Goldcorp, Gold Mining Sector Surges

Gold comex has made a strong surge from its lows in mid September, but the mining sector has not followed the metal.  Instead mining stocks have followed the main markets to the downside.  Today we saw a reversal, the Gold Bugs index surged 19% as the rest of the market was making new lows.  There seems to be no end to this selloff despite unpresedented market interventions.

The pundits claim there is a liquidity crisis, but this is simply not true.  It is a confidence, and trust issue.  There is an incredible amount of money that is on the sidelines right now but they are not interested in owning housing related debt products because there is no value in that sector.  Besides the regulators have been changing the rules the entire way down, why would anyone be looking to invest in the financial sector?  Only taxpayer dollars could foolishly be wasted on this.  Intelligent investors ARE looking for a safe longterm investment, and I think they are seeing value in the gold sector.

Here is the HUI index which is showing bullish divergence on the MACD.

Here is a 10 minute chart of GG, showing where I entered today.  It has overlays set according to The Guppy Multiple Moving Averages.  Here is a good article that discusses how these overlays can be used to identify a developing trend.

GET OUT OF U.S. EQUITIES, NOW!!! 10-3-08

LATELY WHEN WATCHING THE MARKETS, I’VE FELT AN INCREDIBLY POWERFUL FORCE BEHIND THE MARKETS.  SOMETHING I COULD NOT RATIONALLY EXPLAIN.  ANY TRADER CAN SEE THIS INCREDIBLE SELLING PRESSURE AND I BELIEVE WE NOW HAVE AN EXPLANATION.

WATCH THE TICKER.

PREPARE FOR ANOTHER DISASTER ON WALL STREET IF THE RESCUE BILL FAILS TO PASS.  IT WILL NOT BE A 800 POINT DROP.  IT WILL BE FAR MORE SEVERE.

IF FOREIGN INVESTORS DO NOT GET THEIR BAIL OUT THEY WILL LIQUIDATE THEIR REMAINING EQUITY HOLDINGS.  THEY WILL CUT OFF ANY REMAINING CREDIT TO OUR MARKETS.  YOU WILL FEEL THE FORCE BEHIND THE SELLING IF YO HAVEN’T ALREADY.  DON’T GET CAUGHT HOLDING THE BAG.

Biggest Ponzi Scheme in History

A Ponzi scheme as defined by Investopedia:

A fraudulent investing scam that promises high rates of return at little risk to investors. The scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors.

also…

A Ponzi scheme is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers….

Oh, and don’t forget…

For both schemes, however, eventually there isn’t enough money to go around and the schemes unravel.

Why do I bring this up as the senate is about to vote on the “reformed” $700 billion dollar rescue package?

There is an incredible amount of riches tied up in real estate and equities. The baby-boomer generation, who have experienced the most prosperous years in the worlds history are about to retire. Enjoying a prosperous retirement is almost entirely dependent upon real estate prices remaining high. Not only that but they need future buyers to purchase their assets at inflated prices so they can retire rich and fat.

However, this Ponzi scheme will collapse just as they all do. The younger generations cannot support the baby boomers because there is not enough money to go around. The rescue package is a blatant attempt to prop up asset prices so the holders can quietly exit the markets before getting slaughtered. They are trying to stick the future generations with the bill, and it will be huge.

The Margin Call From Hell!! 9-24-08

When I first heard Milton Friedman discuss the “four ways to spend money,” I quickly recognized this analysis as the best argument against government intervention. Now, I do believe that many policymakers have good intentions when they intervene in markets, however, intentions do not justify effective policy. Here are the four ways to spend money.

1. You spend your own money on yourself.
2. You spend your own money on someone else.
3. You spend someone else’s money on yourself.
4. You spend someone else’s money on someone else.

Only under condition 1 is your money put towards the most productive use, and under condition 4, money is most likely to be wasted. Think about how this relates to the Paulson-Bernanke bailout plan. These two men are essentially taking $700 billion in tax dollars and spending it on someone else, and for someone else’s benefit. Not only will they screw the taxpayer who should not be liable for these losses to begin with, but they will likely not even effectively alleviate the problem for the banks. Two men cannot solve the most complex economic crisis in history, gambling with our tax dollars by the way.

When watching the Senate Banking Committee hearing yesterday, I quickly realized that Paulson and Bernanke’s plan does not even have a chance of working. Paulson and Bernanke were essentially asking the taxpayers to cover MARGIN CALL FROM HELL on behalf of the banks. The problem here is that the underlying “assets,” the CDO’s that are causing all these problems are still loosing value as housing prices correct. By putting up the capital to cover the banks margin call we are not doing anything but prolonging the problem to a future day when the banks will ask for more capital due to another “margin call”. The margin calls will keep coming until the housing market bottoms out on its own.

