|
Foreword
For greater insight into our publication, have a look at the Overview of Tedbits. It
helps current and potential subscribers understand our mission in serving
you. It also gives a broad description of what's unfolding globally and what
you can expect from Tedbits as a regular reader.
In This Issue
Crack Up Boom, Part IV Intro
Gold, Oil and the Dollar
The Crack-up
Boom Series Part IV Introduction
The Crack Up Boom series is exploring
the unfolding "Indirect Exchange" (as detailed by Ludvig Von Mises), that dollar
holders will be using to exit their holdings now and eventually is will be
followed by all holders of fiat currency holdings no matter which country is
perpetrating the "fraud" of confiscation of wealth through the
printing and credit creation process that all such monetary schemes evolve
into. The "Crack Up Boom" will drive an inflationary global
expansion to inconceivable heights over the coming years. Asset prices will
skyrocket as people do what they always do when threatened, they will modify
their behavior and do the things necessary for
"SELF PRESERVATION" of their families, countries, economies and
their wealth. Let's take a look at Von Mises
description of the CRACK UP BOOM once again:
This first stage of the inflationary
process may last for many years. While it lasts, the prices of many goods and
services are not yet adjusted to the altered money relation. There are still
people in the country who have not yet become aware of the fact that they are
confronted with a price revolution which will finally result in a
considerable rise of all prices, although the extent of this rise will not be
the same in the various commodities and services. These people still believe
that prices one day will drop. Waiting for this day, they restrict their
purchases and concomitantly increase their cash holdings. As long as such
ideas are still held by public opinion, it is not yet too late for the government
to abandon its inflationary policy.
But then finally the masses wake up. They
become suddenly aware of the fact that inflation is a deliberate policy and
will go on endlessly. A breakdown occurs. The crack-up boom appears.
Everybody is anxious to swap his money against "real" goods, no
matter whether he needs them or not, no matter how much money he has to pay
for them. Within a very short time, within a few weeks or even days, the
things which were used as money are no longer used as media of exchange. They
become scrap paper. Nobody wants to give away anything against them.
It was this that happened with the
Continental currency in America
in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It
will happen again whenever the same conditions appear. If a thing has to be
used as a medium of exchange, public opinion must not believe that the
quantity of this thing will increase beyond all bounds. Inflation is a policy
that cannot last. Thank you Ludvig.
Unfortunately, for us all this is now NOT an isolated currency policy as detailed in the last
paragraph, as globally virtually "ALL" governments are
pursuing this policy at this point. So first we will see the biggest
offenders suffer from their hubris AKA the "UNITED STATES" then it
will rotate to all countries who follow such monetary policies. Public
Servants always and every time have become Public Serpents robbing their
constituents to further their personal ambitions and collection of power and
wealth.
Gold, Oil and
the dollar
Today we are going to take a look at how
DOLLAR holders are spending their dough. May analysts "Including
me" are looking for a vicious pullback to emerge in global stock markets
as they have gotten ahead of themselves as dollar holders have exercised the
"INDIRECT EXCHANGE" detailed by Von Mises
above. However, there are some curious things emerging as gold and oil are
looking like they will become the destination of choice as the stock markets
work off their excessive exuberance. The stock markets are in a "Finger
of Instability" as excellent fundamentals have combined with too much
liquidity to get ahead of themselves. (For "Fingers of Instability"
see Tedbits archives at www.TraderView.com)
Combine this with a yield curve that is
normalizing, indigestion can be expected in global stock indices as they
adjust to the emerging reality of higher inflation and a normal yield curve. Since
stocks are correcting an amazing run stretching back to the lows in July of
last year expect to correction to last until this fall sometime. Since June
of last year the S&P 500 has been up 12 of 13 months and currently is at
1520, it needs to correct and rest, the 20 month moving average is at 1369, a move back to this
level is not anything but a reversion to the mean in a longer term uptrend
(expect some hysterical reporting of this correction, setting the table for
more DOLLAR, currency and credit creation worldwide). Then expect the dollar
holders to move in "EN MASSE" and gobble up these stocks at
discounts to today's prices.
