Thu Aug 7, 2003
Technical Quiz
Author: Jim Sinclair
Four Charts - All with Important Messages
Technical Quiz - Let See What They Say To You.
Answers By Fax Will Be Corrected and Returned
Answers By Email: Mark Subject "Technical Quiz"
Chart 1
This is TNX on a short-term arithmetic and all data log chart. I want you to read the long and short in order to arrive at your conclusion and submit both a trader's strategy and an investors strategy, if there is a difference.
Chart 2
This is NEM. I want you to focus on the short term past 9 days and submit what the implications are to a long term investor who was wondering if the appreciation so far was the whole show and if they should sell out and leave.
Chart 3 and 4
Chart 3 is Royal Gold first chart in 18 minute bars for the duration of 8 days. Royal Gold second chart is a 5 year chart weekly log basis. Relate the very long chart and consider that you have owned RGLD from below two dollars. You felt the pain of the uneducated RGLD stockholder's stampede that took place when a short was interviewed for a hatchet job article. You hung on and bought as a tech-savvy student of JSMineset based on your own judgment and your own fundamental review of the true valuation of RGLD, as compared to the Franco Nevada sale to the Newmont model at the $56. Now what are you thinking and why?
Also please go back to the break out from the $2 level in RGLD and see what would have told you that RGLD was ready to grow itself from modesty to majesty in the language of numbers, TA.
If you are answering by email please put the subject as "Technical Quiz." All faxes that have functional fax answering will receive marked up reviews of the quiz. Do not be afraid to screw up. I will post by snail mail to those that for any reason cannot handle otherwise. We all go through the learning process. I seek to learn every day. You honor me by responding. I seek to serve; that is my reward.
Thu Aug 7, 2003
Has the US Dollar Window Dressing for Selling US Bonds Run its Course?
Author: Jim Sinclair
First we have the German Chancellor jumping up and down yelling for intervention (manipulation) by governments in so-called free markets for currency because the dollar depreciation had hurt Euro country exports. After that PR episode had run its course, along came the snake oil man to sell those lovely little green instruments of guaranteed confiscation, US Treasury paper. Treasury Secretary Snow boomed out to the crowd attending an important foreign exchange gathering at the Harley Davidson plant where he blamed our entire trade problem on the really bad Chinese and their cheap currency tied to the US dollar. "Let them float or we will sink" was the substance of his message. So up went the dollar on the fear that the Chinese will float. The Chinese will float, but they have said they will not float. Any old China hand knows there is as much chance of their currency floating in a meaningful manner as there is for a snowball to exist in Texas in the middle of July. I told Harry Schultz what was going on, and he asked me to quote him laughing. Yesterday the footprint was so clear of the Exchange Stabilization Fund muscling the dollar up that it appears they no longer even try and be stealthy about their actions. We must be such a callous society that we now expect jiggle specialists in everything. The news spins and the market jiggle and we actually expect it. Now I know how people could listen to or read Pravda intently during the days of Stalin.
Well so far today the EFS have not been in, except for what looks like a tiny touch here and there in the US dollar market. That sets me to wondering two things.
1. Has the dollar run its course in this little bounce from the .9238 levels since no more bonds need to be sold for a short period of time?
2. Is it possible that the EFS might have purchased US Treasury bonds to take up the slack in these auctions, therefore writing themselves out of the jiggle business until they unload the bonds?
Take a look at this evening's dollar chart. Although not yet conclusive, if appears as if we have a flat top triangle in the dollar with the flat on the top. This could be bearish.
Gold:
We worked most of the day just below the $354.50 level, which is gold's first benchmark as we begin to work our way back up the ladder towards the $400 mark. I smell that block that hit the $350 in order to break it down as still nursing that short position. We have a good break now of the power down trend in gold with good follow through. Internal indicators are gaining strength but I suspect the short will hang around waiting for the MACD to at least touch prior to a cross.
I have again posted the December Comex listed gold calls. Let me know if you want me to post options that I am trading in from time to time.
I react to your needs so keep me posted on what you want. No, I can't deliver next weeks Wall Street Journal this week.
Thu Aug 7, 2003
Dow Jones Prints Nonsense Article on Gold
Author: Jim Sinclair
Q: Jim, Dow Jones ran a story this morning suggesting that the expiration of the Washington Agreement that acts to restrict gold sales by central banks in mid 2004 was weighing on the gold price. Should I be worried?