Don’t buy the Rally! 9-19-08

The manipulation going on in these markets is truly unbelievable. These measures by the government just prove the point that most of the finanical stocks are worthless and need special protection. If the balance sheets of these companies were healthy, shorting would not be profitable! It is only profitable because almost any financial entity with exposure to CDO’s is overvalued and should be shorted.

Look at the chart above. Despite the government’s efforts to save the financial system, investors are still not convinced this will change anything. We gapped much higher in the XLF but are already selling off hard from the highs. We ran right into the 200-day SMA, a mark we have not been above since the sub prime mess started. Bottom callers have been wrong 100 times already this year, so never believe them when they tell you this time it’s different. Just look at the charts. There will be more pain ahead.

It seems SKF is frozen right now, I hope nobody who is reading this was holding overnight positions. As I said on Monday, I sold out of skf and just daytraded some of the big swings.

Gold DeCouples from Markets 9-17-08

We are currently up over $50 in the yellow metal on further concerns over the financial sector. Gold and silver mining companies are about the only thing trading in the positive today (other than the bear market ETF’s). Gold investors have been waiting for this moment for years. Precious metal stocks are separating from the main markets as investors run for safety.

As I mentioned in yesterday’s post we should be going to the 1050 area in S&P. Yesterdays rebound was a great opportunity to get short. Skf’s are looking great today. Any short positions I hold are mainly day trades or maybe a few overnight positions, but this is a very risky environment so it is never to early to take profits, and set tight stops.

For a good insight into why we are selling off hard, read today’s Market Ticker by Karl Denninger, and watch the video below.

Watching the Fed 9-16-08

As I mentioned yesterday I moved most of my money to the sidelines, and I suggest all small investors to do the same. Only the most disciplined, even keeled, fast day traders should even think to be involved in this market. Again it is tempting to go short the bank stocks, but with no consistency in the Fed and Treasuries policy, who knows what they are coming up with now. As bad as thinks look, bear markets never fall strait down. There will be sharp rallies and they often come very quickly, so it would not be smart to get caught short right now. THE MAIN GOAL IS CAPITAL PRESERVATION!

I mentioned last Friday that a rate cut would be on the table for this afternoon. This has become mainstream thinking as of this morning, and treasuries are pricing in rate cuts as well. The 2-year bond is now trading around 1.60 yield! It was around 2.25 last week! Be prepared for a potential afternoon rally when the Fed attempts to pacify the markets.

Goldman Sachs came out with earnings this morning and although they were bad by Goldman standards, hey at least they aren’t losing billions. Goldman Earnings

In the chart below I’ve posted a head and shoulders formation that I have seen developing for a while. It looks like we will break the neckline soon and this should take us in the vicinity of 1050. I see this as a mid term play, by late October or November I think we will get there.

Financial Meltdown 9-15-08!

I sold out of SKF this morning and now hold about 50% gold miners, 50% cash. Many would feel tempted to short the financials due to all the gloom, but your best bet is to stay on the sidelines and wait. It is clear the bankers and government authorities are doing everything in their power to keep this market propped up. As small investors we have no idea what kind of back room deals are brewing, but you can be sure when sentiment is this low, something will be spun off to save this market from tanking even further. This time things may be different than Bear Stearns day, so just watch the events unfold and don’t be a participant.

I recommend reading today’s Market Ticker. It is a good take on this weekends events.

Gold is making a big run again. Treasuries are seeing a huge jump too. According to the market these are the only two safe havens. But which would you rather own?

Bottom in for Gold 9-12-08

This was it. The bottom in gold has been put in, confirmed by the amazing gains in the mining stocks. It is not too late to get in on the party. The fall rally is here.

Tuesday the fed is announcing rate changes. There is a lot of talk about them cutting rates. The recent decline in 2-year treasury yields seems to be pointing to their next move. The fundamentals come out in the charts first. News follows the direction of the trend. The dollar is reversing course.

Reversal In Gold 9-12-08

Well I’m watching the gold sector very closely these last couple days. I think the reversal is very evident with the strength we are seeing today in the miners. Earlier in the week I mentioned how we saw an up day in the ^hui index while gold sold off about $30.

All the other commodity related sectors are also having a big day. Oil seems to be holding the $100 level and we see the independent oil and gas up big.