Timing & trends

The 64 Zillion Dollar Questions & Market Perceptions Shifting in Stocks Commodities Currencies & Gold

Posted by Victor Adair via Union Securities

on Monday, 04 June 2012 10:18

Since February I have been anticipating a significant change in market psychology that would produce lower stock and commodity prices and a rising US Dollar. I waited for confirmation and got that...in spades...the first week of May (see May 7 commentary) with a number of KEY WEEKLY REVERSALS. I continue to trade on the expectation of lower stocks, lower commodities, and a higher USD...with gold also doing better...all the while expecting that we could see a "brisk" counter-trend move across markets! - from www.VictorAdair.com

Market action the last three days and especially today was a perfect storm, or if you like, it never rains but it pours: European debt concerns intensified and evidence mounted that the global economy is slowing down. Markets behaved just as you would expect in a post credit bubble collapse...by seeking safe havens in a deflationary environment...as the consequences of "way more money has been borrowed than will ever be repaid" keep coming home to roost.

Last week I wrote about how I had “done a 180” from being a gold BEAR for the last three months (Feb to May) to being a gold BULL as I sensed a change in market psychology...I thought that gold, which had been the baby thrown out with the bathwater as "risk assets" declined, might morph from a "risk asset" into a "safe haven"... and that seemed to happen this week...especially today when gold rallied over $60 while global stocks tumbled.

Looking at markets this week it would be a gross understatement to say that money moves as Market Perceptions change. Money is physically moving from the periphery to the centre…Spanish banks have apparently lost deposits of 100 billion Euros as people pull funds out of Spanish banks and either put that money under the mattress or wire it to Germany...in another context money is leaving the "rest of the world" and going to the USA…(and Japan, oddly enough) moving from the periphery to the centre…

Charts: We had KEY WEEKLY REVERSALS this past week in the S+P and gold (and silver and platinum…)



The VIX, the FEAR index, which traded to a 5 year low of 14% in mid-March, jumped to 26.6% today but it is still a long way from the 45% it hit in early October of last year...which might imply that, "You ain't seen nothing yet" as far as fear goes.


Credit markets: the yields of (relatively!) "safe credits" (US, UK, Germany, Switzerland, Canada, etc) have moved to record lows while "weak credits" have seen rising yields.


Energy: Crude oil prices have plummeted as Perceptions change about the health of the global economy...less demand for fuel...WTI was $106 May 1,2012...it traded a low of $82 today...a 23% decline. The Coal ETF traded to a three year low.



Currency: the CAD has lost 6 cents from the end of April to today. The Euro fell 9% to a 2 year low in the same time frame...the US$ Index has closed higher for 5 consecutive weeks.




Stocks: The major American stock indices have been among the strongest in the world but today the DJI went negative YTD. The Toronto stock index is down ~5% YTD.



Commodities: the CRB commodity index has been trending lower since the KEY turn date of May 2, 2011, and has fallen ~27% since then to a 2 year low, down 12 of the last 14 weeks. My concern, as previously expressed, is that there has been a huge build up of speculative long positions in commodities (greater than before the crash in 2008) and these positions are vulnerable to a liquidation accelerated decline....bad news for the CAD and other commodity currencies.



The 64 Zillion dollar questions: Will the "authorities" be spurred to action…or are they “keeping their powder dry” until things get worse before they act? Is the intensifying crisis in Europe severe enough to make the authorities try to get in front of the bank run with some kind of continent wide deposit insurance? A Eurobond? Will the Fed come in with more QE as the American employment picture worsens? It looks like the gold market, in addition to being a “safe haven” during a “risk asset” storm may be anticipating some form of "printing."

Psychology: Very risk adverse…BUT…market Perceptions could turn on a dime if the “authorities” take action…possibly setting off a sharp rally in the Euro if some of the current massive short positions try to cover...and given the All-One-Market aspect of today's financial markets, a sharp reversal in the Euro could set off sharp reversals in other markets...

