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Marketwise Black Box - Six hours ahead
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Safeguarding Our Gold
TRADING NOTES: What excuse might the U.S. government use
to confiscate our gold and silver, as President Roosevelt
did in 1933? Subscribers have cited “combating terrorism”
as the most likely reason. Before I dip once again into the
mailbag on this issue, let me remind you that it not just
a bunch of crackpots who are concerned that history could
repeat itself. For the skeptics, reprinted below is President
Roosevelt’s official proclamation, which I am repeating
in somewhat greater detail than the excerpt published here
last week:
“Executive order: By virtue of the authority vested
in me by Section 5(B) of The Act of Oct. 6, 1917, as amended
by section 2 of the Act of March 9, 1933, in which Congress
declared that a serious emergency exists, I as President,
do declare that the national emergency still exists; That
the continued private hoarding of gold and silver by subjects
of the United States poses a grave threat to the peace, equal
justice, and well-being of the United States; and that appropriate
measures must be taken immediately to protect the interests
of our people.
"Therefore, pursuant to the above authority, I herby
proclaim that such gold and silver holdings are prohibited,
and that all such coin, bullion or other possessions of gold
and silver be tendered within fourteen days to agents of the
Government of the United States for compensation at the official
price, in the legal tender of the Government. All safe deposit
boxes in banks or financial institutions have been sealed,
pending action in the due course of the law. All sales or
purchases or movements of such gold and silver within the
borders of the United States and its territories, and all
foreign exchange transactions or movements of such metals
across the border are herby prohibited.
“Your Vault Is Hereby Sealed”
"Your possession of these proscribed metals and/or your
maintenance of a safe-deposit box to store them is known to
the Government from bank and insurance records. Therefore,
be advised that your vault box must remain sealed, and may
only be opened in the presence of an agent of The Internal
Revenue Service. By lawful Order given this day, the President
of the United States."
Keep in mind that American’s were compensated at an
“official” price on $20.67, but that a subsequent
40% devaluation of the dollar pushed the POG up to $35 an
ounce. Jewelers, dentists and coin dealers were exempt, but
that would be scant consolation now, as it was back then.
Many subscribers are convinced that Americans would take
such an order in stride – by ignoring it. B.B of New
Jersey writes as follows:
“I don't worry about confiscation from the government.
I simply won't announce my holdings and neither will I cash
it in. I think many Americans are a lot more savvy than they
were in 1933. Would the government also ask for our silver?
Don't think so. If there are countries that use gold coins
as money, would they forbid U.S. citizens from owning foreign
money also? Don't think so. Gold coins were considered ‘collectible’
and were not forbidden in 1933. Would they forbid ‘collectibles’
too? Don't think so. And if a law were passed and good citizens
complied, would the government stop them from taking their
cash, sending it overseas, buying gold and having it held
in a Swiss bank? Don't think so. There are too many ways to
own gold, so any law forbidding ownership seems antiquated
to me. This is 2003, not 1933. People trusted their government
then, not now....sad to say.”
Confiscation Bullish?
Another subscriber, Phil D. wonders whether confiscation
would have the unintended effect of helping to push gold prices
skyward:
“Confiscation would have complications not present
in Roosevelt's time. Back then I suspect that a $20 gold piece
was presumed to be worth about $20 and the government probably
just replaced one form of currency with another (paper). Today
even the most recently issued Gold Eagle has a face value
far below the market value at which it is sold. In any confiscation
the government would have to pay fair value for even ordinary
coins or risk a lawsuit for taking property without just compensation.
For the government to pay fair market prices would be to become
a buyer of gold at market prices and end up forcing the world
price higher. No doubt confiscation would only be considered
after gold had become popular and the price had already risen
considerably. I have to wonder if the government would want
to lend further support to the price of gold at that point
in time by buying what so many central banks have recently
sold at much lower prices. The danger, however, is there,
and your reader raises an important point worth considering.
It might be best not to put all one's golden eggs in one basket.”
The same subscriber also notes: “I am not an expert
on the history of gold confiscation but my understanding is
that when FDR did this, rare coins were exempted from the
confiscation. Holding rare coins might be an option for those
concerned about confiscation, although the more rare they
are the more their price will reflect numismatics rather than
the gold price and the percentage of gain in an environment
where gold rises and collectibles don't might not be as great
as for ordinary gold coins. I could be wrong but my understanding
is that gold stocks were not seized and may have benefited
from the reduced supply of gold in circulation.”
