Prelude to Stocks Disaster and Gold
“Nothing is either
bad or good, only thinking makes it so.” –William
Wall Street has its cheerleaders
working overtime in conjunction with CNBC to keep stock indexes
propped up and pumped encouraging investors to “stay
fully invested indefinitely.” While we heartily agree
with buy and hold for certain types of investing ideas, now
is not the time to be in the way of a majority stock selling
The main problem with our investor
majority is they do not have a sound
plan for entry, exit, attaining goals and securing those goals.
What is the point of the entire exercise if invested cash
never leaves the stocks? We just finished a new book written
by a 30-year futures trader which had some excellent common
sense ideas. His primary theory is a written response to computer
accelerated markets in which he recommends “taking consistent
and smaller bites of profit” from an on-going business.
This gentleman is in business to trade to earn a living. He
is a professional and does nothing else. When someone has
earned a very good living in a very tough business for that
long, its time for us to listen and consider.
Momentum Creates More Momentum
His dominant theme was that “more
often than not, markets with either a long or short momentum
will in most cases continue that momentum
much longer than we expect. He proved the point by
back-testing ten year segments for different stocks and commodity
futures. Famous stock trader Jesse Livermore said the same
thing. Most of us, including me are constantly working to
locate superior entry and exit price points, when in most
cases we could just buy the market and follow the continuity
letting the trade have room to play itself out. Livermore
had shown and proved, prices can achieve much higher levels
than we ever expect.
If we say price is too high and
can go no further, often this is simply not the case. Going
the other way in a selling mode, stock prices are
limited as when we hit zero the game is over. However
our trader referenced in his book, and we strongly agree,
there are points in time when you must
take profits or you will lose them.
Using today’s gold market
as a shining example (pun intended). I could provide several
technical reasons why gold should be 503 today when it is
closer to 570. Our top two favorite gold and silver stocks
not only technically should have sold but should be at least
15-30% less in value. They have not sold, but merely traded
sideways for awhile and now are going higher. Our readers
are wondering if I have lost my marbles while watching all
of this as they are being anxious to jump on the next precious
metals rally. I am now getting daily e-mails asking if “I
am sure we should be waiting on the sidelines.”
Nothing is for sure but we have to deal with what markets
provide and be ready for rapid pivot reversals in either direction.
Gold’s March 2006 Directional
At this point, we remain close
to the June gold futures top of $574. If this resistance is
broken on the upside, then we will be persuaded the trending
move was sideways not down and that gold is at the inception
of the larger rally for 2006 which should continue to the
winter holidays. If those June gold futures slide under a
$540 closing and hold, we should expect additional selling
to $526 and then perhaps the $503-$509 range.
To describe my methods I would
say we are about 80% technical and 20% fundamental. In our
view, both must work together for mutual advantage in determining
optimum market answers. For now, gold charts are showing mild
signs of strain and selling (weekly charts) as gold futures
prices continue to hold a higher range mostly trading sideways.
The HUI, XAU and GDM stock index charts are more pronounced
in their saying to sell. With this as a back drop it my job
to determine probabilities and provide answers for each one
At certain points on charts we
can safely say price will only do two things. For now, gold
can easily do all three including buy, sell or go sideways.
We are constantly watching not only most all the precious
metals futures and stock prices, but
their relationships with currencies, bonds, and other major
markets which provide correlation if you know what to look
for and can compare them.
I follow a small group of five
market analysts, which in my view are among the best in their
field not only from experience but from proven success. I
carefully listen to all of them and monitor their efforts
but in the end, I personally decide where things are headed
and what I’m going to do to protect and advance our
readers and clients. All of us have our own evaluative ways,
many of them being proprietary and never discussed or offered
to others. In the end, in this business,
it is best to decide yourself, make your own market moves
and be personally responsible for them. We have watched
in amazement while thousands of investors who lost a pile
in the 2000 Nasdaq debacle sued their brokers because they
lost money. To this we say grow up! When you buy a stock there
is a risk. Your broker is charged with the execution of trades
not the outcome.
Difference between Investing
People say stock buying, even
buy and hold is “investing.” It is not investing
as in almost all cases it is trading. If you purchase a house
and live in it for 45 years, that is investing in a house.
If you buy a stock index fund and allow the fund managers
to manage the account that is trading. Those stocks are bought
and sold within the fund at the discretion of the managers
who are charged with performing the work. If they make a bundle,
hooray for you. If they lose it all, in my view you have no
right to sue them as you took the risk and should have done
so with your eyes wide open. Excluding outright chicanery,
your bet on those stock funds is no different than a bet at
Las Vegas. This premise even includes the top blue chip best
of the best. Consider the North Carolina municipal retirement
fund that is hundreds of millions underwater on GM stock today.
