Friday, January 24, 2014

Some market charts, for perspective

Here are two more charts:

R2K is within spitting distance of the SMA(50).

And SPY has poked its head below.

So I guess if the retracement continues Monday, people will really start freaking out in the media.

There's no Santa to rescue you this time, bro!

A GDXJ shart with useless TA commentary

Here's the GDXJ weekly:

And what that tells me is that it's taken a heck of a lot of volume so far in its attempt to chew through its weekly Bollinger mean and weekly EMA(16).

But I'm not concerned as long as it continues to chew.

Short comment on market moves

So last week's Wall Street fad was buying junior miners.

This week's fad turns out to be selling emerging markets because DOOOOOM.

Your Friday newsbundle

Here is some information worth ruminating on this afternoon:

Ritholtz - look out below! Ritholtz chides the people who are wailing at the collapse of the S&P 500, forgetting that he himself was one of the whiny doomers as recently as yesterday afternoon.

Reformed Borker (Bork Bork Bork!) - the worst day of 2014. He's happy to add at lower levels. I expect everyone else will be too, as long as they're not piddling themselves over a meaningless frontier markets currency collapse.

Bespoke - still a textbook start to 2014. Bespoke asks, "why did you guys not expect a pullback in January?"

Rhodium Group - understanding China's 2014 interbank squeeze. Very long article that I didn't read.

Data Dive - Argentina leads the EM bloodbath. Nice that it's only taken a day for this to be called a "bloodbath". Hey, do you think Argentina can single-handedly destroy the US economy? - Barrick recalculates reserves based on $1100 gold. Just like that, a whole pile of future gold production has vanished, Mr. Wall Street Whitey.

Emerging markets -3SD

Here's the daily:

And here's the weekly:

Both are >2SD down, with really sadly borkened charts.

I guess the shine has come off the emerging markets, eh? What with the whole run on EM currencies thing?

$VIX popped +3SD

Here's a $VIX pop:

But yet the term structure isn't inverting:

So I guess this is just an ordinary sell-off, and not a freak-out.

The higher it goes, the better the deal you can get on XIV, I guess.

Why gold having zero yield is good

I woke up this morning with an idea about something.

I'm not an economist, so this might all be rather wrong. But it seemed like an interesting idea, and I like sharing those with you if for no other reason than to stimulate your own internal discussion. So bear with me while I lay it all out for you:

What is an equity or bond worth? What is a piece of real estate worth?

You could say "well, they're worth what someone will pay for them", but that's what people also say about gold, and thus they assert gold is really worth $0. Therefore, by their own logic, equities and bonds and real estate are also worth $0, right?

But they're not, right? Or at least nobody on Wall Street ever asserts this, right?

Leaving equities aside, you can easily figure out a cash value for a bond, can't you? It's worth the principal, plus the sum of yield, right?

OK, not exactly. If it's not inflation-linked, then I'd assume the bond is worth the discounted future value of the principal, plus the discounted coupon. (Follow the link and read the article if you're not familiar with discounted cash flow analysis, which would be funny since you're reading this blog and I'm always going on about DCF.)

Rental real estate would be like this as well, no? It's worth the discounted future value of the net income, no? Plus maybe some salvage value of the property, I dunno. For a primary residence, I guess there's also a utility value, which would be something like the NAV of the savings over rental versus the cost of maintenance.

Here's a funny thing about that real estate value. I forget his name, but a few years ago when I got into the doomer blogger world, there was some blogger I followed who grew up in Argentina or Chile (forget which) during the big LatAm crisis of a few decades back. He had a story about someone who, during the hyperinflation spiral, traded his scooter to someone for a plush downtown apartment.

How did that apartment collapse in value to be worth only the price of a scooter? Well, the apartment owner wasn't making any immediate money off the apartment, and I guess he needed cash, so he traded it for a scooter so that he could go into business making deliveries for cash. Obviously, the apartment was suddenly worth a lot less to him than immediate income from doing cash business.

Seems to me like an apartment's value could collapse if the owner's discount rate shot up. When you jack up discount rate, future cash flows quickly vanish. This guy suddenly needed money immediately, and was willing to trade away the future DCF value of his apartment because it was worth nothing to him compared to immediate cash flow from doing business on a scooter. So the future DCF was worth almost zero to him, which meant he must have been discounting future cash flows from the apartment at an incredibly high rate, no?

