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This Rally was Pure Weapons Grade Balognium

Recs

66

June 22, 2009 – Comments (35) | RELATED TICKERS: B , S

This title was a nod to all you Futurama Fans out there, and I know there are a few :) But the jist of the post is going to be (yet-another) rally ending prognostication. But before you tune this out completely, let me just say that there has been a lot of sentiment damage done to this rally as well as technical damage. So lets just take a look and see what old binv is talking about.

First there are several references that talk about most of the ideas in this post:

From GoodVibe: GoodVibe Call – My green shoots and the mighty wave 3 of 3 - Perfect and Timely TA post for this rally,  

From TastyLunchMoving Average Crossover Paper - Observation on the potential "Golden Cross". Read GoodVibe's and Anchak's comments in this post.

From binve: Bob Hoye: Banks: Another "Widows and Orphans" Short - Good article by Bob Hoye. Very worth a read.

From binve: Still Bearish: FA and TA on S&P 500, Observations on the Economy - Fundamentals on the Economy (read: I think that stunk before and they still stink now). 

So, my thoughts on the rally:

Yep, I think it is over for now. I think we have had a definitive trend change. Now do you need to hear this from me? No. GoodVibe in the post above called this already and quite frankly his TA is much better than mine. So why are you reading this post? Because my take on things follows a different timeframe that GoodVibe and many others, and lets face it: When you want to hear crazy ideas or wildly speculative projections, binv is your guy (I can just imagine GV cringing now :) ).

Lets take a look at a few indicators

Indicator #1 - The Put / Call Ratio.

The Put/Call Ratio ($CPC) by itself gives you very little knowledge about what option investors are thinking (it is a very erratic number, changing all the time). But what is very useful is looking at the trends of the CPC. Extreme values (usually above 1.25 or below 0.75) are usually found at turning points (when the general investing sentiment is either too bullish or too bearish). From these extremes, the direction of the shorter term Moving Averages can give a clue as to how option writers view the progress of the rally and how they are hedging their bets. Based on the recent trends, it looks like Option Writers (in general) are turning more bearish on this rally



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Indicator #2 - Bank / Financial Recent Performance.

Finanicals lead the rally off the bottom, but they have not been making new highs along with the market.  Tech has been leading the rally for the last several weeks and financials have taken a back seat in many of the discussions (at least here on Caps). I always watch and pay attention to them (because I despise them, but that is just me, and I have already said that ad naseum). And have noticed the non-participation / non-confirmation of Financials (via XLF) and Banking (via BKX) vs. the broader market (Dow, SPX, Nasdaq), that is they are not making new highs along with the rest of the market. And because of their over 100% rally off the bottom, this should give anybody pause that is currently holding financials (as a long).

From Bob Hoye's article:

"Great manias in financial and tangible assets have been methodical in their euphoric climax and consequent contractions. With six now recorded since the first one in 1720, it has been fascinating to watch this one track its way through the typical post-bubble path-- now to twenty months after the stock market peak when global credit markets would start another phase of distress.

The signal for the beginning of the contraction has been the reversal in the yield curve. Typically, the boom can run for 12 to 16 months against an inverted curve, as the demand for margin by speculators drives short-rates up faster than long-rates. While rising interest rates seem to worry Wall Street strategists, history records that troubles begin when the curve reverses to steepening and short-dated market rates of interest start a steep decline. It has been prudent to recognize that this along with declining Treasury bill rates is one of the warnings about the end of a speculative frenzy and its inevitable collapse.

This time around, the curve inverted in early 2006, and the 16 months counted out to June, 2007, which we frequently discussed. Included was the seasonal tendency of credit spreads narrowing into to May, and then if the party has been wild enough -- reversing to disaster. By mid June, the curve and spreads had changed enough to conclude that the greatest train wreck in the history of credit had begun, making banks and financials a "Widows and Orphans Short."

The next step in the path was that as credit became more stringent through the summer of 2008, our conclusions were that a typical fall crash was possible and considered the 1929 and 1873 examples would provide reliable guidance. This worked out rather well, setting up the possibility of a dramatic revival in animated spirits to around April-May. On the equivalent move in 1930, Barron's wrote that it would be "difficult to quench the fires of enthusiasm." This spring the equivalent move in commodities, corporate bonds and stocks ran into early June--close enough--when a number of our indicators registered excessive speculation. Also the run against the dollar became overdone.

Where the fall crash and its rebound have been the main events, the next one is determined by the twenty-month count following the 1929 and 1873 bubbles. Credit markets then took a turn for the worse.

June is the fateful month and one key signal would be another reversal in the yield curve- -this time to flattening, which could be soon followed by spread widening.