The public at large believes all stocks must go up and traders-investors
in a fund have a god-given right to profits no matter what.
In our opinion, these people are in for a very rude shock.
Any stock can crash and vaporize. Count the survivors from
1929. I can only think of one and that is GE. There are a
few more but very few.
How do we know when to buy
and when to get out?
If you are a mainstream mutual
fund manager the road is getting really rocky. Should you
have an open mind and prefer commodities and precious metals,
your path is four lanes wide and smooth as glass. Recently,
we said “Fundamentalists invest on market relevant factors.”
With market news and noise bombarding us “relevant factors”
are difficult to sort from the flak. Old Bill Shakespeare
said, “Nothing is either bad or good, only thinking
makes it so.” Using that framework, the markets are
merely shifting gears. If you were in the old Dow-Nasdaq camp
its time to pick up your stuff and move to better territory.
The Dow-Nasdaq group was a very nice place to be for a long
time, but now the other side is much better. For traders who
prefer stocks only and choose to stay away from pure commodities
and their futures, buy the stocks that reflect the commodities
values in a rally. Before we head into
specifics, let’s try to review some ironclad fundamentals
many refuse to acknowledge.
Real Relevant Factors
“You can observe a lot
by watching. We made too many wrong mistakes.”-Yogi
The following points are my
opinions and I stand ready to argue about them all day. You
may disagree with me, but try to keep an open mind and carefully
review this market fundamentals list. Also, think about the
implications of these market viewpoints.
(1) Government news and policy
is either wrong, damaging or both. Smart traders most always
go opposite the news. M-3 measurement of cash is now unpublished.
Why is this? We think to simply hide the scary numbers. 2.
Oil is not plentiful and prices are going higher. Supply is
not going down. Usage is going up. (3) Iraq was all about
oil. Iran and Syria are next on the oil hit list. Syria is
a walk-over, but Iran is formidable. (4) The US Dollar is
going down in the long term, up in the short term. (5) Interest
rates are mildly up in the short term and then are flat to
down. (6) We have both inflation and deflation right now.
Confusion reigns as observers do not know which one has the
power. Answer-They both do for today. Either we get an inflationary
blow-off followed by deflation or we get deflation. The end
game is depression. Is the world ending? No it is not. It’s
just getting a bit nasty for a few years until this big mess
goes through its historical cycle then life goes on.
(7) Swiss Francs and Canadian
Dollars are going up. The Euro is going up then down, and
then disappears. (8) Gold and silver are going up. (9) Inflationary
daily life will become much tougher. (10) All government from
the lowest to the highest will not belt tighten like us little
folks. They will grab for more and take more. (11) If the
grabbing becomes too pushy, consumers will push back. (12)
Crime will sky rocket as will unemployment. (13) Cash becomes
king while debt a millstone on your neck. Then,
gold and silver will become the king of kings. 14)
Paper of all kinds, notes, mortgages, loans, etc. become worthless
or worth less. (15) Today’s events are like the 1930’s.
The Nasdaq implosion was identical to 1929. Today, we are
preparing for the next wave of selling after a bear market
bounce. We will get at least two more head fake bear market
rallies in the race to the bottom for mainstream stocks. Next
will resemble 1937 in market action which was negative.
(16) Professional stock market
people are dumping securities with both hands into each buying
rally. (17) The Sheeple are encouraged to buy the dips so
the pros can use the rallies to sell out. (18) Overpaid CEO’s
are selling stock with both hands and running with the money.
Many then retire for “family and personal reasons.”
(19) Even small accounts can make big winnings if you are
on the right side of the trade. (20) Loose lips sink ships.
Don’t sink your ship. Act poor and live comfortably.
(21) GM has lost over $10 billion
for 2005. Their cash flow is a negative $3 billion and they
lost $8 billion net excluding accounting problems. Their annual
healthcare expenditure equaled the net loss of $8 billion.
WSJ reports they must downsize and close four plants. Now
they say 12 plants. They offered buyouts to retire 35,000
employees. They need to shed 45-85,000 jobs and 25 plants
but the unions will not permit it. They will be headed to
bankruptcy court in late 2006 or 2007 when union contract
talks enter stalemate. Annual healthcare costs are $10,000
per current or retired employee. All corporations will be
seeking to escape health care expenses partially or entirely.
Look for repudiated pensions and healthcare liabilities to
be dumped on the federal government. The government’s
pension bail-out fund is now broke. They will just print more
cash to cover accelerating costs.
(22) The March PPI rose 0.7% in
2005 the highest in four months. Energy costs are the main
driver. Oil is holding in the $64.50-66.50 range as we forecast.
