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David Urban
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A true investing contrarian with more than a decade's experience in the financial markets. I review a variety of sectors with both long and short ideas. @dcurban1 Blog address: http://www.atruecontrarian.com/ The top gold and silver analyst on Seeking Alpha. One of the few that does the hard... More
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A contrarian investor with a global macro view.
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The 2012 Investment Forecast
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  • The Hindenburg Omen – A Potential Fat Tail Event on the Horizon?

    The S&P 500 has been flashing a number of technical signals to the market over the month of August. Amongst the various signal we had an inverse head and shoulders and an ascending wedge giving investors bullish and bearish signals. August 11th provided a resolution with the ascending wedge breaking down and the market moving significantly lower. More troublesome was the market's action the next three trading days. After large moves in one direction the market typically consolidates in the opposite direction as short term traders look to book profits and others buy on dips/sell into strength. What we had was the opposite, a market that could not move higher and instead drifted lower.

    On August 12th, a Hindenburg Omen signal was triggered. A Hindenburg Omen is a statistical sign made up of market indicators which foreshadows a move to the downside. Just one Hindenburg Omen is not enough as there needs to be confirmation of the first signal within 36 days. If this signal is not confirmed then the signal is not valid

    The Hindenburg Omen has 5 criteria which must be met.

    1. The NYSE 10 Week moving average is rising.

    1. The McClellan Oscillator is negative on that same day.

    2. The new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for 52 Week Lows to be more than double new 52 Week Highs.) This is a mandatory condition.

    3. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day with

    4. The smaller of the two numbers being greater than or equal to 69.

    Delving into these criteria what we find is an indicator which attempts to signal the possible occurrence of a fat tail event.

    First, we have a rising NYSE 10 Week moving average which suggests a market trending upward followed up by a fair portion of stocks making new highs.

    But underneath the surface there is trouble. The McClellan Oscillator, used by traders to gauge market breadth, is negative signaling that more stocks are falling than rising. This is a sign that a correction may be approaching.

    Next we have the 52 Week Highs and Lows. In an rising market one would expect significantly more new 52 Week Highs than new 52 Week Lows. But here the number of new 52 Week Lows are close to the number of 52 Week Highs, relatively speaking.

    The number of 52 Week Lows are also more than 2.2% of the total NYSE issues traded that day. This sends a signal that the 52 Week Lows tail is getting fatter, a sign of underlying weakness.

    What we find is that while the market appears calm, there is significant turmoil and weakness underneath the surface.

    While a Hindenburg Omen does not mean the market will crash it is a signal that a fat tail event may be approaching in terms of a market pullback.

    Thursday and Friday of last week provided a confirmation of the original signal. According to the Hindenburg Omen there should be a move to the downside in the next 40 days.

    This does not mean there will be a crash. The downside move could only be as small as 5.5% for the signal to be accurate.

    It is not my belief that we are heading for a second stock market crash but investors should tighten stops on long positions and/or hedge long positions until the danger passes.

    The underlying market weakness following the markets drop on August 11th combined with weak economic reports should give investors pause. The inability of the market to move higher indicates a lack of buyers as investors seem to be waiting on the sidelines.

    Now there is good news to report. This drop, should it occur, would put in a major low for the four year Presidential cycle leading to a solid rally into 2011. In other words, protect your long positions and get your cash ready to allocate so you can buy at the bottom.

     

     

     

    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.



    Disclosure: No positions
    Aug 22 10:17 PM | Link | Comment!
  • IMF Gold Sales and the US Government Bubble

     

    Summary: The continuing sales of Gold by the IMF and the emerging bubble in the US Government set the stage for the next move higher in late 2010/early 2011. Until then investors should pay close attention to the charts and wait for opportunities to add to gold positions while these stories play out in the market.

     

    Historically, Gold is known as a store of value. During this uncertain year as volatility and uncertainty rule over the equity markets Gold has been a safe haven outperforming the broader market averages.

     

    As Gold appears poised to make new highs some analysts are questioning if the long bull run is finally over as all of the obvious stories have been told. Banking crises, sovereign debt woes, and fiscal imbalances have played out over the past few years. However, there are a number of catalysts ready to push the price higher in the coming years. They include the removal of the IMF Gold overhang and the bubble forming in the US Government.

     

    On September 18th, 2009 the IMF's executive board gave approval to sell the remaining 403.3 tonnes of Gold in order to fund future operations.

     

    In the following two months the IMF concluded gold sales amounting to 212 tonnes to Central Banks in India, Sri Lanka, and Mauritius with the remaining gold to be sold over time on the open market beginning in February of 2010.

     

    In the past two months, the IMF has sold a total of 32.9 tonnes of gold bringing total sales so far to 71.4 tonnes. If sales continue at the current pace, the target date for completion appears to be in January or February of 2011.

     

    Even if Gold sales by major Central Banks as permitted under the Central Bank Gold Agreement resume the removal of the IMF Gold overhang will provide comfort to investors.

     

    In the US, a weak housing market with significant excess capacity will constrain a new real estate bubble from forming but the new bubble which people are missing is the expansion of the US government through regulation and an explosion of spending.

     

    Out of control spending at the federal, state, and local levels is creating negative circle drawing taxpayer ire and hampering economic growth. Budget deficits and pension shortfalls are drawing the country closer to a day of reckoning where difficult choices will be forced upon the population.

     

    US and European governments appear unable to begin removing quantitative easing and excess stimulus as they grapple with sovereign debt problems, high unemployment, and slow economic growth.

     

    US budget deficits will remain obscenely high for the foreseeable future with no sign of interest rate normalization coming.

     

    President Obama will be facing a difficult reelection campaign with the economy still weak and unemployment high. Any attempt to normalize interest rates will be frowned upon.

