Wednesday, September 1, 2010

Roger Wiegand: Opportunity in Crisis

The Gold Report: In a recent edition of Trader Tracks you quoted a former Nixon speechwriter who said, "Economics should never be treated as a science. Its claims are not falsifiable, which is why economists can disagree so violently among themselves. Economics is a branch of anthropology and psychology. . .a moral discipline." Do you believe that's true?

Roger Wiegand: I definitely agree with that. I think there's more psychology in economics than many people realize. You can see that with the current economic reports coming out of Washington and New York. It's obvious to intelligent people who follow these things that there's a lot of manipulation going on in economics, in the stock market and in politics. It is often effective if it's very timely. There's no question that psychology plays a major role in economics.

TGR: Further to the point, do you believe the American public is somewhat conditioned to believe that economics is a science and thus place too much faith in it?

RW: I think that could be true. I really believe that 80%–90% of the American public is regularly sold a bill of goods by the Wall Street media from New York and Washington. It just keeps coming day after day and, after awhile, it wears them out. I think the majority of Americans still believe a lot of this information. From my point of view, a good portion of it is just nonsense. (more)

Make Money with Roubini Sentiment Indicator

I started doing this as a joke and did not expect to find a way to make money with Roubini Sentiment Indicator. Nouriel Roubini, a.k.a Dr. Doom has recently been stating that he is not Dr. Doom but he is Dr. Realist despite the fact that he is on TV mostly when things are going wrong, volatility spiking and stock market going down. You can clearly see this pattern from the graph below.

I gathered the Roubini sentiment index from weekly values provided by Google Trends. A simple correlation analysis shows that Roubini sentiment index has a negative correlation of (0.68) with the market and a positive correlation of 0.82 with the VIX. Some might dismiss the Roubini sentiment indicator because of its high correlation with the VIX, thinking that Roubini’s popularity is caused by the increase in VIX. Before jumping into any conclusions, we need to answer the following question: What is the exact nature of the relationship between VIX and Roubini Sentiment Indicator? If VIX is leading Roubini Sentiment Indicator, then you could rightly claim that Roubini is merely a parasite exploiting the increased fear in the marketplace. If the two indices are coinciding then Roubini is merely expressing what the market is thinking, hence he is truly the Dr. Realist or maybe Dr. Journalist? On the other hand, if Roubini Sentiment Indicator is leading the VIX, then it might be the case that Roubini is spreading the fear like the plague and causing the spikes in VIX and declines in the market. In this case, he is the dreaded Dr. Doom. Take a look at the graph of Roubini Index vs. VIX and see the high correlation yourself. (more)

Gold Spiking to $1,250, Silver $2 from 2008 High

King World News,

Michael Pento, Senior Economist at Euro Pacific Capital commented when discussing the move in gold and silver today with King World News, “M2 could move from 8 trillion to 20 to 30 trillion dollars!” On the final day of August we have gold and silver on the move with gold spiking $11.50 in intra-day trading, while silver is up 25 cents at $19.30. Gold is on the verge of another all-time high while silver is just $2 from its 2008 high. Many professionals still remain shocked by the strong action of both gold and silver in the waning days of summer.

Michael Pento, who recently joined Euro Pacific Capital as their Senior Economist stated in a phone interview with King World News, “Bernanke came out on Friday and said he was even willing to use unconventional methods. Basically what he said is that he will print enough money and do whatever it takes to get the money to the American public and create inflation. This could blow up the M2 money supply by several factors. It could move from 8 trillion to 20 to 30 trillion! This won’t happen overnight, but clearly Bernanke wants that money multiplier to expand. This is why gold refuses to go down and continues it’s advance unabated.”

KWN readers should keep an eye out for unconventional moves by the Fed going forward.

To hear today’s King World News interview with Michael Pento CLICK HERE.

Jay Taylor: Turning Hard Times Into Good Times

click here for audio

Michael Pento Says Fed Will Buy Stocks And Real Estate In Its Next Attempt To Create Inflation,

As part of the Fed's latest QE iteration, it has already been made clear that despite initial disclosures that the Fed would stay in the 2-10 Year bound of Treasurys, Ben Bernanke is now also gobbling up the very long end of the curve. For all those who are, therefore, still confused why bonds continue to surge to record levels, don't be: when there is a guaranteed bidder just below you in the face of the Fed, and who you can turn around and sell to at will, there is no pricing risk. The problem, from a bigger stand point, is what happens when the Fed is actively buying up 30 Year bonds with impunity and the much desired (by the Fed) inflation still does not appear? Well, the Fed then, in Michael Pento's opinion, will begin to purchase stocks and real estate. And as all those who enjoy comparing the US to Japan can attest, outright purchases of securities by the Japanese government is a long-honored tradition in the ongoing fight with deflation in Japan. However, and as the recent BOJ (lack of) intervention demonstrated, Japan never could do anything with the required resolve, and bidding up one stock here and there would never achieve anything. Which is why in this interview with Eric King, Michael Pento makes the case that as opposed to the occasional market intervention via the President's Working Group, Bernanke will soon make stock purchases an outright policy of the Federal Reserve as its last ditch attempt to engender inflation before the hundreds of billions of Commercial Real Estate and other bank debt start maturing in 2011/2012. Bernanke is running out of time and he knows it. And once the Fed becomes the bidder of last resort in stocks, all bets are off, as the Central Bank will become the defacto only market in virtually every risky category. And the only safe vehicle, once the market then begins to price in Fed driven asset-price hyperinflation, will be gold. (more)

Crude oil ends August with first loss in three months

(MarketWatch) -- Crude futures finished lower Tuesday, adding to steep monthly losses, as plentiful inventories and concerns about an economic soft patch prompted investors to shift into gold and bonds.

