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Timing & trends

The Big Crash

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Posted by Victor Adair via PI Financial Corp.

on Saturday, 20 October 2012 03:30

1987-stock-market-crash-newspaper-homosexual-march-washington-dcOn Monday October 19, 1987, I was in Toronto attending a financial conference while the stock market crashed. I desperately wished I had been in my office to witness the events of the day…the best I could do was join the growing mob gathered around the only Reuters machine in the hotel and watch the action.  I had bought out-of-the-money bond call options on Friday thinking that the sharp tumble in bond prices (rising yields) had gone far enough…but as  the stock market crashed on Monday the bond market fell limit down…I was glad I was only long calls instead of long futures…but the crash, with the Dow down over 500 points on huge volume, was unbelievable. After the close the only thing on everybody’s mind was, “What’s going to happen tomorrow?”  

From January to August 1987 the Dow had gained about 40%. The bull market that had begun 5 years earlier in the summer of 1982 had seen the Dow triple and, of course, it was such a strong bull market that everything, including the junk, was going up. There was little fear in the market and anyone who counseled caution was laughed at. But the market peaked in late August and began to slide. There was a currency crisis brewing, and interest rates were rising. The week before the crash the Dow fell a record 240 points, and then the dam broke on October 19.

The market opened higher Tuesday morning but quickly sold off and made new lows…everybody held their breath…but then it turned around and the Dow was up 100 points  on the day…on even bigger volume than Monday…and the worst was over, although at the time you couldn’t be sure of that. Two years later, in August 1989, the Dow finally traded above its pre-crash highs.

I gave my scheduled speech to a shell-shocked audience on Tuesday afternoon and took a cab to the airport. I was scheduled to fly to Chicago for business meetings but the crash had so unnerved me that I was afraid to go…I imagined the market crashing further…social order breaking down…being trapped in Chicago as the city went dark…and I decided that it would be safer to fly back home to Vancouver. I called the over-night desk and sold my bond calls for 10 times what I had paid for them on Friday but there was little joy in the trade. My world had been changed forever…my naïve assumptions about the level of risk in the market had been shattered…and forevermore I would truly understand that you could lose everything in an instant.

I think it was the speed of the crash that stunned everyone.  The Dow fell 770 points (30%) in 4 days after rallying for 5 years…confidence had turned to fear and panic in a heartbeat…where a few days earlier everything looked rosy now everything was suspect.

We’ve had a few scary crashes since 1987…the summer of 98, 9/11, 2002, 2008, even the summer of 2011…and each time I got that awful feeling that maybe this time we were really going to take a hit. The big crash in 1987 made me forever skeptical of bullish enthusiasm…I’ve seen confidence turn to panic in a heartbeat…I’ve seen the illusion of market savvy proved to be a very dangerous thing…I’ve seen the market do something that was beyond anyone’s wildest dreams…and I suspect that I’ll see something like that again. Be careful out there.

Current market views:

This week’s action in stocks, commodities, currencies and interest rates has strengthened my view that we had a “blow-off top” in the risk-on trades following the global round of “Q.” I’m trading accordingly, and I think there is a decent risk that we could get some downside momentum.   

Victor Adair

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at PI Financial Corp. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He provides daily market commentary on CKNW AM 980 radio Vancouver and is nationally syndicated on Mike Campbell's weekly Moneytalks radio show. Victor's trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations.

by

Victor Adair

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at PI Financial Corp. Victor began trading financial markets over 40 years ago and has held a number of senior positions during his long career as a commodity and stockbroker. He is nationally syndicated on Mike Campbell's weekly Moneytalks radio show. Victor's trading focus is primarily on the currency, precious metal, interest rate and stock index markets and his clients are high net worth individuals and corporations. You can reach Victor Adair at: 604 664 2889  or vadair@pifinancial.com

 
 

Article provided by:

Drew Zimmerman
Investment Advisor
 PI Financial Corp. | Vancouver, BC
Tel: 604 664 2842 
Email: dzimmerman@pifinancial.com
Web: /www.pifinancialcorp.com

 

 

 



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Timing & trends

This Is The Biggest Economic Story In The World

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Posted by Business Insider

on Friday, 19 October 2012 08:26

The full-on comeback in everything related to consumers and households in the US. This is really the big story of the moment.

Let's just break it down really fast.

1. New housing starts are shooting straight up.

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2. Retail sales growth: Re-accelerating.

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3. The Unemployment Rate: Collapsing (according to the government).

