pieinthesky

Scaling the Mountain

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We've all seens photos of a guy hanging off a cliff at 20 thousand feet, his fingernails dug into a tiny crevice, one foot perched on a tenuous climbing
peg, the other looking for somewhere, anywhere solid to land. Scaling is a
word which connotes the extreme level of anxiety as opposed to merely mountain "climbing."

Scaling is also a technique used in commodity investing, in which one ac-
cumulates contracts in a commodity which he believes is near a bottom, but
is not sure where or when that bottom will come. This is generally used with
a product that has a well established seasonal pattern, and so one is count-
ing on historical norms to prevail once again, and the bottom to be reached
in a few weeks. In the meantime one goes along merrily accumulating con-
tracts that are still going down, albeit in an orderly and prearranged fashion
such as buying a new contract every time it goes down five cents. Then, once it bottoms, selling a contract each time it goes up more than 5 cents, say 10 cents, thereby ensuring a 5 cent profit on each contract.

There are a few things that can go wrong here: either the market bottoms
well beyond its normal season, or one began accumulating too far above the coming bottom and gets a margin call. Nobody really recommends this
technique for stocks, since they are not as easily pigeon-holed into a sea-
sonal tendency (in spite of such sayings as "Sell in May and go away.")
However, we now have new hybrid securities, which represent a commod-
ity contract but are traded as a stock. One can get them for gold, oil, live-
stock, whatever.

About six weeks ago I became suspicious that oil was overpriced and would
have a nasty correction, but it really was too soon for oil to top out season-
ally. So, I waited a few weeks, keeping an eye on the traffic patterns in
Southern Calif., where I live and drive the freeways daily. Traffic reports
have been way too friendly in general, and from the informal analysis of
being boots on the ground, I'd say that volume is off by a solid 25%. No
one sucks gas like Socal, so I"m sure this is representative of what is
really going on nationwide, gov't statistics be damned. Several weeks ago
I began accumulating (scaling into) shares of DCR, an ETF that is short the
price of crude oil.

As I began, the shares were in the mid $5 range and I calculated that I
would be buying, a little at a time, all the way down to $2, since the oil
season was in full swing still. Yesterday the price had dropped all the way
down to 87 cents on DCR as oil climbed above $133. I snapped up more
shares at what I'm hoping was the bottom. At this point I'm holding 50k
shares with an average buy point of about $2.30, but looking like the guy
at 20,000 feet trying to find a support for his other foot.

From a geocosmic point of view the support is there in the form of a full
moon on 19 May. The May full moon often represents the end of a run.
Also there is a double retrograde tomorrow, as both Mercury and Neptune
turn backwards, suggesting a reversal of price. These are only short term
indicators, but should bring the price of oil below $100. On the further out
horizon, the planet Uranus is heralding new technologies for extracting oil,
which we've all heard about but which haven't seemed to have much effect
on the runaway train that oil prices have been. Still, in the next couple of
years the astrological evidence for oil prices closer to $40 than to $100 is
building. Just put the motorhome in mothballs for awhile. The cosmicmover

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Return Fire

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Back in late March I wrote a blog titled, A Shot across the Bow, in which I
mentioned that David Morgan, a silver analyst, had called for a correction
around the "Ides of March," and that not only silver, but basically all com-
modities corrected at that very point, as he suggested. Shortly thereafter
gold began moving nicely higher and I wrote the above mentioned blog to
caution people not to jump right back in, that there should be another leg
down to $875. And, I felt that we had to wait at least until the Ides of April
before we even considered going back in. Unfortunately, gold did zig down
to $876 a few days after I wrote the article, but that's why I recommended a
time frame as well as a price.

So, when we got to mid-April, I began easing into a precious metals pos-
ition, but not enthusiastically. I do feel there's a smart move coming in the
metals by the end of May, but two weeks ago it just didn't seem to be hap-
pening. However, today we are back to $875, and this feels like sufficient
time has passed. This would give us a double bottom in gold and its only 4
weeks till the end of May. Gold should rally back at least to its old high of
$1030.

In my mind the main question is "Can we count on the junior golds to re-
spond here or is it still just the majors?" I'm starting with Hecla (hl) and Seabridge (sa), which are more mid-tier producers, because I just don't know the answer to that question. I've already included Titanium Metals
(tie) in my portfolio and think it will react along with precious metals. So,
in response to that shot across our bow, it's time to Return Fire. The cos-
micmover.

