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Mercenary Trader

 
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  • Saudi Arabia's Mental Paradigm Shift Confirms Triple-Digit Gold [View article]
    Fair enough, with a few caveats.

    First off, the USD is incredibly strong:

    http://bit.ly/13ExdXz

    The reasons for this are just as observable on the fundamentals side as the price action side. Differentials between the US economy and ROW are widening, not narrowing. Those differentials will only increase as Europe slips towards crisis and forced QE measures and China tries to quell a bad debt tsunami as EM countries deal with imploding commodity prices and the unwinding of the multi-trillion USD carry trade.

    Second, gold and gold stocks have shown themselves to have downright lousy performance in "risk off" equity periods, and the reason why is quite logical: Portfolio contagion. Many hedge funds are attracted to gold and gold stocks on valuation, and for superficial reasons (in our estimation) that misinterpret the macro situation. These same funds are also long equities. As such, when "risk off" periods dominate, gold and gold stocks get dumped along with the long equity positions. This in effect makes gold and gold stocks a horrible hedge: They are going down as equities go up, and when equities go down they are likely to go down more.

    Third, Russia is going broke. This again is based on observable facts. Their liquid reserves (perhaps 200B of 400B) are less than half the total amount of external foreign-currency denominated debt held by Russian companies, and the transmission effects of brutalized crude oil prices are only now hitting. Were Russia's central bank again forced to defend the ruble with vigor, its liquid reserves would last less than a month. Then it would have to start throwing gold reserves over the side. Venezuela, too, is basically dead, with near-term interest rates approaching triple digits. 70 percent of Venezuela's 21 billion or so foreign reserves are in gold.

    Fourth, the US economy is the strongest and most diverse in the world, with the greatest aggregation of diverse domestic drivers. Collapsing oil prices hurt shale producers, but have hugely beneficial impacts on other areas of the US economy. If there is anyone who can pull against the grain, it is America.

    Fifth, if the United States were to flatline as global growth stalled out and the rest of the world went to hell in a handbasket, the trade would STILL not be gold. The trade would be long-dated US treasury bonds, which would benefit from even more rapid USD currency appreciation as increasingly panicked stimulus efforts on the part of Japan, China and Europe made the USA / ROW gap even wider. Right now the USA is the best house in a bad neighborhood. If global growth truly slows, the USA will be the only house unburned in a neighborhood on fire.

    Sixth, it's nice saying you don't pick tops or bottoms. If you are buying gold here, you are still effectively bottom picking. Unless you are in effect saying you are happy to keep buying gold all the way down to, say, $500 an ounce. Which means you are de facto averaging down into a bottom by deed if not word.

    Seventh, if you think price action is "voodoo" you are being deliberately obtuse. Our willingness to observe price as a voting and weighing mechanism -- an indication of institutional capital flows -- has nothing at all to do with Elliott Wave or Gann Wheels or any of that. Lumping all use of price action under a voodoo heading is no different than a fan of efficient market theory equating all fundamental investment analysis to chimpanzees throwing darts.

    Eighth, it is interesting to hear you have been willing to short gold in the past. Kudos for that, as it shows you have a degree of flexibility that many lack.

    With that said, now is a better time to short gold than ever. Look at the latest US GDP print. Look what the Saudis are doing to inflation expectations. Look at sovereign global bond yields. Look at where safe haven capital flows will obviously flow in event of another gray swan -- US Treasuries. Look at how the biggest boosters of anti-dollar gold buying sentiment -- Russia, Venezuela et al -- are literally within shooting distance of forced liquidation mode. And last but not least, look at increasing evidence that the US Federal Reserve is on a tightening cycle.

    It is simply an absolutely terrible time to be bullish gold, perhaps the worst we have ever seen. This would be so even independent of price, but add price on top -- as evidence of what institutionals and money managers who matter are actually doing with their capital -- and it is a dead lock. Gold is awful right now, anyone who buys it is doing so for ideological reasons (or is quite possibly emotionally "married" to the precious metals bull thesis), and deserves the frying pan to the face they will get in proportion to their level of commitment to a bad trade.

