Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

NFTRH86 Excerpt – Currency (by Biiwii)

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Here is the 'Wrap Up' segment from the
15 page NFTRH86, which went in depth on a range of
relevant issues currently facing financial markets:

Currency

Euro hype to the
upside was expressed for years by touts who had presented a picture that
it was just the big, bad USA alone that had major problems. All along
as a public writer and then in NFTRH I had
presented the euro as just another piece of paper with no real value
backing it. So recent events are somewhat refreshing from the standpoint
of the analysis, which sees major currencies in a race to the bottom
[of the barrel].

It appears that the mania toward the opposite
pole from over-bullish has gone too far however, and the euro can rally
at any time, possibly providing a good relief story for the broad market
to pin its ‘hope’ on once again. Similarly, the US dollar has expressed
itself in ‘too far, too fast’ fashion amid the euro hype.

The
euro just made a weekly close above important support while Uncle Buck
remains below the highs last seen during the worst parts of Armageddon
’08. Again, this is a picture of potential short-term relief for many
markets, first and foremost obviously, the euro. Longer term, these two
debt backed basket cases are featured players in the race to the bottom
in the currency world. All major currencies are contestants in this race
by the way; at least all major paper currencies. That is how pervasive
the ‘debt as economic fuel’ ethic of the current global economic system
has become.

Euro-usd

While on the subject of currencies, let’s have a look at the progress of
gold as measured in a few of them by way of our Gold-Dow,
Gold-Currencies ratio chart. The breakout in Gold-Dow from its Hope ’09
consolidation is very early in its progress. While there can be some
post-breakout chop and grind, the risk vs. reward in gold vs. Dow is
favorable.

In the currency panels we see gold correcting from
over bought in British Pounds and euros after having achieved the rough
upside targets of the Cup ‘n Handle patterns. Further upside is
projected after some corrective consolidation. Gold in Canada dollars
breaks out from the handle but hits resistance at the rim of the cup. It
looks to go higher after dealing with this resistance. Gold-Aussie
dollar was noted previously as not being a cup due to very low right
side, yet was bullish above support. This expressed well in a strong
rise up toward resistance.

Gold-dow

We are in the age of natural economic contraction being fought by policy
makers in the only way they seem to know; leveraging confidence in
their respective currencies into debt creation in a massive, world-wide
funding scheme. How long can this work? Perhaps longer than you or I
could hold out if we take a strong, active stance against it.

The
last year of euphoric bullish activity tells us something, and that is
that the masses are not yet ready to accept that the Fed, Treasury and
their counterparts around the world cannot ultimately control financial
events. So by definition, a confidence scheme runs as long as its one
underpinning – confidence – remains intact.

Biiwii.com
Biiwii.blogspot.com
Notes From the Rabbit
Hole

“Sell Gold, Buy Oil: The Numbers Are Clear” Oh Really? (by Gary)

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A website called Chart Facts
has an article on SeekingAlpha called Sell Gold, Buy Oil: The Numbers Are Clear.
While attempting to restrain some of the sarcastic tone I sometimes
exhibit, I would like to critique this article point for point.

"Gold has witnessed a meteoric rise over
the last 10 years. At $1,193 per troy ounce today, it is now up over
300% (15%/year) since the start of 2000. By comparison, the S&P 500
is down 24% over that same period. Oil is up over 170% (10%/year)."

A
secular change occurred in 2000. This new era has seen ever more
intense monetary policy being used as THE
primary economic fundamental underpinning; in other words, the age of
inflate-or-die is upon us as economies begin to wheeze and lock up in
the absence of liquidity that feeds them (as opposed to the productivity
traditional growth economies once used). As blog readers know, the
Copper-Gold ratio has been used to illustrate the inflate-or-die dynamic
as well as indicate a recent bearish divergence to asset markets.


Cgr1

"While gold may continue to trade up
for some period of time, history predicts that the when the gold run
ends, it will end badly. That is to say that the fall could be fast and
far. Since Nixon took the country off the gold standard in 1971, there
has been only one other gold rally on the order of the current one. It
began in Aug 1976 and peaked in Jan 1980. Gold increased over 700% in
less than three and one half years to $825. Unfortunately for those who
bought on the way up, gold proceeded to shed 64% of its value over the
next two and one half years. Worse, for those who thought “it will
come back,” it took almost 28 years for gold to eclipse its Jan 1980
high in Dec 2007. On an inflation adjusted basis, even the enormous
recent run has only brought gold back to just over half of its Jan 1980
peak."

Thank you
Paul Volcker. Anybody see any policy makers out there with Volcker's
combination of guts and available policy tools? Articles that implore
you to beware the 'gold bubble' (which has not even gotten started yet, I
might add) often highlight how badly gold underperformed in the 20 year
post-Volcker period during which Alan Greenspan, the financial services
leviathan, and an overall ethic of greed sucked the life out of the
wellspring of financial resources the former Fed chairman had injected
directly into the productive economy thanks to his stern monetary policy
and resulting rates of interest.

