Play After You Have Prepared
May 24, 2011
1. Repetition of exercise is a key to victory in athletics. Repetition of key points (and actions) is a key to victory in the market, so let me repeat a couple of these key points. The policy of “rates to zero” failed to end the crisis, yet it continues as policy.
2. Likewise, quantitative easing failed as policy, yet it continues. Whether there is QE3 or QE300 doesn’t matter. QE has failed to end the crisis and will continue to fail to end it. QE will continue to fail because there are not enough assets in existence in the United States, or the world for that matter, to match the massive OTC derivatives debts.
3. You can’t offset a mountain with a molehill. Can you personally save Bill Gates if he had a major debt problem, by buying his debt? No. Well, Ben Bernanke cannot use the US money supply to save the buyers of OTC derivatives, by buying their debt. The money supply is too small. Real estate prices continues to go down, while the other costs of living continue to rise. The bottom line: QE has busted out.
4. When QE replaced rates to zero as the Fed’s “tool in play”, few understood what was going on. Now everyone is a QE super-expert. Do they really know what they are talking about? No. Likewise, when “rates to zero” was implemented, I argued with bond bears that the fundamental condition of the bond market was irrelevant, because the central banks had decided on rates to zero as policy. The bears were destroyed by central banks with the “rates to zero” as policy. Some of them were totally wiped out, financially. The T-bond could have gone to a price of 500, not just 140, if “rates to zero” had continued as the sole tool in play.
5. My message to you now is that QE is finished as an effective tool, and the central banks of the world have moved on to gold revaluation, with central bank buy programs. Just as few believed or understood rates to zero or QE in the beginning, few believe or understand gold revaluation now.
6. Look around the gold community. Gold revaluation is seen as a 1930s one-time event, so the current use of a somewhat quiet and gradual revaluation through central bank buy programs is generally ignored. I assure you, gold revaluation is real and happening right before your eyes, while surveys at gold $1477 show 93% of gold timers are bearish, and investors feel morbid.
7. Did your bear charts work to call a top in bonds, or were they mauled by “rates to zero” policy? Let’s not repeat that horror with gold or gold stocks. Throw your top-calling gold charts in the garbage can. You are taking on the central banks of the world. I don’t care what your charts say. You will not only lose; you will be financially destroyed by your own top calls.
8. Gold has already benefited from the tools in play, and gold revaluation should be a “Do not sell your gold!” monster signal to you. Sadly, most investors are doing their “head in the gold revaluation sand” best, and pretending they can take on the world’s central banks. Is your tool in play gold revaluation, or is it the MACD on the weekly price chart, and a cracker jack box full of dollar buy signal prizes? I wish you the best, but you will lose and lose large.
9. Your risk is being out of gold, not being in it, when gold revaluation is in play. We are very close to the time where measuring your wealth in ounces will be more important than the dollar price of some fixed amount of gold you have. Few believe, few understand.
10. Few will get richer.
11. It took a long time for the rates to zero policy to lose the battle against the OTCD debt mountain. Gold revaluation, in a practical sense, is QE with gold as the asset that is bought with paper money printed at a moderate rate. If gold revaluation fails, and it could, then Ben Bernanke will lead the world’s central banks, including China, in a worldwide implementation of money printing as official policy. Money printing is the last tool in the central bank’s tool box.
12. The reason that some of the biggest gold traders have purchased farms and taken other precautionary measures like the purchase of dried foods, is because they know that once gold revaluation is required as a crisis battle tool, society is at risk of breaking down. They are simply managing that risk, and doing it professionally. Are you managing this risk, or are you clutching a dollar buy signal chart and calling that your risk management tool?
13. After you have managed the system blowout risk professionally, and after you have established a core of bullion that you increase in terms of ounces, then have some fun and play investor, gambler, and thrill seeker, in the market. The key phrase is, “play after you have prepared”. Work first, play later. Ask yourself what the founding fathers would think of your portfolio. Don’t ask some financial golf ball advisor who thinks the founding fathers were “radicals”, and those promoting their principles (prepare and work first, play later) are “subversives” who should be ratted out to the Gman.
14. Do not fight central bank liquidity flows, or you will be wiped off the financial map. I like the “KIS” principle. Keep it simple. Wealth is best built through simplicity. Click here now to view the one month gold chart.
15. Price is either going to rise above $1577 or fall below $1462. I’ve added a 3rd line at $1527, and made it thinner than the two big boundary lines, because it is less important. Buy as price declines into $1462 and below there, and sell as price rises to $1577 and above there. Core positions can be bought on any weakness, but the higher the price you pay, the greater your risk, in terms of dollars. In terms of ounces, your gold on the scale weighs the same at any dollar price, and that fact will become not just more important, but dominant, in the coming years.
16. Gold could have topped out at $1500 if the “rates to zero” and QE policies had been put on the back burner faster, and gold revaluation moved to centre stage faster, but now it looks as though it will take a gold price of thousands of dollars an ounce to have any chance of ending the crisis. The bottom line is that no core positions should be sold into $1577. Selling core positions into $1462 for dollars was outright stupidity, yet an army of funds and speculators did so.
17. I could tell you that, “any day now, gold stocks will go ballistic”, but the fact is that yesterday was another frustrating day for gold stockholders. Click here now to view the GDX daily chart. The bears would argue that there is a double top on gold stocks. They would perhaps call your attention to a possible “bear flag”. I’ve noted that on the chart.
18. That shape is not a bear flag. Flags occur on vertical moves, up or down. The move down has been steep, but not vertical. Could price go lower anyway? While anything is possible, the oscillators look very good here, so while a move lower is possible, it seems unlikely.
19. Click here now to view a two year version of the same GDX chart. In 2009, GDX topped at about $54 and tanked down to $39. GDX made significant intermediate bottoms in the year 2010 in February and May. This year looks the same. Price bottomed in late January/early February, and did so after falling onto the 2010 highs, which now serve as support.
20. The bottom line is there is nothing mysterious going on, and it is not “2008 again” for anything other than paper currency issued by the Gman.
21. Those who claim gold stocks fall from May to September are probably looking at “charts in their own minds”. Whatever they are looking at, it is not reality. Click here now to view some reality, via the GDX comparison chart.
22. That chart is very important. You can see that February and May have produced significant intermediate bottoms for gold stocks.
23. Let’s just pretend that the gold community (you) is heavily invested in gold stocks, and particularly junior golds. Let’s also pretend that you are substantially demoralized after listening to an army of top callers, bears, and fellow investors. They tell you that gold stocks are topping out and you should come back in the fall.
24. While price can rally to June, and then fall in July/August, the lows were set in May, not August. What if you just blew out all your gold stocks because the QE3 self-appointed experts promised you QE3 won’t happen? My message to you, if you want to get richer, is to forget about QE3 or QE 300,000. QE has failed, and gold revaluation is in play. Gold stocks are likely bottoming at prices you may not see again for years. There is no gold stocks top, and bearishness amongst the worst traders in the world is rampant. Click here now to view the two year GDX oscillators chart. While most investors scream in pain, the weight of the evidence suggests that gold stocks are a screaming buy, for you! As always, all I tell you to do, is all I am doing myself, in the market. I have taken large bets on GDX into the lows. These lows. These May lows may not be seen again for years, and the only question is, are you onside?
May 24, 2011
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