Demand for Electrical Power is Collapsing & Barron’s Confidence Index Is Approaching Depression Conditions Levels

Mark J. Lundeen
Mlundeen2@Comcast.net
10 February 2012

Electrical Power Consumption (EP)
From the first week of December 2011, to the 13 February 2012 issue of Barron’s; electrical power consumption’s 52Wk M/A BEV has declined a full 1.25% in only two months!

Minnesota, the land of snow and cold, is now enjoying the mildest winter in a very-long time. This has been true for other northern US states with significant populations, all large consumers of electrical power in the winter. But I also sense the economy is slowing down. So, is this HUGE 1.25%decline in EP (05 Dec -13 Feb) a response to unusual seasonal factors? Maybe. Or maybe Doctor Bernanke “injected” so much “liquidity” into the economy; that the pathology of “Toxic Money Syndrome” (TMS) progressed to the point of no visible-economic return: the point where increases in the money supply can only produce negative economic consequences.

Do you think I’m being an extremist? Then go to the Demonocracy.Info link below to see their graphical representation of just how many dollars are in the world. For your information, in 1920 there was only four billion dollars (two truckloads) in the world. In the past 98 years, the Federal Reserve, the global “engine of monetary inflation”, has been very busy.

http://demonocracy.info/infographics/usa/world_debt/world_debt.html
If this new downtrend in EP doesn’t turn around by the end of March, and continues its decline into April, I’m calling the new downturn the start of a new phase in the continuing credit-crisis recession/depression. However, a -4.0% decline in EP before April will be an automatic tripwire for me to declare our economy is in cardiac collapse.

In any case, EP is still a long way from making a new all-time high, and has been since August 2008. There is something very wrong with the American Economy as true growth = growing demand for electrical power. So, I hope this isn’t what it appears to be; a collapse down to depression levels of economic activity. But darn if it doesn’t look like something of great importance (in the bad sense of the term) is occurring in EP’s chart below! Currently, the US government’s economic statistics are optimistic, as demand for electricity in the economy is plummeting. These two sources of economic indicators can’t both be right. Time will tell us which indication provided timely information on our future economic trend.

Barron’s Confidence Index (CI)
I haven’t posted the Barron’s Confidence Index chart for a while, so here it is. Since 1938, Barron’s has computed its CI by dividing their Best-Grade Bond Yield by its Intermediate-Grade Bond Yield to derive the CI. I pushed the series back to 1934 using the yield from the now discontinued Dow Jones 40-Bond Average as a substitute for the Intermediate bond yield; both yield series were very close to each other. I derived my Best-Bond Yield by taking an average yield of ten bonds published in Barron’s whose yields were close approximations to the first published value of Barron’s Best Bond Yield in their 19 Dec 1938 issue. The Dow Jones 40 Bond Average yield goes back to 1926. Unfortunately, Barron’s began publishing corporate bond prices and yields in their 01 Jan 1934 issue, so 1934 is as far as I could go.

The results of my improvised 1934-38 CI are impressive. From 1932-37, the markets saw an excellent recovery from their lows of 1932; so seeing my improvised CI above 80 from 1934-37 is something to be expected. Then from October 1936 to Barron’s first published CI value in December 1938, the CI collapsed to 45 as the US economy, and Dow Jones entered into the second deep economic turndown of the 1930s. All-and-all, my five year extension in Barron’s CI time-line is a valuable and timely addition to this venerable economic indicator.

But before I go any further with Barron’s Confidence Index, I first must explain the difference between Best Grade and Intermediate Bond Yields before you can understand the importance of this data series.

Come summer, winter, spring and fall (economically speaking) there are always a few companies that prosper no matter what happens in the economy, but most don’t. During the Roaring 1920s; Standard Oil of New Jersey (Exxon today) and General Motors, each appeared as prime credits in the bond market when business was booming. I don’t have the needed bond data before 1934, but I expect the bond yields for these two companies would have been very similar to each other during the boom years of the 1920s. Confidence in a continuing boom of the 1920s was epidemic:

“The nation is marching along a permanently high plateau of prosperity.”
– Irving Fisher, Yale University October 23, 1929
(6 days later Black Tuesday occurred)

Much like Alan Greenspan during the 1990s, Irving Fisher was the best known economist, and guru of growth in the 1920s. His economic statistical series were published in Barron’s. On 23 October 1929, few doubted the validity of his above statement of perpetual prosperity, which he knew was based on credit expansion. However, in 1935 when he published his book “100% Money”, he seems to have had second thoughts of the wisdom of credit expansion as a source of prosperity.

“Thus, our national circulating medium is now at the mercy of loan transactions of banks, which lend, not money, but promises to supply money they do not possess.”
– Irving Fisher, 100% Money

No data on the CI is available for the 1920s, but it must have been above 95, as
bond purchasers of that era, like Doctor Fisher, assumed the good times would last forever. Considering the mind-set of the Roaring 1920s, risk premiums for General Motor’s bonds (intermediate grade) must have compressed down to that of Standard Oil bonds (best grade) bond’s levels. But the inherent risks in these bonds were very different.

Remember, mass production of automobiles didn’t exist 30 years before 1920, making auto manufacturing in the 1920s’ bull market a much favored high-tech growth sector that everyone had to own! Sound familiar? That the internal combustion engine was the transportation of the future was true enough, but that didn’t mean that its pioneering manufacturers would be the long term beneficiaries of horseless transportation. To go from almost zero in 1900, and expand auto production exponentially in only three decades, the automobile industry assumed huge debts in the bond market to finance their growth. To service this debt, the auto industry had to sell new cars, which proved to be no problem during the Roaring 20s. However, the 1930s was no friend of high-tech growth companies with huge debts.

Unlike auto manufacturers, Standard Oil was an established giant of American business decades before Henry Ford invented the assembly line. Standard Oil was incorporated in Pennsylvania in 1868. In 1911 when it was broken up with anti-trust legislation, New York City had more horses than automobiles on its streets. The largest of the remnants of the old Standard Oil Company was Standard Oil of New Jersey (Exxon today), and its bonds were the best of the best as debt service was a negligible expense. Standard Oil’s capital infrastructure (refineries, pipe-lines, etc) had been paid in full long before 1929. That, plus it funded its operations by cash flow on a product that people purchased daily in good times or bad. For most people, buying a new car in 1932 was on top of the list of things * not-to-do * during the Great Depression. But
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When the US economy fell into the Great Depression, the difference between best grade bonds (Standard Oil of New Jersey), and intermediate grade bonds (GM) became painfully evident to the holders of their bonds. Had Barron’s published their CI in the early 1930s, I imagine their CI would have recorded its lows of the 20th century, as company after company fell into receivership because they couldn’t service debts taken on during the boom-times of the Roaring 20s.

So what does the Barron’s CI actually measure? The bond market’s confidence; or fear of future economic conditions that American corporations must service their debts. Strangely, the CI’s ability to anticipate future bull and bear bond markets is extremely poor. The Confidence Index * is not * a measurement of potential profit to be had by investors or money managers purchasing bonds, but the bond market’s confidence that less than best grade bonds issuers can service their debts to term. In CI’s chart above, I placed reference lines and text at CI levels I believe are strategic.

A CI above 90 indicates the bond market has an extreme level of optimism that debt laden corporations’ can service their debts to term. In other words, business is booming, and the bond market sees no future economic difficulties. Corporations with less than stellar balance sheets (bonds found in Barron’s Intermediate-Bond Yield Average) are borrowing money in the bond market at rates near best grade bonds to expand their future operations.

A CI in the 80s indicates a healthy skepticism of future economic conditions, causing risk premiums in intermediate-grade bond to expand. Every entrepreneur believes their product has infinite demand – the bond market knows better. Hopefully, this increase in project financing results in the cancelations of planned expansions of productive capacity by companies with weak balance sheets; companies that might not bear the increase burden of additional debt should the economy slow down. Here we see the bond market’s negative feed-back mechanism needed to check productive expansion beyond economic demand. This vital market feed-back mechanism is currently disabled as the world’s central bankers are now dictating bond yields.

A CI below 65 indicates the very real fear in the bond market of coming waves of bankruptcy and corporate-debt default that always result from significant, and prolonged economic declines.

My next chart shows the Barron’s yield series used in constructing the CI. The CI is computed by dividing the Blue Plot (Best Grade) by the Red Plot (Intermediate Grade) seen below. As I said before; the CI has little value for predicting bull and bear markets for bonds. The CI increased from the low 40s in 1940 to an amazing 99 in 1966, as bond yields doubled and consumer prices increased far above their pre-war levels. So, not only did bond valuations decline after WW2, but the dollars they were valued in continued to purchase less. Then from 1966 to 1981-82, consumer prices increased to double-digit rates by 1979 as all bond yields (including US Treasuries) saw double-digits current yields. One only has to look at Barron’s US Treasury Bond table to see US T-Bonds issued from that era with double-digit coupons trading in the bond market today. But during the 1970s and early 1980s, investors in bonds hemorrhaged money; however the CI never fell below 80 because the bond market estimated that most bond issuers would survive the inflationary 1970s & early 80s, and pay their debts in ever cheaper dollars.

Remember, the CI does not concern itself with the profits or losses of bond holders, just the likeliness of intermediate-grade bond issuers to stay in business, and servicing their debts. This makes Barron’s Confidence Index an economic, * not * a bond market indicator.

Why did bond yields explode from the late 1940s to the early 80s? For the same reasons bond yields * should * be going up now; the Federal Reserve was recklessly “injecting” too many dollars into the banking system. This inflationary fact was also true after 1981 to the present, but the inflationary flows from the Fed shifted channels in 1982; from consumer prices into financial asset valuations. Since 1920, this has happened several times.

Below we see data that has been published weekly in Barron’s for many decades, with Currency in Circulation (CinC = dollars in circulation) going up in good times and bad. The world loved Greenspan as his inflation (green plot) flowed into the Dow Jones (red plot) and high-tech stocks. But the world will come to hate Bernanke, as his inflation will ultimately flow into consumer prices (blue plot), as asset prices eventually deflate.

Price inflation of financial assets destroys the value of historical price data. Previous to August 1971, when the US defaulted on the Bretton Woods’ $35 to an ounce gold peg, little can be made of the data above. But making the prices of the Dow Jones and Barron’s Gold Mining Index (BGMI) ratios to the always increasing CinC, we see the flow of inflation shifting into the BGMI (a proxy of consumer prices), and the Dow Jones (a proxy of financial assets) several times since 1920.

You will never see the chart below on CNBC or Bloomberg TV, but the only 20th century Dow Jones bull market that exceeded the rate of inflation from the Federal Reserve occurred during the 1920s. This is a disquieting fact to most people who have invested in the stock market for decades for the purpose of funding their retirements. But to most people, if they are honest, they are now less well off than they were a decade ago because of what the Federal Reserve does in the economy – inflate the money supply to maximize profits for the banking system. Where do you think all that money used to finance mortgages, and second mortgages a few years back came from? The Fed and its banking system!

You should also note that the BGMI is typically countercyclical to the Dow Jones, as gold and gold miners naturally prosper during times of increasing consumer prices. If the past is prologue, gold, silver and their miners have one heck of a bull market ahead of them.

After the top in the Greenspan High-Tech market (January 2000), I suspect that if the “policy makers” had allowed the market to follow their natural course, as their Federal Reserve continued its recklessly expansion of the money supply, bond yields today would all be double digit. My reasoning for this is that from 1971 to 2001, the trend in the price of gold was a leading indicator of US Treasury long bond yields.

I placed red-dashed lines in the chart below at key trend changes in the price of gold. The relationship between trend changes of the late 70s to the late 80s between gold and T-Bond yields are not instantaneous, or proportional, but are there. After October 1987, to 2001, both gold and Treasury yields trended down together.

But this thirty year relationship didn’t survive long after Doctor Bernanke’s Helicopter Money speech, as we see in the chart below. The actual title of the Doctor’s speech was: “Deflation: Making Sure ‘It’ Doesn’t Happen Here” was delivered a month after the 2000-02 high-tech bear market bottom. The context is clear; Doctor Bernanke promised to use the one tool the Fed has, the power of its monetary-printing press to prevent the valuations of financial assets like stocks, US T-bonds and mortgages from “deflating” should he be selected as the successor to Doctor Greenspan as Chairman of the Federal Reserve. He did succeed Greenspan, and he kept his promise to Wall Street, who loves the guy for all he does for them.

“If we learned anything from 2008, it’s that liquidity is the key variable. Liquidity flowing into the system cures a world of ills.”
– Mitchell Stapley, the chief fixed-income officer at Fifth Third Asset Management. 07 Feb 2012

Well, if money managers applaud Doctor Bernanke’s anti-deflation “policy” of inundating the financial markets with “liquidity”, the rising price of gold is flashing an unambiguous warning of financial disaster to come.

We are currently seeing the largest bubble in the history of mankind, a bubble in the world’s massive bond markets. I’m not the only guy concerned of central bank machinations in the global fixed income markets.

I’m not smart enough to time the market; and those who try calling market turns find it’s a bad habit that’s easy to break. But take a moment and revisit my chart of Barron’s CI, and compare that to the charts above plotting gold and T-bond yields. To my eyes, something significant changed in the wake of the Greenspan High-Tech market bubble top of January 2000. The CI now has that 1930s’ look to it, and the spread between the price of gold and US T-bond yields in the chart above has only widened in the past eleven years, as America’s central planners continue their quest to slay their dragon-of-deflation with massive “injections” of “liquidity”. Something big, bad, and really ugly is lying in wait somewhere ahead of us; yep – Mr Bear and his financial market clean-up crew.

We all like a pat on the back for a job well done. So I think we all owe something to Barron’s statics department, without whose dedication in recording dry statistics from one decades to the next; boring old-fashion market statistics that since 1980 have been mostly ignored by the public as well as Barron’s columnist and editors. I dare say that I’m the only person on the planet Earth who currently studies Barron’s CI, Barron’s 50 Stock Average, and other Barron’s proprietary data series that span many, many decades.

My concern is that Barron’s is largely ignorant of the treasure trove of economic and market data they’ve published over the decades; and what you don’t use – you lose. So if you find my work analyzing Barron’s historical data useful in understanding market and economic trends, use the link below to show a little appreciation for the continued publication of their CI & EP, and the importance of Barron’s statistics in general.

mdcfeedback@barrons.com
We don’t want Barron’s to lay off their statistics guys to cut costs if things get really tough – do we? No we don’t! So take a moment and say thank you for a job well done.

