Saturday, September 15, 2012

Bonds Might Have Topped Out, for Good: Dan Norcini

Today's price action in the long bond is highly suggesting that the multi-decade bull market in US bonds is over. The inflationary impact off three successive experiments in Quantitative Easing has seemed to have finally gotten the attention of that endangered species once known as the bond vigilante. Remember, this latest round of QE is not targetting US Treasuries but rather agency debt. That removes a major source of demand.

With the US Dollar falling apart thanks to a deliberate attempt by the Fed to debauch it, buyers, particularly foreign buyers, are going to demand higher rates to compensate them for the currency risk.

either way, today is shaping up to be a big day for the future of long term interest rates.

Miners Catching Up To Metals — Huge Run Coming? / by John Rubino / September 14, 2012

Gold bugs are a generally happy bunch this week. But they’d be a lot happier if precious metals mining stocks kept up with the metals themselves. Since early 2011 the largest gold miners have underperformed gold by about 40%, while the junior miners have done even worse (I’m talking to you, Great Basin).

Thanks to this divergence between the metals and the miners, it was possible to clearly understand the monetary destruction endemic in the developed world, conclude that gold and silver were the places to be, make a decisive bet on this thesis — and still end up losing money.

There are two possible conclusions to draw from this: Either mining as a business has changed fundamentally and will be unprofitable forever – in which case we should just own physical metal and forget about paper proxies. Or the past couple of years were one of those inexplicable divergences from established relationships that produce huge gains when they snap back to normal.


Stocks Are Not Cheap

from Zero Hedge

Valuations; stocks are cheap; money-on-the-sidelines; everyone’s bearish; trend is your friend. We’ve all heard them and we’ve all played them but the following charts from Morgan Stanley will at least provide some nuance of sense for those stunned into silence by a market seeing its nominal price surging amid Bernanke blowing bubbles. The headline is – with real rates this low (and staying low for a few more years yet) current P/E multiples are extremely high and even on a long-run empirical basis, hope remains excessive at 22xShiller P/E versus an average 16x. Remember, a long-term investment is a short-term trade gone bad. But it seems for now that you buy because you’ll always be able to sell it back higher to the next smarter dumber greater fool.

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If History Repeats, These Two Trades Should be Winners

It's often said that what is past is prologue, and that's usually true when it comes to financial markets. And when we look at past performance for the markets in September, we get a gloomy sense of prologue. That's because, historically, September is the worst-performing month of the year for stocks.

This year, there are more reasons than ever to expect a September sell-off. If the Fed disappoints on the stimulus front, and if a deal to bail out floundering European Union nations doesn't meet investor expectations, then look for this September to be much worse than its already sullen historical norm.

Looking Back at the September Slump

Before we get to today's trades, let's take a look at a few statistics, as they are telling.

Since the Dow Jones Industrial Average was founded in 1896, on average the index has fallen 1.1% during September. During the 115 years of Septembers, the industrial average was in the red for 58% of those months. The worst September ever for the Dow was back in the Great Depression year of 1931, when the benchmark index plunged some 31%.

Of course, things haven't all been bad for the Dow. In 1916, it saw a September gain of 12%. More recently, the index has finished in the positive for the month in five of the last seven Septembers. Still, the relative underperformance of the Dow in September versus every other month is a trend investors cannot dismiss. This trend becomes even clearer when we take a look at how the Dow's average return in September compares with other months since 2000.

On average, the Dow has lost 2.11% in September, easily making it the worst month of the year for stocks. June was the second worst-performing month, with an average return of minus 1.75%. Compare this performance to the best-performing month so far this century, April. Here we have an average 2.29% gain during the month. That performance is followed closely by October, where the Dow had an average monthly return of 1.86% since 2000.

Now, there are many possible reasons why September sees more selling historically than other months. One explanation is that portfolio managers come back from their August vacations intent on cleaning up their portfolios in advance of the closing out of the third quarter. This seems like the most likely reason to me, but the actual cause of the September slump hasn't really been identified. In fact, I have yet to see a good academic study explaining the phenomenon.

