Mark McHugh

What do YOU want now, Mr. Market?

In Open Thread on Sunday, February 8, 2009 at 6:10 pm

Any of you that were paying attention last week should know that you’re still playing a crooked card game.  If Thursday’s Hey! the market likes the idea of suspending mark to market accounting rally didn’t convince you, good luck and God Bless.  Suspending mark to market is like telling a fat chick to dress in black.  Personally, I think we should start tossing TV pundits into Mount Redoubt to see if that might appease this disgruntled god.  It’s worth a shot, anyway.

So here’s the thing: We should have taken out the November lows last week and we didn’t (thanks to some supernatural price action).  To me, this is reminiscent of what happened in September 2008.  The piece I wrote about that week, was never published (bastards!), but can be found here. This is not a carbon copy of that week at all, but to me it’s clear strange things are afoot.

In the last two weeks UBS, Goldman, DB, Merrill and Morgan Stanley have all upped their target prices for gold.  Now don’t get me wrong, I love gold; it’s durable, scarce (which means finite) and beautiful.  Everything a civilization wants in money.  God’s money.  What’s scary is the guys who want me to accept thinly sliced trees as payment, are telling me to buy gold now.  All primary dealers for the fed, and  all members of the London Bullion Markets Association (LBMA).  Not the kind of people likely to throw me a bone, right (ther’s a joke in there somewhere) Why?  Why do I get the feeling I’ve just been given a ticket for RMS Titanic?

Probably, because I have:

goldcapture

The chart tracks  the money flow on the PowerShares DB Gold Double Long ETN(DGP) vs. PowerShares DB Gold Double Short ETN (DZZ) over the previous twenty trading sessions and creates a ratio (shown in blue).  The idea was to quantify speculative sentiment.  In this past year, gold’s biggest corrections coincided with this bullish / bearish speculation ratio rising above two (yellow).  The ratio is currently at 2.8.  Which means (A) a whole lot of people are about to get rewarded for shunning fiat currencies.  Or (B) a whole lotta people are gonna get killed for shunning fiat currencies.  Being a contarian (and conspiracy theorist) I have to go with B.  I think gold investors will find much lower prices by waiting.

Currencies and Stocks

Sorry, I got nothing.  I have no idea what’s driving these currency gyrations.  My guess is that both will muddle through another week without clear direction.  Then, we’ll be told Stocks are forming a base, buy now etc. If we are to see any dramatic moves, I would expect to see it first in the Dollar index.

  1. […] I posted this chart last week: […]

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