Cliff Wachtel

Golden Shorting Opportunity, if Stocks Pull Back

Correct, I'm talking about a short term opportunity as latecomers get scared out of positions IF stocks continue to pull back


On Nov 20 04:24 AM lucky lenny wrote:

> I wouldn’t bet against the price of gold given Barack Hussein Obama's
> & the Democrats’ so-called stimulus plan. These liberals are
> running up over $1 trillion of debt every year; which is insane.
> Putting the printing pressess on overdrive; flooding the markets
> with your currency; is the reason for the Argentine Peso and Turkish
> Lira depreciating. All these trillions of $$’s flooding the market;
> combined with all the trade-surplus nations trying to make sure they
> don’t get stuck holding worthless greenbacks; combined with the lack
> of new gold being mined; add it all up & the price of gold bullion
> has no where to go but to $2k/oz.

The Weak Dollar Crowd Is Too Confident

Good article- a few points to consider

Fed has no interest in a strong USD as long as the economy and employment are weak,AND inflation stays low.

FX traders realize this and thus continue to sell the USD, largely for carry trades (ie sell low interest USD buy higher interest AUD or EUR).

Thus the USD's only near term hope for a rally is a stock pullback, which raises the fear level and causes these carry trades to unwind and sparks USD purchases (a simplified explanation, I know)

Stock pullback should come at SOME point as part of a normal test of support, never mind the irrational nature of much of this unjustified rally.

However, timing the markets is tough, so don't start going long USD and shorting risk assets UNTIL you see confirmation of an S&P 500 pullback. See my daily instablogs and weekly outlook instablogs (on Sundays) for alerts on this and overview of global asset markets.

Oil: Ready to Break Higher?

Historically they've tried not to let oil get too high-except for when the USD dives & kills their profits (like after Nixon cut the USD off from gold. Indeed, there are even commentators suggesting Saudi might up production in order to drive oil prices DOWN in order to give the current Iranian regime a not so gentle shove. Unlikely IMHO.


On Nov 19 09:59 AM Ferdinand E. Banks wrote:

> Author, if you are 'networking' with our OPEC friends, tell them
> to wait a while before 'doing what comes naturally'. A big oil price
> escalation now would be very bad news for EVERYBODY.

Oil: Ready to Break Higher?

Remember, however, that the oil and gold market is completely international, whereas natgas prices can differ in various parts of the world due to shipping costs. Thus produces in Europe can get higher prices than those in North America.


On Nov 19 08:40 AM Larylar1 wrote:

> I've been hearing about the oil/nat gas spread being at record highs
> now for over a year now, and it's only gotten worse. So I'm not expecting
> this to right itself anytime soon. The gold/natgas spread must be
> at twice the previous high

Oil: Ready to Break Higher?

As I noted above, oil is unlikely to rise if stocks and other risk assets are falling. For oil to make a run towards $100, a key precondition is that stocks and gold at least hold current levels. If they do, it's hard to see oil falling much. If they don't, oil is very likely to pull back to roughly the same extent as the S&P 500.


On Nov 19 08:36 AM Faisal Humayun wrote:

> I think oil might correct in the near term...It is already up over
> 100% from it lows this year...Moreover the Dollar sentiments are
> very bearish and there is a long impending trend reversal in the
> Dollar (for a while)...This should be negative for all asset classes
> including oil..
>
> So, in my opinion, oil might not go back to $100 mark so soon...But
> it should trend higher if interest rates are at zero and if there
> is a substantial recovery in the Asian economies...

Oil: Ready to Break Higher?

Excellent comment. Just one qualifier: as long as there is no fundamental reason to hold the USD, it is likely to continue behaving as a safe-haven currency (meaning only that it moves inversely to most markets, ie gets bought when asset markets sell off as carry trades unwind-NOT because it is actually safer than other currencies). For the past few years, this has meant that when markets, including oil, retreat, the USD has tended to rise.

As long as this inverse correlation holds, the likely scenario is rising oil, falling USD OR the opposite, depending on market sentiment at the time.


