Thursday, August 4, 2011

Boy, that was some debt ceiling rally

10:04 am (Hawaii) Again, I will remind all that Scott Blier got it right, forecasting a "sell the news" downturn on the debt ceiling compromise. There were times when the market moved up on bad news, but this past week, it has absorbed a lousy debt ceiling deal and an unending litany of declining numbers in the US economy. Today's 512-point plunge in the Dow (-4.3%) is exceeded only by the Nasdaq (-136, -5.1%) and S&P (-60, -4.8%).

It was Cortez, the contrarian, who declared yesterday that he went long the S&P. He could right. Just off by a day or a week. The Dow has been down eight of the last nine sessions. The weight and breadth today may be, finally, the capitulation it needs to soak in all of the bullshit of Capitol Hill legislation, Eurozone austerity* and real price for real stocks. I suppose that could also mean that gold is a real go-to safe haven, down fractionally today, and that silver is still a trading tool despite far less speculation and volatility in recent months.

Silver traded down as low as 38.10, and is now at 38.62 after hours (-7.4%). Whatever I think of the powers that be, the spot price is stuck in this range, unable to stay above 42, and I'm waiting for a chance to get more physical at 35. If the onslaught continues overnight and tomorrow morning, 32 might be in play very soon. However, a catastrophe scenario in silver is unlikely in my book. There's too much demand in gold globally with the US Dollar stinking up banks near and far. Silver will always tag along sooner or later, so I don't see silver below 32 anytime soon.

If this turns out to be the one-day beatdown to precious metals that was necessary after the recent runup, fine. Silver had run from 34 to 42, so consolidation here above 38 is not a bad thing at all. Gold had run from 1600 two Sundays ago to 1683 today, a 5% gain in just 11 days. In gold! Astounding. I still like 1625 as a bargain price.

Though my small positions in DGP, XG and GSVC were beaten to a pulp today, I didn't sell. It's too late to sell, and I've got enough dry powder to load up if and when the momentum shifts. Whatever happens in Euro land is going to happen. If it's austerity, the pain will be immediate, but recovery will come sooner. If it's more "kicking the can down the road," the pain multiplies at a later date.

On the bright side . . .

• I'm glad I didn't buy more physical yesterday. A pullback was due, whether by natural market price discovery or puppet mastery from the CME mafia.

• I'm content with this small allotment of exposure to miners (XG). I was overconfident when I bought in above 14, knowing full well that miners are underowned by hedge funds, and that they suffer severe knockdowns that parallel the market more than gold and silver.

• I'm okay with not buying anything today. FAZ kept rising, pausing, rising, pausing and I never got a good feel for what was next. It's not easy trying to buy in when something is up 8%, then 10%, then 12%, then 14 freaking percent. Same with ZSL, though I feel far more jittery about holding ZSL for any period longer than an hour than FAZ. The CME mafia could back off overnight, let Asia take control, and silver could be back over 40 within hours or minutes.

At least with FAZ, we know banks from California to Athens are screwed and the worst screwing is yet to come when real estate brings its second wave of disaster.

Down the road, it's the real estate bubble in China that concerns me, but that's quite some time away. The Chinese are adept at manipulating growth, doing things that would be unheard of in the US.

It was interesting to see profit-taking in ZSL, FAZ and other hot movers today. Always in the final hour, more so in the final 20 minutes. But buyers kept scooping up shares at day-high prices. Even VXX was up nearly 5% today after taking a breather yesterday when traders took big profits home.

All in all, it's always best to be ahead of the curve, not chasing the crowd. So I hesitate to add more ZSL or FAZ at this point. (DUST, the 2x gold miner bear ETF, is tempting, but could bounce hard any day.) Anything up more than 14% will need a pit stop, rest time and fuel. This might be a good time to step away from the market and dig around for some physical, just a small amount to average in. After all, ugly as today was, tomorrow could just be the start of a new run. Every central bank loves a big discount on shiny metals.

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