Bonds seem to be similar. Ritholtz noted during the 2008 crisis that the MBS bonds weren't worth $0; they were still worth what people were willing to pay for them. But since the market realized all of a sudden that these securities had a much higher default risk than anyone had thought before, the discount rate used to determine that security's value shot up, including the discount rate on the return of principal at maturity, and so the MBS market had to collapse until the securities reached a price that put supply and demand back into equilibrium at the new discount rate, right?

And a similar thing happened with Euro periphery government bonds: all of a sudden a default risk exploded, so Greek government bonds had to collapse. However, they couldn't go to $0, because they still had a coupon and a principal: the discount rate had to go up strongly, but it never went to infinity.

Seems the discount rate never goes to infinity: I read a few years ago that there was still a market for the Cuban government securities that were defaulted on by Castro after the revolution was successful. They traded at a massive discount, but they never became toilet paper. Maybe the market in aggregate decided that there was still some small but nonzero chance that they could still collect on those bonds in the future.

So, what about equities? I have a hard time figuring them out, but I'm guessing the value of an equity to a shareholder (i.e. its market price) must be something like that share of a company's net liquidation value, plus (in the case of shares with dividends) the discounted sum of future dividends. In which case, the liquidation value component of an equity price can go to $0 in a crisis if it's bankrupt (since shareholders lose everything); but assuming no bankruptcy, the future cash flow to shareholders value can still vary as the discount rate varies, right?

As I said, I'm no economist, but it seems sensible.

And discount rates jack up in a crisis. That's why CAT and AT&T shares crashed 50% during the crisis: it's not that the market could sensibly expect their future dividends to disappear forever, it's just that the market put a higher discount rate on their future dividends. Discount rate is a function of fear.

Now here's the thing.

What's the market's implied discount rate on gold at any time, compared to equities and bonds and real estate?

If gold is some sort of constant currency, and there's no yield to gold, then discount rate =$0, right?

So in a market crisis, while the discount rate equilibrium changes for other goods, it shouldn't change for gold, right?

OK fine: in reality, things don't work that way, because in a liquidity crisis people are willing to dump anything for any price; if gold's price manages to hold up versus equities, that relative outperformance would get arbed away by liquidity-strained investors looking to get the best price possible for whatever they're trying to dump to raise cash.

Nevertheless, ignoring the liquidity crisis problem, by Wall Street Whitey's own logic gold is still an asset class that has no discount rate. An ounce of gold today doesn't become tomorrow 1.02 ounces times 1 over 1 minus the discount rate. Gold's value doesn't go down versus inflation (supposedly - you know that I feel gold has nothing to do with inflation, but we're arguing from Wall Street Whitey's point of view so we're stipulating most of what he mistakenly believes about gold), its maintenance cost is simply the cost of storage; but one ounce of gold today equals one ounce of gold 10 years from now, and one ounce of gold in Canada is the same ounce of gold as one ounce of gold in Bahrain or Thailand or Singapore.

So how can you possibly discount flows on gold? Principal is constant (in gold terms, if not in cash terms), and future cash flow is constant because future cash flow is zero.

So therefore, gold is a magical asset class whose market value (theoretically) doesn't collapse when discount rates go up.

So therefore, gold is a magical asset class whose market value (theoretically) doesn't collapse when fear goes up.

So therefore, quit selling gold you morans.

I know that was a weak ending to an otherwise brilliant article, but I really have to get to work now.

Oh look, gold is $1269.10 this second.

Friday videos - we haven't had any Elena Fossi in a while

Again, if you want to talk about stunningly gorgeous Italian women you've really got to use Elena Fossi for your benchmark.

So here's some more Kirlian Camera:

And apparently they have yet another new album out:

And here's Kirlian Camera at Treffen 2012, though it's a weird lineup - seems they went all-electronic again, which I like, but it's still a surprise:

Thursday, January 23, 2014

Here's some news

Gold is up to $1263 now.

Ritholtz - has the bull market ended or is this just a correction? Hey, Barry, I know you read this blog, so here's a chart and some advice.

First, the chart:

Second, the advice: if you're going to freak out about the end of the bull market on every single fucking 0.5% down day, you should relocate your blog to somewhere stupid like Zerohedge.