Mark J. Lundeen
Mlundeen2@Comcast.net
10 February 2012

New Elliot Wave Silver Discovery

By Alf Field

I have received numerous emails asking about silver. This article was prompted by a question enquiring what the silver price might be if my gold forecast of $4,500 proved to be correct. The question caused me to take a closer look at silver.

The reason why I have written very little about silver in the past was because the beautiful Elliott Wave (EW) symmetry and predictable relationships visible in gold were not to be found in silver. This article reveals a new EW discovery that proves that EW is alive and well and living in silver.

I first wrote about silver in December 2003 in an article titled “US Dollar Implosion Part II”. The link to this article is at: US Dollar Implosion – Part II. The brief piece on silver was tacked onto the end of that article. In view of its brevity, the 2003 silver piece is reproduced in full below:

Quote:

SILVER

“In past crises, the wealthy protected themselves by purchasing gold and gold related assets. Ordinary people, by far the greater number, could rarely afford to buy gold. Being far cheaper, they previously had to buy silver. This metal became the poor man’s choice as an asset to protect their savings. Silver has so far lagged gold in the early stages of this bull market, but that situation seems about to change.”

“Throughout recorded history the average relationship between silver and gold has been 15oz silver to 1oz gold. The ratio at present is a far higher 75:1 ($400/$5.30). This is massively out of line. If gold were to double to $800 per oz, it would not be unreasonable to expect the silver/gold ratio to decline sharply, possibly as low as 40:1. With gold at $800, this would position silver at $20.

Thus a 100% increase in the price of gold could possibly be accompanied by a simultaneous 400% increase (perhaps more) in the price of silver. This offers significant opportunities both in silver bullion and silver mining shares.

The above graph of the price of silver has been borrowed from an excellent recent article by Dan Norcini entitled “A Technical Look at Silver Update”.

What is quite clear from the graph is that silver’s 22-year bear market down trend has come to an end. As Dan Norcini says, a new bull market in silver has been born. It is difficult to argue against this contention and I have no intention of doing so. A silver price above $6.80 would complete a fabulous head-and-shoulders base formation. With this as a foundation, it would be possible to project a very large rise in the price of silver for the future.” end of the December 2003 quotation.

Silver did reach $20.68 in March 2008 at the same time that gold peaked at $1003. The silver to gold ratio was thus 48.5 in March 2008. The lowest this ratio has reached SINCE 2001 is about 32, achieved at the end of April 2011 when gold was around $1570 and silver peaked in the $49 area. At that point gold had experienced a 6-fold increase from its bull market starting point of $255 while the silver price rose 12-fold from its starting point of $4 in November 2001.

The quick answer to the question of what the silver price will be when gold gets to $4,500 is to pick your favorite silver/gold ratio and divide it into $4500. The current ratio incidentally is about 51. If you choose the lowest ratio achieved since 2001 of 32 that would produce a silver price of around $140 ($4500 divided by 32).

This is not a satisfactory answer, so I decided to approach the Elliott Wave analysis of silver from a different angle. Instead of working upwards using the analysis of the minor waves, which was the technique used in the gold calculations, what if we worked backwards in silver starting with the larger waves?

Gold and silver tend to move in tandem, not in an exact synchronization, but enough to suggest that the Major waves of both metals should coincide from a time perspective. We know that in gold the Major ONE wave peaked in March 2008 at $1003 and that Major TWO declined to $680 in November 2008.
Silver also had a peak in March 2008 at $20.68 and declined to an important low of $8.77 in November 2008. If we assumed that the peak at $20.68 in March 2008 was the end of Major ONE and the decline to $8.77 the end of Major TWO, how would the various percentages work out? When I did these calculations I was astonished at the relationships and wave counts that emerged.

The chart below is the monthly spot silver price shown in log scale so that the percentage changes are visible. The bull market started in November 2001 at a price of $4.02. From that point to the suggested peak of Major ONE at $20.68 there are five clear waves visible, marked 1-2-3-4-5. The prices at the various turning points are also displayed.

The analysis of the suggested Major ONE wave is set out in the body of the chart. The typical impulse wave relationships are immediately apparent. Both corrective waves 2 and 4 are similar (-33.7% and -35.9%). Whenever two corrective waves are similar it is a signal that they are part of the same larger wave structure. On its own, this fact would confirm that the 5 wave move from $4.02 to $20.68 was a complete wave of larger degree.

There is further corroborating evidence. Waves 1 and 5 are similar at +106% and +115%, a usual EW feature. Wave 3 should be the longest wave, and it is at +171%. In addition, if one multiplies the gain in wave 1 of +106% by 1.618 it produces 171.5%, exactly the gain in wave 3. These relationships are evidence that the rise from $4.02 to $20.68 is a completed impulse wave and that we can call it Major ONE.

Having completed this 5 wave up move, the next correction in Major TWO would be expected to be one degree larger than the two corrections of 33.7% and 35.9% in Major ONE. As shown on the chart, Major TWO declined from $20.68 to $8.77, a loss of -57.6%. The two corrections of 33.7% and 35.9% are close to the Fibonacci 34. The next higher number in the sequence is 55, close to the actual decline of 57.6% in major TWO. Incidentally, if we take the 35.9% decline and multiply it by 1.618, it gives a figure of 58%, very close to the actual decline of 57.6%.

These relationships suggest that silver has completed the same shaped bull market as gold has and that it is at the same stage in its development. Thus silver has probably also completed the first intermediate up wave of Major THREE, in this case from $8.77 to $49.52, a gain of +$40.75 or +464% and has also completed intermediate wave 2 of Major THREE, being the decline from $49.52 to $26.39 or -47%.

How does this decline of -47% measure up in terms of EW relationships? As with gold, where the corrections in Major THREE were shown to be larger than the corrections in Major ONE, the same applies to silver. The corrections in Major ONE shown in the chart above were close to -34%. If we multiply 34% by another Fibonacci relationship of 1.382 we get 47%!

This is mind-blowing stuff for an analyst who did not believe that EW applied to silver!

We can now attempt to make some price forecasts. Silver, as with gold, is starting intermediate wave 3 of Major THREE, which should be the longest and strongest wave in the bull market. It should certainly be longer than intermediate wave 1 which was the gain from $8.77 to $49.52, or +464%, as shown above.

Thus the gain in wave 3 of Major THREE should be larger than +464%. It should be a gain of at least 500%. Starting from the $26.39 low, a gain of 500% would produce a target price of $158.34 for silver. That is the number which equates with the $4500 price forecast for gold and produces a silver to gold ratio of 28.4 ($4500 divided by 158.34).

The gain in gold was forecast to be 200% for this move while the forecast rise in the silver price is 500%. Silver is again predicted to perform better than gold based on these EW calculations.

A word of caution is appropriate at this stage. All EW studies are based on probabilities. While the wave counts may provide a high degree of confidence in the forecasts, one cannot be 100% certain of any forecast. It is necessary to have a point at which it is obvious that the forecasts are wrong. In the case of this silver study, the line in the sand is at $26.00. If the silver price drops below $26.00 the odds are that the above calculations will not work out.

A further word of caution: silver is not for the faint hearted. Silver is considerably more volatile than gold and the corrections are much larger. Silver corrections can and do happen quickly. They are emotionally gut-wrenching and it is easy to get shaken out of one’s position near the bottom of a large correction.

Alf Field
1 February 2012
Comments to ajfield@attglobal.net

Tail Events, Isolation, New Normal

by Jim Willie CB
January 26, 2012

home: Golden Jackass website
subscribe: Hat Trick Letter
Jim Willie CB, editor of the “HAT TRICK LETTER”

Use the above link to subscribe to the paid research reports, which include coverage of critically important factors at work during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by compromised central bankers and inept economic advisors, whose interference has irreversibly altered and damaged the world financial system, urgently pushed after the removed anchor of money to gold. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy.

The year 2012 has started out in strange ways. While celestial forces augur for rare tail events, the assurance of man-made events that stretch far into the extreme tail of probability are not only very likely but will be of a type to reflect the change in the global balance of financial power. The Paradigm Shift mentioned over the course of the last two to three years is at work, having moved into a higher gear. The gold is moving from the West to the East, along with the power. We will not see the process reverse in our lifetime. The sanctions set against Iran have been devised by a former global leader nation that is beset by insolvency, fraud, and lost integrity. The backfire has consolidated forces into a more fortified position against the USDollar. Trade increasingly is not being settled in US$ terms. The icons of the day are mere apologist public address systems attempting to rationalize and justify the deep insolvency and wrecked systems. The new normal is of a caravan file of broken cars and trucks sputtering down the road, using the false fuel of hyper monetary inflation and the offensive paint of phony financial accounting, the tell-tale sign being the ugly rancid smoke out of their tailpipes. The last insult is of the US Presidential election process, which is badly marred by obvious inconsistencies and anomalies. The vote count for the candidate that attracts the biggest crowds, attracts the biggest donations from corporations, and defies the financially teetering system does not match the final official tallies.

PREPARE FOR RARE DAMAGE OF TAIL EVENTS
In the probability world, a tail event is described as an occurrence far out in the small numbers of probability, extended on the tail of the curve of likelihood. In the quality control domain, the battle cry used to be Six Sigma, meaning the tolerated defect rate goal would be six standard errors, a rate in no way achievable. A quick check of the probability tables unmasks the lofty goal as one defect part off the assembly line in every 1.013 billion items. That is Six Sigma on the normal bell-shaped curve. However, in the world of phony finagled finance, such rare events are indeed occurring. The modern world has never seen such grotesque charred ramparts posing as financial structures, badly beset by the insolvency caused by the natural sequence of broken asset bubbles, aggravated by absent industry. In fact, the entire fiat currency system, where money is nothing but redefined debt, is an abomination destined for the ruin we see on such a tragic widespread level. The modern world has never seen such grotesque housing disasters, the dream of home ownership turned upside down, one quarter of American households owing more than the value of their homes. In fact, the entire housing dependence devised by Greenspan, where the USEconomy would lean not on industry but on rising home equity, serves as the calling card of central bank heresy. The heresy continues with the high priest ZIRP and bishop QE. Of course it ended in tears. The modern world has never seen such grotesque quicksand in sovereign debt for so many major nations. This goes far beyond Greece, Ireland, and Portugal, the symbols of small fry nations that few nations will make deep sacrifice for. In fact, as the sovereign debt spreads, it has become clear that Italy, Spain, France, and many other nations suffer from the sinking pressures that national securitized debt brings. As the sovereign debt loses value, the banking system sheds reserves valuation and goes insolvent, the credit engines stall, the economy falls into recession, the labor force loses jobs, the spending patterns falter, and the nation goes into a failure mode. See the Cauchy distribution in the graphic, which when the degrees of freedom grow unbounded, approaches the Gaussian normal.

Some important tail events of rare type are coming. Any attempts to control a Greek Govt Bond default will be fraught with high risk and deep peril. The equal necessity to control a default for Ireland and Portugal will be made obvious. The extension to Italian and Spanish Govt Bond losses in collateral damage will be obvious. The implications to Credit Default Swaps must also be handled, not possible in the same fraudulent manner as before with redefinitions and denied insurance awards. The contagion of vanished equity in the banking system will spread to London, New York, and Germany, in whose nations numerous banks will fail. It will be extremely difficult for the USDollar to ward off such powerful storm damage, and remain as the global reserve currency. Some distant maritime voices might regard my claims as premature and far-fetched, but their preoccupation with gold basis has left their voices mere reverberant richochets in the hinterland. The academic voices seem out of touch with trends, the loud laps on the rocks from waves of inflation hardly recognized for their damage from the remote seacoast. They seem unable to foresee the new found land that is forming in the East, divorced from the USDollar.

IRAN SANCTIONS BACKFIRE INTO ISOLATION
In the last two weekly articles, the backfire was described regarding Iran sanctions, the response from the emerging economies, and the harmful effects of foreign nations grappling with defense from the uncontrollable unbridled unending printing of phony money. The USGovt actions have galvanized a response, led not by Iran but by China. The raft of bilateral accords juiced by currency swap agreements has provided a significant buoyancy in the global trade framework, a highly complex system. It dictates the flow of USDollars in obvious ways, but it also dictates the formation of reserve banking systems in more subtle ways. In 2007, when Brazil and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice like a prairie dog raising his head with erect spine. In 2010, when Russia and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass took notice again. The big trade winds were changing direction. The extreme importance of trade and banking interwoven should not be overlooked, as often done by the clueless cast of US economists. So when in the last month, Japan and China announced a swap facility to bypass the USDollar in trade settlement, the Jackass concluded that the end was near for the waterlogged American financial fortress. These are two primary Asian powerhouses, who with South Korea form the core strength of the entire East.

The USDollar might not be attacked on several front with harsh assaults so much as it will be relegated into irrelevance, as the USDollar will be ignored and left to defend itself in the open fields where wolves and dragons roam wild. Note the parallel to the COMEX, which as a market will also be relegated into irrelevance, as the precious metals will be traded elsewhere, in markets where private accounts are not stolen. Entire Compliance Departments have forbidden usage of the COMEX as of January, due to outlaws overrunning the floors. As the USEconomy is isolated, it will be compelled to bid up whatever foreign currency is required to purchase commodities and finished products. In reaction, the USDollar will fall in value.

In April 2010, a conference took place in the United Arab Emirates among a couple hundred billionaires, sheiks, and other royalty. They decided to embrace the Chinese Protectorate plan for the Persian Gulf, and to accept Russian oversight in the region. Without the Asian offset to the American aggression, no stability is remotely achievable. That event served as a clear signal that the sunset shadows for the USDollar were soon to encounter reality. The process would clearly require a couple years, but the writing was on the wall. Much critical structural work would be required to complete, as trade, banking, currency, and gold management has become far more complex and integrated for the array of professors to comprehend. Not sure such developments are detectable in the maritimes, especially in academic outhouses or local taverns. Furthermore, the actual Dollar Kill Switch had to be devised, with confirmed connection to the OPEC oil trade. My source has informed me that the switch is finally in place and ready. Recent events show the East walking toward the switch. The numerous defiant gestures by China, Iran, Russia, India, and Japan paint the billboard in big bold letters. The workaround of the USDollar is moving fast apace. A confirmation occurred just last week when the Saudis and Chinese announced a joint project for a refinery to be built on the Red Sea. The Saudis in effect were tipping their hat to the Chinese, and again were turning their backs on the Untied States. The signals are abundantly clear. What we are witnessing is the end of the Petro-Dollar in slow steps. The steps are unmistakable to those who study the interwoven nature of global finance. They are easily overlooked by those who operate within the dome of perceptions controlled by the American apparatus, and are locked in mental gibberish ensconced in gold basis. The crowning blow might have been announced this week, as India will pay for Iranian oil in gold bullion. The news invites many questions. Apparently, the Turkish intermediary will not be needed. Gold for oil sounds like a historical point in time.