Yes gold under-performed as I
suppose, it should have. But the gold-bearish articles always seem to
ignore the other side of the coin; it has a lot of catching up to do,
still, at $1100+ an ounce.

"So,
how does one determine when the end of the current gold bull market is
near? No one knows. Many are buying gold as a hedge against
anticipated inflation. But, inflation is nowhere near where it was in
the late 1970s. Specifically, on an unadjusted basis, year-over-year
inflation in April was 2.2%. That was largely in line with an average
reading over the last 25 years and a long way below 8% to 14% readings
being registered during gold’s last spike. While future inflation may be
in the cards, it would have to increase an awful lot from current
levels to justify the recent run in gold. And, it likely has an uphill
battle against high unemployment and a Fed that is at least saying the
right things."

Here comes the convolution; if inflation
were busting out (our monthly EMA 100 'line in the sand' on inflation
fears remains intact) this would indeed signal the coming of an era to
consider the potential of oil, industrial metals, agricultural
commodities and many other resources to keep up with, and perhaps in
some cases outperform, gold. Although, depending on what said
inflationary spike does to economic growth, that is no given.

The
current system operates on a series of liquidity draw-downs, which pump
life into the primary economic funding system; namely, confidence in
the US treasury market. Here is the chart I did months ago to
illustrate. It is updated to current status and shows that the 'line in
the sand' has held and funding may continue.

Usb1

The monthly EMA 100 represents a continuum during which all crises have
been met with debt-fueled funding. The problem since 2000 has been
illustrated well by various ratio charts often posted here; things like
the Dow-Gold and Copper-Gold ratios have shown clearly that growth over
the last decade has been hugely dependent on monetary policy born of
debt creation (monetary policy to which gold is very sensitive) vs.
productivity.

I agree with 'Chart Facts' that inflation has been
muted, at least its effects
(that's important) have thus far been so. But this is an era of
'deflation impulse always met by inflation policy'. Look at how poorly
oil performed vs. gold during the first real deflationary episode of the
'inflate-or-die' era. So yes, I am in agreement that inflation is
muted (from the perspective of its 'effects'), which is precisely the
environment for gold as policy makers will feel ever-more empowered to
meet economic contraction with new inflationary policies after being
given the green light by the Treasury market; you see?

Gold1

"Maybe the better question to ask
about gold is whether, given its performance, there are better
investments at the moment. On the corporate side, an ounce of gold will
again buy the S&P 500. Before the recent run, that had not been
the case since Feb 1991. And, with corporate earnings after tax (also
plotted on the chart below) showing recent traction, there are good
reasons to believe that the S&P is not overvalued. Addressing the
inflation concern, stocks generally provide a good inflation hedge over
the long-term. The risk right now, however, is that the European
issues could put pressure on the corporate earnings which support the
S&P."

I saw this advice at gold 350, gold 420, gold
600 and so on and so forth. Here's the SPX-Gold ratio from well before
stocks topped out in secular fashion in ratio to gold. The nominal
price of gold is shown as well. All the way up we have seen this type
of analysis by gold bears. Gold has made up a significant portion of
the value gap, but in light of the inflation policy baked into the
system (and reflected by $Trillions in unpayable – save for devaluation –
debt) and considering that secular trends often run around 20 years
(just like the previous one in paper assets), there is a long way
further to go in gold's outperformance vs. the broad stock market.

Spx-gold1

As for corporate earnings "showing recent traction", I think it is
better to be forward-looking, don't you? Copper, oil, China… the
tools of the inflationary growth trade beg to differ with this analysis.

"Taking it all the way down to the consumer
level, an ounce of gold will currently buy you about one year’s worth
of gasoline here in the US. Specifically, it will purchase almost 430
gallons at Monday's $2.86/gallon. With data available back to the early
1990s, that had not happened prior to the last two years. A very
quick, very informal survey of non-money managers who live near me
failed to turn up any people who found an ounce of gold more valuable
than one year’s worth of gas for their cars."

The very
same money managers who did not see the 2008 crash coming despite at
least four years of clues. Next…

"Translating that to oil, a commodity easier to invest in than
retail gasoline, an ounce of gold will currently purchase 17.1 barrels
of crude oil (Cushing, OK). Since the start of 2000, that number has
averaged 10.8. (Interestingly, it average 18.6 from 1983 to 2000, but
that was before China and others made themselves felt as growing global
consumers of oil.) More importantly, oil is a key consumable of the
growing global economy. Unlike gold, it is easy to point to fundamental
economic activities that are likely to continue to drive demand and
price for oil up regardless of market vagaries."

