FED comments and the usual selling seen around the monthly employment numbers caused a short-term swoon in gold. I responded early Friday morning (6:30AM) with this commentary. Gold rebounded nicely and in the aftermarket both silver and major mining shares actually finished higher for the day.

I received the usual emails questioning my support for gold and this crazy one that keeps repeating that Nadler was right and I was wrong on gold (proving we now know where all the “White-out” for old typewriters went and who’s been breathing far too much of it… it actually could be Nadler himself but we’ll save them for another time). We also once again had to endure Dennis Gartman throwing so-called Goldbugs under the bus for the umpteen time (which if history is any indication shall once again prove to actually be a buy signal).

Michael Pento, a money manager who is everything and then some that Gartman is not, sent this to me Friday:

“The Fed just started QE IV on January 2^nd !  Then the minutes were released one day later that showed some dissent on the Fed; in that, some may want to reduce the $85 billion each month of monetization because of the mistaken view that economic growth rate will accelerate in 2013. What a farce. I say, the Fed has an unshrinkable balance sheet and even if they just announced that they will start selling their trillions of MBS and Treasuries the game would be over.

The biggest joke of all is that the Fed, Wall Street and D.C. all believe that interest rates can normalize without sending real estate, banks, consumers, economy and the very solvency of the country into the toilet. Unfortunately, a very rude awakening is in store.”

I urge you to avail yourself of Michael’s free weekly podcast and do some serious due diligence on the man, starting with his website.

The U.S. stock market hit its highest level since 2007. I said this in my New Year’s newsletter:

“…I’ve not suggested many moves when it comes to the U.S. stock market. In late 2007, I concluded the worst-ever bear market would begin. In March 2009, I then concluded the biggest bear market rally ever was about to start. While certainly no roaring bull by any stretch of the imagination, I suggested throughout 2012 that the surprises should be on the upside and a marginal new, all-time high could be reach by the spring of 2013. Such an outcome was not a reason to back up the truck and load up on equities but it did prevent me from shorting the market as so many of my colleagues and readers have continued to urge since turning bullish back in March 2009.

I operate on the belief that a “Don’t Worry, Be Happy” crowd roams Wall Street. Most financial advisers and/or the firms they work for are tilted to their camp. I see the vast majority of people who provide so-called financial advice like I see most Realtors: you can toss them off the top of the Empire State Building and all the way down they say the same thing, so far so good.

Because of this, I don’t ever expect them to see the cup as anything but half-full (nor do I expect to see many in the hard asset camp ever bullish on general equities and bearish on gold).

The scenario I most favor continues to be a move to a new, all-time high in the stock market (which I’ve said all along is just a countertrend rally in a secular bear market that began in 2007), followed by a decline that over time shall retest the lows of 2009.

The December 2^nd edition of Safehaven.com had a piece written by money manager Robert McHugh that was very much like my thoughts. Ideally, it would be best to make a new, all-time high and then look for a spot to start going short or wind down general equity positions to a very low percentage. Many will ask what about mining shares at that point? We will need to first get there before being able to decide. General equities outside of the U.S. would likely be the preferred way, but there, too, we need to wait to see how this plays out in 2013.

It’s critical to work with a mindset that as good as general equities were for over 30 years, all good things come to an end. Sometime in 2013 a bell will ring. Here’s hoping I can hear it…”

I think my view that U.S. bonds can be the worse investment for the next decade speaks for itself.

Finally, before anyone decides to join the inmates running the asylum known as Congress and thinks all that is happeningeconomically, politically and socially is actually good for the U.S. Dollar, I strongly suggest gazing at this chart:

It has been making lower highs since the start of the new millennium. Ironically, gold has gone up 600% since then yet the dollar is still called a “safe-haven” .

This week should even be more fun and if gold can somehow managed to get above $1,700 this month, the boys who used the Crimenex as their personal manipulation machine are in real trouble.

Just as I was about to enjoy the last day of what has been more work than vacation time, gold gets hammered on the back of news the punch bowl may be running dry. Throw in the fact that it always seems to get assaulted around the monthly employment report and one can certainly feel like its Deja-vu.

The latest plunge started yesterday when the Fed minutes showed some members want to be able to slow or stop their purchases well before the end of 2013. Others didn’t see a need for a specific timeframe for ending what we know as “quantitative easing”

Forgetting for a moment that other governments are still stimulating their economies like Japan (will likely increase its inflation rate by increasing asset purchases while adding to fiscal stimulus) and China (which plans to increase infrastructure spending and sustain loan growth), it’s a fairytale to think the FED can actually do anything but keep its foot on the gas pedal.