Guns and Gold ‘Untouchable’
And finally, for today, here is a letter from Jason K. of
Virginia, who is appalled at the very possibility history
might repeat itself. He says lawmakers and patriotic lawyers
should act quickly to make sure that gold and silver are never
confiscated again:
“ I can't find words to express my disgust at the idea
that a gold confiscation ever did or still can occur in the
U.S.A. Guns and gold are but two of the many things the government
shouldn’t even think about confiscating. To think that
the government gets away with confiscating gold but not guns
makes my head spin. The Liberty Caucus in Congress should
immediately move to repeal those FDR-era laws and submit a
resolution stating that every citizen has [inalienable property
rights for] gold, silver, platinum, bullion, coins, and medallions.
“Currently, you can't even melt an American Eagle coin.
Something about how the stamp or legend on the reverse and
obverse imputes a partial property interest into the coin
that goes to the government. [More on this later, since another
reader has addressed the issue in great detail.] I buy a coin
and the government thinks it owns it in part. How crazy is
that? I would only hope that if the government attempts another
confiscation, that the gold-owning community can organize
and focus resistance using the internet as they never could
have in the FDR era.
Patriotic Lawyers, Unite!
“I would recommend in the meantime, though, that someone
more able than I am put the idea to [Rep.] Ron Paul and the
Liberty Caucus to begin the process of repealing…gold-confiscation
laws and protecting the right of every American to property
in gold, silver, and platinum; and to trade and exchange same.
(The list not to imply unlisted materials are okay to confiscate).
Until such time as that [law is enacted], it wouldn't hurt
to line up patriotic lawyers who could most effectively defend
every Americans’ right to own gold, and to sue the government
to cease any action it takes towards confiscation. Do the
homework early, so it is ready when it needed. Maybe it would
not be. I hope not. But as insurance, it would be worth organizing
a legal resistance group.”
***
Citi Nears Target
I want to repeat that Citi shares are closing on a potentially
very important top, a major hidden-pivot resistance at 46.99
that has been five years in coming. There are some other important
hidden pivots clustered between 49.45 and 49.87 that should
make the $50 level close to impenetrable. If Citi is the bellwether
of bellwethers that I think it is, this top should coincide
with the end of the bear-market rally begun in March. Meanwhile,
until such time as Citi reaches that number, you can count
me – if only for another few days – among the
lunatic bulls.
***
You Are Warned!
It is a standing joke among longtime subscribers that the
stock market seems to go postal whenever I take a vacation.
This is not necessarily a bad thing, since the wicked collapse
in July 1996, when I was vacationing at the Jersey Shore,
brought some of the largest profits in the newsletter’s
history. At the time, by way of specific recommendations in
the newsletter, we were long relatively large quantities of
out-of-the-money puts, each of which multiplied in value many
times before I was able to put out a bulletin recommending
some profit-taking. With that in mind, let me note that I’ll
be on holiday next week and that MarketWise Black Box will
therefore not be published between July 21 and July 28, inclusive.
***
[The + symbol means we have an open position, while $ means
there is actionable advice.]
$ DJIA (9177.15): Just a small change in Monday’s forecast.
If and when the Dow exceeds 9185.53 on a closing basis, it
will be on its way to a minimum 9366.86. If it gets by that
hidden-pivot resistance, look for a marginally higher top
at 9374.23. Short the higher number with a micro-stop at your
complete discretion.
SEP E-MINI S&Ps (1002.50): No change. The futures would
need to close above 1007.00 today or tomorrow to set up a
powerful surge higher. If they succeed, my minimum upside
projection for the next 2-3 days would be 1031.75, a hidden
pivot.
$ SEP BONDS (114.22): My downside target for the bear cycle
begun two weeks ago is 113.14, a hidden pivot that should
work precisely enough to allow bottom-fishing with a 113.11
stop. Further weakness would be signaled today on an easy
move below 114.17, three ticks beneath yesterday’s bottom.
In a bigger picture, the completion of a large head-and-shoulders
pattern begun two months ago would imply a fall down to 110-111.
