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Señor Dollar, Old Man VIXer!!! and Gold... Mr. Gold

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November 12, 2009 – Comments (12)

Yeah, another lame pun (similar to this one The Market Moves Vixenishly). Anyhow, I still think we have made a bottom in the VIX like I called in the post linked above.

So the question is: Does the VIX have to bottom and the market have to top at the same time? The answer is a pretty obvious: NO.

I think we have two more waves left in P2 (see this post Revisiting the Count), a B and the last C wave. I think the final C wave will make some *very modest* higher highs. In fact, I fully expect it to look like a double top. But I think these waves will be pretty volatile, moreso than the last series of waves.

Which fits with the count I should below. I think the last 2 waves in the market correspond with the pink 1-2 below, and the next 2 waves (the last B and C) in the market will form a blue 1-2 on the VIX. This will correspond with a large increase (wave 3) in volatility as P3 down gets underway in the market.


.... continued in comments section ...

12 Comments – Post Your Own

#1) On November 12, 2009 at 7:32 PM, binve (< 20) wrote:



Here are my Dollar Counts. This is looking very bottomy to me.

I, like many others who understand some of the macroeconomics associated with this stock rally, have talked about the US Dollar. In particular, the weak dollar is helping to fuel the equity rally currently.

However, I have seen a lot of posts that say something like "Dollar Down = Stocks Up" without any further qualification. AND THAT IS COMPLETELY WRONG!!!

Dollar Down = Stocks up (and vice-versa) is true now based on a very particular macroeconomic setup. And it will *NOT* persist into the future indefinitely. Over the long term, the Dollar and the equity markets are far more positively correlated than inversely correlated. And in the not too distant future both will be trading down together as they have done in the past.

So if you are long the US Dollar to play the bounce for a couple of months - good call

However if you are long the US Dollar because you think it put in a *major* bottom, and that it is fundamentally stronger (relative to other currencies, including and most especially gold) .... good luck with all that.

Please read these posts of mine regarding the Dollar:
- Gold and US Dollar Counts - Nov 09
- Thoughts on the US Dollar, Analysis of the USDX Long Term, Follow up on the Gold Blog




Here is the Long Term Dollar/Equity Correlation as I was discussing above as well as a clear picture of the long term direction of the dollar





So the question is what will gold do? Do the deflationists have it right? Do all asset classes drop when the Dollar starts rising?

Gold is a currency, not a commodity. I have been over this before. So has TMFSinchiruna. So has Steve Saville. Whether you believe me or not is irrelevant.

And so when the next phase of the bear market starts and the dollar starts rising and the markets start going down, gold may correct. Then again it may not. But when things start getting ugly, both gold and the dollar will rise together as they have done many times in the past during crises.



So maybe you will get a nice pullback in gold to buy yourself some real protection ... But I wouldn't count on it.

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#2) On November 12, 2009 at 8:18 PM, Tastylunch (29.38) wrote:

Do the deflationists have it right? Do all asset classes drop when the Dollar starts rising?

Well to be fair I've seen some in the deflation camp argue that Gold is more or less correlated to credit dislocations. Besides Mish I have read other Pro Gold yet Deflation oriented guys.

Now Silver I dunno, It seems like it can't make up its mind. Do you view it as a pure currency as well?

Anyway I think the new Platinum and Palladium ETFs are very vey interesting.They may got more pop to come than our good friend Mr Gold. have you looked at those?

What's interesting too is that now Oil seems to be starting to trade like currency. I think thats' why were wrong on it earlier in the year.(and why Nat gas is still closer to fundamentals)

 Hey man what's up Godvibe closing all is picks today? You happen to know?

I think I know why Deej closed all his, but didn't know if you what's going on with GV. His site didin't have any new info....

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#3) On November 12, 2009 at 11:10 PM, binve (< 20) wrote:

Tastylunch,

Hey man :)

Well to be fair I've seen some in the deflation camp argue that Gold is more or less correlated to credit dislocations. Besides Mish I have read other Pro Gold yet Deflation oriented guys.

This is true. But generally speaking most deflationists (hmmm. I am making a broad generalization. Its not like all the deflationists in the world meet up at a convention in Vegas once a year to discuss debtate strategies), at least that I have read equate Dollar Index Up = all Dollar Denominated assets down. Which is wrong. I have shown 2 examples above (and there are many more where that came from) where that is not the case.

Now Silver I dunno, It seems like it can't make up its mind. Do you view it as a pure currency as well?

Here is where I depart from the gold / silver crowd as well, and the main reason why I do not consider myself a gold and silver bug.

Gold is a currency first and a commodity only a very distant second. Silver is almost half and half currency/commodity. From The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure)

I know I have spent the majority of the post talking about gold. I would like to talk about Silver in more detail, but I am simply running out of steam. Silver is another monetary metal. Silver though has a very wide range of industrial uses. As such it straddles the line between a currency and a commodity. However Silver has some very interesting facts: Silver for a long time was not recycled (unlike gold which has been recycled for a long time in industrial applications). This is not true anymore, it is being recycled much more now. But as such, a large portion of silver is literally sitting in landfills in various chemical states. And because there is still so much industrial demand, the amount of silver sitting in vaults as a monetary metal is lower than the amount of gold. This makes Silver a bit of a conundrum at times. It whipsaws much more than gold. When gold sells off, silver sells off harder. But when gold rises, silver rises much faster.

I believe Silver is in a secular bull market much like gold. And the commodity correction last year gave an excellent entry opportunity. And I think even now is an excellent entry opportunity. Will silver fluctuate? You better believe it. But this is another investment I am fundamentally engaged in.