When steepening started in 2007 standard research applauded it as banks usually make better spreads, but we noted that steepening at the end of mania signals financial distress. Our concern about the reversal to flattening in June is that it indicates the resumption of illiquidity. And the reversal in the curve last week was a "heads up" on a market change that could hit inappropriately positioned traders. It will also change orthodoxy about the "benefits" of steepening.

On timing and credit market change that is global in nature, most bank stocks in most countries are again vulnerable.
"

Indicator #3 - The *way* the recent top was made

Maybe you believe in EWP, maybe you don't. But technically (EWP aside) when the S&P 500 moves through and closes below the 50 day MA and the 200 day MA, from a very strong down move starting a few days previously, that should not be ignored.

Here are my counts for the recent price action. My counts do not line up with a lot of other peoples counts (many count the move up from 666 as an A-B-C corrective, whereas I count it is an impulse. This is technically a viable count. And some of the other indexes also look impulsive). Either way, most of the EW chartists on GoodVibe's CIL all agree that we either made a Wave 2 Primary Top or an A of 2 Primary Top at 956.

What you are looking for in the chart below is the way the count moved up strongly to 956, and then strong down, through a number of lateral support levels.



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Indicator #4 - US Treasury Bonds and the US Dollar

Both the US Dollar (via the USDX or any number of currency pairs) and the Long Bond Price look like they have made a temporary bottom.  Sometimes the dollar / bonds are stronly inversely correlated with the stock market and sometimes they are not. But recently, equities, gold, oil and commodities were trading up with the Dollar was trading down. This is not good and not normal. These quantities should not be this strongly positively correlated.  This happens there is either major deleveraging going on or when big money is moving / rebalancing though the global system. 

If you see the dollar rally from this level, I would think very carefully about any long positons you are not fundamentally engaged in.

*binve's Crazy - Highly Speculative - Tin-Foil Hat Projections*

The next part is just, well, binv being binv. I like thinking about the big picture. Even if it is not tradeable at all, I am just a big "what if" kind of guy. 

The next few charts are exactly that. They are not for trading. I am not even 100% serious about them, I am throwing out ideas and seeing what sticks. But I do see a possible large Head and Shoulders setup that could get this who projection rolling. Just fun to think about :)

By the way, all of the original logic for these next charts comes from: More Thoughts and Analysis: Timeframes – Bearish, to Bullish, ...to Bearish. Please read this blog post first to get my thoughts on these charts. 



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Please feel free to comment, disagree, discuss. And even if you don’t agree with my conclusions, please rec if you appreciate the effort or the explanation of my thoughts, even if you use them draw different conclusions than mine.

The binv standard disclaimer: This in no way constitutes investing advice. All of these opinions are my own and I am simply sharing them. I am not trying to convince anybody to do anything with their money. I am simply offering up ideas for the sake of discussion. As always, everybody is expected to do their own due diligence and to ulimately be comfortable with their own investing decisions.

35 Comments – Post Your Own

#1) On June 22, 2009 at 10:17 PM, checklist34 (99.73) wrote:

until proven wrong by history, I maintain that the most likelyh outcome for the market over the next few months is to remain slogged in the ~850-950 trough its been in since October (save the drop to and bounce from the march lows). 

People were too quick to call the bounce from the lows a "rally" and too quick to call a "collapse now", imo

 

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#2) On June 22, 2009 at 10:55 PM, KamranatUCLA (29.20) wrote:

these charts don't mean Shhh*&^&^t.

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#3) On June 22, 2009 at 11:15 PM, mistermiranga (97.88) wrote:

nice work binve and thanks.

I have been watching you and GV and agree in loose terms with the direction of your EWT counts.

Fundamentally, I have issues with growth projections but mostly my gut tells me to beware when I weigh all of it and see what is going on with my customers and their customers (I have been in CRE for 15 years).

I have read some bullish views on PE ratios lately that make an interesting case but I still think that relying too much on the past might be dangerous in this economy. Quality companies will survive and even thrive but won't necessarily command a historical "premium" when it becomes evident that this thing is going to take some time to play out...and credit is hard to obtain.

- never have we seen such leverage (which artificially inflated growth).

- never have we seen such government intervention (which has definitely helped but will likely lead to disappointment).

A guess by me: Inflation will be an issue eventually but until then I think the time frame on deflation will not be friendly to equities. Printing money by itself doesn't cause inflation, right?

I see a lower low by the Fall...mostly because I still think we need that short-term capitulation by the broader market and that type of move would do it to it.

