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| Prelude to Stocks Disaster and
Gold Opportunities
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“Nothing is either
bad or good, only thinking makes it so.” –William
Shakespeare
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 freight train.
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 Signal
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 of them.
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
and Trading
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
Berra
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 companies.
(28) The
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 bucolic existence.
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
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