SP 500 and NDX Futures Daily Charts

The Non Farm Payrolls number will give the US markets direction.

Relative Performance of Gold and Silver for the Past Three Months - Perceptions Shape the Trade

In response to the Asset Performance piece from earlier this week that showed Silver to be outperforming most other stores of wealth this year to date, despite the big correction off the parabolic high, someone asked me why "silver is underperforming gold recently."

So I looked at their relative performance AFTER the big spike higher and smackdown. By the way, I think that was utterly contrived to help the shorts get off the hook.  I don't think it worked.  They ran silver up, and then in conjunction with the CME margin increases smacked it down hard.   This provides lots of opportunity for conventional wisdom to come in and shake up the bulls.  A twenty percent decline is NOT necessarily a new bear market if it is a short term correction from a recent short term rally.  A standard fibonacci retracement is on the order of 30 to 50 percent.  But it sounds good.

The run up to a short term high, overbought and unsustainable condition was obvious, and a number of people remarked it was time to sell for the short term, including myself.  And I did so with my trading positions.

A few like myself noted when we got back in after the smackdown with the usual cautions. That is the real art in trading, not just picking a place to sell in a bull market, but when to get back on.

I never touched my long term investment positions in silver, and this is my general stance towards this sort of thing.  Don't try and trade it, because you may get out at a short term top, but then it becomes rather difficult to get back on that horse after the inevitable correction.  I have a good friend who was the original silver bull.  But he sold everything he had at $15.  And he has never had the will to get back in again, becoming permanently negative on it, waiting for the price to drop down below $10.  And he might be waiting a long time.

Here is the relative performance of gold and silver bullion for the last three months, two months, and one month.

So the obvious conclusion is that silver is not under performing gold recently, and that my friend was either suffering from some misinterpretation of the facts, or had read somewhere that silver was lagging gold and didn't bother to check out the data for himself.

"Nothing is so difficult as not deceiving ourselves."

Ludwig Wittgenstein

Perceptions can greatly influence our trade in the market. There are plenty of examples of this. When I was in a high growth company in the tech sector, we were acquired a large Fortune 500 corporation for stock,  and as a consequence some of us were holding quite a few stock options and stock in their shares. I was suggesting to anyone who asked me to sell all their stocks inearly 2000 based on the shape of the tech bubble, showing them charts of the Nasdaq 100 which was then past its peak and starting its long decline, with an uncanny resemblance to an asset bubble.

I had an engineering friend who, when the price was 63 in the late summer, absolutely refused to sell his million dollars in stock until he got his price of 68, which he felt was the right price. It had been as high as 79 in the Spring, and he was mad that he did not sell then and 'lost money.'  I was selling at every opportunity as my stock became free to trade. I was selling everything at that point and buying safe harbor investments.  That proved to be judicious.  But that was what the charts and the fundamentals said to do.

Well, he NEVER got that 68 price, and so he never sold, and he pretty much lost almost the entire one million dollars as the stock dropped all the way to 2 and then went bust. The harder it dropped, the more adamant he became that it should not be dropping, and had a litany of reasons why the price would rally and we would be sorry. And he was very persuasive, and liked to argue, and often got his way in arguments, mostly because people just didn't bother discussing it anymore.

My point is, the market does not care what you think, and does not listen to your impassioned rhetoric. The market will go where it will go, and will tell you what to do if you learn to listen to it.

I own both silver and gold; I see no need to limit myself and take sides in the pointless argument about 'which metal is better,' which is almost as dumb as sitting around waiting for Deflation Fairy to come and rescue your portfolio of paper money. They are different, and have different uses and places in a portfolio.  It is like arguing which is better, a hammer or a pickax. Well, it depends on what you are intending to do.

Silver is much more volatile so I hold much less of it in proportion to the gold in my portfolio, based on my own investment objectives. Gold is the flour, currencies are the butter, and silver is the yeast and water.  Together they make a nice mix.

Please note that this comparison of gold and silver does not include the market action today in which silver is up to 41.81 which is another big move.

And based on the market fundamentals I think the upside in silver could be extraordinary. Silver is highly volatile. And there is something odd going on in the silver market. Volatility cuts both ways.

The Longer End of the US Treasury Curve Looks Over Extended

The longer end of the US Treasury curve (20+) looked quite overextended, at least in the short term, in the first hour's trade this morning. How could I resist for at least a day or so trade?

I still do not like the equity market yet, and would view this as a technical support area, until it proves itself otherwise. And that is probably going to have to wait for the US Non Farm Payrolls.

I am not saying Treasuries are a long term short just yet. I would have to see some real appearance of inflation and higher rates before that would be the case, and so far nothing. There is also sound economic theory that allows for lower interest rates here, and for what could be a protracted period of time.

I have reduced all my short term positions, but as always hold all the long term positions, because this is my 'vacation.' Scraping, cleaning, taping, painting, rewiring and installing new outlets and lights. I do not mind this, preferring to do it myself with help from the boy. It is good to teach him how to do these things. And the jalousie porch is not so naturally efficient as to take care of itself.

Gold Daily and Silver Weekly Charts - Maladie Monétaires

The US has maladie monétaires, a money sickness, and it may spread to the rest of the world. Unless treated properly it is a sickness unto death. The problem as always is those who carry it and spread the infection, the perversion of public policy and economic thought. Western capitalism is slowly destroying itself. This is my diagnosis, and the outlook is not good.

Gold gained $40 to 1660 and silver was up $1.56 to 40.86 as traders fled out of US equities, selling the news of a faux debt deal, and the prospects of a slumping US economy.

Part of the trigger was the decline in consumer spending, but rest of it was a flight to safety, with money going out of stocks and riskier assets, and into gold, silver, the dollar and Treasury bonds.

I think the short term trend may have reached its nadir today, but we probably will not have any clear indication on this until the Non-Farm Payrolls number comes out on Friday. ADP Jobs tomorrow, but its a flaky indicator.

I expect that gold will undergo a consolidation and correction somewhere between now and 1700, and have indicated some rough parameters on the gold chart. It may not, if the crisis deepens. Silver will remain volatile. The silver futures market is an accident waiting to happen, and a scandal of major proportions, in the process of slowly unfolding.