Backfire extends to Europe, where the absence of Iranian oil supply will cause some extreme problems. The shortages are soon to be acute, word coming from a German source with great contacts in the middle of the mix. He wrote this morning, “The Persians are cutting off oil shipments to Europe, effective immediately, which will kill Greece, Italy, and the other Club Med deadbeats. The West with their sanctions led by the Americans screwed itself royally. The Asians and others are dis-engaging from the Western banks as fast as they can. Expect to see more wild fluctuations in the Gold and Silver prices continue. Until this week, the Gold forces did not know how weak the Anglos already are. They have hardly any firepower left.” Difficult decisions will be made toward the USGovt leadership. It is shaky. It is lacking integrity. The nation is smeared by the splatter of fraud. Its markets are propped by the heavy hand of daily interventions. Its economic data is laughed at as a fantasy. Its elite are given huge grants without global approval. Its central bank makes decisions unilaterally, without conferring with USGovt creditors. The foreign anger is ripe. The motive to seek alternatives is at high pitch. Big changes are in progress, pushed along ironically by the USGovt itself. If their spokesmen insists on the many major global trade participants to take sides, the crew in WashingtonDC might be in for a shock, colored by isolation. The real loser will eventually be the USDollar, whose Petro-Dollar defacto standard is being washed away by central bank liquidity and leadership arrogance. The US financial body resembles a pig adorned with lipstick with each passing day.

NEW NORMAL OF HYPER MONETARY INFLATION
It is hard to describe fully the lost ways of the US Federal Reserve. The phrase New Normal is a transparent attempt by financial icons in the private sector to put a face of legitimacy on a system bound in the USDollar and its heavy handed management, reinforced by a daisy chain of $trillion frauds. Such cannot be done. The term was coined by Mohamed El-Erian, from the PIMCO helm. Bond fraud followed by TARP Fund fraud, followed by Financial Accounting fraud, followed by Mortgage Contract fraud, followed by unauthorized multi-$trillion fraudulent grants by the USFed, followed by the grand sequence Quantitative Easing to wash value out of the USDollar, followed by the unilateral undercut to USGovt creditors, followed by more unilateral decisions to sanction Iran for nuclear weapon development that even Defense Secretary Leon Panetta admits is not a reality, well, does not make for global leadership. It makes for a travesty. Yesterday the USFed released more directives. So the USEconomy is stuck in a weak reverse gear. The accommodation will extend until year 2014. These guys are basic liars. Even Bill Gross of PIMCO takes shots at the central bank policy or ruin. The United States will suffer financial repression (in Gross’s words) if the Federal Reserve implements additional bond monetization as policy. The USFed will hold its benchmark interest rate at near 0% for at least the next three years, as a testament to central bank failure. No departure from the 0% rate can be done. The USGovt debt service requires it, demands it, and will default without it. The ZIRP and QE are worn as badges of failure and dishonor.

Remember the Green Shoots of USEconomic recovery in 2009? The Jackass dismissed it as nonsense. Remember the Exit Strategy later in 2009? The Jackass dismissed it as nonsense. Remember 0% was for just six to nine months, an emergency policy? The Jackass dismissed it as nonsense. Remember how Quantitative Easing was to be temporary in 2010? The Jackass dismissed it as nonsense. Remember how the 0% accommodation was to last until 2013, announced early this year? The Jackass dismissed it as nonsense. It is all the stuff of cows and bulls propelled from hind quarters, piling on the meadow in lumpen form. Tragically, the reality is more simple. The 0% rate (ZIRP) and the heavy hand of monetized bond purchase (QE) are permanent or else the system falls apart and collapses. Such an admission would send the USDollar, the Euro, and all major sovereign bonds to the woodshed for processing in a pit filled with excrement, where they will ultimately end up. The tragic fact from the world of economics, is that 0% and bond purchase kills capital, diminishes the economy, puts business asunder, ruins jobs, and causes federal deficits to grow. They are not stimulus, but rather financial formaldehyde.

GOLD & SILVER READY FINALLY TO RUN
For the last several weeks, a theme was mentioned numerous times, that the 1650 level would be defended. It would be defended not just vigorously, but almost to the death. Enormous naked short positions are in place between 1625 and 1650, put by the gold cartel. They might be in the process of being overrun. My sources inform that in November an important team was assembled, and funded to the hilt, with a mission to trample the gold cartel, to cause a failure in their attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the GLD exchange traded fund of its inventory from the backdoor. The team was from the East, and not necessarily only from China. They are determined. They are motivated. They are wealthy. They are angry. They want an end to Dollar Hegemony. They see the Untied States as both weak and corrupt in visible manner. The time is now. The Iran grappling hooks seem not to find the fleshy matter of the allied fortress walls. They have been tossed aside, while new alliances form in defiance.

The US & London tagteam seems not to properly assess their adversary. These bankers who parrot the English language (but hail from fascist roots) are not the beneficent lords that they used to be. They have become syndicate captains and leaders. The events of the last few years have demonstrated allegiance to the elite and contempt for the masses. The nationalized financial firms are kept under foot so that the fraud is not exposed. One would shudder to see the toxic paper mixed among bond fraud and outright counterfeit, housed safely under USGovt roof. See Fannie Mae and AIG. The mantra of Too Big to Fail is an epitaph, not a call to remedy. The chief stanchions of toxicity and fraud are Bank of America, which would fail without the money laundering lifeline. So it is rescued in generous offerings.

The USDollar ship of sea is adrift, soon a derelict vessel. The signs are clear. The sovereign debt system that serves as foundation is a rotting corpse. The East is working feverishly to build the alternative system. Look for barter to be its backbone. By the Ides of March, it should be more clear. Any controlled demolition of PIIGS debt and bond writedowns will make for quite the event to watch. The upcoming funding needs of Italy are an order of magnitude greater than the bond market or the Euro Central Bank can manage. The game breaker events are nigh. Just this week, India and Iran announced settlement of oil trade in gold bullion. The workaround seems unique and novel, but with historical precedent. Before the USGovt unilaterally broke the Bretton Woods Accord that established the Dollar Gold Standard, settlement in gold was the norm. The world might be soon coming full circle.

The US-based silver production in October 2011 was 30% below the same month in 2010. It went from 117 metric tons to 81.4 metric tons. In contrast, the American Eagle silver coin production is on a strong upward course since 2007. The current US silver demand is 117% of the current domestic production level, in deficit. The USMint will have to import silver. They can always shut down, or impose a vacation, or ship steel coins clad in silver. If it works for tungsten and gold, it might work for steel and silver. Be sure to know that like with gold, the newly assembled Eastern team is at work in the silver market. Their objective is to cause a failure in the cartel attempts to deploy naked shorting in price suppression, to force them to cover their huge short positions in retreat, to oblige outsized drainage of the COMEX, to even induce them into draining the SLV exchange traded fund of its inventory from the backdoor. The method is simple, coming from illicit (but not illegal) shorting of the shares.

CONTROLLED U.S. PRESIDENTIAL ELECTION
The clues are clear but only to the alert observers. In year 2000, for the first time a gross inconsistency showed itself as an anomaly. The exit polls in Florida and Ohio did not match the election results at the local level. For a full generation, the correlation had been over 90%, as it should be, since people exiting a voting center reveal their votes with consistency. This is the left hand and the right hand coinciding genetically with the same human standing before the clipboard recording the exit poll. The lapdog subservient US press reported the anomaly as people changing their minds, or not admitting to the clipboard their actual voting preference. Numerous statistical studies showed the anomalies in colored form, to expose Florida and Ohio for its voting system fraud. Yet another blatant fraud has infected the American landscape. This is a far cry from legions of dead people rallying to vote for Kennedy in Chicago during the 1960 election, with the forces marshalled by Mayor Daley. History has repeated, as 1000 dead people voted in the South Carolina primary in one city alone. My guess is the dead people voted for Gingrich. The season started in Iowa, where Ron Paul had a nice steady lead for the few weeks leading into the caucus. Then suddenly Santorum came out of nowhere to share the win with Romney. Paul finished a lowly third. The Santorum crowds were small except for his victory speech. Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Santorum bin? Then in New Hampshire, where vote fraud is much more difficult due to hand counted ballots, a reality check came. Santorum finished way down the line. Move on to South Carolina, where again Ron Paul shared the lead position in the polls. But on the primary day, again Paul finished again a lowly third. We are told Gingrich won, and justified by having his home state so nearby. Yet Gingrich had to cancel a couple campaign stops due to lack of attendance. Ooops! Could it be that the outsourced vote count took 10% to 12% of the Paul vote and put it in the Gingrich bin?

In a recent article, the Jackass remarked that the US presidential election process was another controlled process subject to outsourcing. The patterns of software changing votes by Diebold loyalists have matured into bolder block changes without transparency, but such thoughts might be entirely errant. The blatant maneuvering of voting process fraud will be more clear by the November confrontation. My contacts back in the states include an Afro-American lady with a big base of black business contacts. They do not favor Obama anymore, wondering aloud who he is and what benefits ever came to the black community. Busloads of urban votes from the Acorn tree might not be able to conceal what comes in the fraudulent process. Heck, vote rigging is just one more Third World characteristic, hardly unexpected. My thought in December 2008 was that Obama would fill two important cabinet positions, the rest did not matter in my view. My forecast was for Goldman Sachs to occupy the Treasury Secretary post, and for Gates to continue as Secy Defense. Control of the USDollar and US Banks was too vital to put in the hands of somebody who required on the job training. Control of the military projects was also too vital to put in civilian hands, including the critical wealth generation out of Afghanistan, whose sticky product had clearing house function in the Iraq Export Bank in Baghdad (run by JPMorgan), with lines feeding Wall Street for their cut. Both forecasts turned true. The other cabinet appointments meant little. The Secretary of State has become an important attack dog, to be sure.

Good riddance to Geithner. Timmy the Tool is nothing but a mechanic, a diminutive figure from the Wall Street club, nothing in stature like his predecessor Paulson. If truth be told, the Chinese probably ordered him out of office, after far too many ridiculous meetings on Beijing soil. Timmy’s battle cry of currency manipulation had grown tiresome. The laughter given him by university students two years ago was too much to stomach, when he claimed the US financial structures were strong and sound. Let’s watch to see if the next Treasury Secretary is of Goldman Sachs pedigree. Its firm death grip on American bank rule has been evident since Rubin in 1994. Few seem to realize it is all downhill toward ruin since that fox took control of the American henhouse, jumping the pond from the London Gold desk of Goldman Sachs. The eggs are gone and the hens are sterile. All that is left is cartel droppings.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.
From subscribers and readers:
At least 30 recently on correct forecasts regarding the bailout parade, numerous nationalization deals such as for Fannie Mae and the grand Mortgage Rescue.

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“You have warned over and over since Fall of 2009 that Europe would come apart and it sure looks like exactly that is happening. You have warned continually about the COMEX and now the entire CME seems to be unraveling. You must receive a lot of criticism regarding your analysis, trashing the man, without debate. Your work is appreciated. I do not care how politically incorrect or how impolite your style is. What is happening to our economy and financial system is neither politically correct or polite.”
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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 25 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Gold Projections 1/26/12

The primary purpose for buying gold or silver is for preservation, protection and profit as well as survival from the destruction of paper money. It’s just that simple.

Under the current financial circumstances, increases in the price of gold and silver will be significant and substantial over time.

However, common sense dictates one should restrict new purchases to after retracements, not after $200 gold price advances.

Strategic Play
Currently, we have just experienced a $200 advance in gold an a $7 increase in silver. Strategically, this is where one should be taking some money off the table, not initiating new bullion positions.
You will find many predictions elsewhere on how high gold or silver will ultimately go with some really outrageous numbers being offered. The projections may be true but they are still several years down the road.

You will not find blue sky predictions here only clear, credible and convincing evidence. Improvements in the gold price are always in steps and considerable patience needs to be exercised while waiting for the next surge or price achievement to occur.

Future Outlook
It can be said that unless this Titanic financial boat changes course radically and immediately, the weight of the evidence, risk/reward ratios and program projections does suggest a new all time high in gold and silver prices later this year.

Additional supporting evidence and nuggets of value are described here.

Dr. Jeff Lewis Interviews Grant Williams : Outlook for 2012 and Keeping Your Emotions Away From Your Silver

If you’d like to listen to the interview, please go to Grant Williams site here.

Grant Williams is portfolio manager and strategist for Vulpes Investment Management in Singapore – a hedge fund running $200million of largely partners’ capital across multiple strategies. In 2012, all Vulpes funds will be opened to outside investors. Grant has 26 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant also writes the popular investment blog ‘Things That Make You Go Hmmm…..’ which is available to subscribers. For more information on Vulpes please visit About Vulpes | Vulpes Investment

Transcript

Hi everyone, it’s Dr. Jeff Lewis here with Silvercoininvestor.com and Lewis and Mariani Publishing. I just wanted to wish everyone a Happy New Year and we thought we’d share an interview that I just recorded with Grant Williams the author of the newsletter that I love, it’s called Things That Make You Go Hmmm and I hope you enjoy. Take care, and again Happy and healthy New Year to all.

Dr. Jeff Lewis: It’s my sincere pleasure to speak with Grant Williams, author of the weekly newsletter “Things That Make You Go Hmmm…” Grant is coming to us from Singapore. He produces this entertaining, informative, very clever and down to earth view of current events from the perspective of someone who not only demonstrates a clear passion for history and a knack for weaving the past into the present, but he has also been an active participant in financial markets for quite some time now. We’ve spoken about this in the past, but perhaps you could give listeners some background on now how what I consider to be this somewhat underground newsletter evolved?

