 |
|||||||||||||
|
|||||||||||||
|
|
|||||||||||||
|
|||||||||||||
|
Free Samples The
following excerpts from TSI commentaries should give those who are
unfamiliar with our service a taste of the sort of financial-world
analysis provided on a twice-per-week basis to our paying subscribers.
Note that during a typical week our subscribers receive two market
reports, with each report generally containing 2500-3500 words and 7-12
charts. This page will usually be updated every Tuesday with one or more excerpts from recent commentaries.
|
|
| Date posted as sample | Commentary Excerpt |
| 02-Feb-10 | From the 27th January 2010 Interim Update: Gold Stocks  If a short-term low wasn't put in place on Wednesday it will, we think, be put in place within the next four trading days. In terms of time we are therefore probably at, or very close to, a tradable low. The risk is that support at 380 will give way and that there will be a quick spike down to the 350s before a rally begins. Taking a broader view of the situation, we think the HUI is close to the end of the FIRST phase of an intermediate-term correction that will continue until at least May. The next phase of the correction should involve a 1-2 month rebound that retraces a large chunk of the decline from the 2nd December peak, after which another downward phase would be expected to begin. With regard to our own accounts, an unusually large cash position is being maintained at this time. We are looking for opportunities to add to our gold-stock holdings and have accordingly placed several under-the-market buy orders, but for these orders to be filled there will probably need to be a final downward spike over the coming days. If the gold sector begins to rally immediately then we will re-think our tactics. The BMO Junior Gold Index ETF (ZJG) began trading on the Toronto exchange this week. As is the case with its US-listed counterpart (GDXJ), ZJG's largest holdings generally reside at the upper-end of the junior range (some would more appropriately be described as mid-tiers). For practical reasons, ETFs tend to limit their holdings to stocks that offer good liquidity. Information on ZJG can be found at: http://www.bmoetfs.com/ETFConsumer/controller/funddetails/glance?fundId=75750. |
| 19-Jan-10 | From the 13th January 2010 Interim Update: Gold Stocks  |
| 12-Jan-10 | From the 11th January 2010 Weekly Update: Gold versus the Industrial Metals Gold tends to weaken relative to industrial metals when economic confidence is on the rise and strengthen relative to industrial metals during periods when confidence is falling. At the beginning of 2009 we thought that there would be rebounds in economic confidence and the broad stock market during the first half of the year, paving the way for gold to retrace some of the gains it had made during 2007-2008 relative to the industrial metals. This, we believed, would be followed by a second-half resumption of gold's relative strength due to the emerging realisation that a sustainable economic recovery would not begin anytime soon. We seemed to be 'on track' when the gold/GYX ratio (gold relative to a basket of industrial metals) reversed upward in August of 2009, but the following chart shows that the August-November gains made by gold/GYX have since been given back. This tells us that despite the absence of supporting evidence, investors, as a group, still have moderately optimistic expectations about economic growth.  We view the on-going
strength in the industrial metals in both dollar and gold terms as the
triumph of hope over logic. It is indicative of a general perception
that the world is entering a period characterised by robust growth and
minimal inflation risk. This, in our opinion, is not only unlikely, it
is one of the lowest-probability outcomes we can imagine. |
| 12-Jan-10 | From the 6th January 2010 Interim Update: The stock market's 4-year Presidential Cycle The following chart, which was extracted from the free weekly stock market report issued by Mike Burk, shows the average performance of the Dow Jones Industrials Index over the past 50 years. The average for all years is displayed in magenta and the average for the 2nd year of the Presidential Cycle (2010 will be the second year of the current presidential cycle) in green. The charts tells us that the stock market's average return during the second year of the Presidential Cycle has been much worse than its overall average return. It also tells us that the second year of the Cycle has, on average, encompassed: 1. A January pullback 2. A rally from late January through to April 3. A decline from April through to early October that takes the market well below its starting point for the year 4. A rebound during the final quarter that takes the market back to around where it began the year  Anyone who thinks
they know the path that the stock market -- or any market -- will take
over the coming 12 months is kidding themselves, but the map provided
by the green line on the above chart does not look unreasonable to us.