FT beyond brics - Argentina peso collapse has begun. Hey, I wonder if there's some sort of yellow metal or something that an Argentinian could use to hedge against currency collapse?

GFMS - 2013 survey. Here's the newest gold survey.

Nouriel Roubini: Joey, you can just ignore him, you know

BI - Roubini's new doom scenario. Don't bother clicking through: click-whore Joey copied out a CNBC article that says Roubini thinks it's possible Japan and China go to war.

Um, Roubini seems to have forgotten that Japan doesn't really have a military. So it's not exactly in their interest to go to war.

Oh, and the US will never go to war with China. There's utterly no winning condition to pursue.

Oh, and China's leaders understand that if they add to global instability, their own economy collapses.

See, the problem is that Nouriel Roubini is an economist. Therefore, he is about as far away as you can get from being a political analyst. He utterly has no clue about politics, because as an economist you're not allowed to have any clue about politics.

Also, he's not even a particularly good economist, since he didn't even get the 2009 bottom right: he predicted yet more doom to come, instead of the fantastic rebound we've had.

Basically the only thing Roubini is good for is spazzing out on twitter like a 2-year-old. His crybaby attacks on other commentators are as fun to watch as train crashes, and apparently the number of Roubini tweets per day also correlates highly with market bottoms.

So here's a suggestion for Joey the Weasel, CNBC, and all the other clowns out there in the internet financial media:

Just ignore Roubini from now on. He's as worthless as Marc Faber or Ron Paul. Let Zerohedge, Alex Jones and Max Keiser keep Roubini all for themselves, okay?

Nice morning for gold so far

Well, for some dumb reason, gold's back up to $1255 now. No idea why, don't care.

I don't think I'll win my $1280 bet, especially since I'd think the market is going to sell down gold in anticipation of the Jan 28-29 Fed thingie. Though I don't think gold'll get hammered down any more on any Fed news, since that whole "let's hammer gold" thing seems played out by now.

So, given Rio and B2 were both sold down yesterday out of overbought territory, maybe today we'll see them (and the miners generally) go back up today on the gold price move?

Funny how things work out that way.

Wednesday, January 22, 2014

Lunchtime news

Here's some stuff:

Ritholtz - over 400 days without a correction. Here's a chart:

FWIW, my personal opinion? All you know is we haven't had a correction in a while. Maybe this means you should buy only after a correction is done? But when can you be sure of this? And do you get a better "in" price than the price that you sold at to raise cash in preparation for an upcoming correction? Therefore, quit trying to be clever. The above chart isn't actionable.

Calculated Risk - private investment and the business cycle. A lot of charts, and here's the money shot:
Nothing is perfect, but residential investment suggests further growth. Add in the improvement in household balance sheets, some contribution from state and local governments, and even some increase in non-residential structures in 2014 - and the economy should continue to grow - and probably at a somewhat faster pace.

Calculated Risk - housing starts and the unemployment rate. OK, he is in stark and unambiguous disagreement with New Deal Democrat's housing-driven slowdown call for 2014. I really hope someone passes NDD a link to this article, because it seems to me that McBride's charts completely and utterly disagree with NDD's:

Where the hell is the slowdown in housing? Is it that tiny downtick at the end of the line? The trend is still strongly upwards; it seems to me NDD's year-over-year chart is generating false information out of the intra-month noise.

I would hate to start discounting Bonddad Blog analysis, since otherwise he's pretty good (outside of his ETF chart analysis which doesn't really yield any useful information about world economies, despite what he seems to suggest). So we'll have to see if McBride's chart gets addressed in the next few days.

FT beyond brics - Pakistan trying to stem the gold flows to India. Avantika mentions what I have been saying for the past several months:
For the Indian government there is an, albeit superficial, advantage to taking these inflows off the formal accounts. Official gold and silver imports have dropped some 70 per cent to just $1.8bn in the month of December – which has helped deficit data.
To clarify, the Indian gold restrictions didn't do anything to stop gold flows; it just was a way for the government to fudge their books. Got that?

PS Dave - VRIC 2014 review. With all your Cookie news:
I got a chance to meet Brent Cook, we both concurred that this relief rally was almost done and nothing has changed in the past 4 weeks. [...]