Concerning this target, a subscriber, Mick R., writes as follows:
“By looking at the charts I see the Bond H&S target
to be 113 8/32 or so not the 110-111 you state in the news
letter. I always thought the entry was a break of the neckline
represented by a trendline drawn from the 5/28 to the 6/20
low's and the target was measured from the top of the head
to the bottom of the right neckline. That would be 123 1/32
- 116 12/32. This distance is then subtracted from the entry
to give the target. Anyways, if I am wrong my apologies.”
My reply: There is indeed a precise method to “count”
an H&S target, and I assume that your target is accurate
in that way. But I rarely pay much attention to H&S formations,
because in general they are overscrutinized. My target for
the bonds – while acknowledging a picture-perfect h&s
– is simply the mid-range of last spring’s consolidation.
An important hidden-pivot target is 113 14/32, and that would
be my minimum downside projection from here. But I think the
move will overshoot the pivot, eventually finding vague support
in that 110-111 band.
$ OEX (505.19): My minimum upside projection is now 516.96,
given yesterday’s decisive thrust through hidden-pivot
resistance at 505.67. You can short 516.96 by bidding 3.90
for a single August 500 put, contingent on the index trading
517.00 or lower. This is a day order.
QQQ (32.22): A small change in my numbers: The cubes will
still need to close above a hidden pivot at 32.94 to take
wing. If and when this occurs, they’ll be on route,
most immediately, to a minimum 31.33. Scalpers can short that
last number at their complete discretion, risking no more
than 0.03 points on a stop.
AUG GOLD (346.80): My outlook will remain neutral to mildly
bullish so long as the futures do not close below 342.60.
Meanwhile, a print above 353.70 would kick the bull into gear,
but it would take a close above 364.80 to make it snort fire.
SEP NASDAQ E-MINI (1299.50): No change. If the futures can
close above 1302.00 for two consecutive days, I’d rate
them no worse than an even-money bet to reach a minimum 1340.00,
a hidden pivot, before Friday.
***
IBM (85.42): Big Blue will need to close above a hidden pivot
at 85.81 to get in synch with the Big Bear Rally. If and when
that occurs, look for the move to continue to at least 88.15.
FNM (71.38): Fannie bettered the first of two bullish thresholds
given here yesterday but still needs to punch through 72.92
to get a green light for the next few days. If that occurs,
the stock would be a lead-pipe cinch to reach a minimum 74.31
in this minor rally cycle.
+ C (47.12): We hold sixteen September 40 puts for an average
0.79, having been unable to sell any Julys against them. Citi
continues to be the bet-the-farm favorite of institutional
investors. I’m betting only that it will get as far
as 49.66, but no farther. We’ll back up the truck to
buy puts when the stock gets there – and there are no
“ifs” about that.
+ GG (11.82): We hold 400 shares for an average 7.20. We
won’t adjust our position until such time as Goldcorp
moves above 13.00. A close above 12.54 would suggest that
such a rally – and then some – is imminent.
$ + HL (4.88): We hold forty September 5 calls for 0.25 and
are short fifteen July 5s against them for an average 0.21.
Today, offer 25 more July 5s short for 0.15. The stock is
chomping at the bit, but it should nonetheless be easy for
the Smart Money to peg it at $5 until the July option expiration
is past. We are holding out for 0.15 today on the July calls
on the assumption that, with the stock at these levels, no
market maker with a functioning brain should be enthused about
selling them for less.
$ + RANGY (11.70): We hold 200 shares for 10.35. The short-term
outlook remains bearish, with a target of 10.69, but it would
change to bullish following a print at 12.42. For now’
we’ll cancel the 0.70 bid for 200 shares.
$ + RGLD (21.70): We are long eight July 17.50s for an average
0.55. Continue to offer eight July 22.50s short against them
for 0.60, g-t-c. (We missed by a dime yesterday, but we can
afford to be patient for one more day.)
KLAC (50.35): This rabid animal topped just 0.40 below a
longstanding target at 51.47. We’ll back away for now,
since I cannot say with confidence whether Monday’s
high will prove to be climactic.
$ EBAY (113.95): Just to get a piece of expiration-week action,
let’s bid 0.70 for two July 115 calls, contingent on
the stock trading 113.00 or higher. Make it good in the first
two hours only.
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