On Nov 19 06:56 AM User 353732 wrote:

> Increasingly investors across the world view oil as a proto-currency,
> a monetary energy. It is a complement to the proto- currencies of
> gold, silver and platinum.
> As the traditional monetary metals reset and keep resetting their
> exchange rate versus the fake dollar so oil is likely to move in
> sympathy to maintain its proto-currency exchange rate with the monetary
> metals.
>
> As the proto-currency role of oil grows both private investors and
> governments, especially in Asia, may start to accumulate oil as an
> alternative store of value and a haven in their flight from the dollar.
>
>
> Weak global trade, stagnant Western economies and rising(in dollar
> terms) oil prices may no longer be a paradox

Oil: Ready to Break Higher?

and the relationship to the article is.......?

How U.S. Investors Can Play the Carry Trade

Great article, great comment, timing perfect.

Just like popular magazine cover stories on a given market move tend to be sentiment indicators that suggest a move has peaked ("The End of the Dollar?" etc") perhaps here too? It will be interesting to see.

Still:

sentiment indicators are notoriously poor for timing market turns

there remains no fundamental reason to hold the USD - its only, though increasingly likely, near term chance for at least a temporary burst upwards is a pullback in risk appetite, aka stock pullback.

Once that happens, good time to make one's move out of USD assets, and these ETFs would be worthwhile considerations for those unable/unwilling to play currencies directly.

Great job again, Felix


On Nov 18 06:33 PM Paul J. Lamont wrote:

> Felix, you may have timed it perfectly. The unwinding of the carry
> trade could occur within the next few days. Let's see how much damage
> the rise in the U.S. Dollar does to all these leveraged carry trade
> speculators.

All Roads Lead To Commodities

Excellent Post,

so good to see your work again, PF was never the same without you! The case for commodities is clear enough - can you suggest some income plays tied to them so that investors can get steady income while riding the long term commodity uptrend? Especially if they're tied to AUD, EUR, NZD or Yuan appreciation.

Don't know if I'll have time for a post on the topic, so I hope someone will!

As Chief Analysit for AVA FX, I like these for the long tern as a USD diversification that anyone heavy in USD must consider.

I (and others) have already written extensively in prior posts on Canadian energy, energy infrastructure, and power trusts. Seeking similar income vehicles with REAL diviidents in precious metals, agriculture (besides TNH).

Your thoughts would be welcome by all of us. Thanks again, Cliff

Common Usage Errors on the Seeking Alpha Site

I'd add another few I often see

weary = tired
wary = suspicious of, cautious about...

f/eg: I'd be weary (sic) of entering the market now.(use wary)

benefactor: one who grants something
beneficiary: one who receives from the benefactor

f/eg: The euro has been the benefactor (sic) of USD weakness (use beneficiary)

Common Usage Errors on the Seeking Alpha Site

Excellent, consider a follow up piece on guidelines that contributors should know about but often don't or forget. Little known SA guidelines like:

10 word max title
2500 word max text
SA doesn't like articles solely on thinly traded non US stocks (consider dropping that one, rules out some of the best income stocks out there)
etc.

Keep up the great work, Cliff

QE or Not QE? That Is the Question

oh yeah, because I've used it about 4 times on SA.

QE or Not QE? That Is the Question

Why does that title sound so familiar?

USD Outlook: Short Term Up; Long Term Down. Here's Why

My bad-Clarification for the forex newbies:

The Term "Safe Haven" as applies to currencies means that traders sell it off when risk appetite is rising (optimism)and buy it when risk appetite is falling (fear, like the past week). Observe how the USD has behaved when markets rise/fall over the past 2 years proves this.

The term makes NO statement about the currency as a safe store of value -- indeed you correctly point out the label is rather ironic as applied to the USD. Some of the so called "risk currencies" [ie bought when markets are rising and falling when markets fall] are in fact far more fundamentally safer and backed by much healthier banking systems eg the CAD -- that are not burdened by mountains of bad subprime and related loans and economies not burdened by the associated bailouts.

For reasons beyond the scope of this comment (see my recent post or instablog: stocks vs currencies-which moves which and why for a bit more explanation) the USD DOES INDEED drop with rising stocks and rise when they fall, earning it the somewhat confusing "safe-haven" label, but it is by no means the safest store of value.


On Nov 01 08:15 AM Dave Wrixon wrote:

> The Dollar as a safe haven is a fallacy. Your own arguments show
> as much. If after a few months it is going to continue to decline
> in value, how can be it be a Safe Haven. Sorry, the World fell for
> that one last year, but once bitten, twice shy.

