Monday, October 25, 2010

Technically Precious With Merv

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What's Next For Gold? A Technical Look At The Past Week's Big Pullback

You may have expected yet another bumper week for the shiny metal. However, this week marked the first time since mid-summer that Gold has run into some head wind. After a massive bull run reaching new all-time nominal records nearly every week, Gold has retraced about 3% this week. Is this the beginning of the end or was it just a minor pause in an otherwise massive long-term up-trend?

While taking nothing away from this amazing bullish move in Gold during the past decade, we have been expressing concerns about a possible bubble and listed a number of caveats about loading up on Gold indiscriminately. Most notably, the concerns are two-fold: a) Gold is not a traditional investment in that it provides no inherent yield or return other than price appreciation and b) Gold is a commodity nonetheless and as such exposed to significant volatility. You can review some of our previous comments on Gold at FXIS/Gold. With regard to external and fundamental factors causing concerns, John Authors of the Financial Times expresses these concerns much more elegantly than I can. Please consider: Remember 1980: all that glisters is not gold. (more)

CFTC Weekly Options Update: Total Treasury Spec Longs Surge By 40% To 2010 Record, Dollar Inflection Point Reached?

This week's CFTC Commitment of Traders confirms that market momentum schizophrenia is persisting: in the past week Treasury net non-commercial spec long positions across the curve (2s, 5s and 10s) surged from 221k to 311k, a 41% increase. In other words the momo crowd is betting the farm that treasury prices not only won't stop going higher, but that the entire curve with be transposed lower with a slight preference for the belly (as Morgan Stanley now expects). The Combined total is more than half a million contracts compared to early April when the 10 year was threatening to break out of the 4% range (dashed line Chart 1). Yet this is in contradiction to the options activity within selected commodities, which after taking a slight breathers have continued to see increasing spec demand to the upside (Chart 2). Lastly, and probably most importantly, looking at currencies shows that the unprecedented surge in bearish bets in the dollar may be over: for the first time since the end of August, dollar net spec bets have actually gotten marginally bullish.

Commitment of Traders Report Traditional Commodities

Commitment of Traders Financials

California Is Broke – 19 Reasons Why It May Be Time For Everyone To Leave The State Of California For Good

Back in the 1960s and 1970s, there was a seemingly endless parade of pop songs about how great life was in California, and millions of young Americans dreamed of moving to the land of sandy beaches and golden sunshine. But now all of that has changed. Today, millions of Californians are dreaming about leaving the state for good. The truth is that California is broke. The economy of the state is in shambles. The official unemployment rate has been sitting above 12 percent for an extended period of time, and poverty is everywhere.

For many Californians today, there are very few reasons to stay in the state but a whole lot of reasons to leave: falling housing prices, rising crime, budget cuts, rampant illegal immigration, horrific traffic, some of the most brutal tax rates in the nation, increasing gang violence and the ever present threat of wildfires, mudslides and natural disasters. The truth is that it is easy to understand why there are now more Americans moving out of California each year than there are Americans moving into the state. California has become a complete and total disaster zone in more ways than one, and an increasing number of Californians are deciding that enough is enough and they are getting out for good.

Sadly, the state of California is facing such a wide array of social, economic, and political problems that it is hard to even document them all. It is really one huge gigantic mess at this point. (more)

The Government Pulls a Bernie Madoff on Social Security and Lays Out the Sad Truth

When Bernie Madoff realized he could no longer meet all the demands of his investors that wanted their money, he walked into the offices of the SEC and admitted as much.

The government has just pulled a Madoff. They have admitted that they don't have the money to pay everyone out they have promised to pay out via Social Security. Specifically, those under 30 are going to get really screwed.

Business Insider's Bruce Kasting explains how bad the situation is, but keep in mind that this is based on CBO projections, and there is no chance the CBO has run the truly negative scenarios, where the government can't pay its Treasury debt--which is mostly what the Social Security Trust fund holds. Factor that in and the odds drop for everyone that they are going to get paid in full : (more)

King World News Weekly Metals Wrap

click here for audio

Top Ten countries External % GDP to debt ratio. Same list has names of countries with blood in the streets. Who's next?

Ireland 993.27 %

Great Britain UK 426.65 %

Portugal 256.67 %

France 197.04 %

Greece 182.67 %

Spain 165.51 %

Germany 146.88 %

Australia 114.50 %

Italy 107.59 %

USA 94.96 %

An Easy Trade on Rising Commodity Prices

Commodity prices are surging. But rather than recommending a pure commodity play for this week's trade, I'm intrigued by a stock that not only benefits from strong commodity prices, but also more profits for farmers.