My trading horizon view: Since February I have been anticipating a significant change in market psychology that would produce lower stock and commodity prices and a rising US Dollar. I waited for confirmation and got that...in spades...the first week of May (see May 7 commentary) with a number of KEY WEEKLY REVERSALS. I continue to trade on the expectation of lower stocks, lower commodities, and a higher USD...with gold also doing better...all the while expecting that we could see a "brisk" counter-trend move across markets!

My "Big Picture" view: remains that we are living in a deflationary world...a natural sequel to a thirty year credit boom...that the actions of the "authorities" to date have been "rear-guard" in strength, although certainly powerful enough to produce tradable rallies. I have thought that deflationary pressures would move from market to market like "rolling thunder"...hitting the USA first, then Europe with Asia next up. My net worth is nearly all in cash, 75%CAD, 25%USD, and I actively trade financial markets to make money and keep watch on developments.

Best wishes for good health and good trading,


Victor Adair - www.VictorAdair.com

Senior Vice President and Derivatives Portfolio Manager

Victor Adair is a Senior Vice President and Derivatives Portfolio Manager at Union Securities Ltd. 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.

Contact Victor:


Personal Finance

What I've been warning you about is here ...

Posted by Larry Edelson - Uncommon Wisdom

on Monday, 04 June 2012 08:30

You’re seeing massive declines unfold in almost all markets. The reason for it is rather simple, and it’s something I’ve been warning you about.

Even in the midst of what should prove to be the biggest commodity bull market ever, you can get sharp dis-inflationary moves, especially when ...

• Investors are frightened that governments may be going broke, like they are concerned now with Europe. When that happens, and they see no light on the horizon, they take their money and head for the hills — panicking and selling almost everything in sight.

• The world’s leaders are equally at a loss about what to do, investors again head for the hills, and choose to park their money largely in cash — another motive for selling almost all assets.

• They believe that it’s far-more-important to be concerned with the return of their money than the return on their money, they run for the hills even more — causing even more selling.

And yes, even that religiously passionate asset these days — GOLD — can get caught up in the selling.

I’ve been warning about all of this, and it’s here now. Investors, seeing Europe start to completely unravel, are dumping just about everything. Asset prices are plunging, from stocks to commodities, even to real estate (again).

And although this is a short-term move, and NOT the major trend (which remains up for commodities), it’s not about to stop anytime soon.

Fortunately, those following my Real Wealth Report were prepared for this. I had them hedge their core gold holdings a while ago. I had them effectively sell short silver with an inverse ETF. I had them sell short the euro with an inverse ETF on the currency. And more.

I’ve been telling them to hold those fruitful positions. While there may be some bounces in the markets ahead, it’s important that you know where I believe these markets are headed, and when I believe they will bottom.

So without further delay, here are the target support levels for each of the major markets I follow. They are support levels I expect to be tested before the rout is over ...

Gold: Once gold closes below the $1,527 level, look for support at ...


I fully expect that by the end of July we will see gold test the $1,373.10 level.

Silver: Once silver closes below $26.07, look for support at ...


I fully expect that by the end of July we will see silver test the $20.22 level.

Crude oil: To most analysts’ and investors’ surprise, oil is one of the weakest markets on the board right now, having given me no fewer than three sell signals. Look for support for oil’s upcoming bottom at either ...

$77.10 or $67.05 (by the end of July)

Dow Industrials and S&P 500: A close below 12,200 in the Dow and 1,275.50 in the S&P 500 should lead to tests of the following support levels, with the extreme lower levels in the cards by the end of July ...


S&P 500: 

*NOTE the large gap in support between 1,245 and 1,052. This is typically a telltale sign that if the S&P 500 cannot hold the 1,245 support level, a devastating mini-crash may be in the cards.

You should see lower prices ahead, over the next six to eight weeks, in virtually all markets but U.S. bond markets, which are temporarily benefitting from flight capital. The dollar should also continue to rise, on the back of flight capital.