Grant Williams: It’s been something I’ve been putting together for two or three years now initially to a small group of friends and some clients out here in Asia. It’s just kind of grown in popularity and it’s grown in scope as well. It started off as a one-page report put out to people everyday just with a few things that I thought they ought at least be aware of and that they wouldn’t probably find on the front page of cnn.com or the BBC News website, these are things that I thought would have a potentially material impact on markets and finance but they weren’t necessarily in the mainstream. As it’s grown, it’s now, I guess in some weeks it can get up to 25, 30 pages long; including a collection of snippets of these articles we’re doing to the full piece for people to check out themselves and read.

All we’re really trying to do is provide a broader view, as I say, some issues that from both a macro and a micro-perspective that are probably a little bit more important than what one would think if you find where exactly on the totem pole they’ll appear. So, it’s really, that was the genesis of it. It’s something that I sit and do a lot of reading, a lot of thinking about this stuff and so it actually helps me to put this stuff down on paper; it helps clarify your thoughts and get some perspective around them. So that’s really how the whole thing came about.

Dr. Jeff Lewis: Great, well thanks for that. I certainly have been a big fan and listeners should rest-assured that I will provide some information on how people can find a copy.

Sign up for your Free copy of Things That Make You Go Hmmm…here

In the current issue of Things That Make You Go Hmmm you’ve used an interesting literary device as a way of predicting what we might see in the coming year. Maybe you could tell us a bit about why you chose that approach which by the way, it prophesies among other things the possibility of two resignations. One, Obama withdrawing from the Democratic ticket and, perhaps more shocking or more pertinent for those of us with the particular interest in silver, the resignation of CFTC commissioner Bart Chilton in protest of inaction on the part of the CFTC. But Grant, how serious are things getting out there? Do you think that 2012 contains enough road left for the proverbial can to be kicked?

Grant Williams:

Well, you know, this metaphor of kicking a can down the road has become – it’s just become ubiquitous in the last year or so; in the last couple of years. It really is, at very root of it, that’s what’s going on. We all know what the problems are. The problems are basically too much debt, too much spending and governments the world over are living on borrowed time but they’ve managed to put band-aides over wounds and keep the game going for this long and they will try and do that for as long as possible in the vain hope that they can find some organic way to grow their way out their problems. But realistically that’s not going to happen. As tumultuous as 2011 has been, you know, we took Europe and the Middle East and downgrades for the U.S. and all kinds of upheaval. We haven’t really had any resolution to any of those events. The European situation still goes, the Middle East is an absolute powder keg and getting worse with the fact that the U.S. has no withdrawn from Iraq or in the process of doing so and Iran are agitating for trouble.

So I suspect that 2012 could bring about resolution for some or several of those events that began in 2010, 2011 and with that resolution I suspect will come some real upheaval. A lot of people sit down at the end of the year and write their predictions for the year. It’s a fool’s errand really because we all sit in this because you have to kind of do a little thinking about how you see things playing out and sometimes to verbalize that it just puts a tiger on your back. While I tend to read people’s predictions for the year and I’ll evaluate what they see as possible outcomes through my own filters, I’m never going to hold someone to a prediction they made about what might happen in the future, I mean it’s crazy. But people do, it’s amazing what you’ll see, people get their feet held to the flames because they made a wrong guess about you know, the price of gold this year. Nobody has a crystal ball so I just figured when I wrote my piece I would kind of do it as a backward-looking piece of work that was to be published on the first of January next year just to kind of bring a little bit of levity to it and just try and make it less serious in other people’s eyes more than mine. All the things I discuss in there I think are real if not distinct possibilities and it’s just a question of sitting down and thinking about what potentially could happen next year in order to give yourself a fair chance to try and deal with them if and when they do arise.

Dr. Jeff Lewis: Yeah, I think it was very effective; it definitely opened my mind to some interesting possibilities. Speaking of silver and manipulation let’s say, we could probably leave out the actual mechanisms for how the recent raid on prices got underway and perhaps maybe focus on the price of silver and where it could be headed in light of this, I’m sure you’ve seen, this dramatic rearrangement of positions as they are reported in the most recent commitment of Trader’s Report. Many, including Ted Butler of Butler Research and Gene Arensberg of the Got Gold Report has done some work and pointed out that there’s this extremely rare situation that’s evolved. The fact that you have these large commercial traders or the bullion banks who have been able wield so much power over the price mechanism, they seem to have significantly reduced the size of their influence perhaps, in fact may have repositioned themselves – or it looks as if they’ve repositioned themselves for the long side. The question is how does this strike you, do you think it’s a signal that – in other words are we reading too much into this or is it a signal that large traders actually may know something or is it simply a result of having washed out so many long or weak speculators?

Grant Williams: I think the silver market is such a crazy place to be and we see some real violent moves. It’s important to try and keep a sense of balance because the way things trade, particularly in silver, it’s easy to get fixated upon an idea and to blame every move on that particular idea. In the case of silver, the big theory about silver is the manipulation of the COMEX futures.
Now, I’ve written a lot about this in the past. I definitely think there’s no smoke without a fire. It’s a dangerous game to sort of ascribe every single move in an instrument to a construct that has yet to be proven beyond any doubt. While I suspect there is definitely something untoward going on the silver futures as Bart Chilton has intimated in his comments this past year. I think it’s a very dangerous game to not have a balance, to just simply look at the way markets behave, look at the extraneous events that may have an effect and cause the de-leveraging or liquidation and to try and get a more rounded picture of why something moves now.

If you look on an intra day basis, some of the very sharp downdrafts in silver and gold in the past 60 days; they generally tend to have an overnight in quiet markets and it’s clear that the selling is not, shall we say, someone looking to maximize their profit. I mean these things fall in vacuums in very aggressive fashion. So it’s clear that people are trying to shake out weak holders and that’s happened. We’ve had some major falls in both precious metals, silver actually ended up being down on the year in 2011 which is any of us would have predicted that when we saw it top 50 bucks earlier this year. But I think the set up has changed dramatically and I think you will find that we are left with an awful lot of strong hands holding silver now. I’m here in Asia, the futures price is really more of an irrelevancy. Over here it’s all about physical metal both in gold and silver and so we see a lot of buying of physical metals here in Asia when the price comes down on the COMEX and we see premiums expand because it’s very tough to get delivery. I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower. To be a trader in something like silver, it’s a really dangerous thing to have an emotional attachment to the metal or to the idea that there might be manipulation because you’ll find yourself fighting the tape every single day and that’s a certain way to lose money.

Dr. Jeff Lewis: Thanks for the words of wisdom; that’s very important to keep in mind. As a way of pulling all this together for our listeners, in the past we’ve had a couple of emails about the importance of what you allude to; investment demand versus the industrial demand for the metal. You point out that in Asia or in other places too that as soon as the price comes down you see a lot of investment demand return. What do you consider to be the most important long term fundamentals underlying precious metals, silver perhaps or in particular, things that those of us who have a tendency to get hung up with the short term or watch too closely perhaps the technical analysis? With things that may not be revealed today or in the next week, but most definitely lay beneath the surface, sort of an overview – what do you think are the most important fundamentals?

Grant Williams: The supply-demand picture is always at the base of any commodity. With silver and with gold, you’re looking at between two and four percent annual supply increase every year and obviously that’s getting more expensive. Even gold and silver has long since been found and extractived. So yeah, you’re bringing on between two and four percent of new supply every year. Silver, if you look at – a lot of people make a big deal about the slack in demand for silver in photographic film, and yes, historically that’s been a very, very big proportion of the usage of silver. But there are so many uses for silver now in nanotechnology and healthcare and particularly solar. In photovoltaic, for example, ten years ago that industry used less than 2 million ounces of silver. In 2010 it was up to about 50 million I think. By 2015, they’re talking about 100 million ounces to be used in solar photovoltaic cells alone. So there are all kinds of new technologies that are defining ways to use silver and I suspect, whether its thermal properties, its conductivity properties; it’s such a useful metal and it does everything that copper does better than copper; it’s just more expensive. People are going to find new uses for silver, that goes without question and if those uses expand at a rate greater than the supply and demand with its supply side, which is I said, between two and four percent a year then you are going to see higher prices. That’s a given.

Dr. Jeff Lewis: Just to add to that, do you think that the macro conditions, like the monetary problems or will feed that frenzy where investment demand might actually trump – some argue that industrial demand could fall and serious deflationary crisis for example, I mean you’re alluding to the fact that silver is used in so many things that surely it’s not going to fall completely, but in that situation and in an environment where there’s more easing or printing, do you think that we could see a much greater, robust awakening in terms of investment demand? We’ve already seen that, but could you imagine it increasing?

Grant Williams: The funny thing is, gold and silver as monetary metals are forever linked in everybody’s minds and they’ve always been so. But what you tend to see is silver tends to have its best spurts in performance when gold gets carried away and people just can’t afford to buy gold. So if somebody’s looking at investing in gold, we saw it when it went through 1,600 bucks, you know, all of a sudden silver had a big, big surge because at the margin, if someone’s about to spend $1,500 on an ounce of gold and the price suddenly goes to 1,600 bucks, he’s priced out that ounce of gold. So you see some of that demand come into silver because he says, well hey, I can buy an awful lot more silver with my 1,500 bucks, now I can’t buy an ounce of gold. We saw the same thing when gold was pushing up through 1,700–1,800 this year, you know, there was a lot of demand for silver and that will happen again. I think the Fed will come pretty hard with QE3 and maybe QE4 next year. I think Europe is already monetizing despite what the Germans are saying, despite what the ECB is saying, if you look at their balance sheet it’s pretty much doubled, so they are clearly printing money at will. The U.K. are doing it very conspicuously. The Swiss National Bank are also printing money to try and weaken the Swiss franc, so there’s an enormous amount of money creation going on and that is always bullish for gold and silver. We’re at a point now at the end of this year where there’s a mad scramble for cash and people are selling what they can sell. I think a lot of that downdraft we saw in both gold and silver going into year end, was just people who are having to raise cash and selling the thing that they had a little bit of profit built into.

Now, once they start going down, the shorts are going to press that; and so these falls get a lot more vicious than perhaps they would be in just an orderly market where people were looking to sell a bit of precious metals to raise some cash for year end. But as I say, you have to try and take your emotions out of this thing. And I’ve been actually surprised in the last couple of weeks to see some long term committed gold and silver bulls questioning their rationale, which is the first time I’ve heard it from some of these guys. I take that as a very, very bullish thing because whenever you buy gold or you buy silver, your emotions always cloud your judgment and so if you can find some way to deal against your emotions, generally that always going to work out pretty well for you. They always talk about the Rothchild’s quote about “buy when there’s blood in the streets” and people like Warren Buffet saying “I buy when people are selling and I sell when people are buying.” That really is the way to make money in the long term. The perfect example is the HUI, the HUI index this year. If you’d have bought that at 500 and stole it at 600, then three separate times this year you would have made 20% and that’s purely a function of the swift moves in both directions where emotions take hold in the precious metals. So you have to really take a step back and try not to let the emotion of these particular instruments cloud your judgment.

Dr. Jeff Lewis: Grant, thank you for those words of wisdom and I hope that you have a great happy and healthy New Year and thanks again for taking the time to speak with us and listeners. I will be sure to include a copy your most recent issue of “Things That Make You Go Hmm…” Grant Williams, author and editor of Things That Make You Go Hmm. Thanks again.

Grant Williams: It’s a pleasure and Happy New Year.

Gold And Silver Seasonal Trends

December 16, 2011

For market insights many investors focus on the “historical/backward” looking news but fail to realize other exceptionally powerful forces that are also at work; such as “Seasonal Trends”. We believe there is some validity to paying attention to the News events that can impact ones investments; however seasonal factors may provide a simpler and more reliable market insight.

To keep things simple we will first display a few charts and then discuss what they may be indicating:

When we look at the red line in the above chart we can see that the price of silver usually performs strongly from about November to April. Around this time of year we typically see the price of silver pushing higher and higher with relatively small corrections.

In this gold chart we can see a similar result to silver. In the typically strong month of November we are seeing gold price performance that is “weak” instead of “strong”. This summer (not shown in the chart above) when one would expect the price of gold to correct, it remained very strong and it really didn’t have any kind of a “pull back” until September.

Here we see the US Dollar illustrating unusual price strength instead of typical seasonal weakness. Because precious metals and other markets are “priced” in US dollars, when the US dollar heads up, the” price” of the asset it is measuring tends to fall.

So what does all of this mean? To be clear we are extremely bullish on the price of silver and gold in the big picture. We believe that both silver and gold will eventually advance into a full fledged bubble market that will surpass most investor’s wildest dreams. However, in the short term unusual market action is usually a “warning sign” more than it is a “green light” to load upon new positions. Although we believe seasonal trends are a very powerful force and the metals may very well be higher in February than they are here in November, the unusual price action does raise the caution flags that perhaps something a little different is brewing this year. It has been a long time since silver, gold and commodities in general have had a very meaningful correction. There are a lot of warning signs in the markets these days and at this time it may make sense to proceed with caution.

Ultimately we expect to make our largest profits from the huge macro moves in the markets. At investmentscore.com we try to identify long term macro trends such as the current silver bull market, identify intermediate term entry points and watch for our ultimate exit point. We not only want to identify and profit from the coming bubble market, we also want to keep our profits for the next low risk opportunity. To read more free commentaries or to sign up for our free or paid newsletter please visit us a www.investmentscore.com.

December 16, 2011

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No content provided as part of the Investment Score Inc. information constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. None of the information providers, including the staff of Investment Score Inc. or their affiliates will advise you personally concerning the nature, potential, value or suitability or any particular security, portfolio of securities, transaction, investment strategy or other matter. Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents may or may not own precious metals investments at any given time. To the extent any of the content published as part of the Investment Score Inc. information may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not responsible for any loses incurred from the opinions, comments, charts or information on this website, members pages, emails, phone conversations or any published material. Investment Score Inc. does not claim any of the information provided is complete, absolute and/or exact. Investment Score Inc. its officers, directors, employees, affiliates, suppliers, advertisers and agents are not qualified investment advisers. It is recommended investors conduct their own due diligence on any investment including seeking professional advice from a certified investment adviser before entering into any transaction. The performance data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that such calculations are not guaranteed by these sources, the information providers, or any other person or entity, and may not be complete. From time to time, reference may be made in our information materials to prior articles and opinions we have provided. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously provided information and data may not be current and should not be relied upon.

