Pros and Cons

The recent rally in commodity prices has surprised many market participants and has greatly supported the stock market’s rebound. It has also made bulls out of a number of former stock market bears, as one of its side effects was to cause an improvement in market internals. But does the rally actually make sense?

 

bethlehem steelThe original Bethlehem Steel Works in Bethlehem, Pennsylvania.

Photo via leggendaurbana.it

 

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Operation Volatility Crush – Post Mortem

[ed note: this is a follow-up to “Let’s Crush Some Volatility”, penned by the aptly named Ray the Options Executioner for the Evil Speculator]

Our introduction to earnings-based options strategies has started off with a bang. Actually, it’s hard to imagine a much better results for our first option campaigns. Granted, we’ve been doing this stuff behind the scenes for a while, and we expected the options strategies in FB and FSLR to succeed. Still, you gotta love when what happens is pretty much exactly what you predicted.

 

make_it_rainThe rainman

Photo credit: musictory.de

 

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Odd Couple

While checking on the US primaries a few days ago, we came across a piece of news informing us that pretend candle-swallower Ted Cruz had picked Carly Fiorina as his “vice-presidential running mate”. Our first thought upon hearing this was “WTF”?

 

CruzinaThe match made in heaven… two loooosers find each other.

Photo credit: AP

 

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The Metals Take Off

The price of gold shot up over $60 this week. The price of silver moved up proportionally, gaining over $0.85. The mood is now palpable. The feeling in the air is that of long suffering suddenly turned to optimism. Big gains, if not the collapse of the price-suppression cartel, are now inevitable.

The headlines and articles, screaming for gold to hit $10,000 to $50,000, are pervasive. Today we won’t dwell on our favorite point that if the price of gold hits $50,000 then that means the price of the dollar has collapsed. If you own an ounce of gold, then you may have a lot more dollars. But unfortunately, each of those dollars is worth a lot less.

Today, we want to look at this new alleged precious metals bull market. Does it have legs? Are we likely to see silver hit $20, much less $1,000? We will support our analysis with a new graph to show the big picture.

 

paper metals

Photo via sprottmoney.com

 

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Damned If You Do…

After waking up on Thursday, we quickly glanced at the overnight market action in Asia and noticed that the Nikkei had tanked rather noticeably. Our first thought upon seeing this was “must be the yen” – and so it was:

 

1-Yen, June, dailyJune yen futures, daily – taking off again – click to enlarge.

 

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Stampeding Animals

The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed.  A sudden startle, or a perceived threat, is all it takes to it set off.  Once the herd collectively begins charging in one direction it will eliminate everything in its path.

 

bison-herdBetter get out of the way… stampeding bisons

Photo credit: Surface Niusance

 

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What Determines a Currency’s Value?

At the end of March the price of the euro in terms of US dollars closed at 1.1378. This was an increase of 4.7 percent from February when it increased by 0.3 percent. The yearly growth rate of the price of the euro in US dollar terms jumped to 6 percent in March from minus 2.9 percent in February.

 

1-EURUSDEUR-USD, 2007 – today, monthly – click to enlarge.

 

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The Inflation Illusion

We hear more and more talk about the possibility of imposing negative interest rates in the US. In a recent article former Fed chairman Ben Bernanke asks what tools the Fed has left to support the economy and inter alia discusses the use of negative rates.

We first have to define what we mean by negative interest rates. For nominal rates it’s simple. When the interest rate charged goes negative we have negative nominal rates. To get the real rate of interest we have to subtract inflation from the nominal rate, so to speak remove the illusion of inflation.

 

1-real FF rateThe “real” federal funds rate (effective FF rate minus CPI-U y/y rate of change)

 

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Bill Kristol – the Gartman of Politics?

It has become a popular sport at Zerohedge to make fun of financial pundits who appear regularly on TV and tend to be consistently wrong with their market calls. While this Schadenfreude type reportage may strike some as a bit dubious, it should be noted that it is quite harmless compared to continually leading people astray with dodgy advice.

 

2ED3-FM-0915GartmanBullishTo answer the question posed in the picture with the benefit of hindsight: not really…. (look at the price)

CNBC screenshot

 

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Erroneous Analysis of Precious Metals Fundamentals

We came across an article at Bloomberg today, talking about silver supply troubles. We get it. The price of silver has rallied quite a lot, so the press needs to cover the story. They need to explain why. Must be a shortage developing, right?

At first, we thought to just put out a short Soggy Dollars post highlighting the error.

Then we thought we would go deeper. Here’s a graph showing the price action in silver since the beginning of the year, overlaid with our abundance indicator.

 

chart-1-abundance Silver price vs. silver abundance – click to enlarge.

 

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The Wild 1990s

Not so long ago, during 1990’s, the connecting world of the connected world we now know was literally and comprehensively in the development stage during those wild crazy go go years before the crash in technology stocks in 2000.

 

Nasdaq BubbleThe infamous tech bubble of the 1990s – to this day the greatest stock market bubble ever seen in the US (in terms of multiple expansion, intensity, public participation, speed and extent of the blow-off phase) – click to enlarge.

 

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Laughing at Blue Monday

On May 28, 1962 – dubbed “Blue Monday” – the market fell 6%… its worst single-day slide since 1929.

Peter Stormonth Darling was an investment manager at investment bank S. G. Warburg & Co. at the time. He strolled in to tell his boss, Tony Griffin, how much the market had fallen.

 

1-DJIA, 1961-1962-annThe DJIA in 1961 – 1962. March – June 1962 delivered quite a scare to investors – in May the decline accelerated, as panic began to spread – click to enlarge.

 

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THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
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