I apologize to Brent as I was going to put his presentation up on the blog, now I will have to see if Cambridge House did a video, it was worth listening too. He broad strokes of it was more the same for 2014 but 2105 will be a good year. Just like the miners are high grading at this time, so should the investor and get the best in class for this sector. He talked about the all in costs for most miners and at this mornings $1242/ounce the majority are still losing money. Do the fund and hedge guys know this or is this rally just a short term trade?

Brent slammed International Tower Hill and Colossus Minerals. He went through a bunch of deposits that will never see the light of day.

Yahoo Finacne - Colossus Minerals announces delisting. And so the stock goes to zero. I suspect that this, along with Fire Steve Letwin Mining's unfortunate earnings announcement today, could be what's giving the GDXJ bunnies pause; they've suddenly realized that most junior miners still really, really suck and they should be a little more picky with what they're buying.

What constitutes an acceptable pullback for Rio Alto?

Rio's put out its earnings news, so I guess you'd expect the price to stop here while the market decides whether the price should hang at this level or move somewhere else.

Plus, the price did already kinda hit its inverted H&S target of around $2.25 or so, as well as the tiny $2.40 reversal from September, so the market might have finished self-fulfilling all of its TA-based price expectations for now.

So what should I think about its chart?

I'd expect the market to assert that it's quite overextended and has to bleed off this move, though maybe it can do so just by staying horizontal. But the problem is there's so much room down to the EMA(16) and Bollinger mean.

But should an EMA(16) be used to govern this sort of move? I tend to feel that the more emotional and volume-driven a move is, the smaller the EMA you need to govern it. After all, if you're saying EMA is support of a trend, then a faster trend needs a faster EMA to govern support, no?

So here's the same chart, but with an EMA(7) instead:

I used the EMA(7) on this chart because, as you see, it seems to do a better job of sticking to the closing or intraday prices shown on the candles. Because of that, I'd think it's a better descriptor of support in the recent movement.

So if we expect the recent newfound love of Rio to continue, it should probably not drop below $2.25 or so.

If the recent newfound love is done, though, then maybe it can drop to the targets described by the EMA(16) and Bollinger mean, which suggests $1.92-$2.06.

And that, in a nutshell, is how I diddle with EMAs.

Peru at PDAC

I'm sure our buddy down there in Peru will like this:

PDAC 2014 - Peru, a mining country and much more.


Location: Room 206DC
Tuesday, March 4, 2014
9:00 AM - 6:00 PM
As the first and exclusive PDAC 2014 Mining Country Sponsor, Peru has prepared a full-day event divided into two extraordinary informative and discussion sessions.

In the morning session (9.00 am – 12.00 pm), government, industry, civil society, analysts and investors will get together to jointly show why Peru is the preferred mining investment destination. The program includes a progress update of the Peruvian mining industry and enlightening speeches and commentaries on the extraordinary achievements of Peru’s economy and the current efforts of the country to increase its international business competitiveness at the same time that social inclusion becomes a top priority in the agenda.

During the afternoon session (2:00 – 6:00 pm), the Peruvian Geological Survey (INGEMMET) and junior miners currently investing in the country will present Peru’s geological potential and opportunities.

High-level speakers and panellists include the Minister of Energy and Mines of Peru, the Minister of Economy and Finance of Peru, the Ambassador of Peru to Canada, the Ambassador of Canada to Peru, the President of the Peruvian Geological Survey, the President of the Peruvian National Society of Mining, Petroleum and Energy, and CEOs of major and junior companies, among others.

A cocktail reception will be offered during the evening (Arcadian Court - 401 Bay St. #8), creating the opportunity to participate in a social event with Peruvian authorities and industry friends, while enjoying selected dishes and drinks of the prestigious Peruvian cuisine.

Further information will be available at the Peruvian Pavilion, Booth # 1423 at the Trade Show. 

Hm... pisco sours and ceviche on Humala's dime? Sounds fun!

PDAC 2014 - some nice presentations, now open to all attendees

There's no PDAC newsletter writer list up yet, but I came across something else that's neat.

PDAC 2014 - open session on mineral exploration.