Why? The United States is up the creek without a paddle. Its political process has blown up and the FED knows the inmates are now running the asylum that’s responsible for fiscal policy. Because Ben Bernanke painted the FED into the corner and has run out of paint, he and his entrapped group has sent a “Hail Mary” towards the front door of the asylum letting the inmates know the punch bowl has no more kick to it and they somehow need to pull a rabbit out of the hat and get serious on deficit and entitlement reduction policies.

If you believe the inmates will do so and the FED can and will actually drain liquidity (allowing interest rates to rise due to actual tightening) well, I not only have a bridge to sell you but would urge you to stop reading this blog immediately.

Gold has been in a trading range of $1500 – $1800. It shall be pressured for the near-term and can retest the lowest part of the range. But after a decade of overcoming an overwhelming number of anti-gold waves from the investment community and the media that follows it, I believe this is just another bump in the road that leads to a $2,000+ gold price in 2013. The fact that such a view seems as far-fetch as a rookie winning the Super Bowl this year at the start of the NFL season, I’ll remain on board the mother of all gold bull markets and hope I’m not related to Captain Edward Smith.

Resemblance?

About Peter Grandich

Grandich is the founder of Grandich.com and Grandich Publications, LLC, and is editor of The Grandich Letter which was first published in 1984. On his internationally-followed blog, he comments daily about the world’s economies and financial markets and posts his views on social and political topics.  He also blogs about a variety of timely subjects of general interest and interweaves his unique brand of humor and every-man “Grandichism” expressions with his experience gained from more than 25 years in and around Wall Street. The result is an insightful and intuitive look at business, finances and the world, set in a vernacular that just about anyone can understand. In his first year, Grandich’s wildly-popular blog had more than one million views. Grandich also provides a variety of services to publicly-held corporations on a compensation basis.

Grandich’s autobiography, Confessions of a Wall Street Whiz Kid, was publiched in fall 2011.

He is the also the founder of Trinity Financial Sports & Entertainment Management Co. [www.TrinityFSEM.com], a firm with a Christian perspective which he started in 2001 with former NY Giant and two-time Super Bowl champion Lee Rouson.  The firm offers services to celebrities, athletes and average folks.  Peter Grandich is a member of the National Association of Christian Financial Consultants, and a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.

Grandich is also very active in Christian sports ministries including the Fellowship of Christian Athletes and Athletes in Action.

He resides in New Jersey with his wife Mary and daughter Tara.

Produced by McIver Wealth Management Consulting Group

Mark Jasayko, CFA,MBA, Portfolio Manager with McIver Wealth Management of Richardson GMP in Vancouver.

www.McIverWealth.com

My Big Picture view for the past few years has been that the biggest credit boom in history blew out between 2006 (the top of the US housing boom) and 2008 (the top of the global commodities boom.) Since then the Authorities (Governments and Central Banks around the world) have been sponsoring The Great Reflation as they attempt to offset private sector deleveraging with public sector stimulus.  

When Market Psychology (MP) believes that the Authorities are prevailing  it’s “risk-on” in the asset markets…when MP believes that deleveraging is the more powerful force then it’s “risk-off.” MP frequently gets “over-done” and cause prices to move too far/too fast…which sets up Key Turn Dates when a number of major markets reverse direction at more-or-less the same time.

A good part of my short term trading analysis involves measuring how different markets move relative to one another following a Key Turn Date. The power of MP, especially around Key Turn Dates, often trumps fundamental factors that are specific to any one market. For example, I might say that a change in value for the C$ is caused more by“events” outside of Canada than by “events” inside Canada.

This week in the Chart Section I’ve made some observations on longer term charts of interest rates, stocks, metals, energy and currency markets.

Chart Section:

United States House Prices:

Nominal house prices in the USA increased from ~$25,000 in 1970 to ~$250,000 in 2006 on the back of the biggest credit boom in history…prices peaked in 2006…and then collapsed…and that precipitated big changes in a lot of other markets.

The 90 day Eurodollar futures contract:  (Trades at a discount to par…rising prices mean lower interest rates.) Short term interest rates stopped rising in 2006 as US home prices stopped rising…short rates began to fall as the US stock market began to fall in late 2007…then fell further in 2008 as the commodity market fell…and as worries about the “old normal” financial system lead to the creation of the  “new normal” financial system…which has seen short rates at lifetime lows for the past couple of years as central banks try to reflate the world’s economies…with mixed success considering the amount of stimulus…but stocks, gold, bonds and some commodities have had a great rally on the back of these reflationary efforts.

