Bear Market Race Week 101: Gold & DJIA Bull Market’s First 443 WeeksPublished: September 19, 2009 by GoldSpeculator The 1929 & 2007 Bear Market Race to The Bottom Week 101 of 149 NYSE’s 52Wk Highs & Lows Gold & DJIA Bull Market’s First 443 Weeks No Defaulting on Contracts made with the Devil! The “Policy Makers” Gold Problem COMEX Gold Default and the Price of Gold Mark J. Lundeen mlundeen2@Comcast.net 18 September 2009 Color Key to text below Boiler Plate in Blue Grey New Weekly Commentary in Black Below is my BEV chart for the Bear Race.  The gap between the 1929-32 Bear, and our Bear, is getting wider. As long as this market continues heading up in little baby-steps, this is my story and I’m sticking to it! This is really excellent market action. But we are still in a Bear Market, and will continue to be in one until reality forces US balance sheets to recognize the massive loan losses from past “Liquidity Injections.” Consumer, Metals and Energy Prices must also raise in proportion to past, current and future US Currency Creation. Stock Market cannot have a true Bull Market, a market based upon profits and losses, until the manipulation by the Fed and US Treasury ends, and we * all * pass through a world of pain. Below is the 8-Count & DJIA BEV Chart  The chart above is one boring chart, and that’s fine with me. Look at the daily percentage moves in the table below. No big up or down-days. In fact this market is mostly up-days. This is excellent market action, but we should expect a correction soon. 
NYSE’s 52Wk Highs & Lows NYSE 52Wk Highs and Lows are lagging indicators. A stock can change from being an Advance to a Decline stock in a single day. But it’s not so simple for a stock to go from one price extreme to the other during a 52 Week period. Let’s take a look at NYSE 52Wk Highs and Lows from 1950 to 2009. I’ve displayed the data as net 52 Week High-Lows, as a percentage of total shares traded daily on the NYSE.  Net NYSE’s 52Wk Highs are rising again. No mystery here. The largest percentage of NYSE 52 Wk Daily Lows from 1950 to 2009 happened almost a year ago. On 10 October 2008, we see that 87.45% of the Stocks trading on the NYSE hit 52 Week Lows. An amazing number! But note how this occurred during the DJIA BEV -40% Bear Market. Last March when the DJIA became the #2 All-Time Bear since 1885, only 25.86% of the NYSE’s Shares hit their 52 Week Lows. It seems that October’s BEV -40% bottom cleared the deck. The chart below, with the Green DJIA BEV Plot, tells the story better than I can. The 2002 Bear Market was nothing special as far as NYSE 52 Wk High and Lows were concerned – strange.  It has been almost a year since the DJIA’s BEV -40%, and 6-months since its BEV -50% Bear bottoms. With the nice Bullish rise in the market, we should expect to see a dramatic increase in the NYSE 52Wk Highs soon. This assumes that the stock market continues to increase. If it does, but the NYSE 52Wk Highs fail to rise dramatically, it’s a sign that the general stock market is not doing as well as the shares included in the stock indexes we watch everyday. That would not be a sign of health in the stock market, and another indication of market manipulation by the “Policy Makers.” But why pass judgment now? I’ll publish this chart in about a month or so and we will see what’s happening in this important internal market indicator. As of today, (18 Sept 2009) the DJIA has increased in price 1-day more than it decreased since the beginning of the 2007-09 Bear. But the Step Sum only looks at whether the DJIA goes up or down. How much the DJIA moves each day is something the Step Sum ignores. So it’s not surprising seeing the DJIA well below its October 2007 highs. But I have to admit, from Day-467 (17 August) to Day-490 (18 September) the rise in the Step Sum has been huge. How much longer can this continue without a correction? If the DJIA & its Step Sum continues to rise, I certainly want to come back to my NYSE 52Wk High and Lows chart in a month from now. The Step Sum is an indicator of market sentiment. When the underlying sentiment is bullish, the Step Sum rises. When bearish, it falls. Think of the “Step Sum” as the sum total of all the up and down price “steps” in a data series over time; an Advance – Decline Line for a data series derived from the data series itself. Logically, bull markets will have more net up days, while bear markets will have more net down days. Understanding the Step Sum is no harder than that. Gold & DJIA Bull Market’s First 443 Weeks On a weekly basis, Gold’s Bull Market has lasted 443 weeks since its start in Barron’s 02 April 2001 issue. Never has a major Bull Market progressed so silently, as have Gold and Silver’s for the past 8.5 years.