Unleaded fuel this summer or early fall will be +$3.00 at
the pump due to refinery shortages as we reported. Within
18 months gas will be $5 a gallon. Oil is going to $85 a barrel
within 12 months or less. Attacks on Syria and Iran could
cause it to rise sooner. We expect the violence to begin sometime
in 2006 to prevent Iran from using an atomic bomb on New York
City. Iran has a big military that could be severely damaged.
Israel and the US Stryker Forces are on maneuvers right now
in southern Israel. This forecast could be obviated as news
is now saying back door talks with the USA and Iran are in
process and things are cooling down. (23) The support level
for the Dow is 10,400-10,000 and a blow-off top is 11,400.
After the 10,000 low is secured, look for 9350 next. A selling
slide is imminent.
(24) Hugo Chavez is raising his
oil tax on Venezuelan oil producers from 34% to 50%. After
he gets away with that, then expect him to steal it all. He
and Fidel are spoiling for trouble all over South America.
Any foreign corporation operating in Venezuela will be a target
for government theft. Indonesia has also joined this anti-business
crowd. Expect other countries to follow suit as the bold become
bolder in their taking-stealing efforts. (25) Middle Eastern
oil rich nations are buying gold more rapidly. These same
countries feel abused by the USA and are moving to trade oil
in Euros and other non-USA currencies which is very big trouble.
(26) Thoughtless American senators, wrangling for attention
and votes are running around harassing China and other nations
over currency and trade protectionist matters which ensure
throwing gasoline on the USA trade deficit making life miserable
for American business people.
(27) Grain is suffering from a
100 year global drought and is hitting north China particularly
hard. Grain is energy powered. Everything from fertilizer,
to seeds, tractors, harvesting machines and market transport
will take a cheap food commodity and make it costly. World-wide
supplies of grain are at 30 year lows. Supply and demand will
eventually prevail. Global weather has entered one of its
historically nasty cycles creating havoc for growers and insurance
precious metals have a long way to rise in price. There
will be ups and downs throughout the trade as there are in
any market. Naysayers will try to drive you out as these rally
markets can wound and perhaps kill “other status quo
markets.” It’s going to be you or them. I would
rather it be them and get our economy back on solid footing
once more. The news is wrong and twisted to promote the status
quo viewpoint. Do not ever forget this.
At its extreme, gold is on a one
way track to $2,960. Modestly, the top could be $1,250. Currently,
gold and silver are topping but stubbornly holding higher
prices and refusing to correct. We either get a mild correction
and subsequent major rally, or a larger correction followed
by the same major rally. History repeats again and again.
As of 3-30-06, it appears we are seeing a new gold and silver
market beginning to rally.
How to Cope and be Comfortable
“No one really listens
to anyone else, and if you try it for awhile you’ll
see why.” –Mignon McLaughlin
Focus on the fundamentals first,
then invest and trade on the technicals. In my opinion, the
more difficult part is staying with the focused fundamentals
and not wavering in belief. One thing about beliefs is put
rather bluntly by Theodore Sturgeon who says, “Ninety
percent of everything is crap.” If you can laugh at
this and take it as face value, as focusing on your own beliefs
is much easier. Jim Sinclair, one of the very wealthy and
experienced gold professionals always suggests simple tools
and straight forward beliefs. Do not
forget, somebody is going to lose if you win with gold. When
the potential losers take a position opposite gold they want
to be the winner and you the loser. It’s that simple.
This group will do almost anything to disparage gold and enhance
their positions. Since they are the news controllers, expect
the majority of news to be wrong footed nonsense.
When gold wins fiat paper is not
even good toilet tissue. It’s too rough and won’t
crinkle. There are some very powerful central bankers, fiat
money proponents and securities people who all fear gold.
Gold will ruin their happy little status quo which is why
gold prices have been smothered. The markets these people
cannot control are the CURRENCIES. Bonds can be somewhat controlled
but not to the extent they can be bent totally to the satisfaction
of manipulators. When the consumer caves in economically which
is very soon, nobody will take care of you but you. You must
take control and go opposite today’s majority which
is very difficult. Those status quo believers are the dominating
force. When the game caves in and there is a race to liquidity,
non-believers will be seriously damaged causing severe life
style changes and perhaps even the end of their happy little
It will not hurt anybody to get
out of debt, lower life style expectations and take steps
to protect your future. If I am totally wrong what can you
lose? If I am right and you stay with the status quo, what
does your future look like? Don’t let the enemies of
gold run you off. Hold your gold and have strength of purpose.
Remember, that first of all the fundamentals
mandate gold and history tells us precious metals are the
place to win for several more years. –Trader Rog