     

    If the Republicans were to win in 2012 they would most certainly pressure the Federal Reserve to keep rates low while they attempt to stimulate economic growth. If the Federal Reserve attempted to push rates higher in 2013 it is likely that we would see another recession, although this one will be rather shallow compared to the 2008-09 recession. This would mean immediate interest rate cuts and additional stimulus packages with calls that they would be mismanaging the economy.

     

    This leaves Bernanke stuck in a no win situation. While he may claim independence, he will bow to pressure from Congress and having an extremely dovish group of Federal Reserve Presidents makes it unlikely he will raise rates anytime soon.


    Gold stocks, on the other hand, are less attractive to me. They should be trading higher based on a higher gold price but there are some factors restraining stock prices.

    First, you have rising costs at mines partly related to the depreciation of the dollar. While we point to the USD Index, the truth is over 50% of the Index is made up of the Euro and approximately 90% is European currencies with little or no exposure to Asia and South America.

     

    With most new mines opening in Mexico, Canada, South America, and Africa the USD Index provides weak guidance for mining industry costs. Investors concerned about costs would be better served to track individual currencies.

    Second, gold stocks are aggressively acquiring the remaining low hanging fruit in the exploration and early stage production area, in many cases with stock. The problem with these transactions is the effect of dilution.

     

    In the short-term, stock prices will suffer but eventually the stock prices of major producers will move higher as efficiencies are realized from the acquisition of neighboring properties and properties purchased are finally put into production.

     

    The most value appears to be outside of the major producer area down all the way the curve into the exploration and junior area where contingent properties and the remaining large scale deposits are taken out by the majors.

     

    Seasonality is turning bullish for the juniors with the summer season a more active time in the merger and acquisition area as low stock prices pique the interest of major and mid-tier producers.

     

    Gold bullion should move to new highs later this year but will likely see some sideways to lower trading action in the near term as we move through the historically weak summer period but investors should keep their eyes and ears on the price and moving averages waiting for buying opportunities to emerge.

     

     

     

    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

     

     



    Disclosure: No positions
    Tags: IMF, GOLD
    Aug 16 9:25 PM | Link | Comment!
  • August 10th FOMC statement – Shuffling the Deck Chairs or much ado about Nothing

     

     

    The much vaulted Federal Reserve meeting has come and gone leaving the markets disappointed with the inaction on the part of the Federal Reserve.

     

    Traders and market participants expecting the Federal Reserve to begin unwinding the quantitative easing by decreasing the size of its balance sheet were disappointed. Instead of selling mortgage backed securities into the market possibly raising rates the Federal Reserve has decided to shift the amount of maturing securities and principal repayments into 2-10 year Treasury holdings.

     

    This is not quantitative easing nor is any new money being created. Instead the deck chairs are merely being shuffled around as the Federal Reserve would not like to see mortgage rates rise but see the need to help support Treasury functions.

     

    The most interesting portion of the statement was the ending paragraph with Kansas City Bank President Thomas J. Hoenig stating the following, “who judges that the economy is recovering modestly, as projected. Accordingly, he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted and limits the Committee's ability to adjust policy when needed. In addition, given economic and financial conditions, Mr. Hoenig did not believe that keeping constant the size of the Federal Reserve's holdings of longer-term securities at their current level was required to support a return to the Committee's

    policy objectives.”

     

    The inclusion of this paragraph indicates that there must have been a spirited debate within the policy room between Mr. Hoenig, who is known as a hawk, and his fellow board members who see the need to keep rates low and the balance sheet at current levels. This makes the coming release of the August minutes quite interesting as to the scope and fervor of the debate.

     

    The Federal Reserve has found itself backed into the corner. By leaving rates at 0 they encourage the carry trade and speculation while discouraging lending. Banks are hoping that they can muddle through the current period until their balance sheets are cleaned up to the point where they can begin easing credit and accepting risk.

     

    On the other side of the equation, if they move rates higher the Federal Reserve risks stalling a slow recovery as businesses are wary of adding workers to the payroll.

     

    If rates were to rise, borrowing costs would increase and sending the US Budget deficit to even more stratospheric heights. The flip side is that the banks would earn less on the spread of their Treasury holdings forcing them back into the lending market.

     

    Another danger is the potential for an invisible hand to begin working in the Treasury market holding rates low and capping any potential rise.

     

    The Fed has already taken the first step in terms of tightening by removing the excess stimulus and slowing money supply growth. But further steps need to be taken in the short-term to show that they are serious about moving the economy back onto a sustained growth track.

     

    With other central banks around the world slowing raising rates and removing the excess stimulus the Fed is walking a dangerous tightrope where low rates will encourage the use of the US Dollar as a medium to induce the carry trade for overseas economies as high structural unemployment constraints long-term GDP growth.

     

     

     

    Disclaimer
    Communications are intended solely for informational purposes. Statements made should not be construed as an endorsement, either expressed or implied. This article and the author is not responsible for typographic errors or other inaccuracies in the content. This article may not be reproduced without credit or permission from the author. We believe the information contained herein to be accurate and reliable. However, errors may occasionally occur. Therefore, all information and materials are provided “AS IS” without any warranty of any kind. Past results are not indicative of future results.
    PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN THE STOCK, BOND, AND DERIVATIVE MARKETS. WHEN CONSIDERING ANY TYPE OF INVESTMENT, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

    Before making any type of investment, one should consult with an investment professional to consider whether the investment is appropriate for the individuals risk profile. This is not intended to be investment advice or a solicitation to purchase any of the securities listed here. I will not be held liable or responsible for any losses or damages, monetary or otherwise that result from the content of this article.

     

     



    Disclosure: No positions
    Aug 13 12:48 PM | Link | Comment!
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