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Harry Schultz Life Strategies
~ For THINKING humanoids ~ (in 80 nations)

Harry Schultz
extracted from HSL #643 of Oct 3, 2004 -DJIA 10,193
October 17, 2004

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Gold's main mkt story is: bullion seems to have finished its correction & is preparing its assault on the April double-top 435 high. The 2-dc over 415 (basis Dec futures) is a technical victory for gold, & will bring in a lot of chart buyers. This mkt has been climbing a wall of worry for 6 grinding months, with weak volume reflecting buyer hesitation. The 6 mos consisted of 5 rallies & 4 corrections. Because each rally bettered the prior rally by a mere $5, it discouraged gold followers from placing big bets. Yet the uptrend has prevailed. Odds favour its continuation. A break below 395 would shatter that & test lows in the 380's (see gold in Back to the Futures section for buy/sell tactics on handling both breakouts & breakdowns as a guide for shares & futures).

•• I reported this in Gold Charts R Us, but I must report it in HSL also, as not all Hslms get GCRU. Here's an interesting letter: "Dear Uncle Harry, Whatever happened to the commercial banks' gold derivatives issue? Did it go away; is it still there? 2yrs ago there was talk (from Jim Sinclair, etc) of a crisis if gold went above 350 (or 360, 370, etc), but nothing seemed to happen. It would be good to have a post mortem comment from U on this. Best wishes, FW, London, GCRU & HSL/FMU subscriber." Dear FW, Good question. I don't have a final answer. JS originally put out the theory some mines/banks would hit trouble with gold at these prices. But they haven't. I believe the answer is partly the mines have bought back much or most of their derivatives. 2nd, govts may have quietly bought up some of these derivatives to avoid bank/mine closures.

In no uncertain terms, the Bank of China's governor has shown his govt is determined to increase the levels of gold held by Chinese citizens. It's much easier, PR-wise, to encourage this than for the Central Bank to go into the open mkt to buy gold for its reserves. Xinhua News Agency quoted Zhou Xiaochuan, central bank governor, saying "Trading in gold will provide another choice for individual investors who keep their money in bank accounts due to a lack of desireable investment options." (see 2 recom gold charts pg 11)

Good news for traders & non traders: 1. For those of U who don't have time, or skill (yet) to profit from actively trading gold shares, U'll be interested to know I've introduced a new format in my Gold Charts R Us service. I've coined a new word for part of it: Trendinvestors-a 1-page table that lists in great simplicity, what to buy, when & where to sell, basis medium term trends. This is the middle ground between buy&hold (which doesn't pay off) & daily monitoring/trading. This table is designed for less active investors. 2. We're also starting a simplified table under each chart for traders, to make their lives easier. I think we've radically improved GCRU. I hope U'll give it a try. With gold now having turned the corner, IMO, this is a good time to get active, before shares get overbought. To order the new style GCRU, for 2-week trial or 3 months, or 6, 9, 12 months, go here.

Big Picture
We are awash with opinions at every corner on what is coming next to the world/society, to the stock mkt, to Iraq, etc. But much of it is one-sided. Is it time for a contrary opinion? While views differ widely, nonetheless there is a majority sense that, for examples, the property bubble is a big worry which can bring down the whole credit structure; that Iraq will sort itself out somehow, eventually, under present plans; that the stock mkt is overpriced & a sharp fall overhangs us (a view not put forth by brokers, bankers or CNBC); that although there has been a loss of personal freedoms since 9/11, it's a worthwhile & necessary price to pay for security, etc.

My contrary view is grappling with the possibility that the property bubble may not pop. Rather, that the battle between inflation & deflation will prevent a pop, but allow a slow leak. Property prices will likely gradually drift off, but not crash. At least, not as far as I can see in this fog that surrounds the future. And Iraq will NOT sort itself out under present management & their plans. It can't happen because, as the panelists agreed (a rarity) on McLaughlins political talk show on 9/17, the cause of the insurgency is the occupation. To treat the cause, the coalition must exit. There are no alternatives to removing the cause. The sooner, the cheaper (in lives & $s). Declare victory (over Saddam) & leave. 