Let's say SPX 602 to make it more interesting. ; ) 

Just my humble opinion. Not buying ammo yet though... 

  

 

 

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#4) On June 22, 2009 at 11:16 PM, BigFatBEAR (29.53) wrote:

Only 2 comments with 16 recs?? Come on, people, show the love!

Good job here binv. I posted the same thing, only no where near as well-done as your's.

I was actually thinking today that it'd be REALLY fun, and perhaps enlightening, to force a lot of major market commentators to draw out their market projections, as you have.

Seeing into the future is impossibly speculative, but practice couldn't hurt, could it?

Anyway, a big rec from me, especially for the title and tickers. :)

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#5) On June 22, 2009 at 11:38 PM, PrestonCheek (31.03) wrote:

Great blog binve.

I hope everything is going great for you brother.

Preston

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#6) On June 23, 2009 at 12:00 AM, Tastylunch (29.52) wrote:

Hahah very nice post Binve you stole my thunder, I was going to use point number 1 in my next post :)

I'm somewhat in Checklists's camp I'm not expecting anything major here, not seeing any crazy catalysts but I do expect a slow slide if you will.

 

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#7) On June 23, 2009 at 12:02 AM, JGus (28.97) wrote:

Great job, as always, Binv!

If you're willing to answer (and I totally understand if you're not comfortable doing so) at what price did you sell FAZ and when did you buy back in? I know you held for a long time and then finally sold out around 930 on S&P. I also know that you've bought back in. The reason I'm curious is because I decided to hold (cause I just didn't believe we would ever make it to 1000) and made my last purchase at $4.32. I was tempted to sell when you did because you were one of the last ones hanging on with me. Anyway, I'm just curious to see what difference it might have made. Like I said, no pressure to answer, I know I'm asking a 'personal' question.

Also, being a swing trader like me, what exit price are you looking at for FAZ? I'm assuming you're not playing the smaller counts but are holding for the larger move down. I'm currently looking to hold 'til $7-8 at least, and then assess again at that point.

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#8) On June 23, 2009 at 12:07 AM, tonylogan1 (28.22) wrote:

rec 25 from me...

agree on the short term dollar possible bottom... but I think the long bond may not have as strong support...

since I expect the market to continue to decline, it would be safe to expect bonds to perform better than they otherwise would, but I think they are not going to do as well during this downturn as they did during the last downturn.

This time around, I think there is less fear of "systemic collapse" and money will keep finding other homes than US long term treasuries.

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#9) On June 23, 2009 at 12:43 AM, Tastylunch (29.52) wrote:

Whoah whoah wait a minute

dude that last huge chart,very bearish. I'm inclined to agree though barring unforseen further activity on the Fed's part.

But here's the thing that vision of the future you have laid out is pretty clearly deflationary, which incidentally is the camp EWP guru Robert Prechter is in.

It doesn't exactly jive with your view of Gold (unless like Mish you believe it is good to have in times of credit dislocations), if you think the dollar is going to get wracked like Jim Rogers does, the chart should probably have it taking out the old highs on the S&P in the next 6-7 years pretty quickly...Unless you are in The Icelandic camp in which the dollar is annihilated beyond repair to the point...

e.g.  Weimar republic

http://www.nowandfutures.com/us_weimar.htm
stock market went from 126 to 26,890,000 in a few years!!!!

Just curious how you reconcile those two projections Binve.Not saying you are wrong just saying the chart and your outlook on Gold don't mesh for me, unless I'm missing something.

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#10) On June 23, 2009 at 2:00 AM, AdirondackFund (< 20) wrote:

Nice blog binv.  The idea though is to predict trend changes BEFORE they occur, not after they have already happened.  It would have been nice to notice, for example, that the Rifin faded a month ago and made it's top there.  It was actually a pretty easy call, one of the easiest I have ever seen, especially with the Banks turning on the Printing Presses themselves with all of their Public Offerings.

TA is great and I wouldn't leave home without it, but common sense is even better.  The only place to hide in this storm would be hard assets themselves, like agricultural or resource based land, and gold and silver.  But the waves don't allow for that.....yet.   The key move is coming next when shorts and longs come out of this market and have no place to go.  There will be no earnings to speak of, so stocks will be out of the question.  Currency dillution only has one remedy that I know of and that is hard assets.   If you can think of another, let me know.  The Great Speculators of all time always found their way through Stock Busts by becoming Commodity Traders.  It will happen that way again. 

