NFTRH Update 6.20.13, Market Notes

Gold:  -$57 at 1294.  Silver:  -$1.49 at 19.86

Both metals are at or near their next support levels, which are gold 1250 +/- and silver at the significant 17-20 range, which we have noted as major support.

Europe and Asia are down hard this morning after the US market reacted poorly during Bernanke’s press conference.  Maybe the market does not like that warble in his voice every time he touches upon a sensitive subject.  Or maybe it is just time for summer liquidity stress.

I did exactly as stated as the HUI lost the latest parameter (255) we have laid out and sold most positions.  Another limited loss in trying to give this sector a shot.  I gave the beaten down RIOM and the highly prospective PVG the benefit of the doubt in deciding to hold one producer and one explorer.  We’ll see how that goes.  It looks like it is not going to go well.

I managed to add short against the SOX and long on volatility (curiously, VIX actually went down yesterday) to go with existing long-term puts on SPY and QQQ.  But if this is the kick off to a summer liquidity event (much more to talk about on this subject in coming letters), and as a downtrend becomes established I am going to try to use bounces to establish more bearish positions.  What could compromise this strategy?  If the ‘Fortress America’ theme somehow endures and its stock market receives some of the liquidity bid, in which case I’d go 100% cash pending incoming information.

Short of that, most people should be in cash.  The precious metals are bearish technically.  Gold is a value barometer and in this environment people should be ready to see that barometer fly all over the place.  I hope I have been clear enough about the difference between value and prices in an out of control casino like the one we have got here.

Sometimes when I mention the word deflation, ridicule or at least dismissive responses ensue.  But it is deflation that is the backbone against which policy makers inflate.  That is and has been the case to varying degrees of intensity for decades now.

The current inflation is not working as currently promoted.  Now, we may have a theory in our back pocket about long-term interest rates rising, ZIRP being maintained and a potential carry trade in the making.  But that – if it is realistic – is on the horizon and the play appears to be liquidity stress all around for now.

Gold bugs and commodity bulls do not like to own USD (or their native currency’s cash) because it is inherently devoid of value in a system that lives by inflation.  But it is the best tool on earth for retaining liquidity and positioning to take advantage in a deflationary environment.

In other words, there will come a time to put the cash to work but that time may not be convenient to those who have tried to will the market to do its business on a convenient timeline.  With all the indicators that seem to be fritzing out or in suspended animation we should tune out anyone but anyone who pretends to have the answers.

Debt is coming unglued around the world.  In the US, the Treasury debt market stuck a middle finger up when the FOMC released its statement.  A debt rebellion is deflationary as cash is mustered to service it.  Again, the existential systemic problem is that there is more debt on the collective macro books than can be serviced.  Cash and gold, in my opinion, will weather the storm.  Stocks (incl. gold stocks), commodities, bonds and even what they call ‘paper’ gold (ETF’s) represent risk in my opinion.

The word “deflation” was mentioned several times above.  I have had a growing feeling that the reason so many market indicators seem to have not been working well is not because of evil, all controlling forces that the Gold Generals put out in cartoons for their followers.  It is not the evil cabal of ‘banksters’ rigging the planet to its own ends.  It is not any of the paint by numbers rationalizations.  It is likely the deflationary backbone once again asserting itself.

This time the stress is coming with rising interest rates, as the T bond market joins the global bond (debt) revulsion.  Let’s have patience and a healthy questioning of any preconceived ideas, and watch how things play out.  On the table are anything from a long, difficult summer of illiquidity to crashes to support and bullish reversals in some areas and everything in between.  Cash is liquidity.

***