Conversely, Gold and Oil have worked
through their respective pullbacks (both in time and price) and look poised
to resume their climbs. The inflationary boom which I am expecting will
represent over 3 billion people on the bid, emerging into middle classes over
the next several generations as the magic of Austrian economics and
Capitalism combine to work their timeless recipe for wealth creation. This
inflationary cycle has only just begun so let's take a close look at Gold and
Oil.
We are going to look at gold through two
lenses, the first being gold itself then the next one will include gold
stocks as represented by Canada, both will be utilizing longer term weekly or
monthly charts to facilitate longer term pictures. This first chart and
explanation are courtesy of our occasional contributor Garrett Jones:
 
This is an interesting juncture for
gold. The big picture is that it should be clear that gold is a very
important commodity to own. The Monthly chart is and has been overbought --
that, however, is a condition that may stay with gold throughout this current
bull market. With gold, "overbought" is much more of a technical
term because as you view the fundamentals, it is probably a lot more accurate
to view gold as undervalued.
The attachment is my weekly chart. For a
lot of reasons this is my favorite gold chart. The
weekly time frame is optimal as it is "just right" i.e. not too
long term and not too short term. Let's take a look at what gold has done on
this chart. The first thing you notice is the channel outlined by brown
lines. This is the basic trend for gold since the bull market began in 2001. In December of
2005, it broke out of this "normal trading range" and began to
define a sharper vector angle. It went mildly parabolic into the May 2006 top
and then fell all the way back down to test its old channel. In fact, it
tested it twice. Since that time, gold has established a vector angle that is
in between its old channel and the newer aggressive channel. It is currently,
testing the bottom of this channel.
Gold is currently in a rather unique
technical position. The light blue line is a 200 day (40 week) moving average
and the dark pink line is a 300 day (60 week) moving average. When these two
lines are together and price moves down to the lines, it is usually a support
level that you can trade with confidence. Note we also have the lower channel
line of the recent channel as support, too. Getting back to the 200 and 300
day moving averages, they are also resistance if price is approaching them
from below. Historically, the two lines don't meet that often and they rarely
meet at a channel high or low -- or a meaningful trend line (it is on the trendline). As you can see, the dotted white channel
lines are major channel lines and the lower dotted white channel line is a
very meaningful trend line.
Historically, these junctures have been
major turning points the vast majority of the time. In fact, they have
occasionally been good warning signals of unexpected news events that send
gold on a powerful move ...we'll see! Thank you Garrett (Garrett can be
reached at garrett111@comcast.net).
Now let's look at some VERY interesting
work by Tim Ord at www.ord-oracle.com
that brings the universe of gold stocks into the picture:
Above is the Capped Gold Index ($sptgd) with it's 'Price Relative
to Gold' ratio. The Capped Gold index is like the Canadian XAU. The CCI
(Commodity Channel Index) is a momentum indicator and is useful in identifying
overbought and oversold levels. On the chart below is the Capped gold index
dating back to late 2000 on a weekly timeframe with the weekly CCI in the
middle window. It's rare to have the weekly CCI trade below -100. Since late
2000 the weekly CCI has traded below -100 six times (the current reading is
below -100) and the previous five weekly -100 readings produced significant
rallies that last 3 months minimum and some last nearly a year. The Price
Relative to Gold for the Capped Gold index now reached a level (below .45)
not seen since late 2000 and early 2001 and is a very bullish reading. We
have marked on the chart below the times when the weekly CCI was below -100
and Price Relative to Gold was below .45 at the same time (circled in RED). When
both the Price Relative to Gold was below .45 and the weekly CCI below -100,
significant rallies were produced and this combination picked the two most
significant rallies since the 2000 bottom which were the rallies of 2003 and
2005. Long the Xau at 142.42 on 6/1/07. Thank You
Tim.