So first things first: I am very bullish on Silver for the long term. I own a LOT of it myself: physical, through CEF and through Silver Miners. I am fundamentally engaged in Silver's long term potential. So I think right now, the long term risk/reward for Silver is very good, as the long term problem is inflation.

Base Metals are a risk metals (commodites). Gold is a safe haven currency. Silver is a bit of both. And Silver outperforms gold when inflation expectations are high and economic outlook is positive. 

But when the economic outlook is perceieved as risky, gold always outperforms silver. And that is exactly what the gold / silver ratio (GSR) is saying right now. It is saying that risk is rising and gold is outperforming silver.

A lot of people look at the GSR and say silver is way undervalued with respect to gold and are expecting a breakout. That is a possible interpretation, but IMO I don't think it is a likely one. It is a risk measure and I think it portends weakness for the market (a huge risk item).

So based on the GSR trends the past several months and the fact that the technicals are topping for the equity rally, I think money is moving to safe havens (which is why the Dow is rallying - "safe" blue chips, while the Russel - "risky" small caps - continues to tank). Which means at this pont, gold is a strong accumulate and silver is a hold. Just my take on the matter at this time.

Anyway I think the new Platinum and Palladium ETFs are very vey interesting.They may got more pop to come than our good friend Mr Gold. have you looked at those?

Not yet. I have Pa/Pt exposure through PAL but I haven't looked into the metal ETFs seriously (I don't have any physical).

And no I don't know whats up with GV closing his picks. Deej either for that matter. Hmmm.

Thanks man!..

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#4) On November 12, 2009 at 11:39 PM, Tastylunch (29.38) wrote:

Offtopic- First you might wnat to look at this chart. Being a semilog guy i think you'll appreciate it. :)

http://www.pankin.com/retire/danger.htm

 Thanks Binve,  that was my take on Silver as well. I still like having the physical in my pocket silver better than Gold though for grocery buying sake etc. :)

Its not like all the deflationists in the world meet up at a convention in Vegas once a year to discuss debtate strategies

IS true! we get T-Shirts for attending!  Man you should see the intiation rites, they will really show you why no man likes deflation :)

I wouldn't bother with physical platinum, an ETF or equity is probably good enough there. Although I suppose if Obama goes FDR on deposit boxes they may leave Platinum alone not realizing. :)

And no I don't know whats up with GV closing his picks. Deej either for that matter.

I have a  pretty good guess why Deej did (not makret related) , but GV has got me stratching...Ah well if you find out let me know if GV has changed his mind re P2

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#5) On November 13, 2009 at 12:29 AM, binve (< 20) wrote:

Tastylunch ,

That link is perfect! I could not agree more with EVERYTHING he said. From the page:

The graph makes a strong case that we are now in a secular bear market that began in 2000. The media trumpeted the Dow making new highs starting in 2007, but as the graph shows that when inflation is taken into account, it has not yet reached highs in 2000.

Exactly. I have made this point many times. And of course looking at the long term Dow Gold Ratio (DGR) tellse the same exact story:

IS true! we get T-Shirts for attending!  Man you should see the intiation rites, they will really show you why no man likes deflation :)

LOL!! Thanks man :)..

 

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#6) On November 13, 2009 at 12:34 AM, binve (< 20) wrote:

Tasty, BTW I have a really good inflation/deflation debate and discussion going on at my other blog. It actually reminds me of serveral conversations that we have had. Please feel free to check it out! : http://marketthoughtsandanalysis.blogspot.com/2009/11/senor-dollar.html#disqus_thread

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#7) On November 13, 2009 at 1:50 AM, portefeuille (99.61) wrote:

------------------------
Hong Kong shares up on M&A hopes; China slips
Fri Nov 13, 2009 12:51am EST
...
Share prices and trading volume soared on the much smaller
foreign currency-denominated B share market, as expectations
mounted for renewed yuan appreciation against the dollar, with
U.S. President Barack Obama expected to raise concerns about
currency issues in his visit to China next week. There has also been long-running speculation of a possible
merger of little traded B shares with yuan-denominated A shares. The Shanghai U.S. dollar-traded B-share index was up
6.05 percent at 243.462 points and the Shenzhen Hong Kong
dollar-traded B-share index .SZSB rose 5.49 percent to 609.112
points. Both indexes reached 17 month highs....
------------------------

 

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#8) On November 13, 2009 at 2:11 AM, portefeuille (99.61) wrote:

Yuan Forwards Rise Before Obama Visit as China May Allow Gains

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#9) On November 13, 2009 at 7:28 AM, outoffocus (23.24) wrote:

Port, 

So what I hear is true about the yuan.  So what do you think that means for Chinese stocks?

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#10) On November 13, 2009 at 9:20 AM, binve (< 20) wrote:

portefeuille, .

Thanks. Yeah that would be a good move on the Chinese to help alleviate some of their money supply growth - http://caps.fool.com/Blogs/ViewPost.aspx?bpid=239096.

 

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#11) On November 13, 2009 at 5:22 PM, outoffocus (23.24) wrote:

So no one is going to answer my question? Awe *pouts* =(

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#12) On November 14, 2009 at 11:39 AM, binv271828 (< 20) wrote:

outoffocus, Hey outoffocus. That is a tough call. It is so hard to get real GDP numbers from China, and it seems like so much is based on central planning and heavy monetary involvement. I actually have no idea how this will play out for Chinese stocks in the short term

Since August, the SSEC has had a *very* sharp selloff, and bottomed into support in September. Since then it has been rising but very correctively (read unhealthy technically and from an EW perspective). And it has not made a higher high since August. It seems to me based on the chart, that there is more downside in the not too distant future

My $0.02..

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