Since the last letter a lot has transpired and much of it has not been good - for my personal investment stance, for my country and for a good portion of the interconnected global economy. From the most recent (July) letter, GOR Fest:

Conclusion: Stock markets are enjoying a respite from the pain, as are the banks. Soon oil may follow. It says here that the true places to be have not changed through all the emotional short term drama; short term treasury instruments (or equivalent global government debt) for short term liquidity and gold for intrinsic value. A bonus would be a rebound in gold stocks due to the leverage that would fuel their bottom lines in the 'gold outperforms commodities' scenario. With oil having likely topped, the setup is in place to watch gold and cash begin to outperform all assets as the deflation impulse sends people running for safe liquidity. As stated many times, gold may decline in this atmosphere (although I am bullish on the nominal as well as asset-relative price, it is certainly possible), but it should outperform by a wide margin most other asset classes and unlike cash, it will retain enduring value far into the future. Jewelry is not what is important here. Nor is industrial usage or rising commodity prices. What is important, given the pressure on nations to burn their currencies, is investment value.

I would not change much about the above conclusion 1.5 months later. The stock market is still attempting to deny the severity or even the existence of the recession which is now in force in the USA and rapidly spreading across the globe. A "deflation impulse" is certainly sending people (and institutions) "running for liquidity". This is why I have suggested healthy exposure to short term treasury instruments for liquidity purposes (as opposed to value) - thanks to Robert Prechter and EWI I learned the importance of cash equivalents in the safest forms many years ago. Speaking of EWI, they are proving right on many fronts now as the ultimate contrarians have their day. Even gold is playing to their script - an outcome that has always been on the table in my analysis as well, although not necessarily my preferred outcome. I highly recommend the free signup to Club EWI and getting the free report: 2008: The Year Everything Changes. This is either deflation or a deflation scare after all, and these people know a thing or two about the subject.

Oil is likely near a short term bottom and could have a relief rally in time to kick off the home heating season. Incidentally, I just bought enough of the US Oil Fund at the equivalent of $100/barrel as a hedge. The advantages of this strategy are that I am taking a market neutral stance at a technically specified level as opposed to my oil delivery company's 'lock in' price, and the hedge can be dropped at the push of a button as events dictate, so there is no "lock". After a possible counter trend rally, I expect oil to be lower in the spring than it is now.

Gold and the gold stocks? What can I say? I have been right and I have been wrong. I was probably among the first gold bulls to conjure up a potential target of low 700's for gold and have been watching the Head & Shoulders top form in the HUI since a potential right shoulder was merely a twinkle in the market's eye. I became very cautious as commodity bulls continued to party. Why have I been wrong then? Because had I been smart enough to quantify the correlation between the commodity mania and the assumptions about inflation baked into that cake... had I known the levels to which the 'get me outta here at all costs!' flight to liquidity of the commodity bulls would affect the gold miners, I would have been 100% cash. Instead I personally opted for 'healthy' cash levels and a mentality of bottom feeding in stages. The distinction between this tact and 'catching a falling knife' is that I am fundamentally engaged - for better or worse - and thus compromised as a pure technician. In fact, with gold stocks I have rarely been more bullish in the big picture than I am right now. A true bottom feeder BOTTOM FEEDS and that is what I have been doing.

What I would like to do now is put up some monthly charts. I have found these big picture charts do well enough on their own in telling their story. As major US financial institutions continue to take the dirt nap and as we lurch ever further into socialism with barely a whimper from the public, as the financial noise of the day melds into a kind of relentless static, I often find peace in the big picture. Following are linear scale charts as opposed to the usual log scale. These charts do a better job of showing dramatic price fluctuations.

Bull over? It is possible that gold entered a cyclical bear within an ongoing secular bull market. This would effectively shake out all those who think rising oil, rising copper, rising healthcare, rising food, etc. is inflation and go hand in hand with the potential scenario "gold may indeed decline in a deflation impulse, but it will decline less than positively correlated commodities". Please excuse the typo. It should read "many will call 'bull over' when seeing MA's like THIS violated...".

What else needs to be said about Huey? It is not only in a bear market, it has incurred most of the bear market damage in what might be record time. This is a crash. There is no other way to put it. HUI has finally however hit the 260 H&S top target that has been hanging over our heads since it was confirmed by the break of the neckline around 400. It still says here that in a contraction - and if this isn't a major economic contraction that will be fought tooth and nail with inflation policy, I don't know what is - the gold miners bottom lines will benefit handsomely.

A look at the TNX-IRX yield curve ratio. As Bob Hoye will tell you, the curve rises during a contraction and the above chart is bullish. Contraction it is.

Remember your old uncle... the one who would always do embarrassing things at family get togethers? Jokes that were always a little 'off'; flatulence at the most inappropriate times; long winded diatribes of a politically incorrect nature? Well, he is back and he has crashed the party and if this chart is to be believed and respected - I do respect it - he is here to stay for a good while. That is because an entire investing world - save for a very few - has placed its stance, in highly leveraged fashion, on the concept that the US Dollar is any more worthless than the other major currencies. I have previously argued that the Dollar will find nearly impossible odds in trying to overcome the noted major resistance. This level should repel the Dollar in the short term, given the extremes that so many markets - including USD - have come to on daily and weekly charts.

But the Dollar's ultimate fate will be decided by the level of de-leveraging still to come and the state of competing economies, most notably Europe and China. Suffice it to say the Chinese are very pleased with the increasing value of their Dollar reserves, not to mention being let off the hook by the American tax payer in the Fanny & Freddie mess. If this is not a tell on the desperation of our policy makers... 'Keep China happy, they hold all those treasuries!!'

Is the solution in the Euro? How about oil? 'Got to own those resources' say the inflation traders. But this is economic contraction and in this environment, cash is king and the other alternative, gold, is going to rise from court jester to crowned prince as most nations face increasing pressure to "burn their currencies" in the name of economic survival.