - Wed, 2012-03-07 16:09

Below we provide 5-year CDS (credit default swap) price charts for the six largest US banks and brokers going back to the start of 2010.  As shown, Morgan Stanley (MS) has the highest default risk of the bunch at 348 basis points.  Bank of America (BAC) has the second highest default risk, followed by Goldman Sachs (GS).  JP Morgan has the second to lowest default risk at 120 basis points, while Wells Fargo has the lowest at 99 basis points.  It looks like there's a reason Wells Fargo is now the biggest bank in the US.

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Mish Video on Capital Account, March 6: Netherlands, Greek Exit, Stock Valuations, War in Iran, Where to Put Your Money, Faber's Formula for Safety

Once again it was a pleasure to be on Capital Account with Lauren Lyster yesterday afternoon. We discussed Europe, a Eurozone breakup, and general investment ideas proposed by Marc Faber, and my own thoughts on the same subject.

Link if video does not play: Netherlands looking for Euro Exit as Supercomputer prepares for Financial Judgment Day.

Normally I can see the same thing you see in the video above while the live TV show is recorded. This time, the video feed went down, so I could not see the charts they asked me to comment or, Lauren Lyster, or anything else. This was recorded (from my perspective) on audio cue only.

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.

March Russell 3,000 Dividend Screen - Wed, 2012-03-07 15:33

For investors looking for yield, we recently screened the Russell 3,000 for stocks that yield 4% or more with upcoming ex-dividend dates.  Only stocks with dividends that are estimated to increase over the next 3 years* are included, and no REITs are listed.  The stocks below have ex-dates coming up through early June, and remember — to receive the dividend, you must own the stock by the close on the day before the ex-date.

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LPS Home Price Index Shows U.S. Home Prices Accelerated Decline; Psychology Change and Demographics Suggests Bubble Mentality Shattered for Decades to Come

U.S. home prices declines to a new low for the move and are back to a level last seen in September-October 2002 according to a LPS News Release.

The LPS HPI national average home price for transactions during December 2011 reached a price level not seen since September 2002. This is the sixth consecutive month of price decreases.

Price changes were largely consistent across the country during December, increasing in only 8.0 percent of the ZIP codes in the LPS HPI. Price changes were also consistent across price tiers with a uniform decline of 1.0 percent.

“Despite the broad picture of home price declines following the bubble, prices have not been consistently declining for all MSAs in the country. About one-fifth (89) of all the MSAs that LPS covers has seen average home prices increase since December 2008,” commented Dosaj. “For 90 percent of these MSAs, prices rose only if the lowest-priced homes in their markets rose. This correlation did not necessarily hold for higher-priced homes in those areas. Unfortunately, the MSAs that have seen price increases since December 2008 are generally relatively small; Boston and Pittsburgh are exceptions.”

About the LPS Home Price Index

The LPS HPI is one of the most complete and accurate home price sources available. It summarizes sales concluded during each month using a repeat sales analysis of home prices as of the transaction dates. Each month, the LPS HPI reports five price levels in each of more than 14,500 U.S. ZIP codes. Five price levels are also reported at the national and state levels and for 436 of the statistical areas defined by the White House Office of Management and Budget; including all 29 of the Metropolitan Divisions and their 11 MSA “parents.” The five historical paths of price levels can be easily used to find price paths of intermediate prices. The LPS HPI also supplies REO discount rates for each ZIP code, which are used in the HPI calculations to correct for the impact on estimates of open-market prices that REO sale prices would have.

By combining property and loan data in its repeat sales analysis, the LPS HPI covers about 75 percent of single-family residential properties in the U.S. The innovative approach used to maximize geographical resolution enables the LPS HPI to meaningfully cover about 98 percent of these properties at the ZIP-code level.

The LPS HPI provides the financial industry with the most accurately timed home-price information available – detecting market changes sooner than other HPIs – with valuation accuracies competitive with AVMs in out-of-sample tests.Bubble Mentality Shattered for Decades to Come

The key take-away is home prices still have not bottomed in most areas. Moreover, nothing stops a renewed decline in those 8% of areas that did not decline.

Also bear in mind that first chart shows nominal prices. Inflation adjusted prices have likely taken back the entire rise in prices, except of course for property taxes.

Once there is a bottom, and we are certainly closer to a bottom than a top, expect home prices to generally languish due to immense shadow inventory, anemic wage growth, anemic job growth, boomer downsize demographics, and most importantly psychology.

