Skip to content

PTC News Letter 9-16-2012

09/16/12

Hip Hip Hooray! Not only QE 3 but QE 3++. As Silver and Gold have been predicting the Fed has delivered the goods. QE 3 was expected and discounted by the equity markets but what the Fed delivered was a QE with no cap and no time limit. $40 billion a month in MBS on top of the @ $45 billion a month already ongoing with Operation Twist until – and here is the kicker- the labor markets conditions not only improve but do so “substantially”. At this rate if we were to experience a Japan like decade of below Fed targeted growth the Fed would end up owning the entire Mortgage Backed Security market!

Further, targeting mortgages indicated that the Fed believes that hosing is the key to job growth. The problem with this vane of thought is that it puts the cart before the horse. People are not currently buying houses not because interest rates are too high but because they are not employed or are not confident that they will remain employed. The problem as Harry Dent illustrates below is a result of demographics coupled with the fact that the push to expand housing under the Clinton administration with Fed induced subsidized rates and lowered borrowing standards bought forward housing spending. It remains a mystery to me how the process that created this mess is going to solve it.

 

The most powerful economic force on Earth: demographics. More specifically, the power of the number 46. You see, that’s the age at which the average household peaks in spending.

When the average kid is born, the average parent is 28. They buy their first home when they’re 31… after they had those kids. When the kids age into nasty teenagers, the parents buy a bigger house so they can have space. They do this between the ages of 37 and 42. Their mortgage debt peaks at age 41. And like I said, their spending peaks at around 46.

From cradle to grave, people do predictable things… and we can see these trends clearly in different sectors of our economy, from housing to investing, borrowing and spending, decades in advance.

 

 

There is simply no way the Fed can win the battle it’s currently waging against deflation, because there are 76 million Baby Boomers who increasingly want to save, not spend. Old people don’t buy houses!

At the top of the housing boom in recent years, we had the typical upper-middle-class family living in a 4,000-square-foot McMansion. About ten years from now, what will they do? They’ll downsize to a 2,000-square-foot townhouse. What do they need all those bedrooms for? The kids are gone. They don’t visit anymore. Ten years after that, where are they? They’re in 200-square-foot nursing home. Ten years later, where are they? They’re in a 20-square-foot grave plot.

That’s the future of real estate. That’s why real estate has not bounced in Japan after 21 years. That’s why it won’t bounce here in the US either. For every young couple that gets married, has babies, and buys a house, there’s an older couple moving into a nursing home or dying.

 

 

 

S&P 500

QE to infinity and beyond! The S&P will now begin to discount the destruction of the dollar until the debt of the US is pocket change. Assets such as equities will continue to rise in dollar terms. We have no current position. Market risk is being removed. We will monitor the celebratory rally to Pivot Top 1 to see if a short position is warranted there or will we need to wait for Pivot Top 2. Any pullback to the 50 day xavg currently at 1399 should be bought.

 

 

DAX

QE celebration currently trumps European economies slip into recession and the dire finances of the PIIGS. Draghi has already said he will print fiat to save the day. We are short December DAX at 7242 at Pivot Top 1. We will be in for some pain until the reality that Germany is not going to allow the same lunacy as the Fed only because the beneficiaries would not be strictly German but the cost would be.

 

Treasuries

Bears may finally have their day. The realities are beginning to sink into those hiding in the “safe havens”. The CB’s are set to destroy fiat currencies and the debt associated with them. There still may remain a few spikes into Treasuries as the PIIGS start to fall. However, those spikes should be sold. It’s simple, the math does not work.

 

 

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 through the Pivot. We are short Dec Euro at 1.2610. The Fed has beat the ECB to the draw. Dollar down vs Euro for now. Then the catch will begin in earnest.

 

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 are long 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. QE 3++ insures 1865 Gold.

Metals: Silver

We are long December Silver after roll. Our cost after roll is 28.50. We have reached and blasted through first target Pivot Top 1 at $32.79. We are now looking for Pivot Top 2 to exit trades or a close below Pivot Top 1. With the Fed’s QE 3++ we feel certain that $37.50 is just a month or so away.

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 *