For one, it is roughly in line with the "1937-1942 Model". For another,
it suggests that by the second quarter of this year market participants
will start becoming suspicious of the economic recovery's
sustainability. This meshes with our expectations. |
| 21-Dec-09 | From the 16th December 2009 Interim Update: Gold Stocks  The pullback from the 2nd December peak could be the start of a new intermediate-term decline or it could be part of a correction within an on-going intermediate-term advance. At this time we favour the former possibility, but there is simply no way to be sure. In either case, however, last Tuesday's low will probably be breached before a short-term bottom is put in place. Also, in either case a short-term bottom should be followed by a tradable rally that retraces 50%-100% of the preceding decline. In our opinion, speculators should operate under the assumption that an intermediate-term peak was put in place on 2nd December until/unless proven otherwise. This would likely entail doing some additional selling or hedging if the HUI were to rebound to 480 or above at some point over the next few weeks, and applying relatively tight stops to short-term trading positions. A move to a new 52-week high by the HUI would obviously constitute proof that an intermediate-term peak was NOT put in place in early December. As noted in previous commentaries, such a development would suggest that the intermediate-term advance was set to extend into March-May of 2010. Also worth mentioning is that although it wouldn't be absolute proof, a move by the HUI/gold ratio to a new 52-week high would constitute strong evidence that the HUI had not yet peaked on an intermediate-term basis. With or without new highs in the gold-stock indices, we continue to expect that many juniors will reach new 52-week highs over the weeks ahead. In fact, this is already happening. For example, First Majestic Silver (TSX: FR) and Chesapeake Gold (TSXV: CKG) made new 52-week closing highs on Wednesday of this week and Clifton Star Resources (TSXV: CFO) made a new all-time high last week. |
| 15-Dec-09 | From the 14th December 2009 Weekly Update: Gold  |
| 01-Dec-09 | From the 30th November 2009 Weekly Update: Gold Stocks ...The short-term
prospects of the gold-stock indices are unclear to us, but the
long-term outlook is clear. We'll describe our long-term outlook with
the aid of the following weekly chart of Newmont Mining (NEM), the
world's largest unhedged gold producer. Here's how we interpret the
chart:  Our interpretation of NEM's chart is influenced by our understanding of the fundamental backdrop. |
| 01-Dec-09 | Also from the 30th November 2009 Weekly Update: Efficient Market Baloney We don't know, or know of, any successful speculator or investor who believes in the Efficient Market Hypothesis (EMH: the idea that the current market price takes into account all available information, and, therefore, that "beating the market" is not a realistic objective), but inside ivory towers it is still possible to find many unbowed devotees to this idea. Once someone has made a career advocating a particular theory they will tend to stick with it, regardless of how much contrary evidence emerges. After all, doing otherwise would be an admission that one had misdirected the best part of one's professional life. That EMH is really EMF (Efficient Market Fallacy) is evidenced by the fact that sentiment follows price rather than value. For example, there was obviously a lot more value in the US stock market when the S&P500 Index was trading at 670 in March than there is today with the S&P500 at 1100, but most people were bearish in March and are bullish today. If the market really were efficient then the opposite would be the case. Successful investors are successful because they are able to exploit the market's inefficiency. Most people, however, just get dragged along with the crowd. |
| 24-Nov-09 | From the 23rd November 2009 Weekly Update: Gold  The second chart
shows that when oil was peaking in mid-2008 its 60-week ROC was around
120%, meaning that it had more than doubled over the preceding 60 weeks.  The third and final
chart shows that gold's 60-week ROC is presently around 30%, and that
gold broke out to the upside from a lengthy basing pattern only 7 weeks
ago. It looks 'overbought' on a short-term basis, but does not appear
to be remotely close to 'bubble territory'. By way of comparison, when
gold was peaking in 1974 its 60-week ROC was above 150%, and when it
reached its ultimate peak in January of 1980 its 60-week ROC was in
excess of 200%.  Quick note regarding "tungsten gold bars" A story about gold bars being filled with tungsten has been doing the rounds. We think that this story should be filed under "unadulterated hogwash". There are very good reasons to be bullish on gold. We wish that some gold bulls would stop giving the rest of us a bad name by spreading ridiculous rumours. |