    Take it from Harold Hamm, fighting the macro can be painful.
    Dec 24, 2014. 10:07 AM | 2 Likes Like |Link to Comment
  • Saudi Arabia's Mental Paradigm Shift Confirms Triple-Digit Gold [View article]
    Russia, like Venezuela, is going broke. They have 400 billion in reserves, but Russian companies have hundreds of billions in external debt, the economy is headed for severe recession, Russian banks are already getting bailouts, and at a rate of defening the ruble to the tune of 10B per day those reserves would only last 40 days. And Russia's pain is only beginning if the Saudis are as dead set on continuing as they give every indication of.

    If you want to keep averaging down on gold, good luck. You may get the chance to do so down to the 2007 lows.
    Dec 24, 2014. 12:06 AM | 4 Likes Like |Link to Comment
  • Saudi Arabia's Mental Paradigm Shift Confirms Triple-Digit Gold [View article]
    This is a generalism which does not apply in the current situation. The strongest currency in the world at moment is the US dollar. Gold is the anti-dollar. The US Federal Reserve is the only major central bank in the world on a tightening trajectory right now, due to the fact that the US economy is the only one showing any kind of strength. This trend is set to accelerate, not weaken, as China and Europe and Japan all lurch toward crisis. Commodity turmoil will further trigger crisis in emerging markets, which again favors US dollar denominated assets.

    The idea that "gold can do well in a deflationary environment" is largely wishful thinking based on the idea that, in enough of a deflationary environment, central banks print like crazy. In general terms this is true. But what is the Federal Reserve, the most important central bank in the world, doing? US monetary policy is contractionary. It is net fiscal tightening. That is the key point.

    Not to mention that 1) going long gold here would require complete dismissal of price action, and 2) if you can make a hand-waving argument as to why to go long gold, you can make it at any price. The price of gold could fall to $800 an ounce and people could be saying exactly what you said all the way down. That is practically the definition of a value trap.
    Dec 24, 2014. 12:03 AM | 1 Like Like |Link to Comment
  • It's Beginning To Look A Lot Like 1998 [View article]
    You must really be bored.
    Dec 21, 2014. 10:42 PM | 1 Like Like |Link to Comment
  • The Saudi Oil War Means Structural Sea Change; Risk-Off Turmoil Fuels Long Bond Strength [View article]
    They didn't throw in the towel psychologically, they went broke, and yes "Star Wars" etc is what spurred their massive spending on nukes they couldn't afford, which means you made my point and refuted your original comment.

    Your comment on "pea shooters" is a non sequitur, the Saudis caused a four-month 67 percent plunge in 1986 which was aimed more at US energy producers (who then folded for a quarter century), if you saw it coming via having "set foot on a rig floor" that's great, but it doesn't change the fact that the basic argument Reagan conspired w/ Saudis to crack Russia is wrong. Reagan cracked Russia w/ the arms race, the Saudis were going after vulnerable US producers in '86, and what you added confirms that more than refutes it.
    Dec 17, 2014. 03:42 PM | Likes Like |Link to Comment
  • The Saudi Oil War Means Structural Sea Change; Risk-Off Turmoil Fuels Long Bond Strength [View article]
    Reagan bankrupted the USSR through nuclear proliferation and an impossibly expensive arms race, not oil price declines.

    The Saudi move in the 80s was aimed at the United States, not Russia.

    "In 1986, the Saudis opened the spigot and sparked a four-month, 67 percent plunge that left oil just above $10 a barrel. The U.S. industry collapsed, triggering almost a quarter-century of production declines, and the Saudis regained their leading role in the world’s oil market."

    “1986 was the big price collapse and the [US energy] industry did not see it coming,” said Michael Lynch, president of Strategic Energy and Economic Research in Winchester, Massachusetts, who has covered the oil sector for 37 years. “It put a lot of them out of business. You just don’t forget it. It’s part of the cultural memory.”

    http://bloom.bg/1ztTPqd
    Dec 17, 2014. 02:23 PM | 1 Like Like |Link to Comment
  • The Saudi Oil War Means Structural Sea Change; Risk-Off Turmoil Fuels Long Bond Strength [View article]
    "As surprised as anybody else?" They were the ones who stood firm on no cut at the last OPEC meeting, even as Ecuador and Venezuela begged for one, while making aggressive statements to the press that deliberately telegraphed oil war.