As for the stock mkts: yes, they're overpriced, but the US govt continues to buy S&P futures contracts, usually near the close, whenever there is risk of a price support level breaking. They do this, sub-rosa, via 2 major banking houses. Obviously, it's done secretly because to admit it would defeat the purpose (They sell on the rally they caused & make a profit). So, there's a moveable feast/floor under the US mkt. That's why a certain NY technical mkt advisor has been wrong for all of 2004, despite numerous technical bearish indicators, in advising clients to short every rally & whenever near-support is broken. That is "fighting the Fed" in a different mode.

And when the US mkt firms, other world mkts firm. More cause & effect in motion. I have been modestly bullish on mkts lately, based on chart action, stated in GCRU, despite the existence of a super-cycle bear mkt. A wkly chart of DowJones World Index (DJW) depicts a massive reverse head&shoulder pattern, from 2001 to date. If it breaks over 199, it would technically point to a huge world stk mkt rally. This isn't quite a forecast; just reporting chart facts. A break under 180 would imply that breakout won't happen. U can follow this index yourself & get a head start on the crowd & the crowd that is right during the bulk of major moves, but wrong at every turning point & some months thereafter.

The most dangerous popular opinion is that the loss of all privacy & almost every individual freedom in the US (with spin-off effects around the world--by US govt edict) is an "acceptable price to pay for security." Contrary opinion is required here above all places. For a start, no security has been obtained by the theft of privacy & individual rights. The price for "nothing" is clearly too high. Even if some assume a bit of imaginary security has been obtained (?), the price is not commensurate. Put in cash terms, to get 1 cent in return for paying 100 cents is not clever. In life terms, to give up rights fought & died for, for over 200 yrs, is foolhardy. Every US FF (founding father) spoke out against ever giving up rights so hard-won.

Eg, Ben Franklin: "Those willing to give up a little liberty for a little security deserve neither security nor liberty." Don McAlvany says "The US Patriot Act is a war on US rights & freedoms." (It is a war on rights & freedoms everywhere via its spin-off effects & US demands.) DMA says "Our fight today is not unlike that of our FF as they battled to hammer out a Constitution that guaranteed certain & inalienable rights to its citizens." Check Webster. Inalienable means [rights] "incapable of being surrendered or transferred." The Patriot Act (so masked to intimidate opposition) is the worst thing to happen to the US since Pearl Harbor. US Congressmen (all) voted for it without reading it!  (In emotional climate of 9/11).

DMA concludes: "The threat of terrorism is equaled by the Patriot Act, which attacks the 1st, 4th, 5th & 6th amendments to the Constitution, fatal blows to US freedom. Unless we work to stem the tide of these abuses now, our great country will cease to exist as a free nation, as the FF intended." A final DMA quote: "9/11 should further resolve our efforts to protect our rights, not serve as an excuse to abolish them. The govt has been given vast police-state powers to protect us, could one day use them to enslave us." (Subscribe to McAlvany Intelligence Advisor & ask for last 4 issues: PO Box 84904, Phoenix, AZ 85071, US)

Getting back to public opinion: There's also a feeling that after the US election, the US prez will put things in order (eg, deal with deficits, debt) & things will be more stable & better. That's half right, the intent part. A contrarian view is that things will almost certainly be far more difficult because historically most presidents & prime ministers use the first 1-2 years of a new term for house cleaning, economic & monetary repairs.They want to get it over with so the public will forget it by the next election, & hopefully benefit from the repairs in 3-4yrs. The result of the house cleaning is usually much pain in markets. Count on it! ••• Another common expectation is higher interest rates, on which I agree. But contrary opinion suspects rates will stop rising by mid 05, due to deflationary pressures & govt house cleaning, & turn down.

••• Look for a surprise rise in US savings rate, the enemy of consumerism-the-fad. ••• Popular opinion on oil ranges between "it will come down soon" (say all govt spokesmen) & "maybe it will stay in the area for quite a while." Contrary opinion (& some facts -- see inside) says: it is going much higher. ••• Finally, popular opinion on China by economists is that China will cool down, partly by intent, partly that it will overkill the cool, as in 1993-94. But, this time only 3% inflation vs 25% then. Contrary opinion, by an Old China Hand (me): The Great Mall of China will continue its successful roll.

•• And that's the Big Picture from high up here above the trees via my giraffe vantage view.

Lots & LOTS more follows for subscribers,

•••Harry Schultz
© Copyright 1964-2004 F.E.R.C.

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