Gold and the CCCP Trade

April 12, 2011

  • Swiss celebrate daylight… European Gold Forum opens… and the rally in metals takes a breather…
  • Oil tumbles $5 as Goldman calls a pause to the “CCCP trade”
  • “Invictus” warns of a commodities sell-off at the end of QE2… while Richard Russell advises ignoring the “top callers”…
  • Stocks sell off, too… Greg Guenthner identifies a few stalwarts bucking the trend…
  • Readers, meanwhile, get “far-out“ on philosophy and hold a private conversation about capitalism… on cue, Atlas gets ready to Shrug… more questions about Strategic Currency Trader resolved… and more…

After seeing the ashes of the Boogg yesterday, it wasn’t clear to us exactly how many weeks of spring the Swiss expect to enjoy this year. Nor did anyone we asked seem to care…

The festival of Sechselauten has a nice spirit anyway. It celebrates the arrival of the time of year when workers will be able to enjoy a few hours of daylight after knocking off at 6 p.m.

A festival for burghers, oilmen and this fez wearing brigade alike…

After they light the Boogg on fire, the historic workers guilds put on a parade with marching bands and traditional costumes. Old Town turns into a pedestrian block party of beer gardens and impromptu band performances until late into the night.

Conveniently, the European Gold Forum opens in Zurich today, too. The forum, hosted by the Denver Gold Group, is a private forum “designed to showcase institutional-quality precious metals companies to major global fund and portfolio managers, institutional investors and analysts.”

Our friend Bill Baker, whom you may recall from the last Apogee episode, is here, as well as Matterhorn Asset Management’s Egon von Greyerz. Vancouver favorite Frank Holmes is the keynote for tomorrow’s session.

They’ll have plenty to talk about when the forum gets under way. Gold tumbled $20 this morning, to $1,446, and silver plummeted nearly 80 cents. And as we write, silver just broke below $40 an ounce.

With gold pulling back to $1,450, Richard Russell says “buy again,” if you’ve been holding off.

“Because the precious metals are in a massive bull market,” writes the dean of newsletter men, “many eager amateur analysts are now trying their hand on calling ‘the top.’ This is a hopeless and ridiculous endeavor during a powerful bull market.

“Much of this top-calling is done by an anti-gold element: those who dislike gold or those who have missed the entire gold bull market. My advice all along has been to ‘ride the bull’ and to ignore the ‘top callers.’

“Stay invested in the metals until they exhaust themselves in panic buying.”

The precious metals tumbled as soon as U.S. trade deficit numbers came out at 8:30 a.m. EDT. It narrowed 2.6% in February, to $45.8 billion, after reaching a seven-month high in January.

Demand for imports fell for the first time in four months.

Coincidentally, oil has pulled back more than $5 in the last 24 hours. It’s now a few pennies below $107.

In 2008, oil crashed from $147 in July to $33 in December. The CRB, a broad commodity index, crashed 58% between July 2008 and March 2009.

Not a forecast per se, for this time around, but some food for thought.

“Invictus,” the pseudonymous blogger who keeps company with Vancouver favorite Barry Ritholtz provides a chart tracking the CRB since its March 2009 low… along with the Federal Reserve’s purchases of U.S. Treasuries:

Federal Reserve Treasury purchases started picking up pace in August of last year — at the very moment Ben Bernanke signaled in his annual Jackson Hole address that more quantitative easing (QE2) was on the way. Commodity prices have barely looked back since.

But QE2 ends on June 30. And there’s no guarantee QE3 will follow immediately.

Should Fed purchases of Treasuries level off as they did between September 2009-August 2010, commodities might well head into “consolidation mode.”

Accordingly, our friends at Goldman Sachs say the “CCCP trade” is off.

If you follow hockey, the letters “CCCP” strike angst into your heart and will no doubt bring back memories of the 1980 “Miracle on Ice” victory of the U.S. Olympic ice hockey team.

But in this case, it is not the Cyrillic alphabet abbreviation for the Soviet Union. Rather, like “BRIC,” it’s another bit of Goldman Sachs shorthand. Last December, Goldman created a commodities basket consisting primarily of “crude, copper, cotton and platinum.”

The basket shot up 25.3% in four months.

But now Goldman is advising clients “the risks are becoming more symmetric.

“Not only are there nascent signs of demand destruction,” a research note goes on, “but also record speculative length in the oil market.”

Translation: The CCCP basket could go down as easily as it went up.

Copper, we noted last week, already topped out last month, and it’s down another 1.3% today. Cotton, too, is off its recent record highs and down 2.3% today. Platinum took a hit last month as the Japanese earthquake put a dent in worldwide auto production.

Like commodities, stocks are tumbling on a Tuesday morning. The Dow and the S&P are both off about three-quarters of a percent.

In addition to the trade deficit figures, traders don’t like the news that Japan has upped its severity estimate of the nuclear crisis at Fukushima to the same level as the Chernobyl disaster of 1986.

Nor were they fooled by the first shot fired in earnings season: Alcoa’s profits beat the Street’s estimates, but its sales were a big disappointment. We wouldn’t be surprised to see a lot of that going around in the weeks ahead.