Oil for October delivery ended down 3.7% at $71.92 a barrel on the New York Mercantile Exchange Tuesday, with declines accelerating toward the close of the session.

Oil also finished the month of August with a loss, down 8.9%, its first monthly decline since May. The month started well, with prices surpassing $82 a barrel, but soon got derailed as key reports showed the bad times were far from over.

Skittish investors then dumped oil, and more so natural gas, to migrate to investments deemed safer.

For Tuesday, prices had recovered some ground during the session as equities turned higher and even briefly traded in the black.

Oil had also cut losses in afternoon trade following the release of the minutes from the U.S. Federal Reserve's most recent policy meeting. The minutes showed that several officials thought the Fed should consider taking additional steps to provide more support if the economy weakens further. (more)

Today in Commodities: Another One Bites the Dust

Eight months are gone and many traders are happy to see this one behind them. Ugly action in Crude with prices approaching their lows from last week after today’s action. The wind has been taken from the bulls' sails but as long as $71 holds on a closing basis we think we’re close to an interim bottom. That being said we expect nothing more than a $8-10 trading range; on the front month we see that as $71-$79/81. Natural gas may be carving out a bottom; we’re suggesting longs in futures with tight stops or purchasing call spreads in the month of November.

Say it is not so a triple bottom in the making in US stock indices; in the Dow just above 9900 and in the S&P at roughly 1035. Those that agree should treat this as a trading range buying near 1040 and selling near 1100 in the S&P. Bullish engulfing candle in cocoa with a significant volume spike today; initial signs of a key reversal…stay tuned. Failed higher trade in sugar; clients have been advised to gain short exposure as we expect a 10% depreciation in the coming weeks. Lumber traded down limit; we will be looking for a spike higher in the coming weeks to cut losses for clients. (more)

Here's Why Gold Is A Safe Investment Despite Record Highs

With gold only few dollars shy of marking another all-time high, it's appropriate to review the investment and central banking ramifications of gold at $1250/oz.

When approaching gold from the point of view of an investor, the first thing you should ask yourself is whether you think gold prices can rise by enough in the future to at least equal the returns you can lock in on risk-free investments. (I'll ignore transactions and storage costs for the sake of simplicity.) To be attractive, any risky investment needs to at least promise to do better than the risk-free alternative, and Treasuries are effectively the "gold standard" of risk-free investments, the benchmark against which all risky investments need to be evaluated. (Those who think the U.S. will default on its Treasury obligations may be excused from this class.)

A central bank pursuing a gold standard might ask itself a similar question, but from a different perspective: is today's interest rate environment sufficient to leave investors indifferent between owning Treasuries or gold? (more)

Hog & Corn Comments – 08/31/10 I’m still negative on corn, living on borrowed time


Corn – First things first, I have to eat some crow. I was of the opinion that Dec ‘10 corn had made its high on the Thursday we hit $4.38 3/4 for the session high. The market proved me wrong on Friday by printing a new high but it failed to close above the old high of $4.38 3/4. I’ve been saying all along that I needed to see two if not three consecutive closes above $4.38 3/4 before I changed my tune and would get friendly to the corn market. imageWe had a poor close on Friday for the week and the last two days haven’t sent up any flares that say you neeeeeed to own corn here.

I keep getting warning signs that the corn is nearly done but it has been admittedly stubborn at current levels and would make one think it wants to go higher. Early reports of corn yields have come in less than last year but in my opinion that isn’t necessarily uncommon for early harvest acres. I think we really need to get into the thick of harvest before we make a “good” assumption of crop size. I’ve been hearing a lot of “it just isn’t out there” type talk as it relates to the corn crop but I usually pay no attention to it because it is hard to tell what the nation will produce based off of field samples. Yes, it is the best thing we have to predict the crop size but when put into perspective it is just like making marketing decisions, it is an educated guess. I gave up on guessing crop size back in 2004 when we had a cool wet summer (at least in my backyard) and the crop was so far behind. I thought for sure we were going to have a small crop, much less than what the trade was thinking. Yep, you guessed it. A record crop. Needless to say I don’t spend much energy on trying to guess the crop size other than we have had a lot of rain and if the corn crop can surprise us in drought years what can it do in wet years? I don’t have the answer but the question is one I ask myself often. Don’t get caught up in the HYPE!! (more)

Davidowitz Says `Worst to Come' for U.S. Retail Sales: Video

Chart of the Day