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FYI...
JW
-----Original Message-----
From: James Smith [mailto:JSmith@xxxxxxxxxxxxxxxxx]
Sent: Friday, April 28, 2000 10:32 PM
Subject: Is a Gold Price Slide somehow related to the next
leg down for Stocks?
Gold closed the week below 277.1---our key weekly bearish
reversal---which confirms a coming slide towards 252 area
and possible New Lows. Because a weekly reversal is an
intermediate-term signal, it does not preclude a short-term
rally before the real move begins.
But when it starts...probably some time in the next week
or two....it will be awesome to behold. This also hints
at the likely direction of stocks. We know that the S&P
and the Dow will start the next leg of their correction
some time between next week and Mid-May. Could it be that
this will be a replay of the last wk of Aug '98 when gold
and the S&P went down together?
Given the PANIC CYCLE WEEK due for GOLD next week, it might
be that gold rallies the first few days of next week (to run
the stops and take out any aggressive shorts) and then
plunges into the end of the week and beyond til every last
gold bug has forsworn the dirty yellow metal forever.
(A Panic Cycle often shows volatility in both directions)
IS IT GOING TO BE A SWAN SONG OR A SWAN DIVE?
I hope Warren Buffett has a nice weekend because if I'm
right, not long after he has the chance to crow about a
44% rebound in his stock, he will soon be eating crow as
DOW/S&P "value" stocks start their next leg down of this
bear market. Again this move could happen next week or
it may not happen until Mid-May.
Many consider it a sign of the times that giants like the
Soros Quantum Fund suddenly loses two key strategists who
freely admit to mistakes but blame it on huge market
volatility. (Clue: I doubt they are big believers in cycles)
Druckenmiller is not the first, nor will he be the last
player exit the markets. More astonishing than his exit,
will be the day that Buffett finally admits that "hey, maybe
timing is important, and this "buy & hold" mentality has run
its course."
Do you remember any great "Buy & Hold" investors from the
early 1930's? ......I think not!
We are not saying this selloff in stocks will be a repeat
of 1929, but we are saying the volatility will test the
fortitude of all those who "think" they are longterm investors.
Our company does something that brokers, academics, polticians,
and value players like Buffett are desparately trying to
convince you is imposisble: We time the market.
Does this mean we always get it right? No of course not!
But those who believe that technical analysis and the study
of cycles are akin to casting chicken bones to decide your
trading strategy, are about to get an up close and personal
view of what cycles can do when they go against you.
REMINDER:
Again, we are not longterm bearish on GOLD. As one
client pointed out to me today, isn't it ironic that
the Swiss will plant the low in gold. Its a bit like
the Economist and their cover story predicting that OIL
was headed for $5.00. The issue hit the stands at the
perfect time to buy oil.
So am I saying the Swiss are stupid?.....Nope! In fact
they don't have much choice do they? The Swiss National
Bank must have known that it was the ECB's intention to
allow the EURO to slide. Why do you suppose they are
suddenly so eager to begin selling that 1300 ton overhang?
Perhaps the ECB whispered to the SNB that they were going
to allow the EURO to slide knowing that it would force the
SNB to get busy...and sell that gold like they have been
promsing to do for eons.
But why would the ECB want the SNB to sell their gold?
.....because depressing the price of gold is nice way to
paint a picture of low inflation....and it costs the ECB
nothing because the Swiss are going to do their dirty work
(in selling gold).
But why do the Swiss have to sell gold?
....because the Swiss know the slide in the EURO will price
the Swiss Franc right out the market. The Swiss might as
well close up shop....their own economy would suffer enormous
damage as selling Swiss goods to the rest of Europe would
become impossible as the Swiss Franc appreciates against the
EURO.
The solution is for the Swiss to sell gold to bring down the
value of the Swiss Franc. To really bring down the value the
of the Swiss Franc, they will have to sell a lot of gold.
Hey, does this sorta match up with our view on gold......
....perhaps. Alright it fits.
People are not stupid, even if governments are!
For every oz. of gold the Swiss government sells, there
will be a sharpie Swissie out there buying 2 oz.
Think about it....if you were Swiss and you knew the
logic implicit in your government's policy is to turn
your currency into monopoly money (Hello Japan) would
you keep your money in that currency?????.....or would
you buy gold to offset that risk.
Probably the best idea is to move your Swiss Francs into
USD before the gold plunge and then use that money to
buy gold after the plunge.
This in effect goes some ways towards explaining why gold
will go down, but not stay down. It also explains the
rather interesting move up in USD index of late.
Again, I repeat:
Governments are stupid....people are not.
When the US Treasury Dept manipulates the yield curve,
they only set up a bigger correction for the bond market
going forward. When the ECB manipulate the price of
gold thru the SNB, they set up raging chaos that will
backfire.
One of the key lessons learned from the 1987 Crash
was that government actually caused the bubble leading
up to the crash. The Gang of 5 (the G5) got together in
1985 to bash the USD. They succeeded. But in doing
so they cause huge capital movements into the USD
as Europeans and Japanese scooped up US assets
after the USD declined. This drove up the stock market,
real estate, and other USD denominated assets.
When will government learn the simple lesson that
manipulating markets just isn't a good idea???
I don't think government will ever learn because most
of them are either corrupt or power-mad or both.
These Central Bankers are like kids in the candy store
told not to touch the candy. You can't blame them.
Secretly they are quite envious of the money made
by traders. They are the High Priests who find
themselves with mixed emotions about money.
They enjoy the power they have over the global
economy more than a rich man enjoys money. And
secretly they must also enjoy destroying more than
a few traders' fortunes.
If the financial markets are coming into larger and larger
volatility of late, the policies of government have a huge
part to play in this volatility.
**************************************
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