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Double Decoupling

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For many years the argument against diversifying your portfolio into inter-
nacional bourses was that it didn't really protect you. That when the USA
indices went down, so did all the indices worldwide. And when the Ameri-
can economy tanked, since we were almost everyone's main trading part-
ner, so did everyone else's. There was no escaping the shadow of the American financial world.

Clearly, since the dotcom bust the coupledness of our indices and those of
other countries has been clearly severed. Our indices have barely moved
in the last 7 years, whereas just about everyone else's has made notable
progress. "Still," the naysayers argued, "although our indices may be in
a rut, our economy has been expanding over 3% during that interval and if
we go into recession it's going to stop the global growth." Although this
sounds plausible, and would presumably stop the appreciation in foreign
securities, I keep seeing evidence that this isn't as black and white as it
used to be.

The latest example: the steel ETF, symbol SLX, representing companies,
foreign and domestic in the steel universe. There has been a definite
downturn in construction in the USA this year and the overall market is
down. SLX is up 50% since mid-January, however. How can that be, if
we are the 800 lb. gorilla of the world markets. While our GNP is far lar-
ger than any other country, our consumption of steel to build highrises,
cars, factories,etc. has slowed noticeably in comparison to the other parts
of the world. Our consumption of steel now only accounts for 8% of global
production, meaning that a downturn here doesn't seriously dent the out-
look for steel companies. We don't build factories because it would be too
expensive to fill them with workers, we don't build oil refineries or nuclear
powerplants because nimbys don't want them. We just don't need as much
steel as we used to.

And, it is true that other countries have sent us less since we just don't need
it. But that hasn't stopped them from being able to sell it somewhere else, and at a good price. Steel prices have doubled in the last 6 mos. To me
this is pretty convincing that the decoupling is not just going on in the indi-
ces, but that the underlying economies are decoupling just as quickly. "Go
east, young man." The cosmicmover.

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The Deck Chairs on the Titanic

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Let's stop rearranging those chairs, dammit. There's an iceberg up ahead
and we need to man the lifeboats.

If you're looking at me as if I were stark, raving mad, I don't blame you. Af-
ter all, it was me who wrote a blog less than a week ago, called Pep Talk One, where I tried to encourage poeple to gather their few remaining she-
kels and throw them at the market, on the theory that the really big hitters had already done so and it was ok for us little twerps to jump on the band-
wagon. Oops! Turns out that my dentist gave me an appt. for Thursday,
the 17th of April.

When I checked my astrological ephemeris to see if that would be a fair-
ly painfree day to go under the drill, I realized it would be anything but.
That day is the iceberg! That's "The night the lights go out in Georgia,"
the "night they tear ol' dixie down." What to do? Steady, big guy. Firssst,
cancel that dentist appt! Whew ... feels better already ... now what??
Next, dump, as in sell, your stocks ... yeah! that one too, all of 'em, every
single one of them. Ohhh! this hurts. This little guy's been doing so well
... ok, ok, overboard he goes.

"Don't worry, in time you'll get them all back, somewhat cheaper."

Now, what the heck could turn our fearless forecaster into such a pusillan-
omous polecat that he runs for the liferafts? It all goes back to Feb 20th,
date on which we had a beautiful eclipse of the moon. This cosmic con-
figuration ocurred at 1 deg. 54 min. of the sign of Virgo. At the time
Saturn, a planet known as the Greater Malefic, was lurking about 4 deg.
beyond the moon's position ... at 6 deg. of Virgo. In the meantime it has
been traveling (apparently) backwards, and has an ETA (to the eclipse
location) for 17 April 2008. When the Greater Malefic contacts a point
along the ecliptic that has been sensitized or weakened by an eclipse,
well ... let's just say that Saturn has acquired his title over centuries, mil-
lenia of observations, and it won't be a time for dancing in the streets.

Maddeningly, he is not coming into an angle of conflict with one of the other planets, just passing over an imaginary point out in space. Maybe
it could be different this time? Please, don't hold your breath, just pre-
pare for the worst. People will blame the market's fall on something at
hand, like the subprime fiasco or whatever. As an astrologer I don't be-
lieve that planets cause events here on earth, but that they "coincide"
with them. Like traffic moving forward coincides with a green light, and
traffic stopping coincides with a red one. Using cosmic movements is
like becoming familiar with traffic signals/patterns.

This is such a convincing setup for me that I"ll not only sell everything, but
short the market as well. These new short and double short ETF's will serve
the purpose admirably. Having been forewarned, may you be forearmed.
The cosmicmover.

