Asking the Right Question

Since September started the drive home has been murderous. I mean just unreal stupid. If there was an index fund for automotive repair for the Northeast Massachusetts area I would commit my entire net worth to it as this month it seems everyone is hell bent on wrecking their cars (right at 4:30pm of course) and causing a mess of every road in the state. If things are this bad now, when the snow starts I may have to quit my job and daytrade! That said, super short post tonight as I have no time at all to do anything.

Why I Stopped Buying Metal Miners
I hate to make blanket statements, so understand I am speaking for myself. There are much better investors out there that can pick and choose the best metal miners and they do great, I was never one of them! I did have a few winners, but mostly what happens is you get a nice run up in gold or silver, the miner you have exposure to moves up a little, then management makes a monster acquisition, blows a earnings quarter, or some other calamity and while the metals are up 15% your miner is down 20%. It gets annoying fast.

The Golden Truth has a tale of such a firm today:
AngloGold Ashanti Throws In The Towel On Its Massive Gold Hedge
Punch up AU versus GLD and you will see what I mean. I am not knocking all miners, just saying I stopped buying them a while ago.

Asking the Right Question
Jake over at EconomPic asks the most pertinent question about government interventions (in this case currency, but in reality across all interventions).

First off, a little color.

The Bank of Japan massively intervened in the Yen causing by selling around 20 Billion dollars worth of them, and of course Economic Disconnect does not play fiat currencies either because of extreme volatility!

For fun, check out the dueling headlines:
Japan intervenes to weaken yen; more to come
versus
U.S. industry and lawmakers urge action on China's yuan

And if you want more fun, what if China was forcing Japan to devalue? (via Tim Duy):
Yen Intervention, or Why Japan is Now Carrying China's Water?

Now I have always been clear I am not an FX man, I don't like to deal in the imaginary too much. Whether Japan's move today can work will depend on how much follow through they continue with and how much traders want to go with them. Early reports (since changed tremendously) reported that Japan did this in concert with several central banks knowledge and help, but the story now is that Japan did this all alone and told nobody. I leave it to the reader to figure out for themselves which to believe.

Ok, back to EconmPic's question:

First of all... I am many things and a currency expert is not one of them...

With that said... I completely understand why Japan is intervening in the currency markets for economic purposes (a strong yen is hurting exports), BUT isn't the ability to literally print an overvalued piece of paper the ultimate prize?

For years, counter-fitters have printed worthless paper in the hopes of using it to buy things of value, but with Japan they can do this legally! Why not open up the printing presses and use that new currency to buy goods of value from abroad (I'm not talking other currencies, I'm talking REAL assets)?

To me this will result in at least one of the following (though, I'm sure there are 1000 more):

-A weaker Yen (i.e. the goal)
-Inflation (i.e. the best thing that could happen to Japan so that monetary policy would actually work)
-Nothing to the Yen or to inflation, which means you got a bunch of real assets... for free.
What am I missing?

Oh man what a great way to frame the question!

If you have been reading this site over the years I have covered this question (not quite in this form) many times. Rather than offer it again, I would love to see the readers answers in the comments here or over at Jake's site. I may give a written form of my answer in tomorrow's post. I think this question is of the utmost importance if you want to understand the way the world works. I know I can count on some good stuff.

Have a good night.

Monday Short and Sweet

Home very late so not much time to post.

Economic Disconnect 6 Months of Trading
A while back I posted a trading idea about "stomach stocks" and I highlighted Hormel Foods (HRL) and Campbell's Soup (CPB). The original post can be seen here from September 8, 2009. I opened positions in both HRL and CPB on September 9, 2009.

A little further back in June I posted some trade plans concerning GLD, SLV, PAAS, and SPY. So how have the past 6 months been for me?

HRL = +5%
CPB = +7%
GLD = +19%
SLV = +18%
PAAS = +8%
SPY = -2% (I was stopped out, but this one would have ran had I kept it!)

Please note that I have what I refer to as "core" holdings of both gold and silver via various channels that I wish not to share details about.

My only loser was the SPY buy as I set my stop very tight because I did not even want to play the general market on principal.

Not a bad 6 months, with only 1 loser. I hate losing money trades. I would rather play a Beatles tune on Friday night than lose money!

I have a good chunk of my portfolio in cash right now. I am not making any changes to the positions noted above save setting stops higher than they were previously to lock in some very nice gains should things change. I have been outpaced by the general S&P 500, but I refuse to trade in the fantasy land that is the general stock market over the last months.