When will it all stop? First, when the above support levels are tested. Second, and most importantly ...

When the world’s leaders and central bankers get together and exercise coordinated money-printing.

That’s what they’re going to do. Come hell or high water. But it won’t happen until their backs are against a wall, and that’s going to be after further asset declines.

The next round of money printing, when it comes, will also be ferocious. The biggest yet. And with very few exceptions, like the Chinese yuan and other Asian currencies, it’s going to dilute the purchasing power of nearly all paper money.

Keep in mind that governments in the West are now fighting for their lives. They are drowning in debt. Unfortunately, the only thing they know how to do is issue more debt, and print money to pay old debts and support new borrowings.

It’s a very sad situation. But it has not come to a head yet. It will, when everyone realizes that Washington is not in any better shape than Europe.

That’s when the real %$#! will hit the fan. And out of it all will come a new monetary system, new government and even a new financial system.

There will be hell to pay, but a new day will dawn on the other side. But getting there will not be easy.

I’m doing everything in my power to protect and grow my wealth. Anyone who isn’t is asking for trouble. Big trouble.

Stay safe,


6ED3-ASIA-ProtectWealthEP1 sm

P.S. If not already a member, you may want to consider joining my Real Wealth Report. It’s the best way I know how to get my messages and investment recommendations into your hands, so you can make your own choices on how to protect and grow your money during these unprecedented times. //www.gliq.com/cgi-bin/click?weiss_uwd+0107201-2+UWD1072+vgbb@shaw.ca+%20%20%20%20%20%20%20%20++2+4422655++E-Acquisition%20Lead">Click here to join now.


Gold & Precious Metals

The Ultimate Gold Bull vs. The Muted Bear

Posted by The Gold Report

on Monday, 04 June 2012 08:05

Is gold preparing for another shot up to $2,500/ounce heights or on the way down after being overbought? In this exclusive interview with The Gold Report, two respected names in the investing world share their arguments for what could happen in the coming years and how to profit from it. Financial Adviser Peter Grandich predicts a lot more upside while AlphaNorth Asset Management Chief Investment Officer Steve Palmer has a more cautious outlook on the shiny metal. Where are you putting your money?

The Mother of All Gold Bulls
The Gold ReportPeter, you have called this the mother of all gold bull markets and predicted $2,500/ounce (oz) gold prices. What is driving the price of gold? Is it China's growth? Is it a weak U.S. dollar? Is it global fears? Is it central bank currency printing? What's going on?

Peter Grandich: This mother of all gold bull markets was built on a foundation of dramatic changes in the gold market itself that began in earnest 10 years ago and propelled it up to where it is now. First, two significant negatives turned into positives. The gold market had basically capped due to constant central bank selling and producers being aggressive forward sellers of future gold production. However, starting with the Washington Accord in 1999, the central banks dramatically changed direction and agreed to limit gold sales. In fact, in the last two years the central banks have actually become net buyers. At the same time, gold producers have made hedging a thing of the past. Hedging has really become a four-letter word among investors.

TGR: What convinced companies to stop forward-selling their production?

PG: The gold market finally started to rise and people realized that companies that were hedging were making less money than companies that were not hedging. In the '80s and '90s, the old American Barrick was almost a commodities trading house rather than a gold producer because it used the hedging derivatives to make money. But the great mother bull market made that counterproductive and investors began to shy away from any company that pre-sold gold.

The other factor fueling the bull market for gold is the introduction of exchange traded funds (ETFs). They brought in an enormous amount of new gold buying. In the '80s and '90s, institutional investors found it cumbersome to take a large position in gold. Physical gold purchasing was not only expensive, it involved storage costs and carrying costs. People tried to use mining shares as a proxy until they realized that when the market went down, mining shares went down with it. ETFs allow people to have direct exposure to the gold price. ETFs also offer tremendous liquidity and the ability to sell at reduced costs intraday.