[Ed. Note: As always, a few stocks are bucking the trend. Greg Guenthner recommended one this morning to readers of Bulletin Board Elite, where already this year readers have collected gains of up to 70% in only 12 days. Bulletin Board Elite is our most expensive service, but from now through Sunday, we’re making it easier than ever to join.]

The money flowing out of stocks and commodities is not flowing into the dollar. Indeed, the dollar index has hit a new 15-month low of 74.9.

The real beneficiary of the flight to safety — and we saw this a month ago with the earthquake in Japan — is U.S. Treasuries. Yields on the 10-year note are back down to 3.5%.

And just a day after Bill Gross added to his Trade of the Decade sell position… hmmmn.

“It was with great respect,” a reader tells us, “that I read that not once, but twice the so-called sheeple of Iceland have told their oh-so-great leaders to pound salt. Sometimes, it just makes me feel good when people stand up for themselves and decide they ain’t gonna take it anymore.

“Go, you Icelanders.”

“If the naive jerk,” writes a reader with an aggressive tone out of touch with his comment, “who suggests that all ‘takers’ from the government be removed from the voting rolls, then to be consistent, we will need to remove every business that gets a tax break; all farmers; everyone who took an accelerated equipment depreciation; all dividend-receiving shareholders of big corporations such as GE that made billions last year but did not pay a penny in taxes due to legal tax credit entitlements [called deductions]; everyone taking a mortgage interest deduction on their taxes; everyone getting Social Security, Medicare or Medicare, etc.

“That should leave about eight hermits living in Vermont known not to be collecting food stamps at the moment. If the pain from the needed cutbacks is spread fairly, everyone should be feeling the pain, including your simple-minded reader.”

“In the beginning of our country,” responds another, “Only property owners could vote. I am not advocating a return to that standard, but surely those who pay no net taxes should not be allowed to vote.

“Until we have some control over the product of our efforts and they are shielded from those too lazy to work anything but the system and the totally misguided who want to redistribute our income to those lazy ones, we are doomed.”

“Philosophically,” a reader suggests tangentially on our blog site, “is it crazy for a company to pay CEOs extremely high salaries and bonuses because they have to be competitive while paying most of their workers as low as they can?

“For example, many tech companies use H-1B foreign employees and outsourcing to lower their costs to replace hiring American citizens. No wonder there is a huge wealth disparity. Now Maine is letting high school kids work 24 hours a week during school at below minimum wage. The race to the bottom continues.”

“The companies will always pay no more for a position than necessary to get the talent they need,” another reader responds. “This applies to positions at all levels.

“Now, while we may agree that many CEOs have demonstrated far less talent than they promised, and should be canned (or caned, if your sensibilities aren’t offended by such a suggestion), it is pure BS to assert that the ‘workers‘ are underpaid in either relative or absolute terms. Because if true, each underpaid worker would be the target of talent headhunters from other companies who recognized the opportunity to use that talent to make money.

“That’s what a company exists for… to produce a return on capital for the investors.”

“The age of capitalism is gone. Socialism has come back. The owners and investors get paltry returns. The management who run the business make disproportionate returns. They simply steal the money!

“The board is hand in glove with management. The representatives of investors on the board are looking for favors and have to let management share. Moreover, they lack both talent and integrity and talk faff and write sham.

“How come Chinese banks are not bankrupt, and yet their staff is not the highest paid in the world? How come the highest-paid bankers went bankrupt? Talent, of course!

“This is all corruption on an unprecedented scale. When the ‘talent’ failed, public money was used so that this talent could go back to buying boats, enjoying holidays in the South of France and blowing the rest on hookers.

“And that, my friends, is the true talent.”

As if on cue, “I don’t know if I missed it,” writes our next reader, “but have you included the announcement that Atlas Shrugged the movie is opening Friday the 15th in selected theaters. I, for one, can/t wait!”

The 5: We did mention it, here. The film opens Friday, Tax Day, in 301 theaters nationwide.

Addison Wiggin
The 5 Min. Forecast

P.S.: “I’m a new subscriber,” writes someone who seems to get us. “I thoroughly enjoy your insightful commentary: sometimes a little scary, but only because it is the truth! I also find myself laughing out loud more than once as I read it. My girlfriend asks, ‘What the hell is so funny?‘ “I love it. Keep up the good work.”

The 5: Thanks for giving us a shot.

P.P.S.: “I’m thinking about joining Strategic Currency Trader,” one more reader writes, “and would like to know if I can use my account at Fidelity in an IRA.

“Also, if it costs $31 to jump into a play, does it also cost $31 to jump out?”

The 5: You’ll likely need to set up a separate account to trade the one-of-a-kind market that editor Abe Cofnas follows. However, doing so is as simple as it gets. We’ve watched over the shoulder of people who’ve signed up for an account do it in as little as five minutes.

And to clarify… jumping into a play costs $30 for a typical contract, plus a $1 fee. The fee to jump out is also $1. That’s chicken feed when you’re talking about gains of 104% last week, 170% the week before and 239% the week before that.

Sound intriguing? Please review this special offer from publisher Joe Schriefer right here.


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