1. Gold rose above the right shoulder of the small h&s top this morning. Opening the door to a possible move into the 950-980 area. Possibly. But I suggest you might want to keep this "minor detail" on the front burner, not the back burner: The gold COT reports show the bankers piled on a mindblowing 49,000 short gold COMEX contracts over the past 3 weeks, building those into gold market strength.
2. If we break thru the recent highs around 930, another upleg on gold could commence.
3. Ho Hum. IF gold rallies well above 930, what do we do? Yes, that's correct. Pop open another modest sized gold champagne bottle.
4. Meaning: Bank some more profits. No, not sell all. Not by any means. Sell strength, but do it gently.
5. "I'm selling all now! Because I know I'll get more gold when I buy it back cheaper!" - Wrong.
6. How about this strategy: Charge in and buy the upside breakout! While feeding ourselves all the bullish news being pumped into the media by the bankers. To rationalize our price chasing actions. - No.
7. In the gold market, I say: buying breakouts is for bustouts. Ask Jim Sinclair, the world's largest gold trader, if he buys breakouts and chases $250 upmoves. I think you'll hear silence on the phone. Buy weakness, and weakness only. Or you will book wins. And lose money overall.
8. I'm here to make money carefully. Not to play gold roulette. Not to win the gold lotto fantasy prize.
9. For those who are trading gold ETFs, me included: Don't have more money in play there can you can afford to lose in a confiscation. This is important: No expert really knows what is coming. Some claim God has told them where to buy and sell. Others are sure their charts never lie. Others "know" they have figured out exactly what President Obama is all about.
10. Gold stocks didn't do well yesterday. I believe that was as the stock market melted on the interesting admission by the head of the US Treasury, that the bankers have $2 trillion in cash sitting at the Central Bank.
11. But they need the taxpayers to hand over trillions more, and then maybe the bankers will lend that out. Maybe.
12. "Heads we lend out a few billion to companies that don't want any loans, they want bailouts like we got. Tails we buy another couple of billion in gold bullion from the taxpayers in the next central bank sale. While pretending our COMEX short gold position is about to finish us off and we want lower gold prices." Mr. and Mrs Bank Owner.
13. Yeah. Big surprise. It's tails again.
14. Somebody call the ambulance. The bankers can't breathe. They are laughing too hard.
15. Lend, sure. But lend it to who and for what? The "we've got to get credit and loans flowing" again chant is getting deafening.
16. Companies need bailouts. Not loans. Product lines are being cut back, not expanded. Companies want cash to pay expenses, not expand production. The US govt is ignoring the demand side of the equation. One of the reasons rates are low is because demand for loans is melting.
17. NYSE-traded companies are doing now, what they should have done in 1995-1999. Prepare for Pain.
18. It's too late now.
19. Stock buybacks in the late 1990's were an act of insanity. Now is the time to commence stock buy backs, when stocks are in the tank.
20. Notice I said "commence". Not buy one big chunk of stock now. The Dow could go into freefall if the lows around 7552 break.
21. Of course, the very last thing on the mind of those in charge of corporate treasuries now, is stock buybacks. Why? Because they blew all the cash. Now they want others to buy their stock.
22. I have no idea if the Dow will blow out the 7552 lows. If it does, it could just be a fakeout. And the market turns back up. But if the lows break, and the Dow does begin a major new downleg, I believe that would be the trigger to cause the public to unload the bulk of the stock bag they still hold from their failed adventures in the stock market in the 1990s.
23. You know in any market there is a seller for every buyer. If such a Dow meltdown event occurred, ask yourself: "who would be the buyer of all that stock?" Would it be your neighbour? How about the business owner next to you in the industrial complex where you have your business, would she be the buyer?
24. No. What we may witness is a very similar situation to the era of 1929.
25. Sadly, bull markets end with the public largely out of the stock market.
26. Is the public out now? No they are not.
27. How they leave the market is unknown to me. But the odds are astronomically high that the public does indeed exit the market before a new bull market can begin. It could be now, it could be years from now. And it could even be at higher prices than where are now.
28. But they will leave in despair. With huge losses. And stand in the corner holding their bag of cash.
29. A bag of cash inside the banking system. The bank owners themselves abandoned the system, and their banks, almost 3 years ago. Their money is in gold, t-bills, custodial accounts, physical stock certificates in their hands.
30. When the public and the mutual fund industry throws in the towel on the stock market and really runs for the safety of cash, it will be just in time for Mrs. Hyperinflation to knock on their door.
31. Don't underestimate the power of holding the Dow during a period of hyperinflation. Even if the Dow doesn't break down, but the economy continues to tank, the public will be forced to abandon their stock market carcass to pay their daily expenses.
