Which camp are
you in, inflation or deflation? While Mr. Market labors under the pressures
of both and the burgeoning weight of artificial stimuli, Clive Maund, a
30-year veteran of technical analysis, is positioning himself for gains
either way. "Properly used," he says, "technical analysis does
not require the use of other inputs to be effective." In this
enlightening interview with The Gold Report, Clive extols
the virtues of the age-old practice as a reliable predictor of future stock
price movement in any economic environment.
The Gold Report: You have practiced technical analysis (TA) since
the late 1970s. On a simple level, explain why TA is a reliable predictor of
future stock price movement?
Clive Maund: Because the latest price of a stock is the summation or
distillation of all fundamental information that is known about the company.
In the earliest stages of a major uptrend, it is only the "smartest
money"—that is to say those in possession of the best intelligence
that are on to the improving fortunes of the company—and they may well
be insiders. Technical analysis detects their buying at a time when the
reason or reasons for it is not yet known. The average retail investor, who
is at the bottom of the "food chain" will be the last to learn the
good news, when it is broadcast by the mainstream financial media, usually as
the stock is about to top out towards the end of a bull run.
TGR: How is the average investor to make money? From your answer, it
seems the deck is stacked against the average investor?
CM: The average investor must learn to break the habit and the common
mistake of going after stocks that have already made substantial gains and
for which the news is already rosy, chasing popularity. The time to
accumulate stocks is when they are oversold but have stabilized and the
fortunes of the company are just starting to improve.
TGR: As a technical analyst, do you analyze and incorporate economic
trends into your projections? In other words, do you rely on the output of TA
for your stock trades or do you use the output as one factor of many in
making predictive stock judgments?
CM: Properly used, technical analysis does not require the use of
other inputs—such as the analysis of economic trends—to be
effective. Having said that I do study the major forces driving the markets,
such as debt levels and quantitative easing (otherwise known as manufacturing
money), as these do give some additional clues with regard to timing.
TGR: You study debt levels and quantitative easing. What about
unemployment and GDP, which are more widely discussed in the popular press?
CM: Unemployment and GDP are symptoms of the genuine health of the
economy and thus of crucial importance. The term "jobless recovery"
is an oxymoron and just spin. The key point to grasp is that the stock market
has been rising not because of economic improvement but because it has been
driven up by manufactured money and the resulting fear of inflation.
TGR: Many analysts/pundits are predicting another downturn for the
markets and international economies—some argue inflation is pending and
some believe deflation is imminent. What is your viewpoint on the direction
of the markets and economies?
CM: This is a crucially important question. The lives and fortunes of
billions of people depend on how the inflation/deflation issue plays out. The
key point to understand is that the background dynamic is highly
deflationary, but as politicians and business leaders do not want to face the
grim consequences of deflation, which at best could result in their losing
office and their positions of privilege and at worst could result in them
losing their lives or being sent into exile, they can be relied upon to
resist deflation tooth and nail.
Deflation "broke out of its cage" in 2008 and the result was a
devastating collapse in the markets. They beat it back into its cage with a
combination of bailouts, quantitative easing and monetization to prevent
asset classes such as bonds from failing. The end result of this interference
with, and obstruction of the natural corrective forces of the free market, is
that debt has reached astronomic levels, arriving at the point where it is
This can result in one of two outcomes: 1) default and economic implosion, or
2) runaway inflation leading to hyperinflation. As the latter will buy more
time for politicians and business leaders, this is the road that they can be
expected to take. However, if deflationary forces overwhelm them, possibly
due to calamities in other parts of the world, such as a collapse of the
European Union or China imploding, we could see a depression in the U.S.
TGR: So the only outcomes for the U.S. is hyperinflation or
depression? How does the average investor manage a portfolio with such
CM: As long as inflation has the upper hand, which the recent action
of the Commercials (banks and institutions) in scaling back their short
positions (as revealed by COT—Commitment of Traders-figures)
demonstrates continues to be the case, investors can look forward to
advancing commodity and stock markets. The big danger for investors is deflation.
With regard to this major risk we use Technical Analysis to assist investors
in identifying the onset of major bear market phases such as the 2008
meltdown as soon as possible, so that they can get out of harm's way by
either moving to cash or short-expiry Treasuries, or hedge positions that
they continue to hold.
TGR: You are now engaged in private trading utilizing the Internet and
online trading tools. Do you think the speed which with Internet trades can
be made has changed stock market dynamics? Has it created a new breed of
trading that is based on intraday market-trading trends rather than a
company's or economy's fundamentals?
CM: The Internet has definitely increased the speed of reaction of
individuals and the market to news announcements and to emerging trends, so
that it is now almost instantaneous. Those closest to the market are, of
course, able to front run market moves, and can "scalp" substantial
profits by so doing.
TGR: In your online bio, you state: "We are set to witness the
most exciting time in the energy and precious metals sectors since the
mid-1970s" caused by gross excesses of the global fiat money system. Can
CM: Excesses in the fiat money system automatically lead to inflation
as larger amounts of money chase the same or a finite quantity of goods and
services. In an inflationary environment, money naturally gravitates to
assets or commodities that are real and have intrinsic value, such as oil,
gas and also uranium, and will hold that value by rising in price as the
value of currencies is eroded by inflation.
TGR: Is this logic true for other sectors such as food or consumer
staples? If so, what makes energy a better investment opportunity?
CM: Yes it is, but what makes energy a better investment is that it is
finite and depleting and is perceived to be so, especially in a world of
rising population and expanding demand. You have all heard about Peak Oil
that, if true, must result in a continuing long-term uptrend in the price of
TGR: What do you see for gold and silver prices for the next six
months? If precious metals are being acquired more as currency and less for
jewelry, do you see the typical seasonality for gold being eliminated this
year or in future years?
CM: This is a difficult question to answer because if deflation breaks
loose again, which could happen if there are sovereign defaults, the Chinese
economy implodes or rates enter a determined uptrend, we could see another
severe bear market emerge in a wide range of asset classes, including precious
metals. On www.clivemaund.com, we
play the trend and listen to the message of the market.
Currently, gold is in a downtrend that started early in December. However,
this downtrend is showing a marked convergence—meaning that it could be
what is known as a "falling wedge," which is a bullish pattern. If
it breaks out upside from this pattern, we will go long with a close stop
because it could lead to a powerful advance. On the other hand if it drops
below the strong support in the $1,000 –$1,030 area, the decline could
accelerate to the downside.
The situation is complicated as silver recently broke down from a major
uptrend and its rally from oversold since last weekend, which we expected,
looks at this stage like nothing more than a pullback following a breakdown
that will be followed by renewed decline.
Copper looks bearish, too, with a severe breakdown several weeks ago, also
predicted on the site a few days before it began, followed by a sharp recovery
back towards the underside of its downtrend where we would expect it to roll
over and head south again. Our approach is pragmatic—we position
ourselves for big gains but have close exit points to limit losses if market
action proves our judgment to have been incorrect. Thus, if gold breaks above
$1,100 over the short term we will probably go long with a close stop. But if
gold rises up to its upper-trend channel, and at the same time silver and
copper rise up close to the underside of their failed uptrends and all three
start to roll over, then we will probably short all of them with close
Trading the precious metals and Energy
Www.CliveMaund.com is a site dedicated to serious investors and traders
in the precious metals and energy sectors. It offer my no nonsense, premium
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