Note: in my weekly data files, my data is dated by the Barron’s issue it came from. Doing this allows me to go directly to the issue in question if I later detect an irregularity in my data. As gold has been in a Bull Market for the past 443 weeks, I thought it would be interesting, comparing Gold’s first 443 weeks with the DJIA’s. - Gold (Barron’s Issues Dates: 02 April 2001 – 21 Sep 2009) - DJIA (Barron’s Issues Dates: 09 Aug 1982 – 28 Jan 1991)  The above chart proves the absurdity of any assertion the Gold Market is overvalued. In past reports, I’ve claimed the DJIA in 1991 was overvalued, based upon its Historic Dividend Cycle. But I’ve never seen anyone else make this claim. So in 2009, seeing the Gold Market’s ascent, in its first 443 weeks tracking closely to, yet below the DJIA Bull’s track for most of this same period, on what basis can Stock Bulls now claim Gold and Silver are over priced? If Gold should continue to follow the DJIA’s lead, in 8-years (the 2000 DJIA top) Gold would be at $3,814. Personally, I believe that Gold will do many times better than that, and we will not have to wait 8-years to see the Golden Bull leave the DJIA’s 1982-00 Bull far behind. In the chart above, we may be witnessing Gold’s breakaway move from the DJIA now. Let’s take a quick analysis of the DJIA from 1982 to 1991, the DJIA Bull’s first 443 weeks. For the first few months of the DJIA’s 1982-00 Bull, (Red Plot Above) few people, in or out of the stock market expected much from the DJIA’s piercing of the 1000 level. Their skepticism was warranted. After all, from 1966 to 1982, the 1000 DJIA had disappointed 5-times before, as we see below.  But by Wk100 (02 July 1984, DJIA @ 1,132, & up 44%), the general market consensus was the DJIA was in a Bull Market, with few market commentators expecting the DJIA to fall below 1000 again. That was a good call, as the DJIA then started a 200% rise that terminated in the Crash of October 1987. At the bottom of the 87 Crash, (Wk279) the financial industry started a hugely successful, 13-year advertising blitz making the case to the general public that it was possible to retire in comfort by “investing in stocks for the long-term.” The bottom of the October 87 Crash proved to be an excellent low-risk entry point for the adventurous. In the chart below, we see the NYSE’s Daily Volume increased significantly in the next few years. A sure sign that the public had fallen in love with what Wall Street was selling. Look at the chart below. We can see the day in August 1982 when the DJIA Bull Market started. Look at the jump in NYSE Volume.Bull Markets feed off volume!  The point I’m making is, by Wk 443 in the DJIA’s Bull Market, financial advisors and market commentators, were fully committed in promoting stocks as a means to increasing one’s wealth. After 8.5 Years, the Gold Bull’s 443rd week, Gold and Silver have closely followed the DJIA’s Bull with absolutely * no support * from Wall Street. This is amazing Bullish by itself, but look at what the Precious Metals still have coming their way In September 2009:
 Still, it’s rare finding an “investment expert” who doesn’t wince on TV at the thought of purchasing actual gold, or silver as a hedge for the coming devaluation of the US dollar. Why should this be? No Defaulting on Contracts made with the Devil! The Washington Political Class and the Financial Industry made a pact with the Devil. The deal was that they could do anything they wanted; to anyone they wanted to do it to. The only consequences of their misdeeds would be more power and wealth for the “Policy Makers.” After reading this clause in the Devil’s contract, the greedy cretins saw no reason to read further, and signed on the dotted line at the bottom of the contract.Too bad they didn’t read a little further down, as the more power and Wealth in Payment for Bad Deeds Clause was only to last for a few decades, after which the Hell-to-Pay Clause becomes effective. Since the 1960s, Wall Street has transformed itself from a center of capital formation, financing industry and commerce, into a den of thieves. For the past 10 years, (maybe I should say 20 years) Wall Street has spent its energy into making massive financial deals of no beneficial economic consequence. They’ve become issuers of financial assets of known (to Wall Street) bad faith, and purveyors of fraudulent risk management scams in the hundreds of trillions of dollars. What were the commissions paid to Wall Street banks for derivative sales whose notional value exceeds 1-quadrillion dollars? I don’t know. But no one steals from widows & orphans, on an industrial scale, and not kick back some of the loot to Washington’s political class. It’s just not done! I’m making no allegations of illegal activity. The lawyers in Congress made sure this could be accomplished in a completely legal manner. Wall Street, and Washington in the era of Greenspan, have gone far astray from the days when Barron’s