Housing prices were a once-in-a-multi-generational bubble, now gone bust. The mentality that "your home is your retirement" is dead for decades to come. A similar bust will happen in Canada, Australia, and China.

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.

2012 Country Stock Market Performance - Wed, 2012-03-07 13:05

Below we highlight the year to date stock market performance for 78 countries around the world. 

The average year to date performance of the 78 countries listed below currently stands at 6.82%, with 66 of 78 (85%) in the black.  Venezuela is up the most at 36.95%, followed by Vietnam at 26.30% and Russia at 21.69%.  Bangladesh is down the most at -18.51%, followed by Sri Lanka at -9.92% and Slovakia at -6.74%.

Of the G7 countries, Japan is surprisingly up the most in 2012 with a gain of 13.25%.  With a gain of 7.55%, the US ranks 4th out of the G7 countries behind Japan, Germany and Italy.  Canada has been the worst performing G7 country in 2012 with a gain of 3.11%.

While the BRICs underperformed last year, all four are outperforming the US in 2012.

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Visual Learners Unite! Two Cartoons & Some Words to Boot

TheDailyGold - Wed, 2012-03-07 11:40
NFTRHgives few easy answers.  That is because its writer has no easy answers, although there are consistent road maps we have used for years now that have never failed to help preserve capital when necessary – which is often – and make outstanding capital gains, when appropriate.These road maps take the form of outliers (to standard technical and fundamental analysis) like the decades long ‘Continuum’ in US Treasury bonds, which takes on particular significance at limiting boundaries like the upper monthly EMA 100 (red arrows), as inflation expectations get too hot.  These have consistently proven to be times when inflation cultists, guru followers and momentum chasers have gotten croaked in the markets at very important turns as the Continuum pings along over the years from inflationary to deflationary (green arrows) fears.

This is my favorite ‘big picture’ macro indicator, but there are many more markets and ratios that help lend definition to events over the macro swings.  But there is another indicator to the times that has remained remarkably consistent in its message since the bull market in the ‘value’ that is assigned to it began in 2000.  Yes of course, I am talking about the barbarous relic.

You see it is safe to talk about gold in bullish terms now because the metal is in the grips of an ongoing correction (probably about 2/3 of the way done, time-wise) and the damage done by the massive influx of terror-struck trend followers during the Euro crisis is now near fully digested.

Above is another of those cartoonish charts that is not technical analysis but rather, a story in a picture.  The story is rather self-explanatory.  Read the story, have perspective and relax if you are a gold bug.  If you are a US stock bull, you might be less relaxed with the awesome rally out of the October Bull Pivot running out of gas.

But then, that is what this story is all about isn’t it?  Gas, or fuel.  In the age of Inflation onDemand, which was kicked off by Alan Greenspan and continues ever more dynamically to this day, it is all about fuel, or inflationary policy.

Recently our dear current monetary leader, Fed Chief Ben Bernanke was able to sit in front of the Senate acting as if he believed in the economic recovery, but with some reservations.  I would wager he has more than just some reservations as to the sustainability of this debt ridden, levered up, inflated mess.  But the thing is, the great stock rally out of October and the tepidly recovering economy have kept policy at bay.  And for their part, gold bugs were never going to get the ‘good stuff’ (QE3) with Au flying around at $1800 to $1900 an ounce and holding the confidence of so many refugees from a failing system.

This is all about confidence my friends.  Right now the Fed Chief needs you to have confidence in him; he is in control and furthermore, if anything goes wrong with the recovery, he will stand on guard to help with more policy response.  Up until now, the markets have done the heavy lifting for him.  He could afford to sit back and let things breathe.

But with many global markets now threatening support, the US market eroding from the Small Caps to the Semiconductors on out to an initial crack in the S&P 500, Dow and Nasdaq 100, it is all according to a plan my friends.  At least it is according to the ongoing big picture macro plan NFTRH follows over the intermediate swings.  The key is to have patience with it, tune down all that intellectual noise in your head and let the process play out.

If another yellow oval is to be painted on the top panel SPX chart and gold should happen to find itself at support well… you know the drill.  Take your partner by the hand, swing to the right Do-Ci-Do.  Think for yourself; don’t let the media and certainly not official spokespeople tell you what you think.  If you have operated with perspective since the Euro crisis blew out, you should be sitting comfortably right now awaiting opportunity.