32. After the crash of 1929, with the Dow down about 90%, thousands of destroyed investors stood in the street and cheered. While the bankers, led by JP Morgan, bought vast amounts of stock at pennies on the dollar at every major NYSE trading post. "JP saved us. He saved the market!", was the cheer.
33. History will repeat. JP bought blood. Some say he created that blood. Perhaps. But the main fact is he bought it. This situation will repeat itself again.
34. Hands up anyone out there who has heard President Obama mention the word "Gold". When I wrote the gold revaluation article, I got a lot of input from some pretty heavyweight people. Positive input.
35. Let me say this: IF there is a confiscation of gold, one insurance policy you can take out against that, is to buy the Dow. I know, a gold guy promoting buying the stock market. It isn't what you think.
36. For the record, I don't think a depression is coming. I think what is coming is better described as a wipeout. A total global wipeout. Almost nobody except Jim Sinclair mentions the word "Pakistan". Here's his website, for those who actually want to learn something. Something about gold. Something about gold from the world's largest gold trader. www.jsmineset.com. The US Central Bank and the US Treasury are leading a charge towards a massive dollar devaluation. The final tool in their toolbox is money printing. We've seen the "rates to zero". We've seen the "asset purchases". We're about to see the US T-bond levitation act.
37. Gold revaluation follows the T-bond show after it fails. Ben Bernanke has laid it out. Not me. Gold revaluation may well be accompanied by some sort of freeze of gold ETF and other markets.
38. The gold ETF market is an 1,100 tonne gold plum. Very easy to pick that plum if you are the US Treasury. And very tempting.
39. So far none of the "tools" in the US Treasury and Central Bank toolboxes have worked to kickstart the economy. The economy is getting worse. And getting worse at a growing rate of speed.
40. So by definition, every day, the likelihood of revaluation and money printing "tools" being used bigtime is growing. The odds of T-bond buying by the Fed are probably 99% now.
41. My suggestion is to put some risk capital into the Dow. Don't sell your gold in a panic that you might have it confiscated. Don't call the mayor and scream at her, "you'll never get my gold". Just buy a little Dow. As an insurance policy. That's what the bankers are doing. That's what Warren Buffett is doing.
42. Warren Buffett may or may not be the richest man in the United States. Regardless of whether he's the actual top dog or not, he's certainly one of the top dogs. He's been a buyer of the market at these levels. Is it because he thinks America is about to have an economic boom? I say No. Or because he smells the coming hyperinflationary dragon? I say Yes. The stock market in Zimbabwe outperformed the rate of inflation for long periods of time. Homestake Mining rose to $500 a share after gold was confiscated. Because it was one of the few legal ways for Americans to own gold.
43. Do not underestimate the importance of gold stocks. I wouldn't own just physical gold bullion. Make sure you have some gold stocks. Gold might be confiscated. Stocks? Almost zero chance of that. Think in terms of protection, insurance, risk.
44. Not how much money you are going to make from the wipeout.
45. If a wipeout is coming, you want things within your reach. Not only in an account thousands of miles away. If the banks close, the markets will close. If the markets remain open, the people will sell stock to raise cash. Do you think President Obama hasn't thought of that? Of course he has. Selling stock won't help anyone then because brokerage cash is held with banks in most cases. All will be frozen. Take delivery of some of your certificates, take delivery of your core positions.
46. I'm prepared to buy the Dow all the way to zero. With pre-allocated amounts of risk capital. Not with a huge amount of money and not to make big money. As part of a total insurance policy against the coming global wipeout. When it comes to the possibility of a wipeout, I suggest you want all the insurance you can buy.
47. After you have protected yourself to the fullest extent possible, then relax. Why? Because your job is done. There's nothing more you can do at that point. Worrying won't help you. Quite the opposite. At that point, I say relax and allocate money to trading the markets. Perhaps your portfolio isn't really going anywhere, or has blown up, or you have no consistent feeling of solid control in the markets, or even a feeling of terror. I would suggest that if you look closely, you are probably confusing the actions of market gambling with market insurance.
48. Handled properly, gold is the world's lowest risk investment. Handled with improper tactics, it's a dynamite stick in your mouth. What you may have been taught is diversification of risk, the bankers may see as consistent crazed gambling actions that are increasing your risk. Think about that. Things aren't always what they seem. Focus on risk first. Using the tactics of the bankers. Not the tactics of failed brokers, funds, speculators. Reward will look after itself automatically if you do that. I would argue you will make more reward by building a foundation of risk management first. Prepare for what you think won't happen. Not what you "know" will happen. In the hands of a professional, managing the risks of what you don't know, is what real preparation and risk management is, by definition.
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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time.
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