Neat topics that interest me (vaguely, anyway - I mean, this is exploration geology, not Buffy the Vampire Slayer) include the Nanortalik gold belt, porphyry target generation in the Russian far east, a review of the large gold deposits in Mexico, and the discovery of the Media Luna deposit in Guerrero.

It's nice that PDAC opened these sesssions up to everyone. Dunno if I'm going to be busy that Tuesday, but if not, I think I'll go.

Tuesday, January 21, 2014

Somebody wants to buy Galway Gold for some reason

Looks like people want to buy Galway Gold more than they wanted to earlier this month. Or at least the price has gone up and there are bids on the book now that weren't there before.

I'm only sayin'.

Disclosure: yup I own a tiny little position in GLW. At 7.5 cents. I don't even remember why. Probably will end badly, given past experience.

Using EMA for a panic point for gold

Well, gold's down to $1237.10 as of me writing this, so the uptrend may soon be threatened no matter what I think, so I need to determine when to up the readiness level to Defcon 2.

So here's a chart:

Uptrend is threatened at $1236 or so. Then again, who's left to panic-sell gold? And who's left to panic-sell miners?

I'm not too worried, since gold already took its SMA(50), failed, bounced down to a clean retest of EMA(16) support and then broke back above the SMA(50). And today's weakness so far is just a preopen move on Tuesday morning after a Monday holiday.

But still, the chart is the chart.

I'm thinking any gold weakness would just provide a change to buy the dip. So I'm sure other dolts are thinking the same thing.

Morning news: B2Gold is fantastic and The Clive is a god among men

Yahoo Finacne - B2Gold achieves awesomeness, 2014 outlook provides more awesomeness in future.

$544M revenue and 2013 cash costs of $675, for a company with a $1.69B market cap? That look good to you?

If not, how about after you add in an extra 140koz/y by 2015 at Otjikoto?

And how about giving a premium to B2's price because its management have proven themselves to be more brilliant than anyone else in mining? I mean, they've actually accreted value for shareholders over the past two years, while all the other miners were writing down their worthless assets.

Know what? Let's worship The Clive some more:

"Why yes, I really am that awesome. Why do you ask?"

Monday, January 20, 2014

A few evening reads

Here's some stuff worth reading:

New Deal Demoncrat - why the decelerating trend in housing and autos is a concern. I still think he can't get from there to "therefore a recession is coming". One concern I have is that he's using year-over-year graphs. Still, I'm open-minded. Another concern I have is that this last recession was nothing like any of the previous recessions on that graph (except maybe the early-90s one, or at least we in Canada were crippled for as long in that one). Still, I'll wait and see where NDD is going with this.

der Spargel - Greece arrests two suspects in arms deal corruption. Only tangentially mentioned: the bribes came from Germany. Not at all mentioned: when the Greeks were bankrupt, Merkel paid a visit to Greece specifically to ensure that they weren't going to cancel the deals they had made to buy german tanks and submarines. Again, if you want to play the race card in your European "analysis", you had better first admit that the Germans are exactly as corrupt as all the rest of Europe. They're just corrupt over stealing taxpayers' money to buy unnecessary items that are only good for murdering people.

Reuters - gold futures likely to gain past 1-month high. It's not really rah-rah though:
"Gold and silver looks good in the short-term on the back of Chinese buying for Lunar New year and commodity index rebalancing in favour of gold and silver," said Gnanasekar Thiagarajan, director with Commtrendz Research.
Those aren't long-term catalysts for an improved gold price, unfortunately. However, I liked this quote:
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 7.49 tonnes to 797.05 tonnes on Friday - the first increase in a month.
GLD holdings went up? Really? You mean whitey isn't still selling?

John Kaiser - a rocking-chair nation or venture capital rockers? I'll let Kaiser take this one himself:
This unrestricted blog article is intended to alert everybody about an important potential proposal floated by the securities commissions which would allow non-accredited investors to participate in private placements within certain limit. I believe bringing retail investors back as active and direct contributors to exploration programs is critical to keeping the resource juniors alive while we wait for sharply higher metal prices to bring institutional sector back into the sector.

The article also discusses what appears to be an agenda by the banking establishment to destroy a Canadian institution and replace with a rather creepy form of custodial control. I bring it up because I've heart that the bank brokers are going to dump on the retail investor exemption.

Please forward this email to anybody who you think should know about this proposal.