Fundamental Spark for Silver and for Gold?

http://www.traderdannorcini.blogspot.com/
http://www.fortwealth.com/

Today’s actions by the Fed, in concert with 5 other Central Banks, plus the move by China to lower bank reserve requirements 50 basis points, the first time they have done so in three years, has provided today’s fireworks across the commodity and equity marks. It is RISK ON time once again for the hedgies.

I mentioned in my analysis of the COT report yesterday, that the metals needed some sort of fundamental spark to break them out of their respective trading ranges. Perhaps we have that, at least for today, in the form of easing of liquidity concerns. That is unclear to me at this point since this really does not do anything to address the structural issues leading up to the sovereign debt issues. It is simply keeping a liquidity crisis from becoming a full-blown insolvency crisis.

This might explain why after the initial blast higher in the markets on the euphoria around the Central Bank actions, that the markets have not been able to continue adding to their early session gains. Traders are maybe having second thoughts about all this. I know I sure am. While it will temporarily help ease lending concerns, it still does not address the sinking value of all that sovereign debt on the books of the big European banks, nor of that on the books of some US banks. It seems to me we are going to have to see a very clear, unambiguous signal that Germany is going to go along with a large role for the ECB and maybe even a Eurobond market before traders will get more aggressive to the upside.

Regardless, silver has been able to capture its first line of technical chart resistance centered near the $32.50 level. This is its first visit back to this level in a week’s time. That has served to reinforce the support level that formed just below the $31 level. For this market to now get anything going to the upside, it is going to have to first convincingly clear $33.50 and then exceed $35. Only then will it have a shot at anything more than a return to the top of its recent trading range.

Charts to follow later….

Beware the Party Mood

November 28, 2011 Holiday cheer: Retail and eurozone jubilation… The 5 deigns to interrupt with a few facts that don’t fit in
$601 trillion time bomb grows to $708 trillion in only six months
Money-grubbing local governments’ latest scheme: Decades-old parking tickets come back to haunt drivers trying to renew their licenses
Byron King on why gold supply simply can’t keep up with demand
Readers lament the onset of the police state… castigating your editor for the sins of decades ago… a unique source of yield in a world of near-zero interest rates… and more!
The S&P’s up 30 points in the first three minutes of trading. The Dow has recovered to 11,500.

“Strong Black Friday sales add fuel to investor sentiment,” reports MarketWatch, “as does perceived progress on EU crisis.”

Indeed, Thanksgiving weekend retail sales are 16% higher than a year ago, according to the National Retail Federation this morning.

Real disposable incomes, on the other hand, are flat from a year ago, according to the Commerce Department’s income and outlays report last week.

And the number of Americans earning a paycheck is up only 1.2% from a year ago, according to the most-recent Labor Department figures.

As for the latest European fix, “France and Germany,” the BBC tells us, “intend to propose a fiscal union ahead of a summit on Dec. 9, which would set binding limits on eurozone government borrowing.”

Funny, we already thought there were binding limits. Yep, right there in the Maastricht Treaty — deficits no higher than 3% of GDP. Too bad the treaty’s honored only in the breach; most eurozone governments have blown the 3% limit for years… including Germany.

The jubilation in the markets today is more likely the result of a tryptophan hangover than a sustainable rally…

The total amount of derivatives worldwide exploded by 18% in a six-month span, according to the Bank for International Settlements (BIS).

Outstanding derivatives — futures, options, swaps, including the infamous credit default swaps U.S. banks wrote on European government debt — totaled $708 trillion in the first half of 2011 — a staggering 11.2 times global GDP.

The figure is up $107 trillion from the second-half 2010 total of $601 trillion, and now exceeds the previous record set in — gulp — the first half of 2008:

How much of this sits on the books of U.S. banks, we can’t say with certainty. But the most-recent report from the Office of the Comptroller of the Currency indicates the total is $333 trillion. Of that, $249 trillion sits on the books of institutions backed by the FDIC.

That last number is sure to increase after Bank of America’s move last month to transfer an unspecified amount of derivatives from Merrill Lynch to BofA’s commercial banking arm.

Oil prices are within sight of $100 again. A barrel of West Texas Intermediate is up more than 2.5% this morning, at $99.33.

But Abe Cofnas is expecting even more this week. “Oil moves in relationship to expected global growth, supply uncertainty, as well as news out of the
Middle East,” he says. “Now, with prices hitting the key psychological level of $100 a barrel, it is becoming the center of a lot of attention.”

As Abe wrote that, January crude futures were at $100.40. He’s counting on a small move up to $101.25… delivering a 170% gain by this Friday in the one-of-a-kind market he follows.

“Binary options” are about a lot more than currencies. To learn more about Abe’s strategy, look here.

A growing number of cities are hunting people down for decades-old parking tickets. And they aren’t messing around. In Massachusetts, resident Patricia deWeever recently got a notice warning her license would be suspended if she didn’t settle tickets she got 25 years earlier. In New Jersey.

Turns out New Jersey and Massachusetts have a reciprocity agreement, cross-referencing their records. Cities including New Orleans and Toledo are also chasing down years-old, or even decades-old, parking tickets.

Typically, “the fines add up to a couple of hundred dollars,” writes AOL Auto columnist David Kiley, “and most draw the conclusion that they will pay it, rather than endure the hassle of hiring a lawyer or pursuing a Byzantine process of challenging it.”

Statute of limitations, you ask? For felonies, yes. Parking tickets, frequently, no.

“In deWeever’s case,” Kiley writes, “she will end up paying New Jersey $129 to settle the tickets, plus, a nebulous $100 license reinstatement fee, so she can legally drive in New Jersey to go visit her mother. On top of that, Massachusetts is also charging her $100 to reinstate her license in that state.”

Get used to it, as states and cities become evermore desperate for revenue. It’s the only way they can hope to get by as the mother of all financial bubbles starts to burst. You can’t fight it, so you might as well take protective measures.

Gold buyers, perhaps sensing early signs of money printing in Europe, have bid up the Midas metal nearly 2% today. At last check, the spot price is $1,712. Silver has reclaimed $32.

“The gold price is rising due to the fundamentals of supply and demand,” says our Byron King, with an eye on the longer-term picture. “More and more people across the world are buying.”

“I still recall one scene in a gold souk that I visited in Istanbul last year. Men with fat wads of cash — dollars, euros, Turkish lira, etc. — were just peeling off bills and buying gold, literally with both hands. It was kind of surreal, if not medieval.”

“All this gold buying and demand growth is happening while global mine output — aka ‘supply’ — is shrinking. Indeed, overall mine output may face a precipitous decline in the not-too-distant future. In other words, don’t argue with this chart, either:”

“It’s a busy chart, to be sure — gold mine output by region, from 1850-2010. Basically, the take-away is how precipitously South African mine output (noted in dark green at the bottom of the chart) has fallen over the past 20 years.”

“For the near-, medium and long terms, gold has strength as a store of wealth. It’s not just me saying it, either.”

“The forecast from the British bank Barclays is for a gold price at $1,875 per ounce by the end of this year. Germany’s Commerzbank is advising clients to expect gold at $1,800 per ounce, or more, by the end of the year. Another German bank powerhouse, Deutsche Bank, views gold as a ‘safe haven’ asset through 2012. In fact, Deutsche Bank calls gold its strongest ‘conviction trade.’”

[Ed. Note: If you share that conviction, there’s still time to add to your own metals stash via our one-of-a-kind offer…

Specifically, we’re offering one Gold Buffalo, 10 Silver Eagles and a unique “booksafe” storage solution… and we’re practically giving them away. But only through midnight this Wednesday. Time’s a-wastin’.]

We’re not altogether sure what to make of this gold spectacle…

This is the scene in Caracas last Friday, as armored vehicles brought in a shipment of gold bars — the first of Venezuela’s overseas gold holdings that President Hugo Chavez has ordered home.

Those overseas holdings total 160 metric tons, worth roughly $11 billion. This first shipment, if the central bank president is to be believed, is about 4.4 tons.

“Experts had cautioned,” says a Reuters dispatch, “that the operation… would be risky, slow and expensive.”

But Chavez announced the repatriation in August to “help protect Venezuela’s foreign reserves from economic turmoil in the United States and Europe,” again, according to Reuters.

“Keep in mind,” a reader writes, picking up a thread from last week and opening a grab bag of responses we got over the holiday weekend, “the police state has been funded by Homeland Security dollars.”
“I live in Houston. Even at Houston’s transit organization, they have a 10-person anti-terrorism team, SWAT Team, bomb-sniffing dogs, etc., all funded by Homeland Security.”

“Homeland Security dollars have brought out every wannabe tough-guy police chief in the country as they buy up truckloads of ‘goodies’ from the ‘law enforcement only’ vendors. Pull the plug on Homeland Security ‘grants,’ and these police departments will have to put their toys back in the bag.”

“I am one of those a**h**** your reader complained about. For my Thanksgiving flight out of Baltimore, I was subjected to an embarrassing pat down by one of the oh-so-polite TSA officers.”

“I felt violated and humiliated and let the officer know I felt it was wrong. One other passenger whispered to the agents ‘Thank you for keeping us safe.’ He would probably thank them for walking him into the gas chamber, too.”

“My offense was wearing a two-part sweater that showed up as an ‘anomaly’ on their new machine. As a 70-year-old grandmother, I don’t feel like a threat to security and don’t think it is right to be treated as one. It made me less than thankful on Thanksgiving Day.”

“This may well prove prophetic,” writes a reader in reaction to the words of Thomas Paine, cited last week in Jeffrey Tucker’s review of The Idea of America. “I wonder if this was inspired by the passages in Psalms and Proverbs indicating evil men will become worse and worse, and truly righteous men will need protection from the tyrants that rise into positions of power.”

“While I retired over a year ago from my job as an expedite courier making regular deliveries into the U.S. from Canada, when I read about the police-state tactics now commonplace, I was glad that I no longer have to do that.”

“Nothing against the American people, but the government has become everything the framers of the Constitution warned and attempted to legislate against. The biggest end run was successfully accomplished by the International Bankers when they got the Federal Reserve Act passed by Congress in 1913 that, effectively, legalizes counterfeiting in place of REAL MONEY, and established a monopoly in doing so.”

The 5: Our investment director, Eric Fry, connected a few more of those dots in an interview last week with RT’s Lauren Lyster…

“Whoa, is it Halloween or Thanksgiving?” writes a reader.
“What a scary 5 on Thanksgiving Eve: corrupt insider trading, the stealing of a man’s livelihood that he has spent his life working for (the big catch), the growing Nazism of the TSA, giving power to the incompetent who couldn’t find a job otherwise and the broadcasting of the next financial disaster to come.”

“I used to be bullish, but in these pages, I have learned to begin to see the various future positioning of the contrary view — finding ways to build positions to bet on the black, shorting the various markets. It seems anything the government wants to promote anymore is a sure bet to the contrarian side.”

“Thank you for your service and ability to think and report.”

“Reading about the Covered Bond Act of 2011 on Thanksgiving Day,” adds one more reader, “I was filled with thanksgiving that there are sources of information available that do more than parrot the misinformation, disinformation, spin, obfuscation and downright lies from government and corporate sources, whose goal is to distract our attention while plundering yet another part of the wealth of the citizens.”
“Thanks. And keep up the good work.”

Cheers,

Addison Wiggin
The 5 Min. Forecast
P.S. Even as the broad market swooned last week, Options Hotline readers were sitting pretty. The Dow shed more than 500 points between Monday and Friday… but Steve Sarnoff’s recommended put options on a major energy producer were up 86% after only three weeks.

Options Hotline is available right now at a significant discount. Grab it here.

As of this morning, a 10-year Treasury note yields 1.96%. A 3-year CD pays a paltry 1.95%.

Clearly the old “rules” for retirement investing no longer apply. Which makes this Overtime briefing from our income specialist Jim Nelson more important than ever…

Navigating Your Way Through a Choppy, Zero-Percent Interest Rate World
Three Secrets to Generating Thousands in Monthly Income

If you’re counting on interest from your savings to fund your golden years, you’d better think twice about those retirement “dreams” you had…
As you know all too well, it’s near impossible to find a savings account that will pay you even 1% annually.
That means all the things you had planned will squeeze your wallet harder than you may have expected. Dreams of cruising the world… golfing on exotic courses… even just treating the kids or grandkids to a day of fun… all become harder to achieve.
The same thing goes for counting on stocks and government bonds…
If you dumped $10,000 into the S&P 500, you’d be “rewarded” with an average income of just over $200 per year. Worse yet, you’d be putting your money at risk in one of the most turbulent markets we’ve ever encountered.
And inflation is running much higher than the yield on government bonds. No matter how you calculate it.
But there are few little-known income moves that you can make to double, triple, even quadruple the income you’re currently receiving.
One of those moves is designed to return more than $1,000 a year in income… from just a $10,000 investment — roughly five times the average stock yield.
This move doesn’t require any quick in and out trading, either. You can make this move today… and then simply forget about it for months. The income is scheduled to come in like clockwork.
And best of all, this move has nothing to do with touching the risky stock market… options market… or currency markets.
This move not only crushes the income most stocks produce, but it can actually provide more safety, too.
If you’re skeptical, I can understand. Greater income… with more safety… sounds like another “Wall Street scam,” I know.
But it couldn’t be further from what Wall Street’s lead you to believe…
For example, one of the reasons you probably haven’t heard about this unique move is that there’s no “easy money” in it for brokers.
The other reason you’ve probably never heard about this secret is that this move does require a little more work than, say… just buying or selling a stock. Since it isn’t in a brokers best interest to teach you things, he probably ignores this move.
But I’ve found that all good things in life require at least a little bit of extra work. Building a business… becoming good at a sport… even starting a new relationship, all require some time and knowledge. Investing your hard earned money is no different.
My point in telling you this today is simple…
Despite all the things crumbling around you… despite the “pay nothing” savings accounts… despite the rumor-driven volatile stock market… and despite your income not keeping up with rising prices…
I believe there are still a few relatively hidden, safe income-boosting moves you can make to help secure the retirement you’ve dreamed of living.
That’s why, over the next few days, I’ll use these 5 Min. Forecast overtime briefings to introduce you a whole new way to think about your retirement dreams.
We’ll kick off tomorrow with the first of these secrets — something I call “Income SAFE IOUs.” I believe you can use this little-known move to generate always-known, contractually obligated income in the range of 8-10% per year.
So if you’re at all worried about rising prices…
If you’re frustrated by the government’s zero-interest policies…
Or if you’re concerned about outliving your savings in any way…
Then you won’t want to miss tomorrow’s 5 Min. Forecast overtime briefing.
Sincerely,
James Nelson

Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com

Ignore the Noise… Opportunity Here

November 21, 2011 Short-term noise: Supercommittee encountering kryptonite, and other not-surprising factors knocking down stocks on a Monday
A long-term moneymaker: Far from the noise of Geron’s stem cell failure, Patrick Cox finds “the most successful medical blockbuster in history”
Gold takes a beating along with nearly everything else: John Embry on a buying opportunity
“Truly an awful currency”… Chris Mayer returns from the road with some useless paper souvenirs and one fabulous investment idea
Readers weigh in: Our favorite caudillo, bank failures and the relative merits of U.S. and Canadian border guards
“Stocks Move Sharply Lower,” read the headlines this morning on countless financial websites. The reasons cited include…
The “supercommittee” that’s supposed to solve Uncle Sam’s chronic indebtedness for all time is due to announce after today’s close that gosh darn it, they really tried, but they can’t reach agreement. As if no one saw this coming. Or that even if they succeeded, they would trim the annual deficit by a not-so-whopping 9%
Europe. No, there’s nothing really new, but when the market drops these days, it’s always a handy excuse
China’s vice premier made some intemperate remarks — intemperate for someone in a lofty position like his anyway. “Right now,” declared Wang Qishan, “the global economic situation is extremely serious and in a time of uncertainty the only thing we can be certain of is that the world economic recession caused by the international crisis will last a long time.”
Or maybe, as we indicated on Friday, the case of MF Global is making people wonder if their funds are safe anywhere other than the First National Bank of Serta.

