Wednesday, November 2, 2011

Time For Long Gold?

Sometimes it is so easy to predict what will happen to the stock markets! And to think that TBTF banks have battalions of analysts and complex computer models to predict the future. On my last post I wrote, “Green tomorrow, but selling may not be over”. Sure enough, we had a green day across board. And now futures are down and it looks like it will be red tomorrow.

I also wrote that I expect a multi-week rally from mid-Nov. Apart from various indicators and analysis; one simple reason for the coming rally is the need of TPTB (The Powers That Be) to fool the investors and do a massive window dressing for the year end. The Greek referendum has been pushed till December and nothing much is going to happen between now and December. Italy and others in club PIIGS continue to dance on the edge of volcano. And they are inching ever so close to the edge.

This news is from Zero Hedge; “While the focus continues to be on G-Pap for the second day in a row following his shocking referendum announcement, the real diversion remains Italy, where the government is in as much of a state of chaos as that in Athens, and whose bonds, while not yet trading at Greek levels  (remember when the Greek 1 year hit 100% two months ago? Today it is at 225%... and tomorrow the two year will be at 100%), are far, far greater in amount, and the only thing preventing their collapse so far has been the ECB, whose monetizing assistance has been contingent on Italy passing and enforcing austerity measures to deal with its runaway debt to GDP of over 120%. Unfortunately, when BTPs open for trading in 7 hours, the ECB bid may not be there, or any bid for that matter, because as the WSJ reports, "Italian Prime Minister Silvio Berlusconi on Wednesday failed to issue growth-boosting measures demanded by European Union authorities ahead of the Group of 20 summit, raising further doubts about the government's willingness to pass economic reforms aimed at restoring investor confidence in the country."

I had written many months ago that there will be two Euro, one for the Northern Europe and one for the Southern Europe. It will be interesting to see where France fits in. But that is still some months away. In the meantime we still have to worry about things in North America. The USA is at stall speed and the FED is unable to help the Banks as much as it would like. Again, the only way the TBTF banks can make money today is through speculative profit and we will see the buy programs being set in motion soon. Other things being equal, I expect 2011 to be in positive territory. At the beginning of the year, SPX was at 1272, so even if SPX closed around 1300 by the year end, that you be sufficient to fulfill the requirement of a positive year.

I am debating whether to go long equities but the risks are high and the end game is near. It is very difficult to be precise in this volatile market environment. More likely, I would go long gold but not before I am sure that we have reached the tradable bottom. There are signs that the selling would continue this week and that would put pressure on gold price as well. But that would be a welcome development as it would give a better entry point.