Monday, October 29, 2007

Beware of Speculative "Sure Things"


You would be hard-pressed to find an analyst or pundit who isn't bullish on gold and oil and bearish on the U.S. dollar. The agreement is virtually universal: the dollar is doomed, and gold and oil are rocketing up with no end in sight.


My contrarian instincts suggest the universality of these views dooms them to be almost certainly wrong. The NASDAQ would never drop below 4,000 (2001 pundits), the Dow Jones Industrials were heading to 100,000 (2000 pundits) and oil would remain cheap for a decade (1999 pundits). In every case the "standard model" of the financial/ mainstream analysts was exactly opposite of what eventually transpired.

But rather than argue, let's look at some charts, courtesy of frequent contributor Harun I. Let's start with oil, which just hit a key Fibonacci level at $92/barrel:

There are three large charts today; please view them at www.oftwominds.com/blog.html .

Next, here is gold, which also sports some divergences which suggest the euphoric speculation might be getting a tad overdone:



The much-maligned dollar, meanwhile, has declined to a key Fibonacci level, suggesting it might rear up out of its torpor and maul the complacent dollar Bears:



We should recall here that oil derivatives and futures contracts far exceed physical oil. Which is just a polite way of saying that rampant speculation can power oil higher independent of actual inventories and supply/demand. The same is of course true of gold; speculation in gold-based instruments can be independent of physical demand for gold.

In times of euphoric bullishness, the "solid fundamentals" are always touted ad nauseum. Yet when the price plummets, the fundamentals remain more or less in place. Were the fundamentals of the petroleum business horrible on August 16 when oil dipped to $67/barrel? No. Are they now 37% better, a mere 10 weeks later, now that the price has risen $25 to $92/barrel? No.

Will the dollar be debased to 27? If Fed Chairman Bernanke drops interest rates back to 1%, perhaps it will. But in the meantime, we should be alert to the old nostrum that nothing goes up or down in a straight line. The buck has dropped in a nearly straight line, and gold and oil have skyrocketed in nearly uninterrupted moves up.

Call me contrarian (or worse), but the charts suggest to me that big reversals are coming due this week. Maybe they will be brief interruptions in a trend; nonetheless, being on the same side as 99.99% of all the pundits, analysts and experts usually buys a one-way ticket to stunning (and entirely unexpected) losses.


Thank you, Matt N., ($20) for your thoughtful and generous donation to this humble site. I am greatly honored by your support and readership. All contributors are listed below in acknowledgement of my gratitude.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:


Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative). If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.


PRIVACY NOTICE FOR EEA INDIVIDUALS


This section covers disclosures on the General Data Protection Regulation (GDPR) for users residing within EEA only. GDPR replaces the existing Directive 95/46/ec, and aims at harmonizing data protection laws in the EU that are fit for purpose in the digital age. The primary objective of the GDPR is to give citizens back control of their personal data. Please follow the link below to access InvestingChannel’s General Data Protection Notice. https://stg.media.investingchannel.com/gdpr-notice/


Notice of Compliance with The California Consumer Protection Act
This site does not collect digital data from visitors or distribute cookies. Advertisements served by a third-party advertising network (Investing Channel) may use cookies or collect information from visitors for the purpose of Interest-Based Advertising. If you do not want any personal information that may be collected by third-party advertising to be sold, please follow the instructions on this page: Limit the Use of My Sensitive Personal Information.


Regarding Cookies:


This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative) If you have other privacy concerns relating to advertisements, please contact advertisers directly.


Our Commission Policy:

As an Amazon Associate I earn from qualifying purchases. I also earn a commission on purchases of precious metals via BullionVault. I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP