HAPPY NEW YEAR
Since I have a fair number of readers around the world in different time zones including Australia, I thought it was fitting to salute the New Year even though it has not happened yet here in San Diego. What a beautiful sight the photo is.
I had intended today to do a review of my calls for the year from January, and cannot find them for some reason. I went into my posts from January and did not see them so maybe I did not proclaim any divine wisdom to be measured against. It is my nature to pop off at times so I am surprised I did not do it, but I will self critique the ones I know I have made throughout the year.
Blunder # 1
My initial blunder of the year had to be my underestimation of the ability of the Fed to influence stock price direction. In as much as I rail on this constantly in here, and have been aware of this for years, I have never seen their activity be able to drive prices this far for this long. It is generally easy to see when they are active just looking at intraday charts. You can also go online and find when the POMO is being done. However, in the past they have not been able to reverse big trends. At times they have not even been able to slow them down. The reason the Fed along with a few other players are referred to as the PPT ( Plunge Protection Team ) is that the alliance among them was formed to intervene when plunges were happening to shore things up. In the past we have had such heavy volume during downward moves, even they had a hard time containing them.
What has happened this and last year is that the volume has been light, and they have more "liquidity" than at any time in the past. The result, is that they have a very tight rein on exactly what moves where. I have read one of my original mentors comments throughout the year on the Fed, Kevin Haggerty. He was the one who taught me about the PPT. Even he has underestimated their ability to control things this year, and he has been watching this for quite a long time. This makes me feel a bit better.
The one potentially interesting development coming in the new congress is the possibility that certain new anti-fed folks are going to now be chairing committees that deal with the Fed. I would urge them caution. Once they force them to open up their books, they are not going to like what they see. I doubt they are going to want to take the political hit that will accompany a stock market crash. That is exactly what is going to happen if they force the Fed to stop what they are doing. Be careful what you wish for so goes the saying. it is true that the manipulation they are doing is not right, but they have saved millions of people alot of money in their 401k's and I doubt the average person objects to stocks going up every day. Why would they care if the Fed is artificially creating it, a gain is a gain. In the long run eliminating the Fed like some people want is a can of worms that nobody in their right mind would want to preside over. You would have to reset currency prices, and that is an absolute disaster on steroids.
A time of reckoning is going to come for stocks, and there are some longer term cycles coming due at a couple of times this coming year that could give us the sell spot for the ages. We will just have to wait and see if things develop in sync with those dates when they arrive. Until that time, I think even though we will have a couple of sharp declines, they will be bought by the PPT and the market overall will be ok.
BLUNDER # 2
My assessment of the GOLD and SILVER markets as a bubble. As with any asset class bubbles, timing their deflation is very challenging. I should not have been so vocal about this pending implosion, I was just dead wrong. I still feel my view on this is correct but it is anybody's guess when this game ends, and I don't see it in the immediate future. I do see short term sells coming in the near future, but it is not clear to me that will represent a long term top. My whole basis for my view on this being a bubble has been based on the drivers of this rally being individual investors and historically that has meant huge debacles. In this market this has not occurred in spite of record levels of Small Speculator longs at times. This still puzzles me but it is what it is and my call for a crash here was wrong.
Ironically I have made a good amount of money in this market this year trading it, so that is really what matters. Opinions are for cocktail parties anyway.
Now to some good things from this year. Readers know I am heavily into saving animals specifically Saint Bernard's. Here is a photo of one we just rescued from a place in Phoenix. This poor guy along with two brothers were in a house in LA where their owner and elderly guy died, and they did not find him for 10 days. The three dogs were in the house without food or water for that long, then defending their owner as is their nature, attacked the animal control people when they came because they did not want them to get close to their owner. They deemed them hostile dogs that should be euthanized. The heirs to the estate contacted the breeder who also had no use for them and designated them for the same fate. The rescue people found out about this and contacted the family offering to take the dogs and find them homes at no charge, and the heirs refused saying put them down.
The heroic woman who runs this rescue sued the estate to block this, and won and got the dogs. She will take care of them for the rest of their lives if they do not find homes. Once my wife saw this photo on the web is was all over, so she drove to Phoenix and brought him home. We had to pay for a couple of surgeries for his eyes, and now he is healthy and will be a great dog for us. This woman is what a hero is, not some dumb NBA player who makes a free throw that wins a game. Also not some dilinquent football player who makes a tackle on a kickoff and dances like he is on dancing with the stars, then goes back to the sidelines and sits for most of the game.
What is the whole point of this? I got a bit off center in my trading for a time this year, so I backed off quite a bit and focused on things in life that matter like this to put it back into the proper perspective. Things like this are what makes life to me worth living. If you find yourself in a place where you are feeling sorry for yourself because you got beat up in the market, take a step back. Help an elderly person in a parking lot, do something to give back to the world. I think it will make you realize you need to be thankful for the good things in life you do have and you will get yourself more grounded. This will lead to better decisions. Of course I have to make some money trading to pay for all of these things, so here is what I am looking at right now.
Here is the Bond market that I feel is setup for a rally. We had one false start the other day that I mentioned where I took a swing a missed. I got out of that trade quickly only losing about a grand, which is a rounding error for me so not a big deal. I did take a second swing at this one earlier this morning on the long side. This prominent POIV divergence should matter at some point, it rarely gets this type of look. We do have a strong seasonal down bias that comes in at the beginning of the year for Bonds, so I have no idea if this will go anywhere but there are other things in play here that should result in a rally here.
This is a weekly chart that shows a couple of things. First, the valuation vs Gold. You can see when we reach the undervalued levels vs gold we get rallies, and we are deeply into that zone now. The red line is something Larry Williams brought to the attention of his students recently. Since it was his notification on this, I am not going to show specifically what it is. The hint I will give is that it is derived from the COT data. You can see also that in the past when we have reached into this zone this market has rallied.
The last chart I am showing is just one of many that look the same right now. You will see a nice rally into new highs, that is right into a seasonal peak period. I just think it is prudent to be aware of this and a very good friend just reminded me of the seasonals which I had not been watching very closely in recent months.
This happens to be Soybean Meal but it could be just about anything, many markets look like this right here. I do not see a sell signal here, but I did pass on a buy today due to the seasonal coming due. Time will tell if that is wise or not. The dollar is getting clobberred today which is helping lift almost everything right now. I am going to be looking for sell signals in many markets in eary January due to this above type of situation.
Last word for the year. I am going back into managing money partnering with a very good friend and exceptional trader. I will provide more on this at the appropriate time. It takes awhile to put these things together. Until that time it is business as usual. Once the CTA is operating it will effect some of the commentary in here due to all the ridiculous rules the NFA has. Once the web site is done there will be links back and forth to this blog, and I will continue to provide regular posts.
Happy New Year to everyone and best wishes for a prosperous 2011. Thanks for reading.