Central bank gold selling, lack of hedging and the creation of ETFs are the main reasons why the gold bull market has done what it has done. The gold permabears who have not recognized these changes have missed out.

TGR: Will those conditions continue?

PG: There is no sign of change. In fact, despite the permabears cries to the contrary, we saw in the first quarter that central banks continued to be net buyers. I suspect that when the second quarter is over, we will see that central banks stepped up again as buyers.

TGR: So, why are you predicting $2,500/oz? Why not $2,000/oz or $5,000/oz or $10,000/oz?

PG: I'm actually not a big fan of a target number. I'm more interested in the direction of the gold price. My feeling during this price rise has been that gold will eventually reach not only a nominal new high in price, but an inflation-adjusted, all-time high. Right now that is somewhere in the $2,300-2,500/oz area depending on what factor you use for an inflation rate. And, that's what I think is the minimum target that we can look for before this great bull market even comes close to an end.

TGR: How do you respond to people who say that gold doesn't really have any value, that it's not an industrial metal and its value is arbitrary?

PG: I give them a very simple answer. I have thousands of years of history on my side. Mankind, for whatever reason, over thousands of years has seen many paper currencies come and go. Regardless of the economic framework, gold was used to buy the things that were important while other means of value went by the wayside.

A hundred years ago an ounce of gold bought a good man's suit and it still does. There isn't really anything else I could point to, financial assets or oil, wheat or any other commodity that has managed to do that. So, I think it's absurd when people say gold doesn't have value.

TGR: What about the people who say it's in a bubble? How will you know when gold is overbought? What are some indicators that you watch?

PG: The definition of a bubble of any kind is when so many people have gotten so involved in something that it has been driven beyond any reasonable price. This gold market has surprised us in how high it has gotten with so few members of the general public and the professional community investing in it, particularly in North America. If this is a bubble, bring more on for me because there just aren't enough people participating in this. The only bubble I see is in the number of people predicting the end of the gold bull market. That is overloaded. Gold is not.

TGR: Well, it sounds like you are definitely bullish on the gold commodity price, but what about equities? Are equity valuations too low or too high based on where the gold price is now and where it could go?

PG: There has been a dramatic change on the equity side with some bearish developments. I'll go through them with you.

The first change as we discussed was the shift to ETFs for exposure to the gold price. The single biggest change, particularly in the junior resource sector, has been the adjustment in the financial industry from a commission-driven business to an asset-gathering business. A decade ago, thousands of so-called financial stockbrokers built their books of business on buying and selling individual stocks. Some of them specialized in mining shares. Each one would have 100 to 500 or 1,000 clients. That created a market for mining and exploration companies to get exposure to the end-user. That is all but gone now. Most people in the financial industry today are asset gatherers. They gather an asset, turn it over to a third party money manager and the individuals no longer buy or sell or recommend individual stocks. That has been the single biggest hit to our market.

The other thing that changed dramatically is the regulatory and compliance environment. In North America, the NI 43-101 rule required companies to follow specific reporting guidelines in order to classify exactly what kind of reserves or potential reserves they may have. Before that went into effect, companies could almost say anything, sizzle their story into looking like steak if you will. While it was a good change in many ways, it also removed all the sizzle. Companies are now very limited to how they can describe their resource, thus limiting some stock price growth.

The regulatory end changed as well. In the United States, it's almost impossible to find a brokerage firm that would allow solicited or even unsolicited orders on stocks that are not trading on the major markets, the New York Stock Exchange or the NASDAQ. Even though the Toronto Stock Exchange may be the fourth or fifth biggest exchange in the world, it's very difficult for U.S. investors and the investment community to buy and sell stocks that trade there because compliance departments don't allow it any more.

The holding time for private placement is something else that has changed. Private placements are the life blood to the junior resource market. It is where companies raise money to continue drilling and exploring. When I first entered the business, placements came with a two-year hold. Then it became a one-year hold and now it is only four months. A four-month hold brings more paper into the public trading market faster than most companies can demonstrate results. Therefore, it has become a depressant because that stock is getting ahead of company growth.