If there is real and
sustained economic growth you are right sir, gold will underperform; as
it should. Is there real and sustained economic growth? Again, see
China, see copper, see oil (all of which will rebound and decline within
an overall deceleration of economic activity before the next
inflationary growth spurt.

"One
strange correlation that has crept up in the last 15 years that might
continue to support gold prices is the relationship between the
direction of gold prices and the direction of US debt to GDP. US debt
to GDP peaked in 1995-1996. When it began to turn down after that, gold
prices headed down as well. When debt to GDP bottomed in 2001 and
began to trend back up, gold turned as well. Both have been on a steady
march up since then. Unfortunately, the Obama 2011 budget has debt to
GDP steadily increasing over each of the next 10 years.

Nonetheless, with a growing global economy
and current relative prices, oil is likely to be a better returning
investment over the medium to long-term."

A lucid and
sane paragraph is followed by more convolution. A "growing global
economy" owing to $Trillions in unpayable – short of default/devaluation
– debt will contribute to the sustainable economic growth that things
like oil, industrial metals and the stock market will need to outperform
gold?

I have heard this all before; at 350, 420, 600…

biiwii.com
biiwii.blogspot.com
Notes From the
Rabbit Hole

Gold to S/T Target, Now What?

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Now nothing… because a target is just a target.

We have been
here before; those of us who have been around the precious metals
markets throughout the current, ongoing secular bull. We have been
through the extended periods of questioning by 'the faithful' as to why
the ancient monetary relic does not keep up with more heavily gamed
assets, which are not coincidentally positively correlated to the
inflated economy.

Technically, gold has come to NFTRH's near term
target, recently revised from 1225 to 1240. But what is that but a
number? There is a higher target of 1300 off of the 1.5 year long
consolidation pattern beginning in early 2008. Then there is the longer
term target of 2200. These are all just technical mumbo jumbo my
friends because gold is only ever about value in a monetary world gone
insane. Gold is anti-casino, anti-speculation and anti-risk no matter
what the mainstream media would have you believe. I always get a laugh
out of MSM headlines along the lines of 'Gold Declines in a Flight From Risky Assets'.

Gold

In phases where the global printing press is on auto-pump and hope, if
not economic activity, gains traction gold can underperform the gamed
mainstream plays like copper, oil, high yield bonds and the stock market
in the short term. But few plays are at new all-time highs. Gold
remains so, even after spending the last year in downward consolidation
vs. the stock market, many commodities and the assets of positive
economic correlation.

'Armageddon 08' saw the real price of gold
explode to unsustainable highs and 'Hope 09' has simply been a
corrective measure. Gold investors who know the value proposition of
real money in a time of scarcity of same, just yawned while gold stock
investors and traders – those who know the play – look forward to the
next leg up in gold mining fundamentals, which grow by leaps and bounds
as the real price of gold increases; in other words as gold resumes its
outperformance mode vs. the things of hope, of positive correlation.
The gold-oil, gold-industrial metals and gold-stock market ratios all
factor in as gold miner costs decline in relation to their product.

I
have been using this chart to gauge the coming of the next phase of the
rise in gold's real price. It
is a simple chart noting a similar consolidation structure to the one
that held sway in 2006-2007 as the gold sector was cleaned out in
preparation for the coming events of the outwardly obvious credit
contraction and resulting market crash.

Gold-spx

Gold as measured in the S&P 500 has much higher to go now that the
consolidation appears to be ending right at the uptrend line drawn on
this weekly chart weeks before it was finally hit. Blog readers may
recall the original post showing this chart from March 18th, Anything
Look Familiar?

As signs of frothy sentiment that the gold
sector is noted for get whooped up again, remember that if you trade the
sector, you generally sell the euphoria and buy its polar opposite
condition, despair. I am more of an investor due to current fundamental
views, so I will probably continue to hold many or most positions
indefinitely (likely with the protection of broad market short
positions, which the above chart says is a good strategy).

With
the none-too-subtle degradation of the global monetary system and gold
bullish or rising in all major currencies, there is also a chance for a
major spike here. In the markets in general, noise levels have
increased markedly off of the dull rise to a likely top in prices and
positive sentiment in April. We will keep a filter on this noise and
keep an eye on a real bull
market's progress. This would be the bull market in gold's real as well
as nominal prices.

Meanwhile, in the background the struggles
between the inflation and deflation stories play out short term. We are
on the way to an inflationary future, but gold alone is proving itself
of value during both conditions. The system is trying to deflate; this
is being fought tooth and nail as currency is burned in the battle.
Regardless of further upside or a sharp correction to support around
1000, gold is front and center and value will be retained until such
time as the system is overhauled.