Two newsbits and some comment, especially for the hedge fund bros

So today the US is closed for Martin Luther King Day. The miners are all still uppish, but not as up as they'd be if there was a flood of idiot Americans buying these crap stocks. We'll see what happens tomorrow.

I've been terribly busy at work, but I figured I could maybe get these two newsbits out for you:

New Deal Democrat - a maturing expansion. He clarifies his position: he expects housing starts to turn negative in the first half (we'll see), and he thinks the expansion is getting a little long in the tooth (yeah, but it's taken a long time to get out of the hole your country dug in the first place). And he notes that he'll be writing a fair deal more on the topic over the next couple weeks. So it'll be the place to go for forward projections on where the US economy is headed.

Bloomberg - hedge funds raise long wagers on gold. And hey, someone agrees with me, and his name is Eugen:
Prices will probably rise to $1,400 by the end of the year as the trend of investor selling in ETFs reverses and demand in Asia gains, Commerzbank AG analysts led by Eugen Weinberg in Frankfurt said in a report Jan. 17.
And ignore all the US Fed taper commentary from the other analysts, as I urged you to do yesterday. And on Friday too.

As for all you hedge fund dudes who are suddenly long gold, here's a suggestion: stand for delivery. Why?

Zerohedge - Comex gold leverage hits 100:1. That means you, hedge fund dude, can break the Comex and pop gold to $5000/oz. Wouldn't you like to be known as the guy who broke the Comex and popped gold to $5000/oz? You have ambitions, right? Dude, you'd be remembered for 200 years.

Zerohedge - Germany has recovered a paltry 5 tons of gold from New York Fed this year. That means, hedge fund bro, that all the thousands of tons of gold that the US is supposed to have just aren't there. they've been swapped for IOUs, and the gold can never be replaced without popping the gold price. Don't you want to smash the Fed, bro? Don't you still like Ron Paul? Do you think countries will demand the return of their alleged "gold" after the Comex gets broken?

Zerohedge - Shanghai Daily says China is expected to announce it has more than doubled its gold reserves. Bro! When China announces it's doubled its gold reserves, do you think that will make gold look good? Or bad? I mean, if China was buying all the way down to $1200, and you love China so much, don't you think that means it's smart to buy gold? *brofist*

Sunday, January 19, 2014

Gold touched $1260

Oh lookie. Gold just touched $1260.

Who were those clowns that were calling for $1100 gold again?

Or even for $1150?

Pretty much the best live concert of 2013

This is Múm, playing in Hong Kong in 2013.

They start the set with "We Have a Map of the Piano", which is stunning, and they also play "The Land Between Solar Systems" early on, and "Ballad of the Broken Birdie Records" at about 55 minutes in, and "Green Grass of Tunnel" later too, and some stuff that I can vaguely recognize.

But I don't know any of their stuff after that album, and yet the show was still great.

Though unfortunately the sound quality goes down after the first 45 minutes.

Still, live set of the year.

Bad british sports commentary

I found this one funny:

But the baseball and basketball ones were kinda lame.

As far as bad British hockey commentary, the best I could find (to tell you the truth I didn't bother looking for long) was a video of two guys playing a demo of NHL 14:

"And somehow that was condoned."

Gold miners: a bit of thinking, a lot of charts

OK, I'm in the unenviable position of having owned a first-mover in the gold miners breakout.

Congrats to Rick Rule or whoever it was who bought all the Rio he could in December at sub-$1.60. Personally, I bought much of mine (I've looked up these prices) at $1.69-$1.75 at the break above the SMA(50), then added around $1.80 and $2.00. I've spent the past two days selling on the way up, especially Friday morning as RIO went way over +3SD and more than 50% above its SMA(50).

I don't get how you can change this equity's price by >80% while gold has basically stayed put, whether they've seen improved production or improved costs or whatever. Maybe it can still get to $3 in this surge, especially considering how badly it was sold off all through fall (especially in Lima). But I'm going to want to watch volume.

What a dumbass, you say! Why sell RIO? Dumbass! Well, because I wanted to transfer yet more money into BTO:

Congrats to Rick Rule or whoever was gobbling up BTO at sub-$2.20, but I bought my first tranche at $2.22 on the EMA(16) retest, added at $2.35 or so on the pennant break, and have since added more with the money I got from selling some Rio on Friday morning (good timing, that). I figured the Volta deal was delaying B2's rise, and it turns out that might have been it.

