Skip to content

News Letter 9-2-2012

09/02/12

This week saw equities consolidate while the bonds of the last two perceived safe harbors, the US and Germany, had strong rallies. Silver and Gold broke out to the upside with Silver leading the way. Copper was lagging as it is beholden to industrial utilization while the previous two are on their way to becoming sound money. It seems that the metals are playing catch up to equities which are discounting some QE in front the coming September Euro Crisis.

What I find truly astonishing is that grown adults believe that the ECB and/or the fed can undertake these skeams without consequences. How does taking the debt of the currently insolvent members of the Euro and putting a different name on it aka Eurobond change the fact that those nations are insolvent and that the debt can be serviced unless the finances of the currently solvent are tapped. Are the Germans going to pick up the tab for the Greeks, Spanish, Italians and in the very near future the French. Germany is only 22% of Euroland! With the German economy imploding, unemployment increasing, capital investment down. .9% and factory orders down 7.8% year over year, that will be a tough sell to the German people. I do not believe German Bunds would be rallying if the markets believed that Germany was about to absorb those debts. So with the kids back to school and the continent of Europe done with vacation get set for an interesting September.

 

Spanish financial institutions suffered the largest deposit outflow on record in the month of July when a whopping EUR74 billion, or 5% of the country’s entire asset base, picked up and left, the bulk of it most likely taking the well-known path of least resistance to the safety of Swiss and German bank vaults. We showed how this looks visually, and as the chart below confirms it can be summarized in one word only: waterfall.

 

S&P 500

The S&P still ignoring disappointing economic news as it awaits the C B reaction to the coming September Euro Crisis. We have no current position as market risk is large and we are currently neither technically over bought or over sold as indicated by current price in the middle of the range between Pivot and Pivot Top 1. We would use any celebratory rally to Pivot Top 1 to initiate short position and will use any two day close below Pivot to do the same.

DAX

As the European economies slip further into recession and the dire finances of the PIIGS take center stage the DAX reflects the hope that CB’s will react and printing fiat will save the day. We are a few points from initiating a short position at Pivot Top 1 @7200 DAX

 

Treasuries

Bears are trapped again. We are still trapped in the last trap sprung in May. Bonds are beholden to CB buying as they force interest rates below what the finances of the sovereigns would indicate. World wide economies are on the decline. Until participants realize that the math is undeniable and hope is abandoned frightened money will believe that they have found a safe haven. When that realization is reached the door will not be wide enough for all those who wish to exit.

 

German Bund

This is the same story as above with Treasuries as both are deemed the only safe place to be until they are figured to be the bubble that they are!

Currency: Euro

The Euro has rallied back to Pivot. We are now Dec Euro at 1.2610. First target is the consolidation area around 1.2270. The Euro will not exist in its current formation 3 years hence. Some reformations are bullish while others bearish. We believe that all fiat currencies are politically doomed. All will lose out to precious metals and to US Dollar.

 

Energy: Crude

Political happenings in the middle east and the specter of world wide money printing have pushed Crude higher and will continue to do so. We are flat and are looking for a pull back to Pivot to establish longs.

Energy: Unleaded

We have established shorts of December Unleaded at 2.8460. First target is 2.6940.

 

Energy: Heating Oil

No position. As dollar is weakened things will get more expensive. We will look to establish short position first touch 3.3130.

 

Energy: Natural Gas

We have bought December Nat Gas 3.170. First target is Pivot Top 2 at 3.51

 

Metals: Gold

After 4 month consolidation it appears Gold has broken above Pivot and is on its way to 1,800. We are long Silver and believe that is the better way to play the decimation of the Dollar.

 

Metals: Silver

We are long December Silver after roll. Our cost after roll is 28.50. First target is Pivot Top 1 at $32.79. We will monitor the way that price is obtained to determine if we exit there or are looking for Pivot Top 2. That will probably be determined by the amount of printing about to happen.

 

Metals: Copper

Copper has been lagging other metals. We are long Silver and will use that as our metal play.

 Compression Trade FGBL vs TY

Short FGBL(German Bund) Long TY(Ten Year Treasury)

 

Compression Trade SI vs S

Long SI (Silver) Short S (Soy Beans)

 

 

 

 

 

 

Leave a Reply

Your email address will not be published. Required fields are marked *