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#11) On June 23, 2009 at 7:12 AM, outoffocus (23.62) wrote:

+1 rec for the Futurama reference! lol

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#12) On June 23, 2009 at 9:34 AM, binve (< 20) wrote:

checklist34, Thanks for the comment. That is a very possible scenario, I tend to be much more bearish on this rally and the ecnonomy but I can certaintly see a case for the market action you describe if the fundamentals are not as bad as I think they are.

mistermiranga, Thanks! I have been watching you and GV and agree in loose terms with the direction of your EWT counts. LOL!  Yeah, we have some disagreements on the direction and counts for a few markets, but GV has made a lot more correct calls than I have :)

Excellent observation regarding PE. Yeah, Non-GAAP earnings estimates (which are complete BS) paint a much more bullish picture. I have seen some earnings estimates of $60 for 2009 (!?!) which put the PE for the S&P 500 at ~11 (at 666 on March 9) .... uhh, okay. And they also have a bridge in Brooklyn they want to sell me. I think $40 for 2009 is a good consensus estimate (from reputable analysts) and I have a feeling even that will end up being high. Using that, we were nowhere near any bottoms in terms of valuation historically in 2009.

I have also not seeing a compelling argument for true YoY earnings growth (we might get a slightly better or worse quarter which will add some variability). And I don't think we will be growing eanings in any meaningful way for the next few years, in fact, I think they will follow the prevailing trends as they have the last few years: real earnings are down consistently, and analysts have always (in general) over-estimated them ahead of time.

My $0.02. Thanks!

BigFatBEAR, Thanks bro! Yeah, your post was great man, as were the comments.

Seeing into the future is impossibly speculative, but practice couldn't hurt, could it?

LOL! I am a speculating (both F and f)ool :)

And thanks on the tickers man! Yeah, I was going to do: BA, LO, NY, but for some reason it kept saying LO was invalid. Ahh, well, but B,S works too :)

PrestonCheek, Thanks brother! I appreciate that. You too man :)

Tastylunch, Thanks man! LOL! Sorry for stealing your thunder. Hey, great minds think alike right? :)

JGus, Hey man! Thanks. Yeah I will talk about my trades since they are in the past. I will also talk about what I am buying in the future too (maybe not as specifically) as long as it is construed as conversation and not specific investing advice.

I scale into and out of positions. So in order for this response to not go on for 2 pages, I will just talk about the "averages" of my buys, but that's not really how I trade.

In April/May I had a higher cost average ( :( ) and ended up taking a loss (pretty hefty one) on this trade with FAZ, trying to call a top prematurely. I thought that the market was topping in May, and it turned into consoldiation. And so when it broke out at the end of May, I knew my count/interpretation was wrong so I exited for a loss, waiting for a better short position. My exit price on 6/2 was ~4.58.

After the 5-wave move up, then a defninitive reversal and the beginning of a new impulsive wave down, I went short again. We are all talking in the CIL about this at the time. I got into FAZ again 6/15 at 4.51

Now, these 2 prices are nearly the same, so should I have just held? I say no. Because I was wrong in my count and I was waiting for a clear trend change down, and I believe that was what we were seeing at the time.

I got out of that position on 6/17 at 5.10. After the Wave 1 down. Then I used the next few days to scale into my next short. My "average" is now ~5.00 (this one I could have waited on, but I wanted to "book" profits, and ensure this was setting up for a down move and not a reversal). And I think that is exactly what we are getting.

I will definitely be holding FAZ for the next several days, at least until the Wave 3 completes. I think there is a lot more downside ahead. And I think you are right, it should hit ~$7-8 around that time. Thanks man!

tonylogan1, Thanks man! Yeah, I agree with your points, a dollar bounce is more likely than a treasury bounce (at least for the long bond), so of the short terms Treasuries my rally more though. There has been a lot of rebalancing from long to shorted dated bonds/notes. This time around, I think there is less fear of "systemic collapse" and money will keep finding other homes than US long term treasuries. I agree with this too.

Tastylunch , I actually have a writeup that reconciles all of these views. If I can find it (it is in the comment section of somebody's blog) I will post it here too. But here are the bullet points