Whatever…

Time to take stock of opportunities yet explored on The 5’s desk.

“Scientists Think Embryonic Stem Cell Research,” says a headline at ABC News. It’s an especially weak attempt to “advance the story” a few days ago about Geron Corp. dropping the world’s first clinical trial using human embryonic stem cells.

“The company’s technology for acquiring therapeutic stem cells is flawed and obsolete,” says Patrick Cox, who wasn’t surprised at all. “It’s somewhat amazing to me that it’s taken this long for the company to admit it bet wrong, but it finally has.

“Financial and nonfinancial media, however, have inevitably treated the company as if it is the only really important stem cell company.”

Thus does ABC declare: “Many experts say the announcement signals a symbolic end to the era of embryonic stem cell research that many researchers worked so hard to launch.” Which is true… but the article leaves the reader with the impression that embryonic stem cells are the only kind worth researching.

“Geron’s failures on the stem cell front were, actually,” says Patrick, “evidence that BioTime Inc. is the real leader in regenerative medicine.”

BioTime has pioneered its own pure stem cell production technology. “Known as ACTCellerate,” Patrick goes on, “it involves the mapping of stem cell development shepherding cells through the phases of development to produce large, pure quantities of identical purified stem cells.” BioTime CEO Dr. Michael West presented the genetic evidence that he can do this during our Vancouver conference last July.

More recently, BioTime linked up with Cornell University to produce commercial-scale quantities of “endothelial precursor stem cells.” Essentially, they convert a few drops of your blood to stem cells, and then into endothelial precursors — a proto-cell of the kind that lines the inside of your arteries and veins.

In time, they build you a like-new heart.

“The patients’ own cells are first converted to become induced pluripotent stem cells,” Patrick explains, “identical in function to embryonic cells. They are then potentiated to become endothelial precursors, suitable for rejuvenating the heart and vascular and immune systems.”

“This technology will, I believe, be the most-successful medical blockbuster in history. As heart disease kills most of us, it will significantly extend healthy life spans. Moreover, it will happen much sooner than almost anybody believes.”

“If you believe, as I do, that Dr. Michael West and BioTime are the true innovators, then we will probably have a valuable opportunity to buy BioTime at artificially depressed levels.”

[Ed. Note: And that’s after BioTime shares have appreciated 501% from
Patrick’s initial recommendation.

Don’t feel bad if you missed out. Patrick is equally, if not more, enthusiastic about another company he’s been following in his premium advisory, Breakthrough Technology Alert. Access here.]

So what of Geron’s future? “The company still has important assets,” says Patrick — including a sizeable portfolio of stem-cell intellectual property. It will continue to generate revenue for the company even as it turns its attention to its cancer treatment.”

“This sort of action isn’t unusual for small biotech companies,” adds Patrick’s associate Ray Blanco. “With scarce resources, putting programs with longer time horizons on hold in favor of lower-hanging fruit that can pay off in the nearer term makes economic sense. It helps prevent the dilution of the shares, and preserves capital for advancing programs that can produce revenues sooner. It is a shareholder-friendly move.”

What’s more, Geron’s cancer treatment holds out great promise:
“Many cancer drugs,” says Ray, “will not treat cancers located in the brain or central nervous system. The blood-brain barrier, which protects the brain from foreign substances, filters out many chemotherapy drugs and renders them ineffective.”

Not so with Geron’s drug: It “takes the popular commercial chemotherapy compound paclitaxel and links it to a proprietary peptide molecule,” Ray explains.

“Since many peptides — which are small protein molecules — are allowed to pass through the blood-brain barrier by the body, paclitaxel gets to hitch a ride into the brain, where it can then do its work on cancer tumors.”
Early clinical trials are promising. Ray advises readers of his entry-level newsletter Technology Profits Confidential that Geron’s still a keeper.

Better yet, both of the stocks mentioned above are on sale today because traders are unloading both the bad and the good. The Dow is down 300 as we write.

The S&P has given up not only 1,200, but 1,190. All the gains of the last six weeks — poof.

Gold has sunk below $1,700 for the first time in nearly four weeks. As of this writing, the spot price is $1,694. Silver has surrendered $31.

“We have a big option expiry coming up on Tuesday, and this is just business as usual,” says Sprott Asset Management’s John Embry of gold’s price action.

Mr. Embry subscribes to the theory that powerful forces manipulate the price of gold — which in this case is working to your advantage. “I think it’s spectacularly bullish that sentiment is so incredibly weak in the metals. I can’t believe that people are basically being influenced to this degree by price action and they are just ignoring the fundamentals.

“That is exactly what the people who are creating the price action want… Gold and silver prices are going to multiples of the current prices in the not-too-distant future. And if you don’t own this stuff, you’re going to get killed.”

With gold on the way down, Treasuries are the last refuge of the safety trade. The yield on a 10-year note is back below 2%, the yield on a 30-year bond back below 3%.

Even the dollar doesn’t look that perky today. At 78.2, it’s up only fractionally from Friday.

“The Vietnamese dong is truly an awful currency,” says Chris Mayer, now back from his investment-scouting trip to Southeast Asia. “The Vietnamese inflation rate is officially 20%.”

“This is why the Vietnamese buy more gold per capita than anyone else in the world. They even pay 9-11% premiums over the world gold price to get it. They want to get out of the dong, the value of which rots like Mekong catfish left in the sun.”

Looks impressive, but not even worth $1

“It takes about 21,000 dong to get one dollar. In 2008, it was about 16,000. So it’s falling off a cliff against a currency that is not exactly a pillar of strength. This makes it tough for foreign investors in Vietnam. You need to overcome this depreciation before you make any real money!”

“In Cambodia, the coin of the realm is the riel. ‘It’s not a serious currency,’ my contact told me. It takes about 4,000 riels to buy a dollar. But it seems people use riel only for transactions less than a dollar. Otherwise, they use U.S. dollars.”

“The Thai baht is the most stable of all these Asian currencies. On my way home, I went through Bangkok again. I forgot to change all my dong before I left Vietnam. So I went to the money-changers in Bangkok to convert my dong to dollars. The Thai money-changers would have nothing to do with the dong. It made me think well of the Thais.”

Thus did Chris bring back some dong as souvenirs. He also met up with an investor he called “the Warren Buffett of Thailand.” It’s this individual who turned him on to the idea so lucrative he wouldn’t even tell us back in Baltimore what it is. But now he’s written it up and the information can be yours right away with a membership in Mayer’s Special Situations.

“In your comment concerning a ‘dictator’ in Thursday’s issue, I presume you are referring to President Chavez.”

“I am utterly appalled by this. Too bad we don’t have a Mr. Chavez to run for president. Then things would really turn around. FYI, President Chavez is/was always elected by the people, and furthermore respects to the last ‘we the people.’ (Have we all forgotten the meaning of this very important phrase?)”

The 5: Aha! Thanks for the good belly laugh.

“You folks used to mention on a regular basis how many banks were closed in a given week and the accumulated number for the year. We have not seen anything for a while. Have the bank failures stopped?”

The 5: No, but they’ve slowed down appreciably. The number peaked last year at 157. So far, this year the number is 90, including two last Friday. At that pace, the final tally for the year should be around 100. Curiously, 23 of those come from one state — Georgia.

“I’m inclined to call B.S.,” writes a reader of the American who says Canadian Customs threatened him with jail if he ever tried to visit again. “I’m an American who has been crossing into Canada a few times a year for the last 20 years.”

“If it did actually happen, I’m guessing that either this guy was himself such a jackass that he provoked that response, or at worst he encountered a jerk who may have been on the verge of snapping, which as we know can happen just about anywhere.”

“Seems to me that lots of people that are involved in any kind of security field either have big chips on their shoulders or are bored $#!+less and come across with poor attitudes, but my experience at the Canadian border has been no different than anywhere else. Canada is a great country, our ally and neighbor, and I won’t hesitate to keep visiting.”

“The customs officer that treated and spoke to the American as described should be fired and then kicked in the ass, hard, on his way out the door,” writes a Canadian reader who finds the story believable.

“We all have bad days, but there is a limit. I have had a bad experience with a U.S border guard. I’m sure he wanted to be a cop, but couldn’t get in. However, the majority of guards are great, and have even made me laugh. I will always travel to the States, and I hope our friends in the USAcome visit us always.”

“As a Canadian, I’ve been dealing with customs agents and immigration officers on both sides for many years.”

“In the hundreds, and possibly over a thousand times, I have dealt with immigration and customs officials, they have been very professional and ask all the questions they need to satisfy their respective laws. However, very early in the morning, or even late at night, one of them will act as if there is a chip on the shoulder and you are invited to knock it off, only to start a verbal war that you will always lose.”

“Bear with them, keep your remarks professional and you will get through the process with little fuss and perhaps a second thought about the dull, somewhat simplistic routine that such an agent has to follow just to satisfy the regulations. They do not have time for ‘small talk,’ and by the nature of their job cannot appear to be friendly or inclined to make you, the tourist, feel special.”

“Mr. Benko does not know what he speaks about,” writes a reader who rejects Ralph’s 90-second manifesto. “In fact, the Elite Ruling Criminal Class will take a complete and incendiary effort to remove them from their position of Swindle, Embezzle, Murder and Mayhem, in my opinion.”

“We have been in a Cold Civil War in this country, aided and abetted by the above-mentioned Elite, for a very long while, at least since the ’60s, and it is going to enter a hot period before it has its conclusion.”

“The Federal Criminal Cabal in Washington is rapidly installing a police state in this nation, and some are not going to accept it without a vibrant fight.”
“If We the People want to impact the Elite Ruling Criminal Class and reassert OUR Constitution, then one very simple way is to buy gold and silver and make the Elite Ruling Criminal Class eat their worthless paper.”

The 5: He didn’t say they’ll go down without a fight.

“So what’s up?” writes a reader who saw Friday’s “can’t-trust-the-system” issue. “I have an account with optionsXpress, and I trade options. Are you saying along with Ann Barnhardt that we need to get out now?”

The 5: No. Only that it pays to do your due diligence.

Gerald Celente, who lost a bundle with MF Global, didn’t even realize he was doing business with MF Global. His account was with Lind-Waldock, which was acquired somewhere along the line by MF Global and continued to answer the phone, “Lind-Waldock.”

“Go long New World Order and go short personal freedom,” writes a reader who saw Barry Ritholtz’s remark about going short banks and long mattresses.

“Whatever you believe, the facts show the NWO is alive and metastasizing. Do a baker and his pals eat better than his clients? Do those who print fiat currency and their pals enjoy a similar advantage? Of course.”

“Hey, they control the money, what’s next…food, military, governments, corporations, education, oh crap. Either way, the reality of the progress of macroeconomic global domination tyrants will continue, and it’s not likely to collapse until the Second Coming.”

“Or, just keep pointing out the mouse holes for us.”

The 5: Yes, we’re much more comfortable seeking out pockets of refuge.

Cheers,
Dave Gonigam
The 5 Min. Forecast

P.S. “It’s important that there’s a private initiative to do something,” said Addison during the lunch hour on Baltimore’s NPR affiliate. He was talking about Starbucks’ “Jobs for USA” program.
If you’ve been in a Starbucks this month, you know what it’s all about: Collecting donations of $5 or more to put in a kitty for lending to small businesses. Contribute, and you get a wristband:
“I’m skeptical that more credit is the route to creating more jobs,” says Addison echoing a theme from the introduction to The Essential Investor, which we unveiled over the weekend, “but this gets the thing going in the right direction. If we can have a private conversation separate from the political football kicked around in Washington and up to Wall Street, that’s a good thing.”
Addison says he riffed on the topic at the Mt. Vernon Club — a local hangout for the wives of Baltimore’s muckety-mucks — Thursday night too. He hasn’t said anything about being on a community outreach program lately… but neither has he been editing The 5 much lately, either. Between these engagements and the above-mentioned Essential Investor launch, he’s been busy.
If you’d like to listen to the local radio discussion, Addison was playing nice with Moody’s Mark Zandi. The discussion will be archived later today at this link. The discussion begins about 40 minutes into the 12:00 hour.

Thank you for reading The 5 Min. Forecast! We greatly value your questions and comments. Please send all feedback to 5minforecast@agorafinancial.com

Keynote Speech At Sydney Gold Symposium: November 2011

My Dear Friends,

You know I have great respect for Alf Fields both as a master of his methods (there are very few) but also for having a mercantile sense which cannot be taught. You know of his accuracy during the two major bull markets for gold.

I fully agree with Alf on the potential of the next move. I feel confident the accordion chop that Kenny points out did complete itself on the day of the longest predicted period of consolidation.