| 16-Nov-09 | From the 11th November 2009 Interim Update: Weimar-style hyperinflation: Is it possible today? Our view for many years has been that focusing on the ability, or inability, of the banking industry to lend new money into existence misses the critical point that it is ultimately the government, not the private banks or even the central bank, that determines the amount of monetary inflation. The fact is that under the current monetary system there is no limit to the amount by which the government can increase its obligations in terms of its own currency. That, in a nutshell, is why we have such a terrible monetary system. It certainly didn't come into being as a way of promoting a stronger economy.The bond market could, of course, impose a practical limitation on government debt expansion at some point in the future, although there is no guarantee that even a plummeting bond market would curtail the expansion. A plummeting bond market certainly didn't stop the frenzied increase in government debt -- and the associated hyperinflation -- in "Weimar" Germany during the early 1920s. The question is: could something along the lines of the Weimar Republic's hyperinflation happen in the US within the next several years? We think it is very unlikely, for two main reasons. First, the US Government will probably default DIRECTLY on its debt before it risks hyperinflation. This is because hyperinflation would destroy the economy, whereas the costs of a direct debt default would largely be borne by foreign governments and institutional investors. Second, we think the most likely next stage in the monetary system's evolution will be a global currency 'managed' by a World Central Bank. However, hyperinflation is certainly possible under the current system. Today's monetary system is actually not as different as most people believe to the one that was inflated into oblivion during the days of Germany's Weimar Republic. Like today's minor (by comparison) increase in the money supply, the spectacular surge in the money supply that led to Germany's hyperinflation was driven by the monetisation of government debt. |
| 16-Nov-09 | Also from the 11th November 2009 Interim Update: Gold Sentiment Is the gold market too 'frothy', with speculative enthusiasm at a dangerously high level? Not as far as we can tell. Actually, we were more concerned about sentiment in the gold market three months ago than we are today. The reason is that during the first half of August gold was trading in the $950s and its price action was indifferent (it had spent several months chopping back and forth below its February peak), but the 'so-so' price action was associated with a high level of bullish enthusiasm. By our reckoning, this meant that sentiment was excessively optimistic. Gold has since broken upward from a large base, and yet sentiment does not appear to be any more bullish now than it was in early August. The total speculative net-long position in COMEX gold futures has risen by about 25% since then, but Market Vane's bullish percentage and the premiums to net asset value of closed-end bullion funds (CEF and GTU) are roughly the same now as they were back then (84%-85% for Market Vane's bullish percentage, 4%-8% for the NAV premiums). While it is true that a lot of traders are bullish on gold right now, this is 'par for the course' for a market in a strong upward trend and at a new all-time high. It would be strange, indeed, if there weren't plenty of gold bulls considering that, with the exception of short-term interest-bearing securities with no additional upside potential (because their yields are already near zero), gold is the only high-profile investment in new-high territory. In summary, gold market sentiment appears to be realistic rather than irrationally exuberant. At this stage it is not, in our opinion, a good reason for 'contrarian' investors to be rushing for the exit. |
| 10-Nov-09 | From the 9th November 2009 Weekly Update: Gold   |
| 27-Oct-09 | From the 26th October 2009 Weekly Update: Gold  |
| 20-Oct-09 | From the 19th October 2009 Weekly Update: The stock market versus the oil market Question for TSI: "You have said that oil's upward trend is linked to the stock market's upward trend and the widespread belief that the global economy has entered a new growth phase. Why, then, are you short-term bearish on the stock market and short-term bullish on the oil market?" In our opinion, both the stock market and the oil market are experiencing counter-trend rebounds that will be followed by declines to test the Q1-2009 lows. Additionally, on an intermediate-term basis these rebounds are linked as noted in the above question. On a short-term basis, however, the oil market is in a much stronger position than the stock market. We say this because the stock market's trend looks extended to the upside (the senior US stock indices are near the tops of "rising wedge" patterns) and equity sentiment is near a bullish extreme for a bear-market rally, whereas the oil market has just broken upward from a 4-month consolidation and sentiment towards oil appears to be indifferent. Something else that should be factored into the risk/reward equation is that oil could, in the short-term, move sharply higher in parallel with a stock market decline if there were a supply shock resulting, say, from heightened tensions in the Middle East. |