Whatever the reasons for the downbeat September, the historical trend is indeed real, and as such, traders who suspect this September will follow in history's footsteps can profit with two exchange-traded funds (ETFs) designed to move higher when the Dow heads lower.

#1 ProShares Short Dow 30 Fund (NYSE: DOG)

The ProShares Short Dow 30 Fund is the ETF of choice for those expecting a September slump. This fund moves the inverse of the Dow, so if the Dow falls 2%, DOG will rise by 2%.

As you can see from the chart here, DOG has traded well below its long-term, 200-day moving average for most of the year. Since late June, this inverse Dow fund also has traded below its 50-day moving average.

DOG Chart

If we see the tide turn in the Dow, and stocks in the industrial average revert to their historic September norm, then DOG is likely to spike back above both the 50- and 200-day moving averages by the end of the month.

Recommended Trade Setup:

-- Buy DOG at the market
-- Set initial stop-loss at $32.55
-- Set initial price target at $37 for a potential 5.5% gain by the end of September

#2 ProShares UltraShort Dow 30 (NYSE: DXD)

The ProShares UltraShort Dow 30 is another ETF pegged to the inverse performance of the Dow, but DXD employs leverage to achieve twice the inverse of the performance of the industrial average.

DXD Chart

This is an ETF for traders who really believe that the Dow is headed for doom in September, and with DXD, that doom could translate into some very substantive gains if the September slump comes to fruition.

Recommended Trade Setup:

-- Buy DXD at the market
-- Set initial stop-loss at $46.32
-- Set initial price target at $55.29 for a potential 11% gain by the end of September

Julian Phillips: How Long Before Money Collapses and What Will it Mean For Gold?

by Ed Steer
Ed Steer’s Gold & Silver Daily

Yesterday in Gold and Silver

To no one’s surprise, the precious metals didn’t do much in front of the FOMC meeting. There was a quick sell off around 12:15 p.m…followed by a recovery…and then the blast off at 12:30 p.m.

By the time the rally was done…just a minute before the 1:30 p.m. Eastern time Comex close…the gold price was north of $1,770 spot. From there it more or less traded sideways into the close of electronic trading. Gold’s low tick was $1,717.00 spot…and the high tick near the Comex close was $1,773.80 spot.

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Marc Faber: “Fed Will Destroy The World”

from Zero Hedge

“Everything will collapse” is the consequence Gloom, Boom, & Doom’s Marc Faber sees from the Fed’s latest ‘stimulus’ (and the fallacy and misconception of how money-printing can help employment). In a wondrously clarifying interview on Bloomberg TV this morning, Faber explained why he was ‘happy’, since “the asset values of his holdings will go up” but as a responsible citizen he is worried because “the monetary policies of the US will destroy the world.” It truly is class warfare under a veil of ‘its good for you’ as he notes: “the fallacy of monetary policy in the U.S. is to believe this money will go to the man on the street. It won’t. It goes to the Mayfair economy of the well-to-do people and boosts asset prices of Warhols.” Congratulations, Mr. Bernanke.

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A Violent Wave Of Short Covering In Gold & Silver

from KingWorldNews:

Today acclaimed trader Dan Norcini told King World News that in both the gold and silver markets, “… we were seeing a violent wave of short covering.” This started taking place immediately after the Fed signaled the additional QE.

Just six days ago Norcini correctly predicted that gold and silver would continue this surge. The acclaimed commodity trader had this to say about what is now taking place: “Once the QE announcement came from the Fed, gold and silver immediately soared, but so did the rest of the commodity complex. Anything that was a hard asset was moving higher, along with the stocks that produce those hard assets.”

Norcini continues @

Gerald Celente: There’s NO WAY OUT of This! This Money is Going Into the Pockets of the Banksters!!!