What are both of these analyses
screaming? Its time to get long. In the case of Tim's work,
look very closely at the extent of the oversold conditions of the oscillators
and the VERY DEEP oversold condition we are currently at in contrast to
previous buy signals going back to 2001 (arguably the bottom of the previous
bear market). Gold is coiled like a spring, Central bank sales and market
manipulation efforts by the authorities have created an explosive situation. And
recently failed as massive sales were unable to push the price below Garrets
channel, my guess is Emerging world central banks were the bidders, quietly
taking this valuable reserve asset in an "INDIRECT EXCHANGE" for
the ultimately worthless ones they now hold "also known as" as
DOLLARS!
Tedbits
note: at times like these it is easy for the Central banks to get a fairly
good "BANG" for the buck by selling right here, screwing up the
charts for the technical traders and investors alike causing a short term
DISRUPTION in the ingoing BULL MARKETS. Be on the lookout for a thumb to come
down on the Gold to create a PSYCHOLOGY of lower inflation. But in reality it
is just stretching the rubber band a little tighter (see Tim Ord's oscillators) setting the stage for a more explosive
move out of the lower prices!!!
Now let's look at Crude oil. The life
blood of the modern world and the economy. First we will look at the monthly
charts which are immensely bullish and we can see a correction in both
"TIME AND PRICE". In this chart we can see the trend line drawn off
the November 2001 lows (coincidently about the same time GOLD made its final
lows). Notice how the recent decline to fifty dollars was only able to
"Kiss" the trendline. Buyers emerged in
force.
Looking closely we can also see that the
market had an intermediate to long-term correction in terms of price as the
price retreated into the "BOX" represented by the 50 to 61.8%
Fibonacci retracements levels. The time from low to
high on this chart is 36 months, and the correction occurred over the last 12
months, 33%, an almost perfect Fibonacci 38% in terms of time. Looking
closely over the last 12 months, we can also see a reverse head and
shoulders, with a breakout higher, a retest of the breakout combined with a 3
month long bull flag, with a solid breakout higher in June of this year. MACD,
and Slow stochastic's have already given buy
signals, RSI is a low for a bull market (in bull markets the relative
strength index, usually only retreats to neutral) with lots of room to run. ADX
has reset to levels which can accommodate trend resumption based on historical's. On balance volume has also retreated to
areas from which it can resume its rise.
Many analysts are signaling
the end of the world as it is clearly apparent in the technical's emerging in
the US
stock market that a MAJOR correction is emerging on the near horizon. A
correction is long overdue. "POOR BABIES", markets are about to do
what they always do, "correct, revert to the mean, and work off
overbought conditions". Nothing but healthy action! And it could be deep
as the patterns in the years ending in 7 going back over a hundred years
would indicate. Add in the NORMALIZATION of the yield curve, which
technically is being confirmed on the charts.
The technical analysis in this article
is a clear shot across the bow to bond holders that inflation can be expected
to increase as oil is poised to resume the next leg in this ongoing bull
market in energy. DO YOU REALLY THINK GOLD CAN RETREAT SIGNIFICANTLY IF CRUDE
HEADS HIGHER? The answer is NO! Conditions in the global grain markets are
flashing "critical mass" (global consumption of wheat and corn have
EXCEEDED production for 6 of the last 7 years, the cupboard is bare) and
explosive bull markets are in full BLOOM.
The next leg up in commodities and the
new reality of accelerating inflation and normalized yield curves need to be
priced into the stock and bond markets, before the stock market advance can
continue and it could be ugly. But you can expect one thing when this
"Finger of Instability" has run its course: DOLLAR holders will
emerge and buy the on sale assets in the ongoing "INDIRECT
EXCHANGE" that the "CRACK UP BOOM" implies. Sovereign Wealth
funds (along with Global Plunge protection teams) can be expected to be
buyers of probable October lows from considerably lower prices, and of course
this retreat in asset markets sets the table for the next round of REFLATION
by fiat money and credit creation for the asset backed economies of the G7
group of countries. It should be a breathtaking 4 or 5 months, long
commodities as they explode higher and short paper assets as they get cut
down to size.