Add to the challenging equity picture the emergence of discount brokerages. Many individuals can literally trade for a penny or two share movement and make money. Before people had to have a 10% or 20% move in the stock before they would even consider taking profits. Now they think nothing of trading multiple times a day.

Throw in the political difficulties that mining companies have around the world, environmental and now even labor shortages, and you can see why there is a disconnect. Those are some of the reasons why even though we have had a three-, five- or even sometimes tenfold increase in underlying metal prices over the last couple of decades, but it is far more difficult now for the typical mining company to realize increased stock prices. It is far more difficult today for the typical mining exploration company than in any other time in the 30 years that I have been around them.

TGR: Do you see that changing? How will the demand for gold be fulfilled if it isn't profitable to pull it out of the ground?

PG: That is going to be a challenge. The bears have predicted that 80% of juniors are going to be wiped out because the gold price is going to go so low. That would mean 80% of the gold that might have been found will not be. That would actually improve the fundamentals for the gold price by decreasing supply.

What will happen is what happens in all cycles. Juniors don't really die. They become born again. They recapitalize. They change names. They may even change properties. But they never truly die.

The world is going to need new cars and electronics and that will require metal and energy and mining companies to find those materials. More than 80% of metals found in the world are found by small companies. If they are not around, who is going to discover the ore to build the world of tomorrow? That is why I still maintain a very bullish attitude toward commodities in general.

Add in the pressure for a store of value safe from increasing world debt and political turmoil and you have a strong argument for gold. So, it's not because I wear a tinfoil hat or sell log cabins or dry food that I'm bullish on gold. I'm bullish on gold because all the fundamentals point toward it still going dramatically higher.

TGR: If the juniors are having trouble finding love in the stock market during these record-high gold commodity prices, what about the producers? Are they reaping the benefits of a higher gold price?

PG: Not to the extent that they should be in the short term, but I know it will be all right long term. My bellwether is Barrick Gold Corp. (ABX:TSX; ABX:NYSE). It has gotten to a single digit price-to-earnings ratio. This was unimaginable when I first entered the business because mining shares traded anywhere from 30 to 50 multiples. When a major producer is below a general market multiple, but continues to do well on the corporate side, that is where the undervalue is in the general market. So, I think we're pretty well done in this corrective/bear market phase for mining shares. People have priced companies to a level where gold might have been 10 or 15 years ago. So, either the gold price has to come way down to match that or these things have been way overdone on the downside. I'm in the latter camp.

TGR: Do you have a bellwether for the juniors if Barrick is your bellwether for the producers?

PG: It is a much more difficult environment for the mining and exploration business than it was 20 years ago, even though the metals themselves have gone up a lot. Throw in all the political risk and the environmental, social, economic and financial challenges and I would have to say, "If I had a child I wouldn't want it to be a junior resource company because it has so many things going against it." So many good juniors like Sunridge Gold Corp. (SGC:TSX.V) have net asset values at multiples of their market cap. But those things happen at the bottoms of markets, not the top. The first focus of the market when it rebounds is on the companies that got way overdone. There will suddenly be a recognition that not only will they survive, but they will prosper because there will be less overall competition.

Sunridge is a classic case. It has positive news with new studies, a feasibility study and lots of new value created. There are lots of Sunridges out there. That is why I believe anyone who thinks there is a lot more to the downside in the junior market is badly mistaken.

Let me be clear: I do not expect a V bottom. I'm looking for an L bottom. We won't go dramatically up and it will take several months for confidence to build again through mergers and recapitalization.

TGR: You started trading more than 30 years ago. You have been through the wild ride of the '80s and '90s. What is the best advice you've ever received?

PG: Hope is a wonderful spiritual personal strategy to have because without it, it's very difficult to live. But, hope is a horrible investment strategy. When all you have is the hope something is going to get better or if I hope I get my money back rather than relying on fundamental and/or technical factors to justify that hope, then it's a very poor investment strategy.

