Have Writer's Brain, Will Travel

I am on what should be the last leg of my journey back from Hawaii. I travel light, but I do have a writer's brain. And that carries its own baggage.

An example: Two days ago, I was in the bathroom of my hotel room, reaching for the vitamins I take every morning. They're brown pills, and I carry them in a plastic bag. Just as I reached for them, one of the "pills" moved.

In point of fact, the pill was some kind of roach. It was the size and shape of my vitamin pills. Perhaps it saw the vitamins, and thought its fellow roaches hadn't invited it to the party. So it went in the bag with them.

When I touched the bag, the roach scurried out. And naturally, I turned into a screaming roach destruction machine, karate chopping everything in the bathroom trying to kill the damned bug: "Crush, kill, destroy!" I finally got the damned thing. I'm just amazed I didn't destroy the bathroom.

Then, I took my vitamin. I decided I wasn't going to let the fact that a roach had been snuggling up next to the vitamins stop me from taking one. But as I swallowed it, my writer's brain kicked in. A scenario unfolded in which I reached in the bag, grabbed a "vitamin" and put it in my mouth, only to have the vitamin/roach suddenly sprout legs and run down my throat. Of course, I would have probably collapsed right then. And that's how they would have found me, sprawled on the floor.

And that basically describes what it's like to have a writer's brain. All sorts of scenarios play out.

Another one: I'm staying at the Best Western Southbay today. It's an interesting hotel, with a strange vibe.  Breakfast is served at an adjoining restaurant. The Restaurant is a Chinese restaurant -- so Chinese that even the menus are in Chinese (they also have pictures).

If you can see the freestanding menu inside the doorway, it's in Chinese.

All but one other patron was Chinese. It was packed. So I'm lucky they found me a little table in the corner, more of a service tray than a table, next to the other non-Chinese patron. He seemed hispanic.

Anyway the first thing that I heard him say was "so is that the gravity you grew up with?" Immediately that sent my writer's brain into overdrive. 

As I eavesdropped on his conversation, it became obvious that he was saying "grandmother" in an accent. But it was too late. My writer's brain had spun out a scenario where aliens concealed a base on Earth by hiding it in a Best Western (because of course!). But Earth culture is one big blur to them, so they didn't realize a strongly ethnic Chinese restaurant would be out of place next to a Best Western near the Los Angeles airport.

And the customers were aliens, but disguised as Chinese, of course, because there are more Chinese than any other ethnicity, and the aliens are trying to blend in. In fact, the lobby of the Best Western that morning was packed with Chinese people. 

Or were they?

Ah, the writer's brain. What a strange thing indeed.

Update on Dollar and OIl

Earlier this week, I said I was writing a post for the Daily Grind on The US Dollar and oil (and also gold).  I did that, but my editor found the story too complex. So I turned it into a story focusing just on the US dollar. 

But that doesn't mean the US dollar is not affecting oil. Quite the contrary. I think the slide in the US dollar from its peaks is one of the primary drivers in the price of oil now.

Here are my thoughts on the US Dollar and oil ...

(link)
This is a chart of the PowerShares DB US Dollar Index Bullish Fund – an ETF that tracks the US dollar closely. You can see it’s in a big uptrend. Heck, a runaway uptrend.

I circled where the UUP/US dollar gapped higher on January 23rd.  Two days later, it gapped down. This price level hasn’t been touched since. That is called an “island reversal.” It is indicative of a short-term top in the U.S. dollar.
If the dollar tests support from its recent uptrend, that’s about 2% lower.  Long-term support is about 4.5% away. Will it get there?

I’ll explore that in a minute.

On the bottom of the chart, you’ll see a chart comparing funds that track the US dollar and crude oil. You can see that they move opposite each other. This is because crude is priced in dollars.

So if you’re looking for a reason for crude oil’s recent rally, I’d say one BIG reason is the pullback in the dollar.

Is the Dollar Running Out of Gas?

But now, oil prices have fallen so far, so fast that drillers across America are closing down shop, at least temporarily. The oil boom has turned bust.

This makes foreign investors think that A) our economy is going to slow down and B) the Fed won’t be so quick to raise interest rates.

Meanwhile, things aren’t so bad in Europe.  Greece, which had threatened to leave the euro, seems to be coming to terms with the rest of Europe. And cheap currencies are boosting exports, kicking economies on the other side of the pond into higher gear.

So now all that money starts to flow the other way.  

What Does This Mean for Oil?

Since oil is priced in dollars, as the dollar goes down, oil goes up. It’s that simple. This should give oil a short-term boost. Mind you, it won’t solve oil’s long-term problems of oversupply. We’ll need to wait for production to slowly wind down and see if new drilling doesn’t start up again.

But as long the dollar goes down, oil could find support.

I'm off to Hawaii. Aloha.

Has the US Dollar Topped Out?