And with farmers seeing fatter profits from their crops, many are taking the money and putting it into new farm equipment.

According to the Association of Equipment Manufacturers, September sales of row-crop tractors increased by +46.9% from August, while four-wheel drive tractor sales rose +20.5%.

Because of this, shares of Deere (NYSE: DE) -- the world's largest manufacturer of lawn and farm equipment -- are surging. (more)

Bob Chapman: The Internaational Forecaster

October 20 2010: US dollar finding a temporary bottom, gold, silver, and commodities continue to make sense, mortgage scandals, surreal markets, dollar devaluation guaranteed, record deficits, US finally tries to live within its means.

As we write, the US dollar is in the process of trying to find at least a temporary bottom at 76.50 and to launch a countertrend rally. We would think a rally back to 80 is achievable, but we do not believe it’s sustainable - only some stabilization through the election. Japan drew a line in the sand at 82 and finished last Friday trading at 81.37. That does not smack of success, but we see improvement over the next two weeks.

One thing the weaker dollar has done is make exports cheaper for transnational conglomerates and that has helped the market along with these companies repurchasing their stock in the market. In spite of these subsidies the market went nowhere last week. That was probably because of the off again, on again, of quantitative easing 2. Half of the Fed members say lets do it and the other half says do not. In the middle of this verbal conflict is the ever-placid Ben Bernanke, who is answering the call of Wall Street by expanding aggregates via the repo market, which he has been doing since early June. At this point we can assume that the wise guys, who really make the decisions and just happen to own the Fed, have discounted an injection of $500 billion. In addition, they know long-term interest rates are headed lower, although a reduction in the ten year T-note of ½% to 1% is not going to change things much. It will only provide a comfort zone and make big corporations more profits. We do not believe it will have a big influence on home buying with the mortgage scandal in process, which could drag on for years. It will be interesting to see if any bankers are charged criminally. In all probability none will, they just pay fines, or their corporations do, which is all the government is interested in. (more)

Foreclosure Mess Scares Away Investors as 'Fear Has Taken Hold'

Investors who have been snapping up foreclosed homes are backing off in the wake of the U.S. foreclosure fiasco, driven off by sagging inventory and fears over legal title. Some economists say the trend could hurt the overall housing market.

With foreclosed properties accounting for a large portion of housing sales, and investors accounting for a large portion of buyers — particularly in some key markets with very high foreclosure rates — the implications for the broader economy could be serious.

Investors who would buy, rehabilitate and then sell or rent foreclosures were playing a "huge role," in helping to clear the market, said housing economist Tom Lawler.

But many of those investors are now staying on the sidelines.

"We're like a plane flying around in a holding pattern, waiting to land," said Tony Alvarez, an investor in southern California who is currently renting out 40 former foreclosed homes. "Nothing is going on, and why? Fear has taken hold in the marketplace." (more)

US Economic Calendar For the week

DateTime (ET)StatisticForActualBriefing ForecastMarket ExpectsPriorRevised From
Oct 2510:00 AMExisting Home SalesSep-4.20M4.25M4.13M-
Oct 269:00 AMCase-Shiller 20-city IndexAug-2.0%2.0%3.18%-
Oct 2610:00 AMConsumer ConfidenceOct-
Oct 2610:00 AMFHFA Home Price IndexAug-NANA-0.5%-
Oct 277:00 AMMBA Mortgage Applications10/22-NANA-10.5%-
Oct 278:30 AMDurable OrdersSep-1.0%1.7%-1.3%-
Oct 278:30 AMDurable Orders - ex transporationAug-0.5%0.1%2.0%-
Oct 2710:00 AMNew Home SalesSep-270K295K288K-
Oct 2710:30 AMCrude Inventories10/23-NANA0.667M-
Oct 288:30 AMInitial Claims10/23-450K455K452K-
Oct 288:30 AMContinuing Claims10/16-4450K4418K4441K-
Oct 298:30 AMGDP-Adv.Q3-1.3%2.0%1.7%-
Oct 298:30 AMChain Deflator-Adv.Q3-1.9%2.0%1.9%-
Oct 298:30 AMEmployment Cost IndexQ3-0.5%0.5%0.5%-
Oct 299:45 AMChicago PMIOct-58.057.560.40-
Oct 299:55 AMMichigan Sentiment - FinalOct-