The ultimate crime in investing is not being wrong, it's staying wrong. I had to look at myself in the mirror a couple of weeks ago and say, have I made that mistake? Have things really changed in the metals and mining industry? Have I ignored the facts because I make a living in the market? Do I need to stop being wrong? I made a conscious decision after evaluating everything that this was just another of the corrections that occur. That isn't hope. That is reality.

A Muted View
TGR: Steve, your AlphaNorth Partners Fund is a long-biased, small-cap hedge fund focused on Canadian companies. You've been on the buy side since 1997 and adjust your outlook and portfolio based on fundamental and technical analyses. In the last year, you have shifted to a more bearish outlook on gold and bullish outlook on equities. What changed your mind?

Steve Palmer: I've had a relatively muted view on gold for a couple of years now, not so much anymore though given the underperformance of both bullion and gold equities over the past couple of quarters. I'm not so much negative right now but, rather, I believe that there are better opportunities to invest in. So, in terms of new companies to invest in, the last sector that I would be looking in would be gold.

TGR: Is there some technical indicator on which that conclusion is based?

SP: I noticed that almost all investors had become unanimously bullish on gold, so sentiment was at an extreme. It's not quite as bad now with the underperformance in the last couple of quarters. But everybody you talked to was bullish on gold, and if you didn't think gold was going to multi-thousand dollars per ounce, they stared at you like you were from outer space.

The valuations of gold stocks were way out of line with other resource companies. They have underperformed considerably of late though, so that's more in line now. But it used to be that companies like Goldcorp Inc. (G:TSX; GG:NYSE) and Barrick Gold would trade at 30x earnings while Teck Resources Ltd. (TCK:NYSE; TCK.A:TSX) and Alcan Inc. [purchased by Rio Tinto (RIO:NYSE) in 2008] would trade at 9x earnings. That didn't make any sense to me. That valuation discrepancy has largely been corrected at this point, so I'm not as negative on those anymore.

That leaves two reasons why I remain not bullish on gold. There is still a lot of retail money that believes in gold as something that they need to own to protect against whatever is going to happen—inflation, deflation, death, whatever. It seems to be a cure-all for everything. The supply-demand picture on gold is not favorable. It's the retail money that has basically propped up the gold price, all the ETFs that have been created to hoard gold. I saw some data that investment demand over the last 10 years has increased 17% while total demand for gold is up only 1%. So that implies that fabrication demand, a real end-use demand, for gold is negative, negative 20% over that time. If you took away the investment demand, the picture for gold would be a totally different story. We've seen many times before how retail piles into an asset class, creates a bit of a bubble and when it gets out, it causes significant correction.

TGR: What do you think is a reasonable price for gold?

SP: I don't know. Because there are so many factors and variables, it would just be guesswork. It all depends on what the sentiment of the retail investment does that's going to drag gold. I don't know the timing of that. So I use technical analysis to predict shorter-term swings. I know there will be a big bust in gold at some point, but I don't know when it's going to occur.

I think it will still go up this year along with the other commodities, but it's unclear what will prompt the big downturn in gold. I would imagine at some point, if the equity markets are generating decent returns as I think they will, investors will re-evaluate their portfolios and wonder why they're holding gold, which is only costing them money because it doesn't generate any return like a bond or a stock with a dividend. It just costs money to store it.

TGR: When you say a big bust, how big of a dip could it be?

SP: It could be in half. A few months ago we saw gold drop $100/oz in one day. That just gives you a sampling of what could happen when things unwind.

TGR: What impact will any quantitative easing (QE) 3 or inflation have on your projection?

SP: In the short term, the markets believe that QE3 will be positive for gold. It remains to be seen whether QE3 happens or not. It would be beneficial to gold over the following few months if it were to occur.

TGR: You've called your "muted" view on gold an out-front, lonely maneuver, quoting Army Colonel John Masters: "Only if you are far enough ahead to be at risk do you have a chance for large rewards." How far ahead do you try to go?