| 20-Oct-09 | From the 14th October 2009 Interim Update: Gold There's a good chance that the gold price will reach significantly higher levels over the next couple of months, but the path it will take is anyone's guess. There could, for example, be a 1-2 week pullback prior to a rise to test the next 'big round number' ($1100), but it is almost as likely that the gold price will move up to near $1100 before such a pullback gets underway. Aside from the huge speculative net-long position in the gold futures market, we don't see evidence that sentiment towards gold is unduly bullish. For example, the general tone of the emails we have received of late does not suggest that the public is over-flowing with enthusiasm towards gold. In addition, volatility in the gold market is currently no higher than usual and the premiums to net asset value of the most popular closed-end bullion funds are near their average levels. In fact, there appears to be less enthusiasm than we would expect given that gold is presently the only major financial or commodity market that is making new all-time highs. The sentiment backdrop indicates that the pool of potential converts to the gold-bullish case is still quite large. |
| 13-Oct-09 | From the 5th October 2009 Weekly Update: The TSX Global Gold
Index Fund (TSX: XGD) is a proxy for the gold sector's performance in
C$ terms. The following daily XGD chart therefore tells us that in C$
terms the gold sector has been in consolidation mode since February. In
other words, the gains achieved by the HUI since February are primarily
a reflection of US$ weakness as opposed to gold-stock strength.  To further illustrate
the fact that the gains achieved by the gold sector since early this
year have been more a function of US$ weakness than real strength in
the major gold stocks, we present, below, a chart of Royal Gold. We
usually review the performance of Royal Gold shares that trade in the
US under the symbol RGLD, but today's chart shows the performance of
the Royal Gold shares that trade in Canada under the symbol RGL.
Whereas the US$-denominated shares have just risen to test their
all-time high, the C$-denominated shares remain within a
downward-sloping channel.  The above discussion leads us to a simple concept that surprisingly few people understand. The concept is that when the same commodity or asset trades in multiple currencies, you cannot possibly gain an advantage by buying it in terms of the strongest currency. The reason is that the commodity/asset price will adjust to account for changes in currency exchange rates. For one example, if the C$ gains 10% against the US$ and the C$-denominated shares of Royal Gold (RGL) also gain 10%, then the US$-denominated shares of Royal Gold will gain 20% to account for the decline in the US$. For another example, if the US$ natural gas price gains 10% and the C$ gains 10% relative to the US$, then the US$-denominated shares of UNG will rise by 10% while the C$-denominated shares of GAS will be flat (assuming no changes in NAV premiums). Not only can you not benefit by buying in terms of the strongest currency, if you are using leverage then you will benefit by buying in terms of the WEAKEST currency. The reason is that you will be leveraging the price gains resulting from currency weakness. Assume, for example, that Fred buys RGL shares in Canada using 50% margin (2:1 leverage) and Bob buys RGLD shares in the US using the same leverage, and that both traders sell after RGL rises 10% and the C$ gains 10% relative to the US$. Ignoring financing costs, the result is that Fred achieves a 20% return on investment whereas Bob achieves a return on investment of roughly 40%. Bob has achieved a higher return on investment because he has leveraged the additional increase in the US$-denominated shares stemming from the US dollar's 10% decline. Of course, had the US$ risen relative to the C$ then Fred would have achieved the better return. |
| 06-Oct-09 | From the 5th October 2009 Weekly Update: Gold Stocks After solid up-days last Tuesday and Wednesday we weren't sure if the gold sector's correction had ended at a higher level than originally expected or there was additional downside in store. The HUI made a new low for the move on Friday, so it was obviously the latter. If this is a routine short-term correction (our assumption) then it will probably end this week. Ideally, there will be some additional downside during the early part of the week -- enabling the HUI to test support in the low-380s and the HUI's RSI to drop to around 40 -- followed by an upward reversal.  The current positions
of the premier gold royalty stocks (RGLD and FNV.TO) suggest that the
gold sector is close to a correction low. This is the case because both
stocks ended Friday's session just above the support ranges mentioned
in the 28th September Weekly Update. A chart of FNV.TO is displayed
below.  Also, in most cases
the stocks of the major gold producers are nearing support levels that
should limit their declines IF we are seeing normal corrections within
on-going upward trends. For example, the following chart shows that
Kinross Gold (KGC) ended last week near the top of a support range that
extends from US$20.80 down to US$19.50.  |
| 29-Sep-09 | From the 23rd September 2009 Interim Update: Gold The Big Picture We don't have a long-term target for the gold price in US$ terms because we have no idea what a US$ will be worth in 5-10 years. There's a good chance that by the second half of the next decade a dollar why buy less than it does today, but how much less is anyone's guess. And unless we know what a dollar will be worth in the future, a dollar-denominated price target has no meaning. Rather than thinking about gold's upside potential in terms of the US$ or any other currency, it makes more sense to think about gold's potential relative to other investments and commodities. For example, a good case can be made that the gold/Dow ratio (gold relative to the Dow Industrials Index) will reach 1 at some point over the coming decade. The reason is that the current secular bear market in US equities should end up being at least as severe as the previous two, and neither of the previous two secular bear markets ended until after gold traded at roughly the same level as the Dow. Interestingly, even though the gold/Dow ratio peaked at around 1 during each of the preceding two long-term equity bear markets, it got there in very different ways. During the 1930s the US$ was defined in terms of gold, thus limiting the extent by which the Fed could inflate the money supply. Consequently, gold and the Dow were brought into line with each other via a massive decline in the Dow. During the 1970s there were no such restrictions on monetary inflation, so the gap between gold and the Dow was mostly closed via a rise in the gold price. Further to the above, our long-term upside target for gold is the value of the Dow Industrials Index. The following chart shows that gold is presently trading at a little more than one-tenth of the Dow, so we think the gold bull market and the equity bear market have a long way to go.  |
| 22-Sep-09 | From the 21st September 2009 Weekly Update: The Stock Market Mining stocks may be diverging from reality, again  It is possible that the divergence will build for another 1-2 months before it dawns on investors that the upward trend in the non-gold mining sector has no fundamental support. It is also possible that the divergence will eventually be closed by the SSEC moving to a new high for the year. But as things currently stand, the downside risk in the mining sector appears to be very high. The risk posed by the above-mentioned divergence is one reason why we have just downgraded our short-term stock market outlook to "bearish". |
| 22-Sep-09 | From the 16th September 2009 Interim Update: Gold Stocks The HUI moved even further above its 50-day moving average (MA) during the first three days of this week, meaning that it has become even more 'overbought'. As we noted in the Weekly Update, there is no telling how 'overbought' a market will become before it begins to retrace. The current 23% difference between the HUI and its 50-day MA simply represents risk, because the next short-term correction will likely take the market back to this MA. In other words, the higher the HUI goes without experiencing a significant pullback or a sideways move that reduces the distance to the 50-day MA (even a sideways move would be helpful because the 50-day MA is now in a steep upward trend), the more risky the market will become. At the same time, Wednesday's move by the HUI to a new high for the year was accompanied by a new high for the year in the HUI/gold ratio. This means that although the market is very extended to the upside, it is probably still at least a few weeks away from its ultimate top. For all intents and purposes, the HUI has already achieved the 450 target we mentioned in the 7th September Weekly Update (Wednesday's high was 448). This opens up the possibility that major resistance at around 475 will be tested prior to the end of the rally, but on an intermediate-term basis we now believe that the remaining upside potential is no greater than the downside risk. We are therefore downgrading our intermediate-term HUI outlook from "bullish" to "neutral".  |
| 08-Sep-09 | From the 2nd September 2009 Interim Update: Gold and Currency Market Updates Current Market Situation The following daily chart suggests that December gold futures are breaking out to the upside from the consolidation pattern that began to form in February.  Gold is certainly
capable of rallying in parallel with a rally in the US dollar's foreign
exchange value. We saw a good example of this between December of 2008
and February of 2009, although the best example is provided by the
1978-1980 period (the spectacular rally in the US$ gold price from
late-1978 through to January of 1980 occurred alongside firmness in the
US$ relative to most other fiat currencies). The main reason that large
up-moves in gold sometimes coincide with stability or strength in the
US dollar's foreign exchange value is that gold is more of a bet
against the official monetary system as a whole than a bet on US$
weakness relative to other currencies. |
