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.

SPX 60 Minutes Sticking to the Script (by Gary)

By -

Hello again.  This is Gary from Biiwii, back again after having shaken off the cobwebs that result from writing an intensive newsletter, NFTRH on the weekends.

In this week's letter, one of the themes was a possible scenario for the broad market as represented by the S&P 500.  In this case I used a 60 minute chart to identify a short term scenario revolving around a possible Head & Shoulders topping pattern.  So far, so good.

Here is a fresh chart showing the S&P's progress.  I had originally thought the lateral support of 1020 would provide a nice level for the neck line of the would-be H&S.  As it turns out, we broke out of the short term downtrend channel a bit higher, which alters the analysis only slightly from what was presented over the weekend.

Spx60min

The upside tolerance of the analysis is 1080, as represented by lateral visual resistance.  Any higher and the pattern is in trouble.  At new highs, the pattern is kaput.  But either way, the bounce from around 1020 was strongly expected and fazes me not, despite several bearish positions on various markets like the SPX itself, China, oil, euro, real estate and financials.  That is because my gold stock and UGL longs are more than making up for the effect on bearish positions. 

The plan is to watch the story told by the potential H&S top and either add short if it remains intact, or go back to the drawing board if the bulls somehow negate its potential with new highs.  For now, I will assume we are going according to plan. 

A break of the neckline brings on a measured target of 955, which is not the end of the world for the bulls and in fact could be construed as a healthy pullback.  That level is the top of a zone of strong support dating back months, so I think it is unrealistic to get overly bearish in a 'world is ending' kind of way, although when you are talking a macro Ponzi scheme, you never know. 

But for now, we are micro-managing the short term and the above represents one possible road map:  Relief rally failure at or below 1080, decline to and eventually through the neck line, bringing on a measured target of 955.

Good luck out there and thank you again Tim for a forum on one of the relative few blogs I respect in an unmitigated way in a sea of financial market stuff floating around out there.

Long Gold, Short Silver (by Gary)

By -

Hi Slopesters… Gary from biiwii posting after reading that Tim is going short the GLD. 

I realize that gold has spent much of Hope '09 / Full Tout '09 running with the positively correlated stuff.  But on a relative basis to all the pumped up games, gold is counter-cyclical.  Therefore, I would prefer to short the real precious metals wild man, silver.

Here is a chart that simply takes the Gold-Silver ratio (GSR) I showed last week, and flips it over.  Silver has not got much room to run here in relation to gold if the red resistance line holds true.  Silver, unlike gold is very much of positive correlation to the mini speculative mania that I believe is in a process of flaming out.

Slv-gld

On a risk/reward and technical basis, I like gold over silver.  On a fundamental basis (only one of them is an ancient tie to monetary value – oops, sorry… gold bug moment 🙂 I really like gold over silver.  This would come into play for gold stock holders who would like to hedge positions. In my case, the 2x silver short ZSL might be a good hedge against the 2x gold long UGL I bought yesterday per this post along with some gold stocks that I have decided to hold, come hell or high water.

So, my point here is not to boost or pump gold but rather to point out a relative short opportunity that looks better to me, and has a more positive correlation to gold stocks and the broad markets to boot.  ZSL is the only short position I dumped into yesterday's downside, and I would like to see that resistance line approached once again.  Then, I think silver could be a compelling short – relative to gold and likely, in its own nominal terms as well.

Silver moves like a madman, in both directions.  If you are not sure about it, stay away from it. This is not a recommendation.  Just a note that I have used ZSL and will likely do so again in guarding my portfolios.  If we truly have a resumption of the bear market, silver is going to plummet relative to gold.

VIX Megaphone: ‘NOW HEAR THIS!’ (by Gary)

By -

Hi, Gary from biiwii posting again at the invitation of Tim, with whom I feel a kindred kind of thing as hope begins to drain from the bull case, little by little.  It is such a pleasure participating in da Slope.

Here is an updated look at the VIX and its megaphone AKA reverse symmetrical triangle (reversal) pattern.

"NOW
HEAR THIS!" blares the VIX… "Greedy bulls have had their fun, held
sway for a good long while, morphed Hope '09 into Full Tout '09, got
Wall Street to bonus season and generally reenacted the wonderful 50%
rally in hope off of the 1929 crash. You know the one, after which the
real depression descended. Happy days are not here again and it is
unfortunate that most casino patrons will come to that realization
after I begin to rise in earnest. I have not decided yet whether to
give the bulls one more run at the highs, but I will decide before too
long. This megaphone through which I give you my warning is a reversal
pattern after all."

Vix

Okay, that is what the VIX says. What
I say is that it feels so much like a false dawn that it is alarming
how people seem to have gone about their business as we head for the
tepid recovery that policy makers, media and Wall Street seem to be
touting. At best we will suffer from the law of diminishing returns
under a new and intense cycle of inflation. At worst, we go down again
and induce yet more panicked inflationary policy.

This is going
to sound overly sensitive in a 'he's giving us more information than we
need to know' sort of way, but we took our kids to see the movie Kit Kittredge
pre-crash and with everything I knew was directly ahead, it was too
much for your blogger who sat there with his eyes welling up through
half of it (I tend to do that over some really corny things too :-)).
How about the depression backdrop in Cinderella Man? Intense, man.