- If I thought the outcome was truly deflationary, i would be making a call for the S&P to drop to 133 (during 1929, after the initial 50% drop, the stock market dropped another 80%! over the next few years). 20% of 666 = 133. And no I do not think that is realistic given governement policies. I think something like ~400 on the S&P (4000 on the Dow) is more realisitic
- But what the big drop in the middle of inflation?
- Because earnings still stink!
- Inflation is not enough to keep prices high (I think all the inflated money will find itself in real assets, not the stock market), however, I think inflation will keep prices in the stock market from dropping as low as they otherwise would
- Inflation will also help earnings from dropping in prices terms as low as they would go (in nominal terms they will be much lower)
- I have said before, that the market needs to make a bottom in terms of valuation before it can go up again, and historically that is when PE is 6-10.
- Just for kicks, lets use PE = 8 as the bottom.
- From my response to mistermiranga above, Earnings (GAAP) from good analysts (such as Mauldin) are around $40. And for the sake of argument, lets say they stay the same for the next few years (I see a much stronger argument that they will actually shrink, I see no compelling argument that they will grow). But lets say inflation keeps them about $40.
- PE of 8 * $40 earnings = $320 Price of S&P at the bottom
- This is where I get my ~400 estimate for the S&P.
- I think we will have inflation big time, but I think the market fundamentals are so bad that they will fall regardless of inflation
- Indicidentally, my gold argument still stands. Dow at the bottom of ~$4000 (not as bad as an equivalent Great Depression move) still puts Gold at $4000 eventually if you believe like I do that the Dow-Gold ratio will bottom at 1 (or even less).

So that's my story, and I'm sticking to it :)

AdirondackFund, Thanks.

The idea though is to predict trend changes BEFORE they occur, not after they have already happened.

LOL! Well, of course. But I have tried calling a top early, and been unsuccesful. Will this post I wanted to wait until we had a clear trend change and a good impulsive break. I don't mind being aggressive with my shorts. I know how to take a loss and find a better position if my trade goes against me. Others (in general) are not so aggressive. But I think the risk/reward, even here, still favors being short. So I think this post is still useful.

TA is great and I wouldn't leave home without it, but common sense is even better.  The only place to hide in this storm would be hard assets themselves, like agricultural or resource based land, and gold and silver.

I agree with this completely. I also agree that the waves are forecasting weakness near term, but I think the long term counts and fundamentals say UP for real assets. Thanks for the comments!

outoffocus, Thanks! :). There are so many good lines from that show.

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#13) On June 23, 2009 at 11:47 AM, arboretum (28.67) wrote:

Binve - nice job. I agree with Tasty, I blogged on the Weimar thing a while back. But, I am strongly convinced that the US cannot allow serious inflation to happen - just too dependent on borrowing in the medium term. So inflation at 10% plus earnings falling at the rate they are still means a falling stockmarket. Like you say, 133 would be the target were the dollar on a gold standard, but 400-500 is more reasonable with the printing press in (controlled) action. Nonetheless, I am not as bullish as you on gold or commodities for this reason, especially oil.

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#14) On June 23, 2009 at 11:58 AM, binve (< 20) wrote:

arboretum, Thanks! And I understand your position. That seems like a very reasonable stance. Unlike me, I tend to be pretty agressive and like to play with copious amounts of fire :)

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#15) On June 24, 2009 at 11:09 AM, darroj (32.88) wrote:

Nice post good sir.  I always enjoy your TA. However, I tend to like checklist34's point of view, but thats not based on fancy charts like yours :) Thanks for all your efforts man! Regardless of how this plays out, I've learned a lot following your blogs.

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#16) On June 24, 2009 at 5:03 PM, binve (< 20) wrote:

darroj, .Hey my man. Yeah, I think that is a reasonable going in assumption. But I tend to be an unreasonable kind of guy :) I tend to be very agressive in my picks / stances / opinions :). I certainly am glad that there are a lot of cooler heads like you and Tasty around :) Thanks man, and take care.

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#17) On June 24, 2009 at 5:08 PM, outoffocus (23.62) wrote:

Wow Binve, you are sporting an impressive 43 recs per blog.  Maybe CAPS should come out with a highest recs per blog charm or something.

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#18) On June 24, 2009 at 5:18 PM, binve (< 20) wrote:

outoffocus, Thanks! LOL!, yeah I would fully advocate TMF doing that. In fact I made that exact same suggestion over a year ago on Tankota's blog: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=58745&t=02008123963214560945

And, no, it was not a presciently self-serving suggestion :)

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#19) On July 03, 2009 at 1:41 AM, kstarich (30.57) wrote:

Binve,

Great post as usual.  I don't fully understand the yield curve.  Can you explain spread widening and flattening and how that relates to inflation.

Also, my ten cents, I don't think we are going to have a demand push inflation but a currency crises inflation.  I think this could happen even if the market continues lower.  California is printing IOU's and banks are considering taking them with interest.  Isn't that instant inflation and a new currency all in one?

 

 

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#20) On July 03, 2009 at 10:31 AM, madcowmonkey (< 20) wrote:

Crazy tinfoil hat projection :) Too funny. It is all getting crazy again. Hope the gold positions work out for you soon. Oil back down to $64 right now and I still believe it is going to be a bumpy ride for that sector as well. I am going to have some fun trying to make some picks "if" the market drops again. Last time I just closed a bunch of picks, this round I want to see if I can put something together. Most likely blind luck if I do:)

Have a great 4th weekend man. Looking forward to some pictures in August!