I see gold headed into the $2000, but only as another steep on its way to Alf’s number.

Respectfully,
Jim Sinclair

The Skinny:

“Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way.”

KEYNOTE SPEECH AT SYDNEY GOLD SYMPOSIUM 14-15 NOVEMBER 2011
BY ALF FIELD

THE MOSES PRINCIPLE

The Moses Principle is an irreverent theory based on the question of why Moses spent 40 years traversing the Sinai desert before leading the Israelites to the “promised land”.

God was powerful enough to send numerous plagues to devastate the Egyptian economy until Pharaoh allowed the Israelites to leave Egypt. Later God caused the Red Sea to part so that the Israelites crossed on a dry sea bed. When the pursuing Egyptian army and their chariots were in the sea bed, the waters crashed back and drowned them.

If God was powerful enough to do all of these things, why not allow the Israelites to go straight to the “promised land”? Why did Moses spend 40 years traversing the barren desert before leading the Israelites to the “promised land”? Here is the irreverent theory. Every Israelite over middle age when they left Egypt probably died during the ensuing 40 years. The younger people were born in the desert or spent their adult lives in the desert. After 40 years the life experience of the survivors consisted of living in the desert. When they finally got to the “promised land” it appeared to be “flowing with milk and honey” when compared to their prior desert existence.

A total generational change had taken place so that the survivors had no knowledge of anything other than the desert. There was nobody who could remember what Egypt was like. The Moses Principle recognizes the fact that over any 40 year period, a generational change takes place.

What has this got to do with gold? Recently we passed the 40th anniversary of 15 August 1971, the date when the last link between currencies and gold was ended by President Nixon. This launched an era of floating “I owe you nothing” currencies. Money was what any government deemed it to be, generally something that the government could create in unlimited quantities. That system, plus the fractional reserve banking system, launched an era of ever increasing debt and credit. It was an era where debt was desirable and money lost its purchasing power.

Everyone in this room has spent their adult lives living under this system. Most have had no exposure to monetary history or what money really is. The new “Moses” generation will have to re-learn the lessons of monetary history before the world can enter a new era of sound money and stable economic growth.

The impact of this generational change will be discussed later.

The 15 August 1971 was an important date for me personally. I had grown up in South Africa and in early 1970 started a funds management company with a good friend of mine. The first 18 months was a struggle as we were buffeted by a vicious bear market. By August 1971 our clients were largely in cash awaiting the end of the bear market or an inspirational idea.

That inspirational idea came on 15 August 1971 when I heard that President Nixon had decreed that the USA would no longer exchange US dollars held by foreign governments for gold at $35 per ounce. Gold had limited downside but appeared to have good potential for substantial gain. Gold shares were deeply depressed after 37 years of a fixed $35 gold price, another “Moses Principle” period. We bought gold shares aggressively. This proved to be an astute move and our funds management business was launched on a successful path.

Having locked ourselves into a big position in gold shares, we needed to have some idea of how the gold price might perform and how high it might rise. We ran into the conundrum that has confounded fundamental analysts since 1971. How do you value something that has no utility value, no earnings or net asset value, does not spoil or corrode and is not used up?

Other commodities such as copper, soya beans and corn etc., are priced using a combination of demand, supply and stocks. If demand exceeds supply, stocks diminish, shortages develop, prices rise and new production comes on stream. Eventually supply exceeds demand, stocks build up, prices decline and marginal producers go out of business. The cycle then repeats itself. Other commodities are produced for consumption while gold is accumulated.

Consequently large stocks of gold exist in official hands as central bank reserves. There are also large stocks of gold in private ownership, in vaults around the world, in homes, buried in gardens, in coins and gold jewelry. New mine production of gold is tiny compared to available stocks. In 1971 official holdings of gold were about 37,000t. Cumulative world gold production throughout history up to 1971 was estimated to be about 90,000t, so investors/hoarders must have owned at least as much as the official holdings.
In 1971 world gold production was a mere 1,450t, or less than 2% of the
estimated amount of gold held in the world at that time.

The fundamental conclusion was that the owners of the large stocks of gold would determine the future of the gold price. If they became net sellers, the gold price would decline. If they became net buyers, the gold price would rise.
There were reasons to believe that they would be net buyers. The world had been launched into an untried experiment where all countries were subject to Government fiat currencies and, in addition, there was a latent group of buyers in the wings. Americans had been prevented by law from holding gold since 1933. With the collapse of the gold exchange standard on 15 August 1971, there was no reason for this prohibition to continue. On 31 December 1974 (another Moses generation period from 1933) the largest and wealthiest nation on Earth allowed its citizens to buy and own gold.

The obvious conclusion was that it was necessary to resort to technical analysis to find a way to predict movements in the gold price. I experimented with a variety of technical systems and then got lucky. I discovered that the Elliott Wave Theory (EW) gave superb results in predicting the gold price. I couldn’t get the same great results using EW in other commodities or markets. EW is a complicated system with many difficult rules, but I will try and explain it in simple terms.

The technique is to concentrate on the corrections. In terms of EW, the sequence in a bull market is as follows. The market rises, has a 4% correction, rises, has a 4% correction and rises again. At this point the next correction jumps from 4% to a larger degree of magnitude, say 8%. The market then repeats the sequence. A rise, a 4% correction, a rise, 4% correction, a rise and another 8% correction. When the market is eventually due a third 8% correction, the magnitude of that correction jumps from 8% to 16%. This sequence is repeated until two 16% corrections have occurred when the size of the next big correction jumps to 32%.

The beauty of EW is that the corrections in gold are remarkably regular and consistent. Early in 2002 I picked up the 4%, 4%, 8% rhythm in the gold market which convinced me that a new bull market had started in gold. Another feature of EW is that once one is confident that these percentages have been established and one has some idea of the approximate size of the up moves, simple arithmetic allows one to calculate a forecast of the future price trend.
Using this method I calculated that the gold price should rise from the $300 ruling in 2002 to at least $750 without having anything worse than two 16% corrections on the way. That was valuable information at that time.

Furthermore, from the $750 target a big 32% correction could be expected to about $500. Then the bull market would resume, rising to perhaps $2,500 before another 32% correction occurred. The final up-move would take the gold price to much higher levels, possibly $6,000. Once again, a valuable insight when gold was $300 in 2002.

The gold price actually got to a shade over $1000 in March 2008, a four-fold increase instead of the expected three-fold rise to $750. That was the point at which the 32% correction was due. Over the next seven months the gold price in the spot market declined from $1003 to $680, an exact 32% correction. Using PM gold fixings, the numbers were slightly different. The high was $1011.0 and the low $712.5, making the correction slightly less than 30%, but quite adequate.

The above chart depicts the monthly spot gold prices since the start of the gold bull market in April 2001 when gold was $255. The 32% correction in terms of spot gold is clearly shown. The high at $1003 and the low at $680 established the extremities of the first two major waves of the bull market, shown in the chart as Major ONE and Major TWO. The gold bull market is in the process of working its way upward through Major THREE, often the longest and strongest wave in the bull market. There have been a number of interesting and unusual developments in Major THREE which will be discussed later.

I would like digress at this point to share with you the reasons why I started writing articles on Gold, EW and monetary history. The reason I am standing here today is the direct result of writing those two series of articles published on internet web sites. I am a self-funded retired person managing my own investments. Unlike most people posting articles on the web, I was not trying to sell subscriptions to a newsletter or get people to buy something. Nor was I writing to big note myself. So if I was not after fame, glory or riches, what was my motivation? The following two stories will explain where I was coming from.

These stories are intensely personal. Even close friends and relatives have not heard these stories. They are not meant to infer any self-aggrandizement nor are they an attempt to alter anyone’s personal views. The two stories are linked and relate eventually to gold. Together they are the reason why I wrote the articles posted on the web.

The first story starts with an awful event where my son Richard was attacked by a lion. He and his fiancée Rebecca were managing a game lodge in northern Botswana. He took a couple of guests out on an early morning game drive.
They followed the tracks of a lioness and three cubs down a dry river bed but lost the trail. When Richard got out of the vehicle to find lion tracks, the lioness launched herself at him from nearby shrubs. The lioness landed with her paws on his shoulders, dislocating one shoulder and driving him to his knees. She then whacked his head with her paws, virtually scalping him and nearly ripping his ear off. She then bit him on the back of the neck. Any person or animal subject to such an attack would almost certainly be dead.

Richard survived this vicious attack as a result of a series of miracles. The first miracle was that the bite on the back of his head had missed the vital arteries, missed the spinal column and had not penetrated the skull. If the lioness’ bite had been fractionally deeper, higher, lower or sideways, that would have been the end for Richard.

(In the speech, I skip to the story of the beggar’s sign. You can do likewise.)

The second miracle was that the couple in the vehicle reacted instantly. The wife yelled at the husband to get into the driver’s seat and drive at the lion, blowing the horn and making a noise. This caused the lioness to back off. Richard was still conscious and managed to get himself into the vehicle. He was able to work the radio to warn Rebecca of what had happened.

The third miracle was that a couple of weeks prior to this event the local team of paramedics had visited the safari lodge to give the staff a lesson on what to do in the event of a lion attack. Rebecca remembered everything that they had said. She reacted with astonishing calm. She assessed the wounds, called the paramedics by radio, got what she needed from the First Aid cabinet and then stayed with Richard staunching the blood flows until the paramedics arrived.

The fourth miracle was that after being flown to hospital in Gaberones, the capital of Botswana, Richard was allocated a doctor who fully understood how to treat lion injuries. He knew that he could not stitch Richard’s head for several days due to the threat of infection. Lions do not use Colgate’s tooth paste! Richard was given a full anesthetic on four consecutive days while the doctor cut away the portions that were infected.

Richard required very large amounts of blood. The paramedics had warned Rebecca that she should ensure that Richard was only given blood which was certified HIV negative. There was blood available but none of it came with the necessary certificate. How the vital blood was obtained was another miracle, but that story is too long to discuss now.

When the stitches were removed from Richard’s skull, he was still left with a gaping wound at the back of his head. A skin graft from his thigh to the back of his head was required. A visiting plastic surgeon was able to do the necessary graft, but Richard had to later fly to Johannesburg for the surgeon to check that the graft had “taken” and to have the stitches removed.

(Story of the Beggar’s Sign begins here.)

When we visited the surgeon he pronounced that the graft had “taken” and that Richard was absolutely OK. All he needed was rest and recuperation to be as good as new. Any parent who has lost a child will understand the anguish and pain that we endured going through this episode. Now our son, brother, and fiancée, whom we thought we were going to lose, had been saved and returned to us.

At last we could relax. Nothing could go wrong now. You can imagine the joy and jubilation in the car as we drove away from the surgeon’s rooms. Then I saw a beggar at a traffic light. He was carrying a cardboard sign which read:

“No Money. No Food. Please Help Me. God Bless”.

Impulsively I decided that I wanted to buy his sign and hang it on my wall as a memento of this happy day. I had 200 Rand in my wallet, probably more than he made in a month of begging. I called him over, showed him the money and said that I wanted to buy his sign for R200. He simply said “No!” The lights turned green and people were honking behind me, so I gave the R200 to the beggar and drove on, leaving the beggar with his sign.

After dropping Richard and Rebecca with friends I passed the same intersection on the way to my lodgings. The beggar was still there and I was now more determined than ever to buy his sign. I called him over to the car. “I gave you R200 an hour ago, do you remember?” He said that he remembered, clutching his sign protectively to his chest.

“I want to buy your sign for a special reason. Just tell me how much you want for the sign and I will go to the nearest ATM and get the money.”

He shook his head and again said “No”, clutching his sign possessively to his chest. “It will only take you five minutes to make another one” I said, but that elicited another vehement “No” from him. The lights had changed and once again people were honking at me. “If you will not sell me your sign, at least tell me why you won’t sell it.” He replied “God gave me this sign!” I drove off with the words “God gave me this sign” reverberating through my brain.

I am an accountant and investment analyst by training. I am used to digging out facts, checking them and drawing conclusions from them. I am skilled at calculating odds and probabilities. The odds of Richard surviving such a terrible lion attack were off the charts. The odds of finding the only beggar in the world who would not sell his sign for any price were also astronomical.

I had always felt that I was in control of my life. I make the decisions and do things my way. Richard’s recovery from the lion attack was a situation over which I had no control and when I did try and take control of something and buy the beggar’s sign, I had been rudely rebuffed. The only logical conclusion was that God was giving me a sign that He was in control, not me. It was the most humbling moment of my life. Faith is a gift, but it seems that some people have to be bashed over the head in order to accept that gift.

This unusual story needed to be told in order to fully understand the second strange story that does deal with gold. The link came through the Priest in the London parish where we lived for a few years. He had been asked to request prayers for Richard’s recovery and as a result we got to know him quite well. He is a cricket fanatic. When I heard that he planned to visit Australia to watch the cricket series between Australia and England in late 2002 and early 2003, I invited him to stay with us at our house on the northern beaches for a couple of days after the Sydney cricket test in January 2003.

In due course I picked him up from the city. It is about an hour’s drive to our house, so we had plenty of time to chat. He wanted to know if I had done anything special over the past year. I responded that I had made a dramatic change in our family investments during the year, putting some 40% of our capital into gold, silver and mining shares. He was clearly interested and wanted to know why I had done this. I said that I could see a number of problems developing, especially in America, that would eventually result in a major financial crisis which would threaten to bring down the entire world money and banking system. The authorities would create vast new sums of money in an attempt to prevent this melt-down from happening, resulting ultimately in the destruction of paper currencies. This would require the establishment of a new monetary system and I expected gold to be a major part of the new monetary system.

He then asked a strange question: “How high do you think that the gold price can go?” I tried to dodge the question as I did not want to explain Elliott Waves to him, so I just said that gold would probably rise to extraordinary heights. I explained that the extent of the gold price rise depended on the quantity of new money created to ward off the anticipated crisis. He persisted, wanting to know what “extraordinary heights” meant. He obviously wanted a fixed number.

To mollify him I said that in the 1970’s bull market gold had increased 25-fold from $35 to over $850. If the new gold bull market was of the same order, then starting from a base of $255, the current bull market could reach somewhere over $6,000 per ounce. He then wanted to know what the current gold price was. When I said it was about $300, he seemed satisfied.