posted Clarence Barron’s credo in the top of every issue. “Finance: The Application of Money to Practical Ends” - Barron’s Masthead Credo from its 1920’s issues The fact is, after decades of inflationary “monetary policy” there is now massively more money locked up in dubious financial assets than there is stuff for these assets to purchase, at current prices. The Hell-to-Pay Clause comes into effect as consumer and energy prices rise to reflect this fact. Sorry to have to inform you, but there is no loophole around this clause. But it seems that China is trying hard to find a way to avoid paying the Devil his due. It’s a pity, but this is simply not possible.China would love to sell their US Treasury Bonds. But to who, and for what? The “Policy Makers” Gold Problem Seeing wealth flow out of their paper assets, and into asset classes too diminutive for bloated Wall Street to fit into, signals the beginning of the end, of our current era’s inflationary business-as-usual financial system. The Hell-to-Pay clause is about to become operative. There is not much the “Policy Makers” can do about it either, other than to continue to lie, and steal from Peter to pay Paul. It goes without saying, that Wall Street and Washington will continue collecting their commissions and taxes for “Services Rendered.” The viability of tens of trillions of Wall Street’s (and the World’s) stocks, bonds and “risk management instruments” are increasingly seen, as questionable assets by foreign central banks and forward thinking investors. For sometime, many foreign financial interests have stopped thinking about how they can they obtain more of what Wall Street is selling. Their current concerns are what should be done with the stock, bonds and derivatives they already have. Rising Gold and Silver prices are rising for a reason; smart money wants out of US$ assets. To understand the difficulties this shift in the flows of money, from financial assets to commodities, presents to Wall Street and Washington, we need only examine the US Gold and Silver Eagle markets. Here is a link and a table for the yearly mintages for US Eagles from 1986-07.
After decades of inflating financial asset valuations, the precious metals market, of actual coins and bars, is microscopic compared to the market capitalization of the world’s bond and stock markets. If only 5% of the wealth currently contained in financial assets exited the stock and bond markets (and US AAA Rated Single-Family Mortgages also) entered the physical gold and silver market, the price of metal would explode! The rise in Gold, is signaling the decline of the US$ and financial asset’s dollar values. Wall Street and Washington will lose most of their influence internationally, as well as over an impoverished domestic society. This is always the result of monetary inflation! The quote below is from William Durant, concerning 10th Century China. "Such were the sources of that flood of paper money which, ever since, has alternatively accelerated and threatened the economic life of the world." -William Durant: Our Oriental Heritage, (1935) pg 780 This is but one example of how monetary inflation has devastated an economy, in money’s four thousand year history. So why are the current schools of Keynesian economics ignorant of this history? Maybe they’re not. Maybe the Greenspans and Bernankes of the world know exactly what they are doing. The best article on this subject was written by Alan Greenspan himself. Seeing gold above $1,500, and rising, as US Long Bonds Yield’s exceed 6%, and rising, will signal the beginning of the end of business as usual for the “Policy Makers.”  From 1975 to 2001, the price of Gold and the yield on the US Long T-Bond were in a tight relationship. We see above that after 2001, as Gold started its rise, US T-Bond yields went their own way, to lows not seen since the 1950s. I expect the decoupling of Gold with the US Long Bond yield is only temporary. This chart strongly suggests (demands?) that interest rates will rise significantly in the future.  If Gold has exceeded its 1980’s highs, I expect to see the yields on US Long T-Bonds to exceed their 1981 highs of 15.04%. If this should happen, the Stock, Bond and Real Estate Markets would be devastated. But it’s darn bullish for Gold and Silver! I’m not cheering for the Bear! But things were done by the best and the brightest in academia, high finance, Congress the Federal Reserve. They sowed our economy with inflation, and we will reap the consequences. It really makes no sense standing on the tracks as a freight train comes speeding down the line. Step out of the way! That’s my opinion anyways. CNBC will tell you something else. But as always, the decision is yours. COMEX Gold Default and the Price of Gold COMEX Gold and its “Open Interest” (number of active contracts trading) are only paper contracts, but at present, they are good as gold in the minds of many. A fact in common with all