The other night I watched The Crash of 1929
on PBS. It was made in 1990, and indeed was intended to warn of the
possibility back then that it could happen again. Well, how did that
work out for the bears? I have no doubt that with each recession (like
1990), a new round of Great Depression lore gets whooped up, each time
providing the 'lever' for new and heroic inflation policy.

But
still, it feels like another hard down is coming and a lot of the data
I look at supports that idea. It feels like Indian Summer, just like
the one due here in New England imminently. There is a lot of noise out
there right now from the respective touts pitching their respective
wares in their respective sectors and asset classes. I expect it to all
fade away as the VIX trumpets the onset of stage 2, the GSR rampages
higher and Uncle Buck, pissed off like never before, stages a furious
short covering rally.

VIX: "That is all!"

Roubini, Deflation, Inflation & Gold (by Gary)

By -

Good morning slopers.  Gary from Biiwii here again.

There is nothing like the inflation/deflation debate and the misperceptions therein to get as many people off-sides as possible at the exact wrong times.  Case in point:  It was time to be bullish in March because the media were working full Armageddon into the public consciousness and markets were sold out.  We all knew that deflation ruled the day.  

But a funny thing happened on the way to depression; panicked inflationary policy, working 24/7 for months on end, took hold and combined with an extremely bullish sentiment backdrop as Armageddon '08 morphed into Hope '09, which of course became the current late stage phenomenon, Full Tout '09.

Below is an excerpt from this weekend's newsletter.  I personally interpret Nouriel Roubini and what he represents as a signpost I will need in the future when the time comes to position for change once again in the inflation/deflation game of cat and mouse:

Roubini:  “I
don’t believe in gold. Gold can go up for only two reasons. [One is]
inflation, and we are in a world where there are massive amounts of deflation
because of a glut of capacity, and demand is weak, and there’s slack in the
labor markets with unemployment peeking above 10 percent in all the advanced
economies. So there’s no inflation, and there’s not going to be for the time
being.

The only other case in which gold can go
higher with deflation is if you have Armageddon, if you have another depression.
But we’ve avoided that tail risk as well. So all the gold bugs who say gold is
going to go to $1,500, $2,000, they’re just speaking nonsense. Without
inflation, or without a depression, there’s nowhere for gold to go. Yeah, it
can go above $1,000, but it can’t move up 20-30 percent unless we end up in a
world of inflation or another depression. I don’t see either of those being
likely for the time being. Maybe three or four years from now, yes. But not
anytime soon.”

I found the above quote in
an interview titled Big Crash Coming with professor Nouriel
Roubini here http://tinyurl.com/nftrh56a
at something called Index Universe.  The
link is to page 2, where the gold segment is, but I recommend reading the entire
interview.  It is fairly brief.

On gold specifically I have
to disagree with the good professor, just as I do with Prechter and I don’t
know how many other deflationists out there. 
That is of course because Roubini comes at the subject from the
standpoint of ‘price’ as opposed to value. 
In my opinion, there is too much focus on the prices of assets,
what gluts of capacity and slack demand will do to prices and hence, price
inflation or the lack thereof in Roubini’s view.

“So there’s no
inflation.” 
There is inflation.  Over the
last year plus there has been a ton of it and it has been aimed at keeping prices
up.  And it has succeeded thus far
in its task.  But inflation is not
rising prices.  Inflation is what is
promoted in the face of declining asset prices.

I will stick by my stance
that holds the deflationary pressure Roubini sees is the lever by which future
inflationary policy will be pulled into existence. 
Okay, I have been polite thus far.  What
I actually think is that analysis like Roubini’s above, ends up being a tool
for policy makers.  Whether
knowingly or unwittingly, prominent economic talking heads (and the media that
dote on every word) are important to the cause for business as usual by policy
makers.

From last week’s NFTRH55:  “If the current system is to survive, these guys [policy
makers] need an event and they need is soon. 
That is what I thought I saw on the faces and heard in the voices of Tim
[Geithner] and Larry [Summers] last week.”

Roubini’s oncoming crash
would be the event.  The
event’s fallout would be the lever. 
The lever would be pulled and a new round of inflationary policy is all
but a given since the public, hysterical and frightened by the event, will
support it wholeheartedly.  In other
words, confidence, induced by fear though it is (again), would remain intact in
our leaders’ ability and willingness to come to the rescue with more
‘policy’.

We here at NFTRH will wish
to take risk management steps leading up to the event, and then capitalize on
the inflationary results.  Simple,
isn’t it?  Well yes, simple in a twisted kind of way. 
This is how people are systematically disenfranchised, over cycles and
over decades, through misperceptions about inflation and deflation.

Meanwhile, per NFTRH55 last
week, money supply graphs from the Fed show money supply having leveled off.  This is the first step to what may one day evolve into
deflationist hubris, again.  That
will be about the time gold has once again separated itself from the asset pack
as a unique holder of liquidity and long-term value.  It will rise relative to everything even if it
declines temporarily in nominal US dollar terms. 
That would be yet another buying opportunity that the deflationists will
miss the boat on.

