1. If a tree falls in the forest, does it really make a
sound if nobody hears it fall?
now to view a falling OTC derivatives tree being marked to “it
never made a sound” model.
2. In the
simplest terms, credit default swaps (CDS) are a financial insurance product
used heavily by hedgers and speculators in the government debt arena.
3. A lot of investors thought that a huge deflation
would occur when the OTC derivatives written on real estate blew up, but what
they didn’t anticipate was that rule changes would be made by the
Financial Accounting Services Board (FASB).
4. The FASB allowed banks to value OTC derivative
products like bonds, with a maturity date. OTC derivative accounting was legally
changed from “mark to market” to “mark to model”.
5. The deflationists were almost destroyed by the FASB
move, as gold surged from about $680 to $1920. They have re-emerged since the Greek
government has taken centre “default stage”. As you will see, the deflationists are
likely to meet their mark to model maker once again.
6. Companies like MF Global thought they could make big
profits by using investor monies to make bets with CDS products. Their view was that the Greek
government couldn’t pay what it owed, and that failure would trigger a
default event. They were wrong because they didn’t understand how far
the banks have taken the concept of mark to model accounting.
7. In the above document provided by the International
Swaps and Derivatives Association (ISDA), you can see that how the ISDA
defines a credit event (CDS payout time) is open to substantial
interpretation by the ISDA itself.
8. If you take the time to read the document carefully, you will realize
that for all practical intents and purposes, the ISDA votes on whether
any kind of payout can be made to the CDS holder, because they vote to
decide if a “credit event” has occurred.
9. Can you imagine your situation, if at the end
of the day the people who are shorting your gold stock took a vote amongst
themselves to decide what the closing price for the day would be for your
10. In the biggest picture, that is essentially the
situation that the CDS holder is experiencing. Simply put, a default becomes
“not a default” when the ISDA votes that default out of
existence. The bottom line is
that “Team ISDA” will likely put “Team Deflation”
into the dustbin, and the only question that really matters is, are you
11. If so, I’d like you to give the gold chart a
kiss this morning. Keep it
simple, sweetie. Click here
now to view the simplest view you can have of the gold market. Note the three sell signals on the 14,7,7 series of the Stochastics
indicator that I have highlighted.
12. Example A shows the gold price blasting three
hundred dollars higher after the Stochastics
crossover sell signal was given.
Example B shows the gold price declining rapidly after a Stochastics sell signal flashed. What will “Example C”
bring to the gold market? What
will happen when the lines on that Stochastics
indictor cross, as they are threatening to do now?
bottom line is that you can’t know the answer. Selling huge amounts of gold because
it is technically overbought can have disastrous consequences for you. You can be left standing in the train
station while a gold bullet train speeds away.
14. Moderation brings the best wealth-building
results. Selling a bit of gold
into this strength is wise.
15. The professional investor doesn’t buy gold
because, “It’s about to rally!”, and they
don’t sell gold because, “It might fall down!”. If
gold is falling in price, you need to buy a small amount of it. If gold is rising in price, as it is
now, you need to book some light profits. End of professional investor
16. Using theories of where the price of gold may go
next to buy and sell huge amounts of gold is “market
madness”. All “gold
is crashing!” nonsense that occurred into $1525 has now been marked to
“skeleton in the closet” model. The epic loss-booking has been
replaced with new nonsensical stories that gold is going to infinity
any day now, so you have to buy in enormous size. The unfortunate bottom line is
that primal urges continue to dominate the actions of amateur
17. Operate on the gold price gridlines not as a
sea-changing prophet, but as a capital placement machine. You understand that gold is the
ultimate asset, so you place capital into it like a machine on a factory
18. Note the four HSR (horizontal support and
resistance) lines that I’ve highlighted on the above gold chart. They are created by support and
resistance at the prices of $1640, $1700, $1770, and $1800.
19. Based on this HSR, you would place orders to buy
gold in the $1700 and $1640 price area.
Place orders to sell gold in the $1770 and $1800 price area. Keep it simple. I would prefer that you place no buy
orders unless gold has fallen $50 to $100 from these highs, regardless of
where any support is sitting.
20. I think the average daily range for the gold price
will increase dramatically.
Unfortunately, the average high speed (flip) trader lives in a world
where a $100 move in the gold price is mistakenly viewed as critically
important. I would suggest that
the flip trader lives in a make-believe world. The only thing real about the flip
trading world is the enormous size of the booked losses that are experienced
by the vast majority of its citizens.
If you are living life as a flip trader who is obsessed with the
supposed importance of the next $100 move for the gold price, you might
consider the possibility that in the gold world, you are an illegal alien.
21. Default and quantitative easing are not the themes
of this financial crisis.
Surprise is the theme, and you need to embrace surprise, rather than
fight or outsmart it. Don’t
try to become an expert at predicting surprise in a crisis of this magnitude,
if you want to get richer. You
can only embrace the theme of surprise by becoming a risk capital placement
22. Simplicity is the fuel of the successful financial
engine. Is it time for a fill-up?
23. Click this key silver
gridlines chart now. Support
sits at $28.50 and $31. Those are
your simple buy points. On the
profit booking side, you’re doing it now in the $33.50 area, and
you’ll sell more at $35.50 and $37.
24. Take about 1% of your position off the table at each
sell point, and add about 1% to your position at each buy point. Most investors “only”
trade about 100 times too large for their financial britches!
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