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4. And the unemployment rate is collapsing according to Gallup.

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5. And car sales are surging.

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6. Revolving Consumer Credit. Back to growth.

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7. Gallup Economic Confidence is the best since May.

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8. Consumer discretionary stocks surging towards all-time highs.

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9. Homebuilder stocks highest since 2007.

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10. Wal-Mart has finally busted out, and surged past its 2000 high.

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11. Even more impressive: Home Depot! Surging to multi-year highs.

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12. University of Michigan Consumer Confidence hits a 5-year high.

13. Restarant owners are saw a recent spike up in their outlook (they're a great measure of consumer discretionary spending.

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14. Case-Shiller home prices are clearly on the rise.

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Something really big is under way!

SEE ALSO: The biggest dichotomy in the US economy >

 



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Timing & trends

Don't Worry be Happy vs "I smell bear meat upcoming"

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Posted by Peter Grandich - Grandich.com

on Thursday, 18 October 2012 00:00

U.S. Stock Market – I’ve often said it’s not so much what you do but what you avoid doing in the market that ends up separating the winners from the losers. I believe you would sooner find a needle in a haystack than a bullish U.S. stock market commentator within the hard asset community (where I ply myself) or among the investors who are fond for metals and mining shares. I know because many of them have questioned why I haven’t bet against the market for almost five years and have said for much of 2012 it would come as no surprise that the market made a new, marginal all-time high.

Barring something unforeseen and/or a Middle East conflict far worse than most anticipate, I continue to believe the “Don’t Worry, Be Happy” crowd on Wall Street shall pull out all the stops (and say whatever is necessary) to achieve this goal. But such a feat is not going to be the beginning of something much bigger IMHO but just the conclusion of the greatest bear market rally in the secular bear market of all time (that began in November 2007). It’s my personal goal to be very liquid by this time next year (and that may include lightning up on all equities).

It’s just a gentle reminder for now but as 2013 takes hold is likely to become a warning (which means don’t send me emails about selling anytime soon).

U.S. Bonds – I continue to hope the “happy” people on Wall Street can get the 10-year T-Bond down to 1.25% but time is not on their side. I continue to believe U.S. bonds shall end up the worse investment for the next decade and hope to get a chance to get aggressively short them before the house of cards comes tumbling down.

dollar

U.S. Dollar – A very bearish technical signal has been trigger in the daily charts of the U.S. Dollar Index. A “Death Cross” (when the 50-Day M.A. crosses the 200-Day M.A.) has occurred (Point A) and it looks like the Index wants to test critical support around 78. Stay tuned.

Gold and Silver – I think it’s pretty clear where I stand here. One note of interest was the report of a large delivery request of silver made last week to J.P. Morgan and the difficulty to make good on the whole delivery. We saw the typical bear raid around this and I smell bear meat upcoming.

Oil and Natural Gas – I remain bullish on oil and anticipate a seasonal bounce in natural gas.

Interesting article on Zinc that notes two Grandich clients Donner Metals and Sunridge Gold as possible takeover targets.  Please note Donner’s new website



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Timing & trends

Alert: Fiscal Cliff Looming

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Posted by Michael Campbell & Dr. Michael Berry, Ph.D.

on Wednesday, 17 October 2012 16:08

Michael Campbell: I'm looking at the overall US financial situation and I think you have to call me pretty darn bearish there, I am not innumerate so it's pretty easy to add up the numbers. Obviously a lot of focus on the US election, but regardless of who wins isn't this going to dominate their presidency? 
 
 
Dr. Michael Berry: I think it matters little in the short run whether the Republicans gain the Senate and the Presidency or whether President Obama is re-elected. There really are really serious problems fiscally in the US right now and they are going to go through a process here of some kind of austerity in the near term whether its excess taxation or just pulling back on spending. Either one is going to be fairly austere and it won't matter who wins in the short term, in the  longer-term it will matter because I think the Obama administration is much more social in nature than a potential Romney administration. 
 
Michael: We hear a lot about the so-called fiscal cliff which would have automatic cuts to spending and automatic changes to taxation especially on the investment front. I read a lot of convicting stories about whether thats serious in the way that they actually will find a way of overcoming it. What's your view on that?
 
Dr. Berry:  I am pessimistic on them finding a way Michael. At this stage of the game we are within 65 days or so of these cuts and tax increases automatically going in. It's very clear that Democrats want to tax the population and very clear the Republicans do not. I can't see any way they're going to come to an agreement so I think there's at least a 50-50 chance that we will go over the fiscal cliff. If we do, I think it'll have a tremendous impact on all the world capital markets. 
 