The 30 year US Treasury bond futures contract: (Rising bond prices = falling bond yields) US Treasury bonds have been in a bull market since the early 1980’s and spiked to lifetime highs in late 2008 as stocks and commodities collapsed. In the last three years bond prices have gone to new highs despite a massive increase in government deficits. The bond market vigilantes of the 1980’s would surely have gone bankrupt shorting this rally.

On a short term time frame bonds are often the opposite side of the “risk on / risk off” trade…but from a longer term perspective bonds have rallied along with stocks, gold and commodities since the March 2009 Key Turn Date.

The S+P 500 stock Index futures contract:

The S+P 500 Index made an All Time High in October 2007 ( barely eclipsing the dot.com boom peak of March 2000) and then began to fall. The decline was exacerbated by credit market worries and the commodity market collapse of 2008. The index lost more than 50% from its 2007 highs to its 2009 lows. Since then the index has trended higher…benefiting from central bank reflationary efforts.

The Toronto Composite Index:

The TSE rallied harder than the S+P during the 2002 to 2007 commodity boom period…continued to rally into the first half of 2008 while the S+P was falling and then, like the S+P, lost over 50% as it tumbled to its 2009 lows. At the end of 2012 the TSE was up ~65% from its 2009 lows while the S+P was up ~ 113%.

Gold futures contracts:

Gold made a 20 year low in 1999 near $250 and then began an advance that gathered pace into March 2008 when it briefly traded above $1000 for the first time. Prices fell back to a low around $680 later that year as stocks and commodities tumbled…and the USD soared BUT…gold started to recover from its lows before the end of 2008 (unlike stocks and commodities) and nearly tripled in value by September 2011.

As my good friend Martin Murenbeeld likes to say, “The single best reason to be bullish gold is the reflationary efforts of the world’s central banks!”

Copper futures contracts:

Dr. Copper rallied from 75 cents in 2003 to a high of $4.16 in 2006…a perfect storm of booming housing markets around the world…Chinese demand and short supply.  Prices fell back in 2007 and then made new highs in 2008…only to lose ~70% as commodities collapsed. Copper soared to new All Time Highs in 2011 on the back of the Great Reflation but has lost a dollar from there…perhaps on worries that sluggish global economic growth will dampen demand.

WTI crude oil futures:

WTI crude was trading below $20 in early 2002 as the commodity boom was getting underway. Six years later (Peak Oil) it hit $147 on the July 2008 Key Turn Date…six months later it was trading for less than $35.

Natural Gas futures:

Natgas made All Time Highs in late 2005 (post Katrina) only to lose 2/3 of its value within a year…it came roaring back with other commodities into the 2008 peak…only to lose over 80% of its value in just over a year….but still lower prices lay ahead as booming North American supplies took natgas below $2 in 2012 for the first time in over 10 years.

Lumber futures:

The lumber futures market made the biggest gains of any of the major commodity futures contracts in 2012…up more than 50% YOY….to its best levels in 7 years.

Canadian Dollar futures contract:

The C$ was trading below 62 cents in 2002 (the Northern Peso) as the commodity boom began. Five years later, in November 2007 it touched a lifetime high of 1.10 (that’s a gain of 77%!) It was trading at par on the July 2008 Key Turn Date (when crude was $147) then fell to 77 cents within 3 months as the commodity market collapsed, credit markets panicked and the US Dollar soared. The highest weekly close (~1.06) for the C$ since 2008 was the May 2, 2011 Key Turn Date.

The Euro Currency Futures contract:

The Euro hit its All Time High around 1.60 to the USD on the Key Turn Date of July 15, 2008 just as the commodity bull market was topping out….or was it the USD bear market bottoming out? The Euro began to rally back with other risk assets following the March 2009 Key Turn Date, but unlike stocks and commodities it has trended sideways to lower during 2010 – 2012 as the banking and sovereign debt worries of Europe weighed on the common currency.  

The Japanese Yen futures contract:

The Yen trended higher from 2007 to 2011…blissfully uncorrelated to the ups and downs of other markets. (Note that it rallied as a safe haven through the second half of 2008 as stocks, commodities and most currencies, other than the USD, fell.) For the past few years a number of analysts have been expecting the Yen to fall…but it kept rising…despite rounds of intervention…carried out by the Japanese Authorities without the help of their foreign cousins.  Its recent decline has been tied to anticipation that the newest  Prime Minister, Mr. Abe, will force it down. So far, so good…and Japanese stocks have rallied sharply…but will the Japanese bond market spoil the fun?