So now I'm in the unenviable position of also owning the second-mover. I'm not as worried about a BTO pullback as I am about a RIO pullback, since BTO's volume hasn't assploded and its RSI is still reasonable (for a breakout chart). Plus, Clive Johnson is still a god among men.

In fact, let's spend a few seconds worshipping Clive Johnson:

You are handsome and wise, O Clive, and well-aligned with shareholders' interests.


I want to keep BTO and RIO til they've finished moving, but I'm also wondering: can buy a third-mover? After all, I want to make up for last year's losses quickly, and compounding wins really does it for you.

I'm doing this under the assumption that gold still goes up from here, btw. At least over the next week. And that doesn't bode so well for BTO as for crappy miners, since B2's mining costs are pretty low to begin with. Then again, it does have a fuckton of ounces in the ground that are not yet under production.

So who to buy next?

Here's a couple charts that are interesting when taken together:

GDXJ has seen the higher volume. That's sad because it's full of bullshit companies. It's almost as if the goldbugs have gotten the jump on Wall Street. Unfortunately, GDXJ buyers have bought companies that are still worth as close to nothing as they were last month.

I'm also not going to buy an exploreco. And I'm not going to buy a development property.

So, if I assume there's more breakout potential in the seniors (especially with Josh Brown and everyone else suddenly hopping on the goldbug bandwagon), is there maybe a good senior miner that I can buy? Obviously their problems haven't gone away, but maybe there are some worth buying.

How about Goldcorp? They don't suck, do they? They've never really sucked.

Well, it's bottomed, it seems about a week behind RIO, but the problem to me is that there doesn't seem like a lot of immediate upside.

How about YoMama? I've always liked YoMama. YoMama's given me some good times before.

Well, it's certainly strong. But again, unless I'm expecting a rebound to the August high, it doesn't look to have a lot of upside. I may as well keep owning B2 and RIO.

Maybe the problem is I'm only considering seniors that quite demonstrably don't suck?

Maybe I need to find a senior that everyone hates, but which isn't necessarily a pile of shit.

How about Fire Steve Letwin Mining?

It's only just this week broken above its SMA(50), there's no big volume surge yet, it's not overheated by RSI, retaking just the October high (where BTO is today) would mean a 30% gain over today, and retaking the September high (where RIO is today) would mean a 40% win.

And is still up and running.

I don't know any of the fundies on I!Am!Gold!. Haven't been following it. But frankly, if they aren't haemorrhaging money, then I could see good upside as people decide they don't hate Steve Letwin so much.

Then again,

As far as I recall DPM is a lot closer to mining at break-even, nobody's ever liked DPM*, their properties are all fucking garbage*, their investor presentations are tedious*, their CEO moonlights as a general anaesthetic*, and they're only 50% above their low.

* - note that I do like DPM; I think they're a great, professionally-run company. But I like them the way I like a rusted-out 1992 Toyota Camry.

And if today's DPM market is anything like 2011's DPM market, their trade is still ruled by bots. Meaning this thing could move faster on lower volume. And I'd get to screw over the bots.

Then again, if we're about to see an inflow of Wall Street money, higgledy-piggledy into the miner space via idiotic purchase of ETFs with no discretion whatsoever, maybe it's smarter to just buy HGU.TO or NUGT?

I have no idea. I'll have to sleep on it.

Please note: I'm not suggesting buying any of these stocks, and for all I know I might just stick with B2 and Rio. Or I might sell half of my and allocate more money to miners. I'm just trying to puzzle out what to do next with my happy January winnings. Where is the third mover for my portfolio?

If gold is an inflation hedge, what does that really mean?

So according to Wall Street Whitey, gold is an inflation hedge. If the US sees a whole pile of inflation, Whitey says, the price of gold will go up. And Whitey also apparently thinks it's a hedge against economic or political chaos, and so on.

Because I dunno, gold is real money or some such bullshit.

So let me show you some charts.

Horrible, eh? Gold in USD has dropped something like 40% in the past year. Real rates are rising, inflation is nonexistent, and thus gold has performed badly.

In fact, gold is a dead investment. When something has gone down 40% in a year, that obviously means its secular bull market is over.


