Saturday, March 23, 2013

Are you prepared?

After this weeks event in Cyprus and in the United Kingdom, I want to pivot and ask a serious question.  Are you prepared?  The people in Cyprus are down to a cash society, in a society that is mostly electronic, and I am sure it is causing some great inconvenience with the banks closed.  In Great Britain, the cold weather has taken their gas supplies down to emergency levels, and winter storms are stranding people.

In the U.S. we are having our fair share of weather related disruptions, and where I live in California we live in a moments away calamity with earthquakes and increasing pressure on our power grid.

Can you or your family live a fairly normal life if the power went down for a week, or we have our own self inflicted political wounds and they curtail commerce?

Are you ready?

In addition to trading I own a solar energy company, and we also provide on site solar tied battery back up systems.  I entered this business with a desire to help my family and my customers to become independent of others to provide energy for their homes and businesses.  We added the back up systems as solar goes down when the grid goes down, unless you can redirect the solar power into batteries.  The next area we are entering is to provide water from air, powered by solar.

I share this with you, not as a commercial (99% of you do not live near me, so not a potential customer) but to let you know there are choices you can make to guard your family, and in the U.S. you can get these financed by the government if you have decent credit.  But what if you rent, or live in a condo?  There are solutions for that, as well.

Allow me to offer some common sense suggestions that will save you some grief if you find yourself in a unexpected situation.

I tell people to plan for the most likely scenarios, be prepared to be severely disrupted up to five days, and mildly disrupted for up to one month.

The very first thing you need is water, and you should have a gallon of water per person per day for at least two weeks.  I have a 60 gallon water heater that I can bleed, but also keep water on hand as bottled spring water in case I am forced to move. I also am going to install a water from air system we are building that ties to my solar system.  There are off the shelf systems out  there you can buy that do the same thing.

Next is food.  This is probably the easiest thing for people to put together, but it is important to buy the right foods.  You want easy to open, non perishable, and easy to prepare items. Foods that can be cooked over a Bunsun burner, charcoal grill or a Coleman propane tank. We have a charcoal grill and a portable camping stove with disposable propane tanks.  We also have a grab and go bag of food in case of evacuation.  You may need to leave your home (We live 12 miles from San Onofre Nuclear Power Plant).  Two related suggestions is to keep a couple of bags of charcoal on hand to cook on a grill, and as mentioned above some disposable propane tanks.  Keep two weeks of plastic utensils, paper plates, and foil serving trays.  You don't want to clean up

Energy- If you can swing it, get solar,and get a battery back up system installed.  If you cannot, get a very good portable battery backup/inverter system that can charge your refrigerator or freezer, and such.  Buy some cables that you can charge your system from your car battery if your portable battery runs low.  Your refrigerator and freezer are very energy efficient, and you only need to charge them intermittently. Keep your phone and iPad charged, as well. Only go into the fridge and freezer once per day.  As you cook food, eat what is defrosted, then work your way through the freezer.  Then tap into the canned stuff.

Always try to keep a half of tank of gas in the car.  You know your usage, and  get in the habit of filling at half of tank, not empty (my wife is rigorous about this, me not so much).

Medicine- Make sure you order a 90 day supply and make sure you reorder at 30 days.  Have a cooler handy with ice packs from the freezer for your meds, if they need to stay cool.

Cash and silver - Keeps at least a month's worth of cash to buy essentials on hand, and a months worth of silver in case it is your currency that is the problem at the moment.

Have a designated rally point at a friend or families home where you can be collectively safe, and mutually support each other.  Keep a run away back pack handy for each family member in case you must simply leave.  We have those due to our unique location and circumstance, but most would benefit from this.

I don't want to turn this post into a book, so hopefully, I hit the high notes.  I believe our governments ability and desire to help is waning, and shocks are coming out of the blue.  We must stand prepared ourselves.

Good trading this week.  Bob

Saturday, March 16, 2013

Inflection Point

Is the Cyprus bank confiscation move the "butterfly flapping her wings which ultimately causes a worldwide  hurricane"?

The Euro elite and the IMF sought to punish the horrendous bank lending practices of Cypriot Banks by taxing their depositors, and not make the owners of the banks take a haircut, in order for the government to get a bailout.  Now if you are a depositor in Spain or Italy and you know a bailout is required, would you keep your money in a bank account?