futures markets, is that most contracts traded are ultimately settled in cash. So delivery of the contract is possible but not usually demanded. After all, who wants 5,000 bushels of Corn dumped on their driveway? This is legitimate, as most traders currently live or die in a world that counts its profits, and loses in US Dollars. However, with the current management of America’s fiscal and monetary affairs, the day is coming when gold traders will stop trading gold at the COMEX as a means of gaining more US Dollars, and begin to see their COMEX contracts as a vehicle to exchange their undesirable dollars for gold. The problem this creates is that the COMEX doesn’t have sufficient gold in its vaults to deliver actual gold to settle all the gold contracts being traded. There is nothing unethical in the COMEX doing business this way, as COMEX Gold Contracts have always been understood primarily as hedges against dollar losses in the Gold Market. This is true in all futures markets. But the possibility of actual delivery was always there, if seldom used by most traders. If the Obama Administration and Congress continues to inflate the US money supply to worthlessness, the day is coming when gold traders will refuse US Dollars, and demand settlement in gold. This will cause a technical default in the Gold Futures markets. It’s a default, as the terms of the contract cannot be honored by the short side counterparties, or the exchange. But only a technical default, as the CFTC will allow the COMEX to refuse delivery of gold, and insist that traders demanding physical gold, have to accept US dollars from their Wall Street counterparties, or receive nothing in settlement. This has just recently happened with Barrick Gold’s counterparties, although this happened outside of the jurisdiction of the CFTC and the COMEX. Barrick owed actual gold, as payment for its gold-loans it had taken during the 1990s and early 2000s. Barrick, the largest gold miner in the world, was allowed to pay back its gold loans in US Dollars. The original gold lent to Barrick came from various Global Central Banks, and I suspect from the US Treasury’s gold vaults too.  What a technical default on the COMEX will do to the price of gold, is not hard to understand. If traders are refused gold, but instead handed a check, payable in dollars, for settlement on their gold contracts, these gold traders will convert their dollars into gold at coin shops and bullion dealers. That is a very tiny door for all those dollars to squeeze into! A default at the COMEX will rocket the price of gold to dizzying heights. How much impact this will have on the price of gold can be understood in the following example. From 1986 to 2007, (21 Years, sorry I don’t have data for 2008 & 09) the US Mint used 14,282,221 ounces of gold to mint its 1oz, and lesser weight Gold Eagle Coins, as per the table above. In the last CFTC Report available at the time of writing my report, there were 451,713 contracts in the COMEX Gold’s Open Interest, each contract is for 100 ounces of gold. That represents a potential claim of 45,171,300 million ounces of gold trading in NY daily for the week of 08-Sep-2009.
The 21-year mintage of US Gold Eagles, (1986-07) is not the entire world’s supply of gold, nor is the COMEX the only market in the world, where paper gold contracts trade. But as the world purchases Gold Eagles and Trades paper gold in New York at the COMEX. It’s interesting seeing the ratio of 3.16 ounces of COMEX Paper Gold to each ounce of actual gold in Gold Eagles.I expect this 3.16 ratio of paper to actual gold to be very low. A ratio of 50:1, or greater, might be more appropriate, as there are many other forms of paper gold other than COMEX contracts, like the gold-loans Barrick Gold defaulted upon.This same analogy is also true for the Silver Market, but most likely even more so! Ultimately, I expect purchasing of Gold & Silver Eagles (or any physical form of gold and silver) will prove to be a wiser decision, than trading paper gold on the COMEX. What Congress, President Obama, as well as the US Treasury and Federal Reserve are doing right now, will ensure I’m proven correct. Dow Jones -40% Declines From 1885 to 2008 is the article that inspired this race of 1929 & 2007 Bear Markets. You may want to read that article to understand my “BEV Chart.” Dow Jones Industrials Average Market Volatility is the source for my volatility studies. The Lundeen Bear Box and Step Sum is the source for my Lundeen Bear Box and Step Sum Chart Note For the Record: Mark Lundeen does not want a devastating bear market in the next two years. However, in full view of Congressional Market Oversight Committees and under the supervision of Government Regulatory Agencies, things were done that I believe will make a historic bear market inevitable. If you have a problem with this bear market, contact Washington, not Mark Lundeen.
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