Some people bemoan that I do
not make predictions. This is not the blog for them. A target has been
hit; there are several more targets higher and one lower. These are
the markets and you need to be ready for anything, including the
possibility that things are becoming unhinged here and now. Years ago I
started my simple web presence with a simple thought; be prepared. It
still applies.

Market Psychology (by biiwii)

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Given that the broad global rally off of unsustainable negative
sentiment has ground on much longer than many (my hand is raised)
originally thought, it is logical to assume that this condition may be
challenging many peoples' resolve. We track 'dumb/smart money'
sentiment nearly every week in NFTRH, and the
reason is that despite technicals and fundamentals, the market will only
change course in a significant way when the psychological profile is
allows for it. More and more, it looks like extremes will need to be
registered, perhaps with the intensity of Q4, 2008 to Q1, 2009 only in
the opposite direction. They are on their way.

NFTRH82 highlighted gold sector
technicals and fundamentals in relation to those of the broad market,
charted up other markets, indicators and stocks, and reviewed the
updated dumb/smart sentiment picture. But in the middle of all this,
the following bit of psychological navel gazing found its way in there
as well, perhaps as a way to work through the fact that the market has
not yet conformed to conclusions that the writer 'thinks' he knows are solid ones.
🙂

Here is a secret; none of us has the divine right to the
answers. To ultimately win at this sometimes manic game, we must employ
a wide spectrum of technical and fundamental tools, but also be aware
of sentiment and psychology both from a collective standpoint and a very
personal one as well. In other words, know our competitors and even
more importantly, know ourselves.

Market Psychology

At the risk
of exposing myself as the psychologist wannabe that I am (there are
multiple mental health professionals in the subscriber base), let’s
think about the general [psychological] profile currently in play. Many
of us are micromanaging the massive rally off of the bottom of just
over a year ago. Some, like NFTRH are
micromanaging a would-be top. Others are going with the bullish flow,
secure in the reinforcement of ever increasing positive sentiment.
Still others are sitting sidelines, having been out since compelling
downside sentiment forced them out in preservation of their sanity. I
would venture that the market is wearing on a high percentage of
people’s nerves.

As a currently bearish newsletter writer, I have
to tell you about something that makes me uneasy regarding my stance,
short term. As part of the bus tours around Manhattan my family,
friends and I enjoyed last week, we were taken through the Wall Street
area among many other places – the memorials at the church at Ground
Zero brought me tears and a rush of returning memories – we went through
Wall Street twice. Each time, different tour guides made cracks about
the crooks there and all the money that people lost. My thought was
‘dude… where have you been for the last year?’ with regard to the rally.
Maybe when the tour companies drop that shtick the rally will be ready
to roll over.

Anyway, a micromanaged rally is not likely to end
on cue. That is one reason NFTRH81
noted that rallies don’t usually end on any given alarming news item.
Dubai? Greece? Goldman/Merrill? It is all good until one day, after
more cementing of perceptions, it no longer is. But the rally will not
end logically and in a nice neat manner in which bears can simply climb
aboard and short to the high heavens. Watching them scurry to cover on
Friday afternoons is almost becoming comical, and the market is feeding
on that.

This is why it is imperative to double check our own
individual psychological profiles so that we thoroughly know who we are
as market participants before deploying capital. This beast does not
care about you or me. All of that said, I am personally attempting to
employ the opposite strategy from that which I used late 2008 and early
2009; I am trying to remain cautious as opposed to brave. After last
year’s gains, I have been in ‘preserve capital’ mode for what seems like
an eternity, while holding a precious metals core-plus.

The
market wants me to feel like it is an eternity because it wants me to
become impatient and make a mistake. The market wants me to take my eye
off the ball either through fatigue or greed or some other screw up.
Ah, but I have a secret weapon; I get to sit down and write about the
current market situation each weekend and work through my thoughts after
the dust settles on a given trading week.

Nothing has changed
for me or for NFTRH
with the exception that the stance contrary to hope and greed has not
yet come to fruition like the one contrary the angst and fear of a year
ago did. I’ve got time. Not only that, but things are going better for
me personally now than they were a year ago and that helps me remain
focused, as opposed to dealing with vulnerabilities, which can manifest
as additional mental noise.

I will remain strong in my
convictions but only so far as the work that I do tells me to be so. We
will not institutionalize negativity, bearishness or fear of the future
here at NFTRH.
What we will do is make an ongoing honest attempt to be on the right
side of the macro trade, and if proved wrong, admit it and move on with a
new course.

So, another important aspect of good personal market
psychology is the ability to admit when we are wrong. It happens to
the best of ‘em and it will happen to each and every one us; every last
subscriber and the letter writer for sure. As of now however, I see no
sign whatsoever that a cautious stance is wrong in any picture beyond
the immediate manic bullishness. —http:www.biiwii.blogspot.com