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Michael: I'm wondering if it would entail a dramatic increase in capital gains and in dividend taxation. I'm wondering if investors wouldn't want to sell those positions right now and see how it all works out. 
 
Dr. Berry:  I think thats exactly right, you're right on there. Investors down here in the US are definitely now in a mood that as every day passes and every second ticks by that this isn't going to be solved. So I'm seeing some weakness in stocks that shouldn't be weak here. I'm seeing some selling, I'm seeing some deals that are being mandated to be done before the end of the year to avoid this problem of increased taxation. Certainly capital gains taxes will go up in any event but if they go up January 1st it will have a really serious impact on the Stock Market.  
 
Michael: The other big question I see as I start translating this environment we are in into stock investments, is this tug-of-war between inflationary forces and deflationary forces. I know that's an oversimplification but could you give us some guidance where you think that's at?
 
Dr. Berry: It's probably the single most prominent event in the economy now in the US and probably around the world. I've been writing on it and you still see this deflation. You would not have seen the Fed come out with the very significant QE3 proposal of $40 billion a month, in the mortgage market primarily, if they were not scared to death of the deflationary situation. 
 
So where is it going to come out? Clearly as the Fed blows up its balance sheet by printing money here, which they are going to do now, you are going to see other countries do the same in a race to the bottom in currency. It's currently already happening and we've seen a nice move up in gold and silver and even copper. Friday they came off quite a bit, but the Brazilian's are printing, the American's are printing, you are seeing it around the world right now so there is this strong tendency to inflate. So far they really haven't done much asset inflation so I think that its still up in the air whether they're able to do it.
 
But you wouldn't have seen Bernanke go ahead and talk about such a massive QE3 program and put it into operation without a serious concern for deflation.
 
Michael: One of the other interesting aspects is there was so much focus right through the summer months about whether they would do a Quantitative Easing 3. Which is just another way of say the Central Banks would pump liquidity into the system by in quotes "printing more money". We saw the talk, especially by the European Central Bank in late July, China did something, Japan's done something, the US now is taking action. Is it one of those things that now that they've shot their bullets is there anything left in the gun. If it doesn't take hold the way there hoping, what they do for an encore?
 
Dr. Berry: They are pushing a string, its the old Keynesian liquidity trap problem that I think they're getting into now. Monetary policy will not solve structural or fiscal problems and so Congress and the US Government are going to have to act. 
 
I think there is a serious problem as the balance sheets of the Central Banks blow up. By the way we do know that Central Banks are buying gold, buying a lot of Gold now, more so than even last year.
 
As these balance sheets blow up and increase in size, once inflation starts to run and I'm talking about asset inflation in the real estate market,  they are going to have to drain so quickly to avoid very high rates of inflation. I think that's what the capital markets or the commodity markets are betting on right now. I think we are seeing that in the commodity markets. 
 
Michael:  Can you give us a further comment on Gold?
 
Dr. Berry: We are buyers of Gold, but Gold Stocks have not followed Gold for whatever set of reasons in this marketplace. We are very bullish on Silver, we are very bullish on Gold. You should have at least 10% of your portfolio either in Bullion, Coins, or in Gold stocks if you're in the Stock Market - as a hedge against the potential for very serious inflation. 
 
It is very clear that things are very expensive now, its clear that in some parts of the economy there is inflation. There are inflationary forces and Gold and Silver and some other commodities are stores of value, becoming more and more stores of value against this process. 
 
Michael: One of the areas that you were a pioneer in bringing to the publics attention through Discovery Capital and your Morning Notes are the Rare Earths. The Rare Earths have taken a bit of a beating in this downturn, can you give us an update?
 
Dr. Berry: I think that Rare Earths were a novelty. Just like graphite and lithium were novelty things because they're all about electrification and the new technologies that are coming.
 
So you know we had hundreds of Rare Earth companies and we also have the Chinese who control that market which is a key issue. Now we're seeing some companies in Québec (one HERE), there may be companies in both Canada and the US that have significant potential to supply these heavy Rare Earths and light Rare Earths. 
 
So I think its time now to do real due diligence. We are not going to get a move up in all of the Rare Earth companies now, we are going to get a move up selectively in those companies that are well managed, have heavy Rare Earths and are relatively closer to production. 
 
Michael: It's going to be an interesting time. Last question, is there some event that you're keeping more top of mind?
 
Dr. Berry: It's very clear the election is over overwhelming everything down here now. 
 
