There isn’t much to look forward to after the election.  After we get by this financial crisis, we’ll have to focus back on the slowing global economy.  We can try to bail out homeowners and lower rates perhaps a couple more times but that’s about it.  I really don’t want to be a pessmist but I’m a realist when I would burst out laughing if you said that the recession will be over by the middle of next year.  We can fix the credit crisis much faster than we can fix a banking crisis.  It’s not the financial system that is really damaged but it is psychology of the investors of the world.  Here we are after tons of us burned by real estate, money markets, bonds, stocks, and businesses (well not quite since the major impacts of the recession didn’t play out yet).  So the human psychology has been damaged servely especially with the baby boomers nearing retirement.  Let’s say we’ll be in a little risk adverse for a while. So most of us will be hording whatever money or credit that we can get out hands on.  The world will probably be doing the same thing.  Cash is even more king now.  Businesses are hording to withstand the recession.  Bank are hording because they need to compensate for their writeoffs and decreased earnings.  People are hording because we just don’t want to starve or be homeless.  Fortunately for one thing, government sure isn’t hording..they are practically giving away money (think AIG, Banks, Automakers, everyone except you and I apparently).  How come we get mad about welfare to the poor and we don’t get mad about welfare to the rich.  What is up with the stigma?  Anyways we have a crisis of banking not credit at this time.  While money is available from governments, we don’t have anyone in main street willing to part with cash.  Well until…massive inflation.

When inflation starts becoming a topic of discussion, we’ll see some of the biggest moves in real assets.  Moves into oil, gold, and everything real.  There is a disconnect at this time because everyone keeps saying the word “deflation.”  Deflation.  Deflation.  Deflation.  Seriously now how long will this deflation last until the money starts chasing.  Keep in mind, inflation may be a little ways off but it is a certainty that I will bet my life on.  We are going to see runs at certain currencies in the near future and the runs will come like the runs at our banks.  And possibility there may be a run at all currencies at the worst case scenario and we may have to figure out a way to develop a global reserve currency.  I wonder what that may be…perhaps something a little more solid.  But the road to all this money printing will lead to the greatest inflationary pressure that this world has ever seen and that is for sure.

Gold fell pretty hard today along with all commodities but generally we have to think of what is happening in a bigger more macro economic way as we find the dollar to be strenghtening against the Euro but how long will this last if the EU decides to cut rates and start bailing out bank after bank?  Well shouldn’t we rationalize that they will start doing the same thing if they are about half a year to a year behind us?  Well should the gains in the dollar be tempered than?  Should gold rise because of that?  Well there actually shouldn’t it be an inverse relationship?

From the chart you can see that the dollar is hitting a double top at a lower MACD.  It will may hit a new high but at less momentum?  Can this be a double top?  Can the flight to the dollar be increasing during a recessionary period?  But let’s look at gold.

It seems that gold broke out of a downtrend and it reversing but why isn’t it making a double bottom because it should be pretty much inverse of the dollar but it seems that the relationship has decoupled.  Why has it decoupled?  Well it may have something to do with the commodities sell off that affected gold so suggesting that perhaps the low of gold wasn’t really supposed to happen and this point around $800-$830 is really the bottom?  Or perhaps gold may be suggesting increasing fear within the market for all cash in general?

Now let’s think of the markets.  It’s rather disconnected from reality at this time.  We are unsure of the economy.  We are unsure of the bailout although we know it should pass tomorrow morning.  Will it prompt another sell off?  But the market is extremely oversold but this time there is no possibility of a squeeze in the market so how do we play this?  Should it keep going down?    In no other period of my short trading career have I been more unaware of market direction than at this time.  I parallel this situation in the economy as the same as earnings for a stock where it can go up incredibly or even go down (although downside may be somewhat tempered but who knows).  I usually don’t swing for the fences and play earnings and for this market, I need to apply the same principles that have kept me safe and successful.

Disclosure: Long GLD, AUY, Short: IYT

It looks like temporary that the dollars downside is limited but upside is getting better.  Is there a macro economic trend change?  No.  But a simple perception that the Fed is ready to increase rates will suffice to alter the perception of the dollar.  It looks more and more likely that the next move for the Fed will be to increase rates so with the dollar’s rise comes gold’s decline.

Looking at the Gold ETF, GLD, it looks like the chart is forming a lower top and trending down and seemingly will break the 20 day and 50 day moving averages in the short term.  The volume on the second top seems to indicate a sell off type volume suggesting a lot of negative action.  Fundamentally and technically, the charts indicate that gold will trade down to $850 or so.  Today it was down to about $912.
Disclosure: Long CHK, Short NEM (Newmont Mining)