Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The Fed’s Conundrum (by Bob K.)

By -

By now we are all painfully aware of the direct and now not
so secret support the equity markets are enjoying from the Federal and their
Broker Dealer proxies.  From their point
of view what they are doing makes perfect sense and is moral, in their
eyes.  Let’s review why they are doing

  • Bank
    valuations must be at attractive levels to allow for follow-on Secondary
    offerings to recapitalize their balance sheets. An additional knock-on
    effect is the ability for the banks to mark as profits any rise in their
    portfolios due to equity valuation gains.
  • Large
    Insurance companies also are incredibly undercapitalized, and any rise in
    the equity market releases strain in future insurance rate increases and
    requirements to sell more equity, plus they also get to remark their
  • The
    banks are holding a lot of commercial real estate debt and  REIT debt, as equities rise they get to
    refinance or sell equity to buy time, also supporting the banks balance
  • Pension
    funds, this in my view the new big monster, reports are out this week that
    show State Public Pension funds are undercapitalized by over 2 Trillion
    dollars. Only three ways to solve it, collect more, disburse less, and/or
    have a higher rate of return. 
    Number one is political suicide right now, number two, is a
    nonstarter as the unions won’t cooperate, thus leaving number three.
  • Here
    is one nobody talks about, Tax receipts. 
    When is the only time in the last 50 years we ran a budget
    surplus?  Yup, during the last stock
    market bubble.  What propelled
    it?  You guessed it, cap gains
    taxes.  When you have a tax regime
    that is so progressive, you can only generate sufficient tax revenues by
    letting the wealthy generate capital gains.

OK, you can see from their point of view the upside is a no
brainer.  But, beside from the sheer
illegality and moral aspect of this, how will it help us bears.  We have been ramming our heads against
support lines, negative divergences, poor fundamentals, etc.  But we are up against free and unlimited
money, so what do we look for?

In my view, the FED and the political elite only fear three
things.  Unacceptable increases in food
and energy costs, an alternate reserve currency, and/or a loss of control of
interest rates.

With 20% of the population un or underemployed, any
additional rise in gasoline prices will bring a howl of protest from the people
who see that the banks are bailed out, getting bonuses, and the rich having a
strong stock market.  The cost of energy
is being driven by the price of the dollar, and in my view has reached its
tipping point.  I believe this will knock
the carry trade fuel from the market.

Interest rates over 4% will prove to be a strong competitor
to the stock and Reit markets, we have now reached this level.  Only strong fear of loss in the equity market
will scare people into bonds and lower the rates.  Our government will sacrifice the stock
market on the alter of the bond market.

Thirdly, the FED under no circumstance will allow our
reserve currency to be supplanted by commodities based alternatives, without a
huge fight.  We are seeing some of that
exposed through disclosures of the massive short positions in the currency
metals by the Primary brokers.  Silver is
not backing down in price, as gold has done, and gold usually follows silver.

Bottom-line, we are close to the tipping point, I think all
future moves will now have other consequences.

I always maintain a long gold position and every time
Oil gets to the $80 level I short it. I manage my positions by hedges with
options.  I am also watching TBT above 50
as a signal that the bond market is in protest. 
Good trading.

Too Late for PMI?

By -

PMI Group, shown below, is up 1700% since last March. What's interesting to me about this chart is that it has formed a beautiful inverted head & shoulders pattern, suggesting a price move to about $10 or so. I've got to say, it would be a little nerve-wracking buying into a stock like this, since the jump from about $3 to $6 only took a couple of days, and therefore there is hardly any support between the present price and a 50% decline. All the same, it's a nice pattern.


There's no more guest content in the hopper, and after this quarter, I only feel like finding the nearest corner and curling up into a ball. I'm done for the day. See you in the morning.

That Time of the Month

By -

First off, while I'm thinking about it, plans are slowly coming together for Slopefest in Las Vegas. I won't go into all the details now, but it's shaping up to be held on the night of Sunday, May 9th. If you haven't expressed your interest yet, you can do so here

As for the quarter which (thank God) just ended – – on the one hand, the bulls seem utterly, totally, and absolutely in control. Look at this monthly graph of the Russell 2000:



For the past thirteen months, only two of them yielded a black candle, and March's candle was hugely up.

The daily chart, on the other hand, suggests a tired market. But the synonyms that have been used to describe the equity markets for so many months, such as tired, overbought, overextended, exhausted, or God-knows-what-else haven't done the bears any good. Tired or not, it keeps going higher.



Today was weird enough, but tomorrow should be an extra-spicy version of weird since (a) it's the first day of a new quarter (b) it's the last day of the shortened trading week (c) the hugely-important jobs report is coming out on Friday, a market holiday.