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#21) On July 03, 2009 at 11:08 AM, mikebanderson (< 20) wrote:

Point 1:  The New York Times called the March rally a bear market rally, therefore it must be a real, sustainable rally.

Point 2:  Motley Fool, Seeking Alpha and every other site that caters to superstitious "technical" retail traders, is calling this a turning point for the markets and so it will not be.  The market will range trade for the summer and then will start to climb again in the fall as more institutions put cash back to work. 

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#22) On July 05, 2009 at 6:43 PM, binve (< 20) wrote:

kstarich, Hey kstar! The yield curve does not "directly" pertain to inflation / deflation .... except when it does. Let me explain. And I am probably going to discuss a few concepts are you already aware of to get to where I am going with that statement, so bear with me :)

The yield curve (and I will be discussing US Treasuries in this response) refers to "Bond Yields vs. Maturity". Normally, when the economy is running fine, short term debt instruments have lower interest yields than long term instruments. This is because, all things being equal, there is more "risk" in the market for having your money tied up for a longer period of time (5 years vs. say 30 years), and long term investors demand higher compensation in terms of yields for that risk. Also recall that bond prices and bond yields are inversely related (as prices go up, yields go down).

So normally the yield curve is low for short term maturities and higher for long term maturities, and if you sort the maturities in ascending order and connect the yields you get a "curve" that starts at a low value (yield) and increases to a higher value, tending to level off. Fidelity has a great website that looks at the historical yield curves with some nice explanations here.

So, like Bob Hoye obeserves, we get some seriously inverted yield curves in 2007. This means long term investors are settling for lower yields on long term debt. This is a flight to safety move. The "smart money" (bond investors) are worried about the leverage in the system (stock market) from financials and the fiasco in the housing market and are buying up long term treasuries as a "flight to safety" (which has been the historical move, the US Government has a AAA credit rating and unlikely to default - more on this in a minute). As the demand for long Treasuries increases the price goes up (and as price goes up, yields go down).

So over the past 2 years the the curves have flattened, the started to steepen, then got really steep, and are beginning to flatten again.

Now this is very interesting, and where inflation, inflation expectations, and false signals all combine in a confusing dance. If you have not read my gold blog and US Dollar blog, please do so first. First, all of the conventional wisdom regarding the steepening and flattening of the yield curve is called into question, because the Treasury market is no longer functioning natrually. Why? Quantiative Easing. The Feds policy with QE is to put a floor under long term bond prices (try to keep yields low and stable). This is sending an artifical signal to the market. In fact, the Feds policies and expansion of the monetary based are highly inflationary. And I will not engage in an inflation/deflation debate here, I have discussed my views on both in the two blog links above. At the same time, the Chinese and Japanese have been swapping out long term long term debt for shorter term debt because the risk of holding US Treasury debt is not low.

How should this manifest itself in the yield curve? It should flatten. The Fed is propping up long term bond prices while the Chinese and Japanese are dumping, but demand for short term insruments is up. So we should expect a relatively flat curve (but still a "normal curve") but with a dip in short term rates from increased demand, and the short term rates will have a very low yield. This is what we are seeing. When things become really unbalanced again (the Fed is not able to prop long term prices / keep down long term rates because too much inventory is being dumped by Japanese / Chinese, causing long term rates to rise, while demand for short term debt keeps yields at effectively zero) speads will widen.

It is unclear what will happen when that occurs: Will the Fed step up QE into another gear and try to monetize even more debt (furthering inflation) or will the Fed/Treasury decide to default. I think the first option is much more likely but with the amount of total government debt (think state debt too, i.e. California) that needs to be monetized because tax revenues keep shriking, default is not an option that can be ruled out.

I like precious metals (PM) for both cases, it is a hedge against the massive inflation that is already baked in (even if the next couple of years turn out to be deflationary) and will find its way into prices eventually, and it is a hedge against a currency crisis should the Treasury choose the default option. The dollar is ruined in either scenario. But like with any amount of risk management, never go all-in on anything. My PM holdings are large, but nowhere near 100% of my portfolio. But like you, I think the outcome long term and the not-too-distant-future will be inflationary. Thanks for the comment!

mikebanderson, Fair enough. Taking the contrarian view is sometimes very profitable and correct. I don't agree, but I can see where you are coming from.

madcowmonkey, Hey madcow! Thanks man. Yeah, I have lots of tinfoil hats :) As far as the gold postions, I appreciate that. Maybe they will work out soon, maybe we get a correction first and then it goes higher. It doesn't matter to me either way, because I am in PM's for the long term (until the crisis ends and the economy does finally turn around, which is not now IMO). I want to invest in equties, but there is no convincing argument that I have seen / read that tells me the bottom is in and the economy has regained healthy footing. So I remain bearish.