This last unemployment report was not 7.8% as claimed. We are seeing a little bit of a lift in in in the marketplace because the people think that the employment rate is down.
 
Once the election is over then we are going to see whats left of the pie. A pie has $16 trillion of debt sitting on top of it and that has to be solved. So there is definitely going to be cuts in both entitlements and increases in taxes and I think that is going to have a pretty heavy effect on the economy here for the next several years.
 
Michael: Dr. Michael Berry who writes a terrific Morning Notes for Discovery Capital. I really appreciate you finding time for us today.


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Timing & trends

Pullback to US$1,700 'Would See Significant Support'

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Posted by Adrian Ash: BullionVault

on Wednesday, 17 October 2012 10:14

Wholesale bullion prices to buy gold recovered an early dip in London on Wednesday morning, rising back to $1,750 per ounce as European stock markets also rose and the single currency hit its best level in more than a month. 

The rising euro knocked the price for French, German and Italian investors to buy gold back to a 6-week low of €1,333 per ounce (€42,860 per kilo). 

That's some 4% below Euro-gold's new all-time high of Oct. 1. 

"I have been speaking to a number of GOLD DEALERS this week," says Swiss refinery and finance group MKS's senior trader in Sydney Alex Thorndike, "and the majority still feel there will be significant support on any extended pullback towards $1,675-1,700. 

"Most, myself included, think long-term macro investment buying and possibly even central bank demand would be seen at these levels, as well as a resurgence in physical interest from India – especially if the rupee remains strong." 

Commodities were broadly flat meantime on Wednesday, but so-called "safe haven" government bond prices ticked lower as Spanish debt rose on expectations of a formal bail-out request. 

The Moodys rating agency last night confirmed Spain's ranking above "junk" status. 

Madrid's 10-year bond yields today eased to their lowest spread above comparable German debt in 6 months. 

"Gold and the precious complex have been held afloat overnight and this morning by a stronger euro," says UBS strategist Edel Tully in a note. 

"Gold's ability to stay buoyed today will be dependent on foreign exchange moves and risk appetite." 

Silver prices today extended to 1.8% their rally from Monday's 6-week low for Dollar investors, recovering the $33 mark as the London Silver Fix approached at midday. 

The first drop in solar-panel silver demand for 12 years will likely dent 2013's average silver priceby more than 4%, according to New York-based consultancy the CPM Group. 

"China's near-term appetite for gold appears to be waning as bullion imports from Hong Kong slow," write analysts at London market-maker HSBC in a note. 

Shipments of gold bullion to China from Hong Kong – the major route for imports to buy gold – slipped nearly 30% in August from July, according to latest data from the Census & Statistics Department. 

"What we are hearing from our customers is that they were buying gold rapidly over the last couple of years," MarketWatch quotes Scotia Mocatta's managing director in Hong Kong, Sunil Kashyap, today. "But they would now see some of their stocks sold off before they rebuild their inventories." 

In base metals, "China destocking [in iron] has run its course," says Bloomberg this morning, quoting mining giant BHP Billiton's CEO Marius Kloppers, who believes that stocks of iron ore have now been depleted to provide a "base level" of demand. 

But with China responsible for 40% of global money-supply growth since 2007, "and money-supply growth in the developed world still flat on its back, a slowdown in China augurs for lower inflation – perhaps deflation – and higher real rates," says strategist Russell Napier at CLSA, Asia's largest independent brokerage. 

Higher returns to cash and bonds, after allowing for inflation, would likely dent prices to buy gold, Napier tells MarketWatch. 

"Nominal rates [are already] close to zero," he says. So sub-zero inflation would be "bad for gold." 

Over on the supply side Wednesday, South African miner Gold Fields said its ultimatum to striking workers at the Beatrix project – threatening summary dismissal – today saw 6,200 illegal strikers return to work. 

With up to 50% of South Africa's gold output now closed by wildcat action, Harmony Gold said overnight it may still implement a failed wage offer made jointly with Gold Fields and AngloGold – the world's fifth and fourth largest gold mining companies respectively. 

World No.2 gold producer Newmont today reported a 6% drop in third-quarter earnings, with a record $77 million bill for maintenance and restructuring at its operations. 

Looking to buy gold or physical silver bullion today...?

 

About the Author

Adrian Ash runs the research desk at BullionVault. Formerly head of editorial at Fleet Street Publications – London's top publisher of financial advice for private investors – he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to a number of investment websites.Adrian Ash



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