In Conclusion, this is not short term
analysis don't confuse short term with long term. Primary bull markets are in
full bloom in the emerging world economies and in grains, raw materials,
precious metals, energy and commodities in general, sharp pullbacks in
commodities can occur as the financial markets PRICE IN the ongoing erosion
of their underpinnings by the commodities bull markets. Don't be fooled that
this is DEFLATION emerging, it is deflation emerging in paper, ie. Currencies and credit markets.
This deflation in paper only sets the
table for the next round of cubic monetary and credit stimulus as it steps up
to meet the systemic financial system challenges it poses to the asset backed
economies of the G7. Government actions at this time are predictable as
inflation IS the policy that is being pursued by the G7 Public servants and
financial authorities. As outlined by Ludvig, " They (the public) become suddenly aware
of the fact that inflation is a deliberate policy and will go on endlessly.
The broad public still expects inflation to recede, I talk to investors every
day that do so.
All the fundamental information you can
collect in the newspapers are in the charts at the end of the day week,
month, quarter and year, and they all are a chorus indicating "HIGHER
PRICES" ahead. If measured in fiat currencies. Ultimately the
public will be right above receding inflation, but as Jesse Livermore said
"Markets can stay irrational longer than you can stay solvent". In
my estimation this is a 15 to 20 year affair/event from the lows in 2002. Don't
invest your portfolio based on the big event, let the charts do their
talking, and listen to what they are saying!!! Then set your sails and let
the markets come to you and your portfolio. As I have outlined in this
missive, you need to be able to make money in markets as they "GO
UP" (commodities, stuff and things that can't be printed) and "GO
DOWN" (paper assets, bombs, er bonds, cash) in
"FINGERS OF INSTABILITY", this is what I do! Make investments in
things that go up or down and we don't care as we have the potential to make
money in either direction. If you are interested in learning about some solid
portfolio diversification utilizing absolute return alternative assets please
contact me at www.TraderView.com, I would like the opportunity to
serve you! Don't miss the next edition of the "CRACK UP BOOM"
series. Thank you.
By : Theodore “Ty” Andros
www.traderview.com
If you enjoyed this
edition of Tedbits, send it to a friend; visit our archives for additional insights from previous editions, or sign up for a free subscription. Beginning next week Tedbits will come out
weekly on Thursdays or Fridays before each weekend. Thank you for reading
this edition of Tedbits, don't miss the next
edition of Tedbits "fingers of
instability" series it will be a barn burner of provocative thoughts and
insights on global economics and finance...
Tedbits is authored by Theodore "Ty" Andros, and is registered with TraderView, a registered
CTA (Commodity Trading Advisor) and Global Asset Advisors (Introducing
Broker). TraderView is a managed futures and alternative investment boutique.
Mr. Andros began his commodity career in the early 1980's and became a
managed futures and forex specialist beginning in
1985. Mr. Andros duties include marketing, sales, and portfolio selection and
monitoring, customer relations and all aspects required in building a
successful managed futures and alternative investment brokerage service. Mr.
Andros attended the University of San Diego, and the University of Miami,
majoring in Marketing, Economics and Business Administration. He began his
career as a broker in 1983, and has worked his way to the creation of
TraderView. Mr. Andros is active in Economic analysis and brings this
information and analysis to his clients on a regular basis, creating
investment portfolios designed to capture these unfolding opportunities as
the emerge. Ty prides himself on his personal
preparation for the markets as they unfold and his ability to take this
information and build innovative professionally managed portfolios.
Developing a loyal clientele.
This
report may include information obtained from sources believed to be reliable
and accurate as of the date of this publication, but no independent
verification has been made to ensure its accuracy or completeness. Opinions
expressed are subject to change without notice. This report is not a request
to engage in any transaction involving the purchase or sale of futures
contracts or options on futures. There is a substantial risk of loss
associated with trading futures and options on futures.
| 