'Dollar Up Stocks Down' Will Likely Change Soon

Stocks vs Currencies: Which Moves Which?

Equities Generally Drive the USD and Other Currencies , Not Vice Versa


Here's an important point to clarify. Over the past week, there seems to be a common notion in the media (check out Yahoo Finance's weekly recap- I believe from briefing.com) that a rising USD was driving stocks lower. We disagree strongly, and suggest that such analysts were simply casting about for an explanation other than the one supported by far more evidence-that the current rally is overbought and due for at least a correction if not reversal.


In fact, most of the time the opposite is true- in the short term stocks drive the USD (and currency trade in general). While currency trends can and do affect equity markets, that influence tends to be more gradual, whereas stock market movements tend to have immediate impact on currency markets. Much of the reason for this is that 80% of currency trading is speculative, mostly very short term. Equities tend to be held for longer periods.


When Stock Markets Are Optimistic, Currency Traders Sell Dollars

Why? Global stocks, arguably best represented by the S&P 500, are widely believed to be the best barometer of optimism about growth prospects, aka risk appetite, or pessimism, aka risk aversion.
When there is risk appetite, traders buy currencies that tend to rise when there is growth (for a variety of reasons, but mostly because these offer the highest short term yields). These are referred to as risk currencies, the main ones being the AUD, NZD, EUR, and CAD).


When Stocks Markets Retreat, Currency Traders Buy Dollars (also JPY and CHF)

When there is fear or risk aversion, the risk currencies are sold and traders buy currencies that tend to rise in times of fear. This group is known as the safe-haven currencies. The USD has, over the past few years, generally been the #2 most in-demand safe haven currency, after the #1 JPY, though in some ways it's becoming the #1 safe haven currency.


These Labels Refer to Market Behavior Only, Not Fundamental Store of Value Safety
Understand that these labels do NOT at all mean that one currency is actually a better or less reliable store of value than another, indeed some of the "risk" currencies have much better fundamentals than the safe havens, and are backed by far healthier banking systems that are largely unburdened with bad debt, unlike the USD.
Rather this nomenclature simply refers to how the currencies behave in times of optimism of pessimism.

Because risk and safety assets tend to move in opposite directions at the same, which asset influences which is not always clear to casual observers. To further complicate matters the roles do at times briefly shift, and the primary forces that drive a given currency price can and do change over time.


Appreciating Currencies Affect Their Economies Over a Longer Period Than Stocks Affect Currencies

Short term currency moves thus generally have little short term influence on stocks, whereas short term stock market movements have immediate influence on currency pair prices.
In the long run, a rising currency clearly can hinder economic growth by making a country's exports more expensive, and thus can weigh on stock prices WHEN it becomes clear that the appreciating currency is hindering export growth. That, however, takes time, though on a given day analysts seeking an excuse for stock movements will blame currencies. Often that is misguided.


This is true for all economies to varying degrees, though in fact far less so for the USD, since most of US GDP is from consumer spending, NOT exports. As a net importer, when the US economy is healthy and importing, the US economy reaps benefits, especially in the short term, from a strong USD because the imports become cheaper.


Why is the USD a Safe Haven Currency?
However, most currency trade is from very short term speculative traders, and in the short run, they look to the direction of stocks to decide whether to go long or short on the risk currencies or safety currencies.


Since the current downturn began, the USD started trading as a safe-haven currency, i.e. one that traders buy ONLY in times of rising fear. Without getting too much into the technicalities of why this is the case (like that it's used as a funding currency of carry trades) suffice to say that it behaves this way due to the USD's poor fundamentals, including:

• Low income: yield low short term yields that are likely to be among the last among the major currencies to rise, thus one gets very low returns from holding low risk USD debt
• Low chance of capital gains due to (at least perceived) ballooning supply that is widely believed to virtually guarantee inflation/devaluation), thus making the USD a poor holding for capital appreciation

Thus the only reason to hold the USD is that these days it DOES usually behave as a safe haven currency, meaning that it rises when there is risk aversion and falls when there is risk appetite. Because stocks are currently seen by currency traders as the prime barometer of risk appetite, the safe-haven USD falls when stocks rise and vice versa when they come in.