I'll be exploring the US Dollar in a column for FreeMarketCafe.com this week (or on the weekend, whenever they run it). Here's a preview.

(Link)

This is a chart of the PowerShares DB US Dollar Index Bullish Fund – an ETF that tracks the US dollar closely. You can see it’s in a big uptrend. Heck, a runaway uptrend.

I circled where the UUP/US dollar gapped higher on January 23^rd.  Two days later, it gapped down. This price level hasn’t been touched since. That is called an “island reversal.” It is indicative of a short-term top in the U.S. dollar.

If the dollar tests support from its recent uptrend, that’s about 2% lower.  Long-term support is about 4.5% away. Will it get there?

On the bottom of the chart, you’ll see a chart comparing funds that track the US dollar and crude oil. You can see that they move opposite each other. This is because crude is priced in dollars.

So if you’re looking for a reason for crude oil’s recent rally, I’d say one BIG reason is the pullback in the dollar.

Gold PDAC Charts -- Rally Into the Conference

Do you own gold stocks? The reason I ask is because the Prospectors & Dealer's Association of Canada (PDAC), the world's biggest mining convention, is only a month away. Usually, gold ramps up into that conference.

I'm not going to PDAC this year. But I thought I would post some charts of previous years' price action in gold around the PDAC to give you some context.

Let's start with the last GREAT year -- 2011.

You can see that gold ramped up into the conference. Boy, were miners excited. And after a brief rest after the conference, the yellow metal took off again. That brief pullbck in June was pretty much your last chance to buy before gold ramped up into the end of the year.

Pullbacks turned out to be No Big Deal, or NBD. They were buying opportunities. We all felt invulnerable.

Now, let's look at 2012.

Gold had taken a huge dump of nearly $100 right at the end of February, so everyone was nervous going into PDAC. But we'd seen bigger pullbacks, right?

And sure enough, as you can see on the chart, gold recovered nicely as the PDAC progressed. Hey, maybe this WAS the bottom!

 Little did we know that a slow parade of pain awaited us after that March peak. Gold basically peaked after the PDAC and never looked back. The big sell-off came in late-April/early May. It was a "holy $#@@!" moment.

Gold recovered into the end of the year. Still, it was a wiser and more wary crowd that went to PDAC 2013. 

Again with the February sell-off. But again, there was a nice ramp-up into the PDAC. So, things didn't look too bad. They actually looked pretty good ... until later in March, when gold took a massive dump. And then it did it again in June.

By the time 2014 rolled around, we were all building up plenty of scar tissue. Still, there was hope ...

Look at that ramp-up in early 2014, right into the PDAC and beyond. Then it kept rallying. Was this finally the bottom? I remember miners telling me that they were confident, super-confident, that this was the bottom.

But the post-PDAC peak turned out to be a Waterloo. More selling. More bloodshed. More pain.

That brings us to this year. You saw my charts yesterday. Gold is actually breaking a downtrend. I think gold is looking better than it has in years. The fundamentals are lining up, too. So, yeah, I've made bets on gold. But I'm not betting the farm on it, that's for sure.

And if you're going to the PDAC, give them my regards.

Important Charts of Silver and Gold

January was not a good months for the broad markets. But Gold just experienced its biggest monthly jump in three years. What comes next?

Here are some weekly charts of silver and gold that I'll be watching. First, gold ...

(Updated chart)
You can see overhead resistance at $1,300 and support at $1,250.  Gold pushed above a downtrend. I think things look bullish. A lot depends on the U.S. dollar,which may have peaked the week before last. 

Now, let's look at a weekly chart of silver. 

(Updated chart)

You can see a similar pattern in silver (no big surprise there. Silver has overhead resistance at $19, and support at $15. 

Some precious metals news worth reading ...

Chinese Banks in Talks to Take Part in Gold Fixing Replacement
There’s a “more diverse pool” of participants, including from China, interested in being part of the LBMA Gold Price, Ruth Crowell, chief executive of the London Bullion Market Association, said in a statement Monday.

Will Gold Equities Outperform Gold Bullion This Year?
Frank Holmes offers his latest analysis. One tidbit:
As of Thursday, assets in exchange-traded gold products rose for a tenth session, reaching the highest level since October. Investors added 65.6 metric tonnes so far this month, the most since September 2012.  Gold equities, as measured by the NYSE Arca Gold Miners Index, are up 20 percent for January while the S&P 500 Index finished down 3 percent.

Is Gold The New High Yield?
With a rally to start the year, Gold is now up over 6% since the start of 2014 in dollar terms but up 19% in Yen terms and 30% in Euro terms.
The knock on Gold has often been that it “doesn’t yield anything” and that it can be highly volatile. These are valid critiques but today you can say the same thing about the Euro, the Yen, and the Swiss Franc. As long as this is true, the question for investors is which asset is a better safeguard of their wealth: Gold or negative yielding bonds in a rapidly depreciating currency.