    They also have full knowledge of potential impacts, have stated openly they do not care if oil goes to $40, have used this exact same strategy before (in the mid-1980s) to very effective result, and have a bone to pick with Russia and Iran (major losers) as a bonus. Meanwhile, what in the world are your views based on? Are you pulling them out of thin air?

    "This new learning amazes me Sir Bedevere. Tell me again how sheep's bladders can be deployed to prevent earthquakes."
    Dec 17, 2014. 04:40 AM | 1 Like Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    Come on, seriously? On a simple math basis this comment is completely nonsensical. Seriously, it's more fact-challenged than the Jenny McCarthy vaccination scare.

    http://bit.ly/1z4cuaL

    "the government owns an enormously large mineral estate (oil, natural gas, and coal resources) that has an estimated total worth to the economy of over $150 trillion, over 9 times the national debt. These resources could be leased under the right government policies to earn the state and national government royalties, rents, and bonus payments that CBO conservatively estimates could total almost $150 billion over 10 years for the oil and gas leases alone. That figure excludes tax payments that would be provided to state and national governments from the direct and indirect effects of unleashing tens of trillions of dollars of economic activity here in the United States."
    Dec 15, 2014. 03:26 PM | Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    Just realized the SA editors changed "Stratfor" to "Stratford" in this piece. Nice one guys. Stratfor is only one of the most well-known geopolitical intelligence services in the world.
    Dec 11, 2014. 08:47 AM | Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    You demonstrate an almost painful lack of understanding as to what is actually happening and why. It is almost 2015, not 2003. A few things have happened since then.
    Dec 9, 2014. 07:48 PM | Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    The main thing amiss is the very large holes in your understanding of macroeconomics, and the actual facts of the situation at hand. Read this and reflect on it:

    http://bit.ly/1z4cuaL
    Dec 9, 2014. 07:46 PM | Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    The exact same conditions applied for empires that existed previous. The Roman empire expended blood and treasure putting down rebellions. The British empire did the same. The Mongol empire did the same. Look to the historical record. As we have said repeatedly, there is a reason empires fall. But there is also a reason they last a long time. You are making a hash of timeframes, akin to someone calling for the fall of Rome circa 150 AD on the premise some vikings will act up with the ancient equivalent of box cutters, when the actual fall is some multiple centuries hence.
    Dec 9, 2014. 07:45 PM | Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    In the fifties and sixties America had nasty racism and misognyism streaks... was dominated by the military industrial complex (per Eisenhower, who would know)... and was scared witless by Sputnik. The "good old days" halo is largely a false collective memory of abnormally high wages for working heads of household born of strong-arm labor union tactics.
    Dec 9, 2014. 06:47 PM | 2 Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    "The people who think the dollar's strength is the reason for America's huge economy are mistaking effect for cause. The USD is a major reserve and trade currency because the US produces a ton of products that it sells both domestically and throughout the world."

    EXACTLY. Deep structural and logistical advantages, with incredible resource advantages to boot. Nobody said geopolitics was fair.
    Dec 9, 2014. 06:41 PM | 2 Likes Like |Link to Comment
  • The 21st Century Will Belong To America - And Commodities And Emerging Markets Look Awful [View article]
    "Who has real power, the man who can cross an ocean, or the man who can make you cross an ocean?"

    So by this logic, if Rome at its height sent an army across a large body of water to punish a far-flung territory where a small uprising broke out and the local consulate was killed, the handful of guys who murdered someone and then got steamrollered by a massive logistical force have the "real power." Okay then.

    There is a reason empires ULTIMATELY decline. But there are also reasons why it takes a long, long, very long time.
    Dec 9, 2014. 06:38 PM | Likes Like |Link to Comment
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