Jim,

The action in the bond market warrants comment.

Long Bonds – The Canary in the Coal Mine
By Eric  11/02/09

Let’s not forget long bonds (TLT), a.k.a. the canary in the coal mine.  The consolidation pattern since June 09 appears to be failing to the downside.  The June 09 low, which also happen to be the neckline of a large head and shoulder top formation (SLBI), is pulling hard.  The bull/bear battle is intensifying and should be watch closely for its broad economic implications.

CIGA Eric

Click charts to enlarge in PDF format

Jim,

Gold & U.S. Dollar Index:
By Eric  11/02/09

Gold (GLD)

• Heavy volume at consolidation and all-time high breakout was extremely bullish
• Retest of consolidation support on contracting volume also bullish.
• While gold could chop around as the dollar sets up for another decline, its technical position remains strong.

U.S. Dollar Index (UUP)

• Strong gap resistance sits overhead like an anvil.
• Volume at the resistance is the key.  A test or breakout on shrinking volume will produce a bearish setup.
• COT outflows in the DXY should setup the next decline (COT F&O UDX CS).  The money flows are being monitored closely.

CIGA Eric

Click chart to enlarge in PDF format

Jim,

Over the past month or so you have referred to a good friend and associate, Yra Harris, and I would like to see if this is the same Yra Harris who’s interview with the Chicago Tribune Magazine section ran on Sunday, October 18th, 1987.

If so, would you please send him a big "thank you" from me for a kernel of wisdom that he shared in that interview.

During the interview he was asked a question that went something like this…

"Yra, with the amount of trading you do on the floor of the Chicago Mercantile Exchange, you must have days where you gain millions of dollars and others when you lose millions… what is a bad day for you?"

Yra’s response was … "I never have a bad day… a bad day is when you don’t learn something."

The next morning was October 19th, 1987 one of the very worst single days in the history of the markets. As the day went on, I thought a lot about Yra and his words. I figured that whether he gained or lost on that day, he sure must have learned a lot.

Yra’s words have stuck with me for over two decades and have enriched my life. Whenever something happens that "seems" bad, I think of Yra’s words and then try to find out what I have learned from the experience. I have also shared his wisdom with many others, along with the story of Yra’s interview on October 18th, 1987.

Jim, no matter how trying each turn in the market may be, or how difficult our circumstances may seem at any point in time, it is wonderful to know that it is virtually impossible to have a bad day if we keep in mind Yra’s wisdom… "A bad day is when you don’t learn something."

If your friend is the same Yra, please pass on my thanks. Even if he isn’t you may want to pass on the words of wisdom just the same.

Thanks for helping us all to have days when we learn something more about gold, the economy, and life in general.

All the best,
CIGA Buz

Dear Jim,

Thank you for your response.

It seems that you suggest that it is very difficult to assess the financial and market movements and I agree with you.

I guess it is better to limit ourselves at hedging against catastrophic (geopolitical, financial, economical) events, even though we are always tempted to trade in order to try to recoup our past losses.

I have noticed several times that Roubini seems contained due to the importance of managing his public figure. He also rarely mentions the exposure of banks to the huge OTC derivative problem. Maybe by lack of understanding like you suggest. Despite the fact that people say he foretasted the crisis, he admitted to a journalist that his portfolio performance suffered like anyone else´s.

I must check the development of food price for the Asia market.

Fortunately, I expect food price to be relatively constrained in Brazil. The most popular (and very healthy) dish to Brazilians is based on rice and black beans, two products locally produced and whose production could be heavily subsidized by the government during bad times. Today, you can eat a complete meal with chicken for a little less than 3$ (5 Reais), same price as last year.

Wholesale prices of rice dropped 35% and those of black beans dropped 63% (Sept 2009/Sept 2008) Source: Estado de São Paulo

The biggest danger in Brazil right now is the return of inflation due to the recent:

- overheating of the economy
- return to populist policies due to elections times
- over spending of the government

We should not forget that the strict monetary policy from the Brazilian Central Bank may be at stake after the planned departure of Henrique Meirelles early next year. Henrique Meirelles decided to become a politician (between us, I don´t think it is a wise decision – I could´t be a politician – not even for the all the money in the world).

Best regards,
CIGA Christopher