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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (66583)	7/21/2006 1:06:44 PM
From: ild	Respond to of 110194

Date: Fri Jul 21 2006 12:51 trotsky (cyclist) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved contracting liquidity is bearish for everything - except gold. see late 2000 when the gold rally began. when liquidity contracts, gold's real price is rising, as it is the money of last resort. this is usually when the gold mining shares do best, as their margins tend to expand ( during the recent liquidity driven rally, gold's real price actually fell, most notably vs. the major commodity input cost items of the miners ) . short term, gold may still be influenced negatively by the ongoing risk aversion trade - but longer term it should profit from it. Date: Fri Jul 21 2006 11:53 trotsky (@CALM) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved shares in the egg producer have begun to rise again after consolidating the big spike up following their last earnings release. at the time, i expected a pullback to the break-out point at $7, but de facto it pulled back into the 6.60's before the rally resumed ( there was some bird flu paranoia at the time ) . be that as it may, the chart continues to look quite bullish. note that this stock has very little correlation with the SnP, which has the advantage that one can basically ignore what the rest of the market is doing when trading it. it has a relatively small float of which a lot is sold short ( at one time it had the dubious distinction of having been the longest serving stock on the reg. SHO list for fails to deliver ) . also, insiders hold over 50% of the share capital in issue, which is to say, the management's interests are definitely aligned with those of shareholders. the biggest risk factors are 1. egg prices ( which have been on a gentle upswing so far this year ) and 2. the aforementioned bird flu. it pays a small dividend - which creates carry costs for the shorts and while the yield isn't much to write home about, it's better than no yield at all. Date: Fri Jul 21 2006 11:24 trotsky (@pm sentiment) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the bearish sentiment is getting extreme - yesterday alone, almost $20 million flowed out of the Rydex pm fund ( this is enormous for a single day - well over 10% of the fund's total assets ) . the cash flow ratio is now way below the May 2005 low. iow, traders are now MORE bearish on gold stocks than they were at the low point of a 17-month long cyclical bear market. this is highly unusual, to say the least - and it jibes well with anecdotal sentiment. curiously, it also coincides with a moment in time when the yield curve inversion is at an extreme.

To: orkrious who wrote (66583)	7/21/2006 2:21:20 PM
From: ild	Respond to of 110194

Date: Fri Jul 21 2006 13:58 trotsky (cyclist) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the housing market collapse is ALREADY underway - it is not 'upcoming'. it was upcoming last year, this year it has arrived. a liquidity contraction is always in the works when the yield curve begins to steepen out of an inversion. this usually coincides with a Fed rate cutting campaign, but it is nevertheless a period of contracting liquidity. the major reason why short term rates begin to decline faster than long term ones is a sudden decline in credit demand ( i.e., contracting liquidity ) . the Fed's counter-operation is subject to a considerable lag time ( even though the gold sector tends to react immediately ) . note that the stock market continued to fall until mid 2002, well into the rate cutting campaign, and retested this low in early 2003. commodities ex gold and oil likewise didn't really strenghten before then - e.g. copper made a somewhat higher re-test low in mid 2002 as well. it's true though that from the end of the rate hikes in May 2000 until the yield curve turned around in late 2000 a lag time of several months encompassed the final down leg in the XAU - and something similar could happen again. the main difference as far as i can tell is that the last leg down in 2000 was the final leg of a 20-year bear market, while any leg down now is a correction in an ongoing bull market. this is to say, the sequence of events will probably not be exactly the same. gold stocks and the broader market often correlate in the short to medium term, but are inversely correlated in the long term ( to wit: from 1982 to 2000, the stock market's secular bull coincided with a secular bear in gold stocks, and the bull market in gold stocks began shortly after the secular bull market in stocks ended ) . Frank Barbera once posted a number of very long term charts on safehaven that showed that this phenomenon has been in force throughout the last century ( this time it likely won't be different ) . in short, i concede that more short to medium term pain is possible - the only thing that argues against that is the extreme bearishness evident in quantitative sentiment data. when Rydex traders dump 12% of the pm fund's asset base in a single trading day it's a sign that bearish sentiment is becoming excessive.

To: orkrious who wrote (66583)	7/21/2006 3:27:07 PM
From: chainik	Read Replies (1) \| Respond to of 110194

Ork, would it be possible to forward a question to Heinz? Thanks Cash flow into Rydex PM fund that you follow has been a very good indicator of sentiment towards gold shares. Could it be that introduction of GDX made this indicator less useful? Daily GDX volume (about 0.5 M or $20 M) is now comparable to Rydex cash flows. Could it be that it is GDX (and not negative sentiment towards gold) that is pulling money out of Rydex? Both GDX and Rydex PMs are likely to follow HUI. GDX, however, has two obvious advantages: lower expense ratio and the ability to trade during the day. Thanks.