How have you all been doing? No need for fine details, but what has been working? What has not?

This is a short holiday week so I do not imagine too much heavy duty posting. I will probably check in with more fun related posts to lighten things up.

For a chuckle I would ask you to check out Stagflationary Mark's "Illusion of Prosperity" picture-gate scandal where a photo on his site of his own dog was lifted by another blogger without asking. Not a huge deal in the scheme of things, but annoying for sure:
Honey's Popularity Rises!
Awesome.

Have a good night.

One Thing At A Time

Mondays can be rough. Today was one of those Monday's. Either I need a 4 day work week or I need the day to be 30 hours long instead of 24. Not likely!

Bearer Bond Media Note
I am not going to let this story die off, so i will try and find at least one mention of it daily.

Clusterstock's Joe Weisenthal was on the Glenn Beck show and did a small discussion. See video here.

Inflation/Deflation - Another View
An interesting take over at Accrued Interest on the -flation debate:

FED: Deflation? Over My Dead Body
But will we see CPI print below zero? Only if the Fed fails. In other words, sustained deflation remains a remote possibility. But sustained Fed interference in the markets in attempt to avert deflation is a strong probability.
So the bet should be not on deflation outright, but on the fallout from attempts to fight it. Weaker dollar. Higher commodities. Low short-term rates (including buying 2-year bonds as opposed to holding cash). Flat yield curve. Lower mortgage rates (at least from here).
That's is how I'm playing my deflation view.

I left a comment chiming in that would it be possible for deflation to take hold AND have a weaker dollar? An interesting thought experiment. The author seems to be closely aligned with my theorem that in the course of peeing their pants about deflation, the FED will cause all kinds of other damage trying to stop it. Leading to inflation! Eventually.

Dick Bove Sighting
I have spilled pixels on Dick Bove many times over the past 2 years, so I thought I might give the guy some more attention:

Dick Bove: Bank of America Faces “Horrific” Loan Losses (BAC)
"In the second quarter, (Bank of America's) position as the largest lender in multiple sectors of the American financial system will haunt the company as its losses expand," Bove said.
Nonetheless, Bove rates the company a buy, and raised his price target to $19 (from $14). He expects the price-earnings multiple on the stock to rise, and thinks confidence in the bank and its management are improving. This reminds us, of course, of our thesis from this weekend: the government’s guarantee against bank failure is driving up stock prices.

As an investor I try very hard to isolate companies who will "be haunted by expanding losses" and then load up on their stocks. NOT!

One Thing at a Time
Markets took a hit across the board today, with losses reaching their worst sizes since April. There was a ton of noise out there today, so I want to touch upon some things I was looking at.

It seems almost like the same players that are responsible for the two month gunning of futures right before the market close are unable to do two things at once. Today mission number 1 was to get a dollar rally. Helped by the Russian communication (so soon after the 135 Billion in bearer bonds was reported) that the US dollar was King Chit of Turd Mountain (KSTM) spurred the buck higher on the day. Of course a higher dollar is bad for stocks, oil, metals, well everything so everything fell.

As far as specifics, I will likely be stopped out of my SPY position taken a while back if there is further weakness. I have removed stops of my buys of SLV, GLD, and PAAS even though they are looking a bit weak here. Yes, I am a metals addict.

I should know better, and Tim Knight lowers the boom with Broken GLD:

"My precious metals shorts have done well for me; GLD now has broken a major trendline. Precious metals could be in serious trouble now."

Tim is a sharp player and I respect his call. Still, this is the 17th time in the past year that GLD and SLV have broken down on their way to zero and yet they still hang tough. We will see.

It seems the relationship between the dollar and stocks/commodities/metals has become super sensitive. The dollar only moved up from mid 79's to low 81's on the index so the aggressive move on the other end seems a bit overdone.

This relationship is a major contributor to my view that the dollar will have to weaken for any stock rally to continue. There will be one day wonders where the concentrated efforts to push it up occur, but the general market puking reaction will snuff that out.

It is a wild interconnected mess we have here. Balancing the buck and foreign interest in it with the need for a recovering market is a delicate dance. The folks in charge of the music think they can do this without a serious dislocation in one or more of the parts. Who has such a high opinion of their own abilities? From 10 years ago:

I submit the Committee to Save the World. Rubin and Summers are once again at the helm, and while Greenspan has since sailed on, we now have Ben Bernanke in the same position as Greenspan in this picture: The public face while the two behind him hold knives to his back.

I am sure this will all work out well.

Have a good night.