Oil is an interesting beast. The move from $35 to $55 was a legitimate move (IMO), but the continuation (practically non-stop) from $55 to $73 was not. Even though it reached the level I said it would back in January (I think I was $4 off), I do not like the *way* it did it. That was a very unhealthy move and was completely out of line with physical supply-demand. I think a correction back down to $55 is almost guaranteed, and I think $50-$45 is likely. The risk / reward becomes good (again, just my opinion) around the $45 level, for a short term investing horizon (less than a couple of years). But like will gold, I plan on holding oil for many years and I will think we will eventually be seeing triple-digits again. I don't know when, but based on all of the inflation in the system (not looking for an inflation/deflation debate, just stating my opinion), I think that is very likely conclusion.

Thanks bro! I hope you had a great 4th!. We did :) I will definitely be sending you some pictures :) Take care man!.

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#23) On July 05, 2009 at 6:55 PM, binve (< 20) wrote:

madcow, just for kicks I updated my "tinfoil hat" projections, based on the more recent action. Here they are for any that are interested:

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#24) On July 05, 2009 at 9:14 PM, Tastylunch (29.52) wrote:

Binve buddy

sorry for the delayed response. Been v busy at work. Something about your retort to me doesn't make sense to me, I'll have to think about it. But it doesn't seem consistent to me with high inflation of that degree, which I would think would dictate higher not lower stock prices (that might be reaosnable based on P/E but P/B basis I would think your version of the market would be way too cheap in a high inflationary market from my guesstimation)

I guess it might be a question of degree of inflation, I'll have to study up on it. I may need to change how I think about it or at least be able to articulate my working hypothesis more clearly. I need to to look into other past cases like Yugoslavia...

Btw I like tinfoil hat #2, it's basically what I'm expecting for the lattre half of the year. Same goes with guru Larry williams...

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#25) On July 06, 2009 at 12:22 PM, binve (< 20) wrote:

Tasty, Hey man. No worries on the delayed response, I understand about being busy at work :)

Yeah, I doubted that you would agree with my response completely :) That would have thrown the Earth off its axis!

But I am glad you like tinfoil hat #2. I have a few other projections, but these are the ones I like the best / think are the most likely for a variety of reasons.

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#26) On July 07, 2009 at 12:08 AM, kstarich (30.57) wrote:

Binve

Thanks for the explanation professor Binve :-)

Also, I agree with your charts, it fits with the astrology suggesting an upswing starting end of August.

The astrology of silver is being effected by the Pluto square the US natal 2nd and 8th houses ( these are the money houses)  This is a bad transit suggests a fiddling with the flow of money, the treasury, economy and debt.  I know most people do not know what the heck I am talking about because astrology is not a common practice here, but just my 2 cents :-)

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#27) On July 07, 2009 at 8:43 AM, binve (< 20) wrote:

kstar, No problem, glad to help :). Yeah, it seems to me there is going to be one more rally after this pullback. The strength of the pullback and the strength of the subsequent rally are still a question, but my theory is (like in my charts above) that both will be strong.

Are you suggesting this transit is bad for silver prices in the near term? That would certainly play toward GV's count for silver. Thanks!

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#28) On July 07, 2009 at 4:29 PM, binve (< 20) wrote:

This is to accompany my charts above. Thanks to JimmyBroderick. Thanks bro! :)

From: http://www.philzimmermann.com/images/TinFoilHatArea.jpg

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#29) On July 07, 2009 at 4:32 PM, outoffocus (23.62) wrote:

But if the dollar collapses won't that raise the price of tin? *panics*

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#30) On July 07, 2009 at 4:39 PM, binve (< 20) wrote:

outoffocus, LOL! Man, I need to start hoarding tin too! Thanks for the tip!! .... :)

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#31) On July 07, 2009 at 10:51 PM, kstarich (30.57) wrote:

Binve

Can you link me to GV's silver count? I am not familiar with it.  I did comment in the past that there would be wierd price adjustments to silver until mid end of August where it would stabilize.  Overall this Pluto transit has been hitting since April, may 2008 when all of this started.  It also peaked early March when we hit 666.79.  Peaks July 12-19 2009 and again Nov. 1-13th and then we are done with this transit forever! 

