22 April 2014

NAV Premiums of Certain Precious Metal Trusts and Funds - Crash In a Matter of Months?

In case you were wondering there is a Comex precious metal options expiration on Thursday the 24th.

Since the expiration is for the inactive month of May, I am wondering if they are not going to do an early hit with a head fake on this one as the day comes.

 Hard to forecast.  Typically a noted player will show their hand at some point and the pit crawlers will follow their lead.  They used to walk into the pit, but now I wonder if they just don't print it on the electronic trade, if you know what to look for.

The 'hit' on the metals was pretty much standard operating procedure this morning.

We are clearly in the 'wash' cycle for equities.  Except for the miners which are getting pummeled.  That is a hard trade lately.

Normally I take this sort of thing with a grain of salt, but I have quite a bit of respect for Richard Russell.  He has an interview in which he says that he says 'the dollar will crash in a matter of months.'
"The US will lose its reserve currency advantage within a few years or probably less time. Our defense against a weak economy is always to print more money. In a matter of months, I see the dollar crashing.”
Now the stock market I could understand, and agree with much of what Richard Russell has to say about it and the economy. Although as a traditionalist I would be looking more towards Sept-Oct timeframe, and would have to see a classic 'crash pattern' which has worked well for me in the past.  I have not seen that yet, and if we get close to it, I will start discussing it.   But it is the familiar 'failed rally' two step that I can find in almost every major US stock market crash.

But as for a dollar crash, I am struggling with that one.  It is possible but not likely.  And the obvious questions are why and against what?   Since the dollar is not pegged against anything, it would take a serious event to trigger a 'crash.'

And it takes quite a bit for a major developed currency to fail.  The Fed may not have a literal printing press, but they do have a Balance Sheet and can absorb any amount of debt they wish.   It may not be pretty, and it could weaken the dollar against some commodities and imports, but a crash?  That seems like a real long shot now.  But I am keeping an open mind on it.

As you know I am aware of the major hyperinflationary episodes of the past, and have been following the arguments of those who do and do not think it is possible with a sovereign currency like the US dollar.   And I think you know that my own opinion is that this is highly unlikely, excepting for some major exogenous events, and a colossal policy error or two.  Stagflation seems much more likely to me based on the lack of reforms.

But I thought you might like to be aware of what Richard Russell has to say, and what I think about it at this time.  Legendary legends make all sorts of predictions, and write their hits in marble and their misses in sand.  And I know I cannot forecast the future very often, except at the extremes.  And I am not there yet on any crashes excepting some unforeseen exogenous event which no one can really forecast.