SP: Not too far. Time is often the most difficult component to predict. In my mind, there is no question that there will be a big down-move in gold. It's just getting the timing right that is difficult. So I don't put on positions, hoping for something like that, waiting two to three years for it to happen because a lot can happen in the shorter term. On occasion when the technicals looked very unfavorable, we have shorted it.

TGR: Are you short gold now?

SP: Currently, we are not short. I don't think a collapse is going to happen this year.

TGR: You mentioned that one of the signs that gold was overvalued is that everyone was investing in gold. Do you consider yourself a contrarian?

SP: Yes. I try to be whenever possible because that speaks to that quote you just mentioned. If you're always doing the same thing as everyone else, you're not going to stand out in terms of performance. You're just going to generate the same returns as everyone else.

TGR: Has it been working for you?

SP: So far it has been working, yes.

TGR: What were your returns last year?

SP: Last year, we were +2.4% in the AlphaNorth Partners Fund. The Toronto Stock Exchange Venture Index was -35% and most of the small caps were negative for the year, so I consider that a big win.

TGR: In December 2011, you said, "Our strategy of avoiding the precious metals sector has added value over the last couple of quarters as gold and silver remain entrenched in the downtrend. Both of these commodities peaked in the summer and have continued to hit new lows since that time. We prefer to invest in other sectors with more favorable supply-demand fundamentals." It looks as if you've reduced your precious metals holdings from 11% to 6% of your holdings, but you still hold 20% in industrial metals. Are you more upbeat about copper and nickel?

SP: Yes, I am.

TGR: Why is that?

SP: Gold is not really used for any meaningful purpose other than jewelry, which is not a critical item, whereas many of these other commodities are. Once you use oil or copper, it is gone. Gold just sits around.

TGR: So are those industrial metals more dependent on global economic trends?

SP: Yes. The biggest factor would be Chinese growth.

TGR: Are you worried about slower growth in Asia?

SP: I think the concern over Chinese growth rates is overblown in the short term. I find it funny that the concern a few months ago was inflation in China. Inflation was getting out of control, so the government instituted some policies to control the growth and make sure inflation didn't become a problem. It was successful, but now everyone is complaining about the growth slowdown.

TGR: Other than industrial metals, what sectors do you see as more favorable and why?

SP: I have been focusing on the energy sector, the major base metals, specialty metals like graphite—those stocks have all been performing very well lately—iron ore, coal, all those types of commodities. The supply-demand outlook is much more favorable. You don't have a looming potential risk of all of the retail money unwinding out of the ETFs.

TGR: If you were to give our readers some investing advice for the rest of 2012, what would that be?

SP: I view this year as the time to buy on weakness. Don't get whipped by the headlines about the end of the world. There are always problems. When the news is bad is the time you should be adding to positions. Once these positions have a significant move as we saw from October to January, when the Standard & Poor's index was up over 20%, you should take some money off the table.

Financial Adviser and Market Analyst Peter Grandich started publishing The Grandich Letter—now a blog—without a high school diploma or even a day of formal training. His ability to interpret and forecast financial happenings, which once earned him the moniker "Wall Street Whiz Kid," has led to hundreds of media interviews. He is regarded as one of the world's foremost market strategists. He's also published a new book called Confessions of a Wall Street Whiz Kid.

Steve Palmer is a founding partner and chief investment officer of AlphaNorth Asset Management. Prior to founding AlphaNorth in 2007, he was employed at Canadian Equities, one of the world's largest financial institutions, as vice president where he managed the Canadian equity assets of approximately $350 million. Palmer managed a pooled fund, which focused on Canadian small-capitalization companies from its inception to August 2007, achieving returns that were ranked #1 in performance by a major fund ranking service in their small-cap, pooled-fund category. He also managed a large-cap fund, which ranked in the first quartile of performance among other Canadian equity pooled funds. From 1997–1998, Palmer was employed as a portfolio manager at a high-net-worth investment boutique. Palmer earned a bachelor's degree in economics from the University of Western Ontario and is a Chartered Financial Analyst.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Exclusive Interviews page.