For some perspective, Europe relies on investors to fund their lending leverage, whereas in America it has a much stronger depositor base.  Obviously, these investors are politically connected and the Euro elies know the game is up for them if they screw with investors and lose their funding sources.  But it might be a moot point anyway, as the Foriegn banks with access to the FED window has exchanged nearly 100 billion dollars in collateral of unknown worth for U.S. dollars. Yet the banks are still hopelessly underwater with loans swamping cash deposits We are now financing European banks and governments indirectly to keep the game going.  But for how long if people start pulling their money.

Why did they do it in this manner?  Governments are like bank robbers, they go where the money is, and against the weakest victim.  The money is sitting there, and most of these people do not vote in Cyprus.  They are taking a calculated risk.  The notion that this is a one off is laughable.  Once a government gets a taste for a revenue stream, it never gives it back.

They are pulling the tax out this weekend, and the reaction on Tuesday should be interesting in Cyprus, but judging by all the news articles addressing this, Monday in Europe may prove interesting.

This comes right on the heels of my view that the gold consolidation is ending and the great rotation is unrotating. Protestations by the Fed about tightening and reducing leverage will start to ring hollow and investors are going to start shifting money into something that will protect them from real negative interest rates as inflation ticks up and bond and market yields stagnate or fall.

My long term signals are flashing a buy for the week ahead for gold and treasuries.  After we get our obligatory Fed meeting smack down (maybe not, depending how the Cyprus mess is massaged), I will establish a longer term gold position with a stop at 148, and buy NUGT calls with a conditional sell order at GDX at $35.80.  This assumes gold and GDX are not bear flags, but I believe they will play out by Thursday.  I'll post any changes to these stops Wednesday night before I enter, as I won't be a hero and front run the Fed.

I will still post my buy and sell automated system as normal (it is optimized on the hourly), right now all three are buys (treasuries through IEF), with silver still a sell.  I got a buy signal on VXX, on Friday, as well.  We may be in for some rough waters again. (

Here are a few charts.

Sunday, March 10, 2013

Genie Out of the Bottle?

Please reference my post from last week.  Everything was poised to go higher, but I thought we'd have some breathing space for a week or so.  But it is not the case.  SPY keeps chugging along, and the players are using the same playbook as before.  Oil is up, gasoline is up, VIX is down, Bonds are down (read rates are up), gold, silver and miners are down, oops, no they are not!

I see this as a shift in investor mentality, and could usher in the next move higher in commodities and metals.  Palladium is also stirring, with PAL having a double digit up week.

To know with more certainty, I will watch the price of oil, and the cost of credit, and see what the FED starts jawboning about when we get to their recent highs again.  If the commodities and credit ignore Ben and keep moving higher then he is going to get the great rotation he did not want, and you will see big moves back into commodities until they force a real recession again.

Enjoy the charts.

Sunday, March 3, 2013

Backing and Filling

Cue my report from last week.

The Fed ran out of bullets, and needed to re-energize to keep the monetization happening without the market getting ahead of them.  So we have the President and the Fed chairman lamenting the sequestration, and sober warnings on ending the asset purchases early.

This gave cover to the banks to sell off commodities hard, allow money to flow into Treasuries without the Fed doing the work itself, and because the Fed did not have to work so hard on the rates, allow the VIX to move up.

All the while SPY had a few little sell offs and is back to a place where the ramp can begin.  But I think we have another week or so before that happens, as and until the sequestration news gets fully absorbed.  The President painted such a dire picture of what will happen on March 1st, that as these things do not happen, the market will look towards the next event a month down the road (the debt ceiling), and off we go.

The strategy is still intact; the government needs sources of revenue and capital gains is the big one, and as long as they can keep food and energy under control, we are going higher.  Phase two was announced last week, a rise in the minimum wage.

This serves three purposes for government;

  1. Provides for higher payments into Social Security and Medicare,
  2. Creates money velocity as this strata must spend everything they make,
  3. Reduces government transfer payments such as earned income credit.
Republicans are not going to fight it.

Anyway, here are some charts.  Enjoy