-- Posted Monday, 6 February 2006 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Monday, February 6, 2005
For investors who’d rather be smart than lucky
We may get a chance on Monday to try out some of the theories espoused here the other day under the rubric “Buying Gold Without Pain.” We much prefer getting aboard when there’s weakness to exploit such as we saw on Friday. Newmont in particularly is a favorite because it is one stock that institutional investors absolutely must own if they want to show bullion assets on their books. On Friday they let NEM fall, as strong hands are wont to do when a stock they need to buy starts getting too pricey. At the final bell NEM appeared bound for a hidden-pivot support at 58.21, about a point-and-a-half below current levels. A lesser hidden-pivot support at 59.41 could break the fall, but the one at 58.21 looks more promising as a place to try to bottom-fish.
The most important aspect of hidden pivots is that, when they work, they work very precisely. In practice this means we’ll be able to bid 58.21 for Newmont shares, using a stop-loss as tight as 58.17. Because of the way hidden pivots work, if the stock turns on the proverbial dime it will come as no surprise. But if it trashes the pivot and triggers the stop-loss, we’ll know that a down-cycle of a larger order of magnitude is at work – in this case, one that would point lower, to at least 57.25. We could attempt to bottom-fish again at that price, risking just a few pennies on the stop-loss; and to do so repeatedly as the stock falls, risking relatively little each time.
If one were to lose a nickel per share on each of five trades using this strategy, the 0.25-point total loss could be recouped in an hour if and when the stock finally turns. We needn’t buy the stock, either. Instead, we could leverage hidden-pivot swing points by buying call options. In the example above, instead of bidding 58.21 for shares, we might substitute February 57.50 or Feb 60 calls. With NEM trading at our downside target, the calls would be a pretty decent buy for, respectively, 1.80 or 0.71, as the Option Calculator shows.
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Statistical Fellatio
Of all the statistics the U.S. government promotes, none is more brazenly bogus than the monthly unemployment number. Yesterday’s news that it had fallen to 4.7% in January spooked stocks by sparking fears of “inflation”. How perfectly idiotic, even if it’s exactly the kind of headless-chicken reflex we’ve come to expect on Wall Street each and every Friday.
Economist Kurt Richebacher took pains in his January newsletter to explain where quite a few of the phony jobs are coming from. In the late 1990s, when dot-com firms were growing payroll faster than hairs on a chia pet, Uncle Sam’s bean counters decided that small businesses were generating more jobs than were being lost from the death of big businesses. So they created a “net birth/death” model, and joblessness hasn’t been the same since.
The model has been a terrific success to the extent it has allowed millions of Americans to return to hypothetical jobs. And get this: The greater the job losses through business deaths, the greater the assumed job gains through the BLS and its net birth/death model. This isn’t merely massaging the numbers, it is performing fellatio on them. The net birth/death model has been responsible for the creation of more than 800,000 jobs in the last two years alone. The adjustment may have been justifiable at the height of the dot-com boom, but now? Few besides Richebacher seem inclined to look a statistical gift horse in the mouth, but the rest of us can only hope that those millions of hypothetical workers do not take to the streets someday.
Howard Hill Weighs In
I’ll leave you with the following ruminations on phony job stats from our astute friend Howard Hill:
“Years ago, I learned how to tackle a runner in the open field. The answer: Watch the hips, not the head. Today's headline, hyped by the talking heads, is the peculiar government statistic that unemployment has fallen to its lowest level in years. Why do I think it's a head fake? Because the payroll numbers have steadily lagged the working-age population numbers. How can it be that we have lower unemployment when the number of people working is growing slower than the number of people of working age? This is right up there with the other ‘solid economy’ fantasy numbers that say a 3% annual wage increase is somehow strong. I don't know about you, but my absolute necessity cost of living has been rising a whole lot faster than 3%. If anything, it's worse for most of working America, as every employer out there spreads more and more of the health care costs onto the workers or the taxpayers.
“For all the panic over Adjustable Rate Mortgages resetting higher, where's the concern about $8 Trillion of Federal Debt resetting higher? A Bloomberg article today pointed out that the growth in discretionary spending over the past five years under single-party control has now exceeded the annual rate of Lyndon Johnson's five year ‘Great Society’ spending binge. News from the reality tester, folks.... When the Federal Government spends more than it takes in, it raised your taxes, unless you manage to die first. We now return control of your financial news to the talking heads and their sound byte headlines that are trying to fake you out. Put on the rose-colored glasses and keep investing for all that demand. At some point, your economic well-being will require that you think about Joe Six-pack's absolute necessities, and avoid anything he can do without.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2006, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Monday, 6 February 2006 | Digg This Article | Source: GoldSeek.com