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Pep Talk One

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In my earliest blogs I mentioned that we wanted to not only accept risk, but
to embrace risk. Oh, I know that its a 4-letter word that ends in "k",and that
investment advisors avoid it like a traffic ticket, but the focus of my columns
and train of investment thought in this contest is to follow the clarion call of the planet, mars. (If you missed it, read my earliest blogs from Jan. and Feb. where I describe the salty, lusty, bloodthirsty events that observers from multiple countries and centuries have noticed correspond to any im-
portant activity by this planet. And how there's always a god associated with this planet, who embodies all of these macho qualities.) And being the
"Marlboro Man" of gods, Mars often leads us where angels fear to tread,
stomping on other people's sensitivities and political correctness with aban-
don.

I mentioned that I expected people worldwide to respond to these mars vi-
brations by accepting more risk than usual, thereby causing the indices to
rally far and wide. And, further, that those who accepted greater risk could
prosper in this climate, all the while acknowledging that there would be cas-
ualties, but that "it's all in a day's work." I then tried to delineate more closely what I meant by "riskier," tossing around concepts like small-cap,
emerging markets,beaten down,etc. At the time I wasn't as clearly aware
of the near global collapse of the credit system as I am now, although I did
understand that what was coming wouldn't be pretty and I tried to allude to
that in my blogs.

In our extremely short history this country has never lacked bold, visionary
individuals, whether frontiersmen, politicians, or entrepreneurs, who stood
up in the face of great danger and plunged ahead with seemingly, divine,
inspiration guiding them. We may look back someday with the same rever-
ence towards those individuals who have turned the tide of banking failures,
both here and abroad, to prevent a total global failure of liquidity. Is it over? It's all over but the shouting. We'll continue to hear about it for some
time now, but what is clear is that mankind has reached across the divisions
that separate us into distinct categories, and grasped hands and said "The
whole is greater than the sum of the parts, whether you are asian or cauca-
sian, hawk or dove, oil producer or oil consumer, we must stand together
and maintain the banking systems across the globe." Amen, brother.

In the meantime, the markets have been pure chaos. Infinitely tiny finan-
cial entities like you and I have been at the mercy of Katrina-like hurricanes
and Indonesian tsunamis. The best laid plans of men(tors) and mice have
been knocked counter-clockwise. Still, I think we should embrace the risk.
What is important is that the guys with the fat wallets have stepped up to the
plate, the sovereign-funders, and now it's definitely time for us little twerps to hop on the bandwagon.

In a more recent blog I chided the pros in Strategy Lab for not a single
stock in the mining area, when we are in the midst of the greatest bull mar-
ket in mining companies since 1980. Not only no stocks, but no mention of
them as a possibility. They've been avoiding the sector like a skeleton in
the closet. Finally, the Dog Pound came out of the closet yesterday and
acknowledged that it's probably the best investment you could make right
now, but that it doesn't fit his predefined mission. Thank you, Dog Pound,
and, yes, it is understandable that you want to be true to your school (of
thought.) I'm doing the same by following March Madness ( don't forget
that the month is named after Mars, the god/planet -- see how it all comes
together in the end!)

So, as of the Ides of April (mid month) I'll be entering the mining sector with
a vengeance, as I agree that this will be the best sector. To those who find
it too "risky" I say,"don't go ... at your own risk." The cosmicmover.

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A Shot across the Bow?

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David Morgan, the noted silver analyst and commentator issued a veiled
warning a few weeks back urging caution on the rapidly escalating price of
silver. To quote him "Beware the Ides of March!" he said. And sure enough right around the middle of March silver and, basically, the entire
commodity complex came tumbling down.

It was very sudden, over just a couple of trading days, and pretty much a straight line down. At about the same time that Morgan repeated that famous line from Roman history, I had turned sour on crude, due to various
fundamental and technical factors that I mentioned in my blog, and called
for lower prices there. Crude did weaken, but not as much as the other
commodities. However, I don't think it's done just yet.

Gold, for example, slipped from about $1030 to $910, about a 12% correc-
tion, and then began working higher. During this gold bull, major corrections have been about 16% and minor corrections about 5%. Since
this is clearly not a minor correction, but just a warning shot across the
bow, look for further downside to $870. And since gold and oil seem to
be gyrating around a 10:1 ratio nowadays (what most commodities ana-
lysts feel is the equilibrium point in the relationship) that could bring crude
oil down to $87.

What time frame am I contemplating here? Since it all began round the
Ides of March, the gods be willing, methinks we use the Ides of April as
our own personal Punxatawney Phil. Don't even poke your head out till
mid-April. The cosmicmover.

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