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FYI...
JW
-----Original Message-----
From: James Smith [mailto:JSmith@xxxxxxxxxxxxxxxxx]
Sent: Friday, March 31, 2000 10:30 PM
Subject: Contrarian Thinking....and the dirty yellow metal
One of the reasons the Silver Rally of '97 was suspected to
be
nothing more than a sheer manipulation is that, "You just
can't
have one commodity going straight up while all others are
headed for the toilet!" Markets don't work that
way.Commodities
normally trade in correlation. In any case this
manipulation
didn't get very far because as silver moved above $7.00,
Indians were quite happy to exchange their expensive Silver
for cheap Gold. The market manipulators apparently
didn't realize that Indians prize Gold over Silver 7 days a
week.
Since they own plenty of silver as well as gold, your
average
Indian became an arbitrageur overnight. I kinda like the
idea of
Indians
villagers teaching puffed up market manipulators a lesson in
how
markets work. Do you remember how average people were
selling their silver candlesticks as the Hunt Brothers
manipulated
Silver to over $50. Same idea.
Fast Forward to 2000.
Now apply the same logic to GOLD.
OIL has confirmed that it has started a Secular Bull
Market,
so this slide in OIL will form a Higher Low. Other
commodities
are also showing signs of having bottomed
(see Corn, Copper, Lumber, Sugar, or just pull up a CRB
chart
and see what it did today!)
Once OIL begins the next leg of its bull market
& other commodities join in, it is obvious (to me anyway)
that GOLD can't stay down.
We cannot rule out New Lows in 2000 for Gold!!!
In fact if you are interested in gold, a sell-off in gold to
New
Lows (below $252) should be viewed as a terrific
buying opportunity....because you know that there is no
way gold can stay down once key commodities like
oil, copper, & corn are all starting their own secular bull
markets!
Why should gold go down? I don't know....why should
bonds rally as OIL doubles in price? .....because somebody
or more probably some govt(s) with the power to influence
markets,
wants it to rally (or in the case of gold, decline) for
short-term
political reasons!!
In fact it doesn't have to be a manipulation. It might just
be
the Swiss selling some of the 1300 tonnes they said they
would
sell. Of course, given the fact that the ECB has no
possible
way of raising rates in lock step with the FED--because it
would cause more havoc in their "old economies" than a
FED hike causes to its new economy--- it certainly
would be convenient for Europe if gold were to suddenly
decline....giving the impression of continuing
deflation...and
lessoning the need for Central Banks to raise rates.
Does this mean that gold will definitely go down soon?
"Maybe...maybe not."
All I'm really saying is that if gold goes down, don't
expect
it to stay down for any length of time.
A monthly close above 334.7 Gold NY Spot will suggest
that the secular low in gold is in.
A weekly close below 277.1 NY Spot will suggest a test
of $252 and possible New Lows. This week gold dipped
below 277.1 but failed to close the week below this
critical level. It may very well be subject to a short-
term rally given Friday's action.
BONDS
Technicians know that when you break a Neckline of
a Head & Shoulders Pattern that you will often come back
to retest the neck-line before the real plunge.
It is kinda like a criminal (read: politician) who can't
resist
the urge to revisit the scene of the crime.
If you recall longterm rates were over 15% in 1981 and have
been in a downtrend with the secular low in rates coming in
Sept of 1998 at less than 5%. What you may not have
noticed is that the same bond yield chart
shows that bonds have broken out above an 18 year
downtrend line in 1999!!
Bonds have broken out above an 18 year downtrend line!
More recently bond yields have begun to decline again.
Bonds are rallying (with yields falling) for one retest of
the
already broken trendline before the real move begins.
The criminal is coming back to the scene of the crime!
Bonds might rally to 5 3/4--5 1/2% area, but that's about
it.
This chart fits with our view that a commodity bull market
is now starting. It also shows that the Treasury Dept
will
not be able to manipulate the yield curve for much
longer...certainly not into November as they would have
hoped.
The stresses to the system are building. When
the next leg of the bull market in crude begins
(probably some time in April), the game is over.
It doesn't matter how much the govt fiddles CPI & PPI,
once OIL breaks above $34 heading for $40, there is nothing
a corrupt administration can do to hide the truth.....
INFLATION IS BACK!
If more people looked at charts, then there'd be fewer
people surprised when the fit hits the shan......and....
...govt would be forced to become a bit more honest.
A chart is worth more than the lies of a thousand
politicians.
THE ECONOMY IS GROWING TOO DARN FAST!
Does anyone really believe that with the economy
growing at 7.3% in the 4th Quarter, that it will slow down
enough to prevent a surge in inflation?
The minimalist approach of the FED, exercising 1/4 point
rate hikes every couple of months is certainly not going
to slow the economy. It does fit with the persona of a
geriactric FED chairman who is more concerned about
not taking the blame for popping the bubble than he is
with the genuine longterm interests of the country.
Its that "legacy" stuff. Politicians are forever
worrying about their legacy and how to spin
current events for the historians.
Even if the economy slows to 5% as many
economists predict, that is still far faster
than a sustainable non-inflationary rate of growth.
If the FED would like the economy to grow at no more than
3.5-4.0% rate, why are they playing games with 1/4 point
rate hikes?
Politics (in an election year) may also play a role,
and investors will soon lose confidence
in the FED's ability to restrain inflation.
Event risk in this case may be lurking in govt figures soon
to be published. Perhaps Non-Farm Payroll will get the
credit
for causing absolute chaos in the markets.
If not, any number of other figures will do...and of course
as
already mentioned the next leg of the bull market in Crude
will do the most damage of all. The next leg up for Crude
may come sooner than most people think. I expect
crude to bottom out in April.
That backwardation in Crude will disappear
faster than anyone might imagine.
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