Pluto square the 2nd and 8th houses of the USA natal chart.

The 2nd house rules personal wealth, property, banks financial institutions, credit or lack of it,  financial expenditures and material resources.

The 8th house rules financial transactions,corporate business activity, insurance, joint finances, inheritance, taxes, alimony, end of old conditions in preparation for new, death and affairs of the dead.

Pluto square the 2nd house= a manipulation that is destructive to personal property, reversal to financial fortune through dishonest means or coercive tactics.

Pluto square the 8th house= Very disruptive attempting to create an atmosphere of hopelessness in in the economy, also a danger of underworld elements or power struggles concerning finance and the flow of money.

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#32) On July 07, 2009 at 11:11 PM, binve (< 20) wrote:

kstar, GV's Silver count is here, comment #3. Interesting on the transit, seems like a lot of manipulation? (I tend to read that as price suppression, please correct me if I am mis-interpreting). Thanks!.

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#33) On July 08, 2009 at 12:44 AM, kstarich (30.57) wrote:

Binve

Yeah price surpression fits.  This is a fiddling with the flow of money and debt. 

I was reviewing chart here  http://www.greenfaucet.com/technical-analysis/gold-market-manipulation-revisited/91431 showing the ratio of short/long positions of major banks in the futures for metals.  Astonishing the high percentage of short positions, here lies the manipulation.  I think we can speculate now where the tarp money went....to manipulate the markets.

The upside is that it won't work.  We have a major solar eclipse July 21,22 this month.  The moon will eclipse the sun for 6.5 minutes (very long eclipse) staring over the gulf of Khambhat in India (also where in 2002 a sunken city was discovered, carbon dated artifacts 9000+ years old)  http://www.hermetics.org/cambay.html

The eclipse will travel across India and China and then into the South Pacific.  The eclipse will be in the 11th house which always has to do with security of the people.  The eclipse will force people to focus on one thing most likely our security and block out all other issues.  Whatever happens will most likely involve India and China.  The sun is the supreme ruler of the solar system so whatever the pluto square manipulation tries to push through won't work because the sun mandate will shed light on a new priority and will push through for 5 straight months.  Hope this makes sense.

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#34) On July 17, 2009 at 8:43 PM, TheGarcipian (56.55) wrote:

Good stuff, binv! The post and the followup comments, all great. I'm late to the party of discussions but am putting in my $0.02 now. Just too busy at work to do much of anything on TMF or CAPS. In essence, though, I agree with you from a macro-economic viewpoint. Don't know about all the witchcraft of EWP; yaz sees what yaz sees in the tea leaves... :-)  But I'm posted oh-so-long-ago that I expect the S&P500 to hit the 500 range before we'd get to the bottom, and we're still not there yet. Given that the banks are still playing "Hide the Assets", that's only prolonging the pain. Hopefully, we'll not fall as low as 400 but we very well could, especially if the shenanighans continue, as apparently as they are now with Goldman Sachs reporting record "earnings". Funny how wonderful that worked out for them, eh? Funny in the sense that they get to pay out record bonuses too. Funny for them, not so funny for all the rest of us, who will continue to pay for the greed of Wall Street and the culpability of our Congressmen, past and present. The long, dark winter is approaching...

Best Regards,

--Gar

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#35) On July 18, 2009 at 1:33 AM, binve (< 20) wrote:

Gar, Hey man thanks! No worries bro, always welcome anytime :) As always, I agree with you 100% on the fundamentals. Earnings are fake (all "good" reports are non-GAAP), stress-test results are fake, "jobless recovery" is fake. And the market can turn a blind eye in the near term, but there is so much rot at the core of the apple of the economy. There is no getting around that.

As for the tea leaves :), I actually just posted some charts on my newest post, and they very much go along with the K-wave winter that we have talked about for months. Acutally the second chart (the one I am referring to) I have had for months and have been posting it or variations on it for months. So chances are you have already seen it, but just in case you haven't :).  Thanks for the comments man!

-------

Here is an interesting chart and I will throw in my long term projection for good measure :)

Fib fan for large count (inspired by AC and Col), utilizing the triple zigzag Primary 2 count.

Very compelling. Average target for P2 is ~1050 for Sep-Oct. The recent resistance has been right around the 38.2% Fib Fan line, and using 200day MA as support. This projection would take P2 to 61.8% Fib Fan line and between 38% and 50% Wave 1 retracement.

Wave 1 = 17 months
Wave 2 projection = 7 months
41% (~38.2%) time proportionality. Seems reasonable. Proportionality also looks good when compared against Waves 1 and 2 of Primary 1

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