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.

Don’t Ignore This Chart My Furry Friends (by Gary)

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Gary from Biiwii with a chart depicting a divergence that bears should be very interested in.

The gold-silver ratio (GSR) and the SPX are concurrently doing something that is most unsustainable during this last little thrust higher in markets.  They are rising together.  To review, when gold is rising vs. silver, a signal is given that liquidity is draining.  When gold declines vs. silver, the bull party is on.  It is no more complicated than that.

As you can see by the chart, the GSR has been in an intermediate downtrend since the blow-off hysterics in fear back in March.  Last week, bears (including myself) thought we had the market right where we wanted it and guess what, as long as the bearish divergence of a rising GSR remains concurrent with a rising market, we do!  This will not last.

Gsrdaily

So the vital question is 'which is real and which is Memorex?' when it comes to the two short term uptrends.  I did a less formal version of this study on my blog during pre-market and it appears for the moment at least, that the stock market and the GSR are cooperating toward my favored view, which is that the market will break down and the GSR will continue to rise, possibly into a new intermediate leg up (with corresponding intermediate leg down in the markets).

We should realize however, that the bulls have the benefit of the established trend and that counts for a lot. So, my furry friends, let's keep the hubris under wraps until we get further confirmation.  But so far, so good.

Metal and Miners (by Steve)

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I was trying to write this up yesterday before GSS reported but I was called out on a trip. I have a full time job and am not always actively trading.

Trying to write something that may be helpful to you all or even to some of you is a real challenge for me, as I came to this site to try and learn from more active traders and especially to try and incorporate technical analysis into risk management skills. Trying to write a quality post is forcing me into a Baptism by Fire scenario and I will keep it simple as that is what has worked for me.

Lots of great posts once again preceding this one on precious metals. I have had at least 50% of my net worth in metal and miners off and on for the past several years, and this is not a suggestion, but something that I slowly became more and more comfortable with over time as events unfolded validating my views. I view it as insurance in a sense and I try to trade around core mining positions and SLV, nearly always from the long side.

I have no idea on the next 10-20% and I don't much care one way or another. That may sound flippant, but if I had confidence that I could capture that move, I would do so. I need to see greater enthusiasm in a spike like fashion for me to do much selling of my trading positions right now. Remember that I am trying to emulate the quote from the Livermore book,in the earlier post about making most of his money in the sitting, not the thinking. I rarely looked at a chart the past two years and it could have been very helpful had I done so.

Silver really seems to be the poor man's gold as the coin store keeper tells me they loved it at 20 and sold it back to him at 16 last year. They have not been back. Continuous higher prices always bring them back it seems. I will buy more at 15 and lower. Here is a view on silver, when owning a full position around this time last year felt like this.

Silver

Three of the major gold miners (NEM,GG,AEM) reported last week and the stocks had different reactions to "the news" initially. I own GG and AEM and mentioned that I was buying the initial break the next day at 58 area just above the trend line. Further opportunity followed on day two of "sell the news".

Aem2 

Here is a one year view of GG

Gg

Last year was gut check time for those of us too long metal. I had made a great sale of GG at 50 and trimmed some other gold stocks and I was looking to buy it back lower. I had roughly 10% long puts and long precious metal and I was feeling loaded for bear. I started buying GG back at 38, 33,28 23. Arms,legs and torso gone. I spent some hard time thinking it through and believed that my thesis was still intact and that the pricing was a good old fashioned "sell everything" liquidation.

I had bought a small amount of GSS at 1.50 and 1.20 on the way down and then I started putting in bids in all my accounts and wound up with nearly 70,000 shares bought between .41c -.68c. I had similar fills in smaller size on some other juniors. This was not planned but acting on the fly. I had much larger orders not filled below these levels. Looking back it would have been great to have liquidated my metal and had fresh eyes into the plunge. I did not sell on the rally and bought more from 1.20-1.80 and some Jan -Feb calls. I still have the bulk of my GSS position and have only sold 5k shares in the mid 3's.

Last post I showed the FCX Pref M as the one that got away. So far GSS is one that did not get away, and it has been very difficult to keep the position to this point. I can have 50k swings daily, but that is reflective of the volatility in the precious metal stocks. Use it to your advantage short or long.

Here is a view of GSS long,med,short term.

Gss10yr

Gss 1yr
!cid_sc

So far I have done well under some seriously adverse pricing. Now that pricing is more favorable I am not dancing on the clouds. I am trying to manage my way through these times and I was fortunate to have bought some things right. I will need to sell it right as well. It now feels more like this ride – – especially after writing this post.

Long Gold, Short Silver (by Gary)

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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)

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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)

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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.