Stocks & Equities

The Bottom Line: Short Term Risk

Posted by Don Vialoux - Timing the Market

on Monday, 04 June 2012 07:11

Short term risk in North American equity markets remains following the technical meltdown on Friday. However, equity markets already are deeply oversold. Downside risk is not substantial. Unfortunately, upside potential also is not significant. Look for lots of volatility during a base building period lasting until mid-July when “difficult” second quarter earnings reports are released. Thereafter, intermediate prospects are expected to improve. Be patient!

Other Issues

The VIX Index popped 4.90 (22.52%) last week. The Index recovered from the top of a reverse head and shoulders pattern. On Friday, it broke above its 200 day moving average. Short term momentum indicators are overbought, but have yet to show signs of peaking.

Economic news this week is expected to be mixed and is not expected to have a significant impact on equity markets.

Earnings news this week is not significant.

Macro events will continue to impact equity markets. Once again, the focus is on Europe. Comments by Federal Reserve Chairman Ben Bernanke later this week also will be watched closely. Is Quantitative Easing III on the radar screen? Traditionally, the Fed has not made significant policy changes during four months prior to a Presidential election date. That means Fed action, if occurring, is likely to be announced before the end of July.

Headline risk is exceptionally high. The media extensively warned about a slowing U.S. economy over the weekend. The politicians on both sides of the political spectrum also were notable for their comments in the media over the weekend.

Intermediate technical indicators, most notably the break by U.S. equity indices below their 200 day moving averages, suggest that the intermediate uptrend remains downward.

Short term technical indicators for most equity markets and sectors are oversold, but have yet to show signs of bottoming.

Seasonal influences for most equity markets, sectors and commodities in the month of June are negative.

Currency trends will continue to impact equity markets. The U.S. Dollar Index is short term overbought and the Euro is short term oversold. Both recorded interesting reversals on Friday. Gold quickly responded. Will there be follow through this week?

Cash on the sidelines remains substantial. Cash hordes held by Corporate America remains high. Major commitments of cash are unlikely until the market determines the next U.S. president.

The historic pattern for U.S. equity markets during a Presidential election year were altered slightly last week when broadly based U.S. equity indices broke to new lows.

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....read more of Don's Brilliant Monday compilation of 45 Charts and commentary HERE



Bonds & Interest Rates

Interest Rates to Rise: Grandich - Time Now to Short US Bonds!

Posted by Peter Grandich - Grandich.com

on Monday, 04 June 2012 05:46

After waiting many months (if not a couple years), I’m going to finally suggest it’s time to “start” shorting U.S. Treasuries. Because there’s still a decent possibility rates can fall another 50 basis points before rising in the next few years many multiples of that (when Greece and Europe move past being the opening act and the U.S. becomes the real horror show), I’m going to suggest holding back fire power and not use ultra leverage shorting strategies.

For now, I’m going to add the following two ETFs to my “Tracking List”:

ProShares Short 20+year Treasury symbol TBF on the NYSE $28.23
ProShares Short 7-10 year Treasury symbol TBX on the NYSE $32.55

Taking such a bearish stance is not intended to be right in the next month or three, but on the belief bonds shall be the worst investment over the next decade.

I fully expect the overloaded boat of gold bears to do all they can to get gold back under $1,600. If by the close on Friday gold is higher than the close of last Friday, I shall almost certainly believe the correction is over.

I wish I could say the same for the junior resource market. While the current show here is much lighter attendance-wise than in quite some time, both the newsletter crowd and companies are either cautious or outright bearish, and the comments I’m hearing I heard at previous bottoms; there’s just too much technical and fundamental damage to suggest a “V”or “U” bottom. L is the most likely bottom (we go mostly sideways for the balance on 2012).

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