The next morning the two of us went for a jog on the beach. He asked if I believed in prophecy. I said that I had not really thought about it. Given that there were prophets in the Old Testament who seemed to have the word of God and in the New Testament there were people who had the gift of prophecy, well yes, I guess that I probably had to believe in prophecy.

He then told me this remarkable story. In his London Parish there was a lady who did have the gift of prophecy. She had received several prophecies that had related to him which proved to be accurate. As a result he was convinced that she had the true gift of prophecy. There was an occasion when this lady received an unusual prophecy, quite different to anything she had previously experienced. She thought that if the Parish Priest telephoned her, she would know that she had to tell him about it. Indeed he did telephone, so she told him that she had received this very strange prophecy. She had been instructed to write it down and mail it to him. He was to keep it unopened until she called to let him know that it was time to open the envelope.

A few days before he was scheduled to fly to Australia she telephoned him to say that it was time to open the envelope. The prophecy consisted of just one line which read: “The price of gold will rise to extraordinary heights!”
These were the exact words that I had used the previous day in our conversation in the car. He concluded that this prophecy was meant for me!
I was quite shocked, gob-smacked actually. I would normally have shrugged it off as an interesting story and forgotten about it. After the lion episode and my experience with the beggar, I was more inclined to take it seriously. What did it mean? There was nothing new in it for me, other than being a confirmation from a very strange source that my views were correct.

I felt that there must be a deeper reason for receiving such a strange message. I concluded, somewhat reluctantly, that if I had been given the talent and knowledge to see such a dramatic financial crisis coming down the track, then surely I had a responsibility to warn people about it?

The crisis that was coming had the potential to be the biggest event in the lives of the current generation. It was likely to become the most important factor governing investment decisions when the crisis arrived. So I started trying to alert people to the serious financial and monetary crisis that I could see coming and warn them to buy precious metals as protection.

Talking to friends and fund managers about my views, I ran head first into the Moses Principle. The new generation had not received an education on monetary history, nor what qualities money should have. I was met with glazed eyes and body language that showed no interest in what I was saying. I was talking in many instances to the “new rich” generation. They were the bankers, investment managers, stockbrokers, hedge fund managers and others who were massaging the vast sums of money and credit that had been created since 1971. They were taking their percentage of the funds that flowed through their businesses and were doing very nicely. They didn’t want to listen to a grey-haired old fogey spruiking a coming crisis that was going to wreck the gravy train that they were living off. Clearly this method was a failure.

The solution was to publish articles on internet web sites to get my message across. I had to proceed slowly and cautiously, only giving information that people could accept at that time. It was April 2005 before I felt confident that I could write an article titled “The Seven D’s of the Developing Disaster” about the problems that I could see developing, all starting with the letter D, debt, deficits (budget and trade), the US dollar itself, demographics (baby boomer unfunded entitlements), derivatives, dwellings, deflation (including deleveraging) and destruction, being the long running wars in Iraq and Afghanistan. This article is located at:

The Seven D’s of The Developing Disaster

When the financial crisis eventually arrived in 2007, it was sparked by derivatives (credit default obligations CDO’s) and events in the real estate market (dwellings). The arrival of the crisis allowed me to write more aggressively. By late 2008 there was a much greater awareness of the problems and I felt that I could leave it to others to deal with the ongoing consequences.

In August 2003, in parallel with the money/economic articles, I started forecasting the gold price using the Elliott Wave system. Here too I had to proceed slowly. I felt that I could not reveal my longer term forecast for the gold price because it was so bullish that I would be branded as a nut case. When I wrote my final Elliott Wave article in November 2008 I did reveal the full picture, showing that there was a possibility that gold could reach the extraordinary heights of $10,000. At that time gold was in the $750 area. That article can be found at:

Elliot Wave Gold Update 23

IMPACT OF THE MOSES PRINCIPLE.

It is now time to return to the Moses Principle and its impact on the gold price. Perhaps the most important point is that the modern Moses generation has had very little exposure to monetary history. They do not understand what has caused the current financial crisis. If one does not know what caused the current crisis, one cannot know how to go about fixing it. Central Bankers and Finance Ministers are also part of the Moses generational change. By the late 1990’s the new incumbents had experienced a 20 year bear market in gold and were influenced by Keynesian economics.

They didn’t understand why gold was held in their country’s foreign exchange reserves and resorted to the wholesale selling of this unnecessary “barbarous relic”. Famously Gordon Brown sold two-thirds of Britain’s gold stock near the bear market lows in 2001/2002. Australia sold a similar proportion of its gold. The European Central banks were selling gold but had a joint agreement to restrict their combined sales to 400t per annum. Even conservative Switzerland sold some of its gold reserves.

Originally it seemed that Central bankers were selling gold to protect the integrity and longevity of their paper currencies. Perhaps, with the generational change, they did not know any better. Perhaps it was just the “thing to do” at the time. Despite this central bank selling, the gold price went up! Buying by investors/hoarders had exceeded official selling and a new gold bull market was born. Central bank selling of gold gradually declined. Recently central banks under the leadership of Russia and Asian nations became net buyers of gold. The GFC has created a much greater awareness in official circles of the role that gold plays as a store of value asset in national reserves.

The distortions that have grown out of the 40 year period since 1971 have reached proportions that demand change. The problem is that the current generation does not understand that the root cause of the GFC is unsound money created at will by governments, combined with a banking system that has enabled the creation of an unsustainable mountain of debt. The modern generation is groping with the problem and gradually working towards understanding that the underlying cause of the crisis is monetary.

The modern generation will have to face some brutal truths as the world deals with the ongoing global financial crisis. The following are the brutal truths that apply to the USA and the world:

THE BRUTAL TRUTHS
The slate needs to be wiped clean and a new sound monetary system introduced.
That will require the elimination of all debt, deficits, unfunded social entitlements, the US Dollar as Reserve currency, and the big one, the $600 trillion of derivatives.
To eliminate these problems by default and deflation will cause a banking collapse and untold economic pain, leading to riots and political change.
Politicians are appointed for relatively short terms and opt for the easy solutions.
While politicians continue to have the ability to create new money at will, they will do so in order to prevent a melt down on their watch.
Consequently the odds point to governments wiping the slate clean by generating enough new money to eventually destroy their currencies.
The new international monetary system is likely to involve precious metals. It will have to be money that people trust and that governments cannot create at will.
This has happened many times before, dating back nearly 900 years to the first paper money introduced in China. History is full of attempts to use paper or fiat money, all of which ended in the destruction of that money. The last century saw virtually every South American country “wipe the slate clean” and begin again with a new money. Some did it several times. The Romans faced a similar financial crisis and resorted to reducing the silver content of the Denarius, eventually by about 95%, before people refused to accept the Roman coins.

There are two things that are different about the current episode. This is the first time in history that fiat or government issued currency has been in use in every country around the world at the same time. Secondly, we have an electronic money system which is very efficient. It enables new money to be created at a faster rate than ever before.

Every experiment with government issued fiat money has ended with the destruction of that money There is no reason to believe that it will be different this time. The world’s 40 year experiment with floating “I owe you nothing” fiat currencies is coming to an end.

I have come out of retirement for this one off, once only, speech to warn that the good ship “Life As We Know It” is sinking.

You have the choice of getting into a life boat now or going down with the ship. The life boats consist of precious metals and other assets that will survive the coming currency destruction.

It is likely that gold will be the new unit of measurement or standard of value against which the performance of other assets will be judged. The challenge will be to find assets that perform better than gold.

The forecast contained in the “Brutal Facts” segment is not a pleasant one. It is unfortunately the most likely outcome. All that we can do is to “be prepared”. It is vital for one’s personal financial survival to take action now.

In conclusion, I would like to mention that my son Richard is married to Rebecca and they have a 4 and a half year old daughter with another baby on the way. They live in Sydney and Richard works for a local company organizing tailor made safaris to Africa for small groups. If you have any interest in doing such a trip, you can contact him at:

rfield@epicprivatejourneys.com
Alf Field ajfield@attglobal.net
7 November 2011.

ADDENDUM: Update of the Elliott Wave Gold Analysis

I promised that I would reveal some interesting things about the EW moves in gold since the $681 low in October 2008. That low was the start of the Major THREE wave. In Major ONE I mentioned that the corrections were 4%, 8%, 16% and then 32%.

We know that Major THREE will likely be longer and stronger than the prior Major ONE up wave. It is logical to expect that the corrections in major THREE will be a larger percentage than those experienced in Major ONE. This is how the first Intermediate wave of Major THREE developed in terms of London PM Fixings:

Intermediate Wave I in London PM Fixings
Oct 08 to Feb 09 $712.5 to $989.0 + $276.5 +38.8%
Feb 09 to Apl 09 $989.0 to $870.5 -$118.5 -12.0%
Apl 09 to Dec 09 $870.5 to $1212.5 +$342.0 +39.3%
Dec 09 to Feb 10 $1212.5 to $1058.0 -$154.5 -12.7%
Feb 10 to Jun 2011 $1058.0 to $1549.0 +$491.0 +46.4%
These are typical of the beautifully consistent sizes of EW waves in gold. There are two up waves of about 39% and two corrections of about 12%. Several things can be determined from these numbers. In February 2010 it was possible to pencil in a target for wave 5 of $1470, being a 39% rise from the wave 4 low of $1058. The 12% corrections are larger than the 8% for the equivalent waves in Major ONE, which was expected. One can deduce that the correction to follow wave 5 will be one degree larger than 12%, possibly double this figure. The target for wave 5 of $1470 was exceeded mainly because this became an extended wave. It reached a high of $1549 for a gain of 46.4%. The chart below depicts these waves in London PM fixings:

Extended waves are simply waves that subdivide into an additional 5 waves. It happens mainly to 5th waves and generally makes life difficult for EW analysts. Difficult yes, but not impossible.. The analysis of the first extension, the extension of wave 5, is set out below:

Wave 5 of Intermediate Wave I based on London PM fixings.
(1) 1058 to 1261 +$203 +19.2%
(2) 1261 to 1157 -$104 8.2%
(3) 1157 to 1421 +$264 +22.8%
(4) 1421 to 1319 -$102 7.2%
(5) 1319 to 1549 +$230 +17.5%
Wave 5 1058 to 1549 +$491 +46.4%

NOTE: From the $1319 start of wave (5) above, the target price was $1319 + 19.2%, the same gain as wave (1), giving a target of $1572. The high price for gold in wave (5) in the spot market was $1576 on a day (2 May 2011) when the UK had a public holiday and there was no London PM fix available. Thus the gain for wave (5) was stunted in terms of PM fixes. This is not satisfactory and it became necessary to revert to analysing the waves in spot gold prices to getaccurate readings. This was also required in order to pick up the minor waves in the final two extensions which were explosive in nature.

To illustrate how to analyse gold using EW through this difficult period, it is best to work through the time line as it actually happened. As noted above, the expectation was that following the completion of the extended wave 5, a correction one degree larger than 12% would occur from the peak of wave (5) at $1576.

Gold had a minor correction to $1478 in the spot market and then started a sharp upward move. When gold went to a new high above $1576 the probability of the big 24% (give or take 3%) correction occurring at that time receded. The stronger probability was that a new 5th wave extension was underway. This was the first of the explosive series of extensions in gold. It became an historic sequence of four 5th wave extensions in declining orders of magnitude.

At the end of each extended wave, the spectre of the bigger correction (21% to 27%) came into focus. With each new high, the bigger correction was delayed and a new extended wave was born. At $1814, after three 5th wave extensions, the probability that $1814 was THE high was about 80%. Another extension at an even smaller degree was accorded only a 15% probability. The remaining 5% covered the possibility that the wave count was wrong and that a completely different outcome was evolving.

From $1814 gold had a minor correction to $1723, then blasted through $1814 to new all time high prices. The odds of a fourth 5th wave extension at the smallest degree changed from a meagre 15% to a 90% certainty. The wave count at this smallest degree helped to determine in real time that at a price over $1910 gold was in serious danger of an important top, with the bigger correction certain to follow.

Both charts updated to 7 October 2011 and illustrate the wave counts described.
We can now consider the possible magnitude of the current correction from the $1913 top. The correction will be one degree larger than the prior corrections, 12% in PM fixes and 14% in spot gold, an average of 13%. That compares with 8% in Major ONE. Both 8 and 13 are Fibonacci numbers, so it may be that the next correction could be 21%, the next Fibonacci number.

In Major ONE, the corrections tended to double when they moved up a degree in magnitude, so one must consider 26%, double 13%, as a possibility. A 21% correction from the peak of $1913 gives a target of $1511. A 26% correction would target $1416. There is one further possible target and that is $1478, the point at which the explosive extensions commenced. The price of an item will often retrace the full amount of the explosive extension. There was a recent example in silver of such a full retracement of the explosive extension, see the chart below:

This analysis was prepared on 27 September 2011, the day after spot silver reached a low price of $26.59. The start of the extension was at $26.50 on 28 January 2011. A mere 3 months later, at the end of April, silver topped at $49.50, a very obvious explosive advance. Silver then traced out an A-B-C correction where the A and C waves were declines of similar size at $17 each, a typical EW relationship. At that low point of $26.59 on 26 Sept 2011 the silver price had exactly retraced the full gain achieved in the explosive extension. The conclusion was that there was at least an 80% probability that the silver correction had bottomed at $26.59.

If gold retraces the exact gain achieved during the explosive advance from $1478 to $1913, which occurred in just seven weeks, it will represent a decline of 22.8%. That is nicely within the above anticipated range of 21% to 26% for the current decline in gold. There is a possibility that the spike drop to $1531 on 26 September marked the low point of the correction in gold. The midpoint of the correction from $1576 to $1478 is $1527, close to $1531. If $1531 was the low, it was a decline of 20%. This is slightly below expectations, but it still qualifies as one degree larger than 13%. At the date of writing (7 Nov 2011), gold has recovered to $1767, which is a 61.8% retracement of the loss from $1913 to $1531 (-$382), a typical size for this type of recovery. That leaves open the possibility (40% probability?) that gold will have another dip to test the target areas mentioned. The higher the price goes above $1767, the greater the probability that the low was in at $1531.

Once this correction has been completed, Intermediate Wave III of Major THREE will be underway. This should be the largest and strongest wave in the entire gold bull market. The target for this wave should be around $4,500 with only two 13% corrections on the way.

The word seems to be spreading.

A protester on Wall Street. Be careful what you wish for.