Monday, November 15, 2010

yeah, we're still bullish round here

Here's how yesterday's IKN80 kicked off, a publication that makes no apology for its continued bullish stance. The way gold is acting this morning it seems the market agrees.

It didn’t take long for the bullish sentiment underlined in last week’s edition summed up by the phrase “Buy. Hold. Win.” to be tested, did it? Tuesday’s CME margin requirement news (1) stuck a pin in the frothiness of the silver bullion market, an event followed by “China Fears”, this time something to do with a rate hike to rein in inflation that will halt its growth or something like that. Ok, fair enough, so let’s see what was written in IKN79’s intro last week:

“What we need to look out for are not rough, stormy moments on the voyage but data that completely changes the tide and direction of the key macroeconomies, commodities and the markets. With QE2 now official and the US government committed to adding liquidity to spur activity, it will take TheReallyBigEvent to alter things for the time being.”

As far as your author is concerned, neither of the events that saw our stocks on rollercoaster rides count as changes in the tide. First the CME margin requirement change, which may have been designed to cause a shudder due to the timing (midday on a Tuesday and not post-bell), but is hardly something that’s out the blue, either. Margin prices tend to rise and fall with the prices of the contracts they cover and as such, raising the margin requirement 30% for the first time in 2010 on a contract for a metal that’s risen 56% since the first trading day of the year is quite understandable. Yes, it shook the hot money out of the trades. That’s what it was supposed to do, wasn’t it? Here’s how your author reacted to the news that evening (1):

“So when I saw the selloff this afternoon I tried my hardest to worry about it and failed, because once the ST flush has flushed through, the fundies are still intact and good miners are still hugely profitable. I'd go as far as to say that what we saw this PM was a healthy thing, because Ag really was getting a bit out of hand. DYODD.”

As for the ChinaFear, file it under “If I had a dollar for every time...”. This is a country that might want to look after its inflation but it’s also a country that is the source of nerves every time it moots doing something to cool down GDP (e.g. the periodic raising of bank minimum holding requirements which have never halted growth but always get the bears out their caves). It’s a country with a planned economy that sees government intervention on a regular scale, but it also has a plan for 8%, 10% GDP growth every single year that shows no sign of abating. I really don’t see how it will start losing its current 40% share of the world copper market because of policy tinkering.

Bull markets are never straight lines and the longer a streak continues (i.e. silver recently) the more abrupt the correction, but what happened last week hasn’t changed the macro environment and your author’s bullish stance remains intact. I like being bullish about the markets (far more so than predicting doom) but I’m also a natural-born contrarian, so on rare occasions I get to be both at the same time. What we saw last week was a simple rough moment, or in the words of Gary BiiWii this week in Notes From The Rabbit Hole (NFTRH) Issue 110,Precious Metals Bottom Line: What, you thought it was going to be easy?”