Are you sure?

OK, here's the problem. Total Q3 2013 US gold demand (I'll use Q3 just because it's post-gold-crash and because it's the first data I pulled up) was 43 tonnes, according to the World Gold Council. This is only 6% of world gross consumer demand. As I keep telling Whitey, you have nothing to do with gold anymore. Gold is no longer yours.

So why should we care about the gold price relative to US inflation?

Let's look at the gold price in some other countries, and you'll get my point.

First, Turkey. Their inflation rate was between 6-9% through 2013, they're going through a bit of political turmoil right now, and here's their 2013 gold chart:

Hey! Not such a bad chart, especially since the April drop. Seems like gold has been a very good hedge for the Turks, no? It's only down around 8% on the year. Gee whiz, you mean gold actually works as a hedge against inflation and political chaos in Turkey?

Guess what? Turkey's gold demand is roughly equal to that of the US. In Q3 2013, consumer demand was 47.7 tonnes.

That's 10% higher than US consumer demand for the same quarter, by the way: this goes to my "Whitey has nothing to do with gold" point, above.

So I guess if "gold is a hedge against inflation", or maybe "gold is a hedge against currency collapse" or "gold is a hedge against political chaos", then maybe you want to look at the inflation/currency/political situation in countries that actually fucking buy gold.

How about the big one? India?

Their inflation rate this last year has bounced around 10-12%. Also, the rupee has been hammered this year. And WGC estimates their Q3 demand at 148.2 tonnes. I wonder how gold's behaved in rupees?

Doing the math in my head here... it looks like it's down around 13% or so?

That's not exactly a broken investment, is it? Especially not for a country whose people buy four times the gold that Americans buy.

Next, Russia. Q3 2013 consumer demand was only 18.4 tonnes, half that of the US. I guess we're leaving central bank demand out of the story entirely, and I'd also assume that a lot of "Russians" are buying gold in other countries like Cyprus and Turkey and Spain and England, where they actually live launder their money. In any case, I wonder how gold has done in rubles?

Well, down something like 15%. And still in a definite downward channel. Still, that's not as bad as the US. Been a pretty good hedge for a country whose economy is collapsing, now that nobody wants their oil and gas. Inflation in Russia has been bouncing around 6-7.5% for the past year, and things don't look so good looking ahead.

So who's next?

OK, since Thailand's Q3 2013 gold demand was almost as high as the USA's (35.6 tonnes), let's look at gold in baht:

So gold is down 18% in Thailand over the last year. Not as good as the other countries, but still not as bad as the US, is it? An 18% decline certainly doesn't indicate the end of a secular bull, does it?

Thailand's 2013 inflation was only 2.18%. Then again, they're going through a bit of political chaos, so you might expect them to want to stock up on gold.

By the way.

Note that all these charts show gold over the last year.

That's important, because through 2013 Wall Street Whitey sold 870 tons of gold out of ETPs. Considering estimated consumer demand of roughly 3500 tonnes, that's something like a 25% oversupply that these consumers had to mop up (if you ignore State central bank demand, which I do cos who the hell knows what China's really doing right now).

To me, it's impressive that a commodity that saw a 25% spurt of oversupply in the past year still went down less than 25% in baht, rubles, rupees and lira.

Of course, if gold continued to see a 25% oversupply for the next several years, you might expect its chart to continue to suck in the countries that actually buy gold.

But Whitey's pretty much done selling all his gold, now, isn't he? They'd have to break open their central bank vaults to keep downward pressure on supply/demand.

In sum, if Whitey wants to continue arrogantly asserting that he's right about gold, and that gold is an inflation hedge, or a hedge against economic uncertainty, or a hedge against currency collapse, then he might want to re-interpret his narrative in light of the fact that gold is going to do its magical hedging in the currencies of countries that actually buy gold.

I guess that doesn't necessarily mean that gold in USD goes up from here; gold can continue going down in USD as EM currencies collapse.

But at least Whitey can stop the idiotic blather about moves in the gold price indicating anything whatsoever in US (or UK or EU) terms. Gold today is not the gold of even ten years ago; demand has shifted heavily into the EMs as net EM wealth has increased over the past decade.

I'd really love to see people clue in to this.

Especially the financial media.