But
we get ahead of ourselves, as this is all just theory for the future. 
At the moment we have the inflationists, commodity bulls, peak oil
believers, stock touts and their respective hubris to deal with.

Gold-Silver Ratio (GSR) and a Whole Lot of Rambling

By -

Well first off, I want to thank Tim for hosting this space and allowing me to bludgeon you with some theory on the Gold-Silver Ratio (GSR), assuming he approves and publishes :-).  I found Slope a while back and really appreciate the quality with which Tim presents his ideas on a daily basis.

My name is Gary and I have been trading the markets quite actively for about ten years.  I run this blog and the website biiwii.com.  My primary focus is not on being bearish or bullish, but as a trader, on being right.  As a human being I, like Tim, am bearish due to the unhealthy and crooked dynamics that go into keeping this bloated construct afloat. 

But keeping a disciplined psychological profile is important in the effort not to micromanage or try to control the markets.  There are also many tools that can be used ('signposts' as I call them) as well, to help filter the noise.  One of those is the all-important GSR.  I got the idea to highlight this after reading one of Tim's posts regarding Robert Prechter and a coming USD rally.

Gsr

The GSR is one signpost that can give us a leg up on impending market events.  The lower panels on the above chart show what I mean.

You will hear all manner of cheering by gold bugs when silver is leading gold, and as the first panel shows, when gold began to out-perform silver, the gold miners (HUI) gave a clear indication that all was not well.  To this day, many gold bugs seem to think that the gold stocks will escape the coming carnage when the GSR turns up again.  Pardon me if I do not go along with this idea in the short term, although beyond a coming correction, I believe this sector is the place to be for reasons I will explain a bit later in the post.  But here is the nugget, if you will:  The gold miners need the USD to strengthen and the GSR to turn up in order to establish the next leg up in their positive fundamentals and in order to become distinguished from the general commodity/inflation trade that is positively correlated to the economy. 

We all remember how well-gamed crude oil was in the summer of '08.  This was the final high profile bubble of what was in my opinion, a series of rolling bubbles that made up the commodity (and inflation) mania which led directly to the crash of Q4, 2008.  This bubble did not get the memo that the end was near as sincere 'peak oil' believers were about to be hit with the reality of an epic deflationary impulse.  Oil was just another play, positively correlated to the economy.

The next two panels are industrial metals and the stock market, which are of course, also items of positive economic correlation.  They had their bubble tops previously and acted as we might expect leading into the upturn of the GSR and onset of the crash; they diverged negatively.

The GSR signals the draining of liquidity as the mass speculative urge begins to fade.  It rises with the same dynamics that make the USD rise in a bout of deflation.  In other words, it rises with the collective need to get liquid, get safe and get the heck out of the casino.  So, any bottoming or bullish activity in the GSR can be looked upon as an early warning system on a USD rise and accompanying decline of nearly all asset markets. 

But here is what I love about the GSR.  While it can give signals to get short certain bloated and hope-fueled markets, the rising GSR also signals that things like oil, industrial metals and even human hopes for prosperity will be declining in terms of gold.  I find Prechter's analysis that gold will decline in a deflation therefore so too will the gold mining stocks, to be too simplistic.  Gold will probably decline in a deflation, but here are two vital points to be considered beyond the short term:

1) Gold will decline much less than positively correlated items – like silver, like oil, like copper, etc.  Gold will decline less than gold mining cost inputs, which means margins at the companies that dig the yellow stuff out of the ground will expand as their product out-performs relative to their costs.  The best part is that another epic buying opportunity is likely to present itself even as the miners' fundamental picture improves.  Now that's risk/reward I can deal with.  I am getting my HUI downside targets prepared, just as was the case in Q4, 2008.

2) I do not believe that a real deflation is going to take hold.  Pull up a monthly chart of the 30 year bond and you will see that the 100 month exponential moving average has not been broken.  This condition has gone on for decades and it means that inflation expectations have not broken out despite the best hopes of the inflation alarmists.  What this actually means is that while deflationists and inflationists duke it out, policy makers are allowed to continue to inflate at will as inflation hysterics inevitably swing back to deflation hysterics.  I tried to get this point across recently in this article entitled Yin/Yang, Deflation/Inflation.

My main point is that as long as confidence by the majority remains intact, policy makers will continue their macro game of hide the cheese.  They need a deflation event right about now, which will likely be used as an inflationary lever yet again.  The GSR is one tool to watch constantly going forward because if that is a bullish consolidation of last year's hysterical upside, the ratio will find support – and a higher low – in the noted zone and that will not be good for any markets in the short term.  In the intermediate term it will signal that gold mining companies will be one of the few flourishing sectors as the 'real' price of gold continues its rise, as indicated first and by the GSR and gold's ratio to many other assets.

I hope this post is not too dry.  This is a blog with a very entertaining publisher who writes in a clear and concise manner.  As I review what I have written above, I realize this stuff can be a tough read.  But I hope it helps add some perspective to the ongoing debates on inflation, deflation and gold's role amid the noise.

Best to you all, and thank you again Tim!

Gary Tanashian