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Random Thoughts: The Gold Scold!


Popular opinion is not always profitable.


I'm back in the saddle following an early morning double epidural -- you don't know fun until foot-long needles are injected into your spine -- and there's no shortage of news to view. Before we dive into that arena (in real-time on the Buzz), I'm compelled to discuss the elephant in the room.

Yesterday morning, I shared a 25-year weekly bubble comparison chart that plotted "bubble benchmarks" Japan (80's), NASDAQ (Y2K), China ('07), and crude ('08) against the current state of gold. I did it for one reason: to offer the "other side" of the parabolic frolic. Scroll to see below.

Over the years in the 'Ville, we've gotten a fair amount of flack at various junctures. We shared "the other side" of housing in 2006 (while preparing for "a prolonged period of socioeconomic malaise entirely more depressing than a recession"), offered that financial institutions were "technically insolvent" in 2007, and braved the short side in crude in 2008 (while transitioning my long-term bucket to 100% cash).

While some of you may not remember those stances, lemme assure you they were wildly unpopular at the time.

I've been trading for over twenty years and writing for more than ten. While I understand that life -- and financial commentary -- isn't a popularity contest, I'm conscious of the reaction to my vibes as they keep my finger on the pulse of market psychology. I was held to task for each and every call above, which ironically made me feel "better" about my contrarian stance.

I have no position in gold. I bought it right in 2003 and sold it right in 2007. Where I erred was in not buying it back (in size) when I saw the government mule saddle up the debt.

While I've traded both sides since then, I've largely left it for others. I learned a long time ago that if my greatest cost is that of opportunity, I should consider myself fortunate. That's not post-rationalizing; profits reside in the ride ahead, not looking back at what might have been.

Why do I bring this up? The push-back on yesterday's article was perhaps the most vicious I've seen in my career. While some, if not most of that is due to the secular shift in social mood -- yet another Minyanville theme that played through in spades -- I would be remiss if I didn't share that fare for those who care. My job is to provoke thought, not shape it, and the reaction to that article has been more interesting than the article itself.

I have no skin in that game. The only game I have skin in, as far as this discussion is concerned, is making sure our community is well informed and sees both sides. We try to side-step acrimony in the 'Ville, but perhaps we can use those obstacles as an opportunity to better understand the current market mindset.

And before you react to the vitriolic tenor that has become commonplace in the financial set, I'll ask you to please remember that most folks are scared, many are weak, and some are just plain confused and looking to take it out on anyone who dares to offer a variant view. It comes with the territory, I know, but it's likely to be around for a while so I thought I would address it.

Click to enlarge

Random Thoughts

  • The S&P is quietly -- very quietly -- mapping a pattern of higher lows and higher highs, as shown in the chart below. As I said before I left last week tangible resistance won't come into play until S&P 1250 and that remains the case, but every journey begins with a single step.

    1).jpg" width="175" />
    Click to enlarge

  • I'll also note the pattern in the angst index (VXO), which has lower highs and a floor at 30. We can debate whether the horse leads the cart or the cart leads the horse but either way, toss VXO 30 on your radar, if and when, as yet another piece to a very intricate market puzzle.

  • The Wall Street Journal has an article regarding "bullets" left in the Fed arsenal (ahead of their next meeting on September 20-21). The quote that caught my eye was that new measures offer "protection against further deterioration in the patient's condition and perhaps help him get back on his feet."

  • While the latest rally is likely a forward-looking attempt to get ahead of QE 2.5, we're left to wonder if the economic patient is akin to a Weekend At Bernankes.

  • Remember, after the first phase of the financial crisis, the government "bought the cancer to sell the car crash." If we're still looking for an adrenalin needle after a trillion dollar hospital bill -- and a dire global prognosis is considered "good" as it might facilitate more life-support -- that tells us all we need to know.

  • Meanwhile, Greek Credit Default Swaps indicate a 91% probability that Greece will default. Before you dismiss that factoid, please read this.

  • Past resistance is future support; through that lens, let's not get too excited about Europe's bounce until the German DAX reclaims 5500.

  • Individual stock tells include Deutsche Bank (DB), Goldman (GS), and Bank America (BAC) as financial proxies, Apple (AAPL), Netflix (NFLX), and Amazon (AMZN) in the high-beta realm, and the dollar and market breadth, which are currently balanced.

  • In 2008, there was a double top in crude, exactly eleven days apart, while in the past month there was a similar double top in gold. This will be moot with a trade through $1900 but it's too freaky not to share.

    Click to enlarge

    Click to enlarge

  • 26 years after I left Long Island, it appears we're heading back in that direction. Full circle indeed, and I never thought I would see the day. The good news? The kids will be raised outside the city, and that's the single most important catalyst. They grow up fast enough as it is, I'm told.

  • As always, I hope this finds you well.


Twitter: @todd_harrison

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