A: This is probably the most spun misinformation that could be used to construct an anti-gold article. It screams of lack of history of gold auctions in the 70s and official gold sales non-impact in terms of reversing the bull trend. The community in general lacks the experience of the gold in the 70s. You need to study the history of gold when the London Gold Pool operated and when the IMF monthly sales took place to understand what a foolish article that was which caused you concern. It was clearly and irrefutably proven in the experiences of 1968 through the 1970s that the selling of gold officially did nothing but provide ease of entry for huge buyers into the gold market. Thereby it was functioning as a tool of the bull side. It was then that sales were suspended. Both the London Gold Poll and the IMF sales strategy collapsed because the gold markets then, like now, were basically bull markets.
You have already seen gold fully absorbed at every auction even before gold entered the bull market.
What is important in your inquiry is to determine for yourself the condition of the gold market in terms of its inherent character. That means is this gold market a primary bull market or primary bear market. IMO we are in a bull market for gold. It makes official selling at any level no different than it was in the previous bull market. whether or not the central banks renew selling means very little to the price of gold. If renewed official selling takes place, it would function just as it did in the 70s, which was contra-productive for the bearish side.
Look primarily at the fundamentals as outlined today before you fall for the nonsense contained in that Dow Jones article. If you are not fully versed in the why of gold and therefore were concerned over the foolish article devoid of gold's history in auction then you should use the upcoming strength in gold and gold shares to leave this market. I am willing to teach, BUT TO LEARN YOU MUST BE WILLING TO INVESTIGATE HISTORY BEFORE NEWS SERVICE ARTICLES PRINT TRASH AND UPSET YOU. HOWEVER, IF YOU GET UPSET, I AM HERE FOR YOU.
Regards,
Jim
Thu Aug 7, 2003
Does the Federal Reserve Board Require Little Blue Pills?
Author: Jim Sinclair
The Message of this article:
1. The fundamental support of the gold market is much more profound and deeper than even the gold community realizes.
2. There is sound fundamental justification that historically and in percentage terms values of gold are going well over $400 right here and right now.
3. It is absolutely clear why the Fed is relying on spin city and a US Treasury bull operation (via the ESF) to hold the equity market up against all odds in an attempt to restore business confidence. The why of this non-policy is the serious question of the viability of the tools at hand, or even non-traditional tools widely advertised by the financial emperor in waiting, Bernanke.
4. We are headed to "Zero Bound Velocity of Money" if the present bull market in equities fails to produce a long-term bull market of duration. This strategy of the Federal Reserve and the US Treasury is the ultimate application of the greater fool theory. Gold at "Zero Bound Velocity of Money" reaches for infinite value, and will reach the value per ounce in amount of reported gold held by the US Treasury, in ounces, divided into the US dollar value of the external US liabilities as the value of gold at which the price of gold will stop its advance.
5. Zero Bound US Interest Rate is not the problem. The problem, not yet defined but subjectively suspected, is "Zero Bound" Velocity of Money.
6. The use of the "Greater Fool Theory" to bull the equity market into a bull market for equities, plus the recognition that the tools of the Fed no longer are functional, strong, and able is due to the transition of the former US bank-based economy into a web-securitized based loan economy, into a securitized everything economy, into a derivative granted on every asset economy. This is why the rate of growth of monetary aggregates has been contained in a downtrend since December of 2002. If you BLAST the aggregates and nothing happens, then what do you do? The answer is sneak out of the Fed boardroom and buy all the gold you can at whatever price it is selling at because the markers will then see that the "Emperor has not clothes." The tools of the Fed are barren and sterile
JES comments:
A very interesting US Federal Reserve article in the Financial Times out of London, August 6, strained to make its point, but in fact may well have made another.
I have been explaining to you a measure called the Velocity of Money. Velocity, for short, is rarely discussed outside of the collegiate halls of ivy within the elegantly somber but quite comfortable mature men's club, also known as the Office of the Chairman of the Federal Reserve. US Velocity is how many times one dollar is turned over in the US economy. The reason this concept is rarely discussed is because the Federal Reserve has little control over this measure, yet it is quite important. All the pumping and spinning you do will not motivate the Velocity of Money to function well, thereby translating the new pump money into economic utilization if the end users of money lack one all important requirement: confidence. Functioning well in terms of the Velocity of Money means: "growing at a growing rate from any level." Growing at a growing rate means accelerating upwards.
The "Accelerator Theory" in Economics 101 is an all-important economic theory that is taught at any good B School. However, it seems that all those that called themselves economists and are talking heads must have missed that class. Growth arithmetically means nothing at all. Growth must be accelerating arithmetically and accelerating on year-to-year geometric basis in order to be good news for business. When an item is growing but not at an increasing rate, its economic impact is the same as if it were contracting. This is bottom-line practical and academic ECONOMIC truth. Sit quietly, pet your English bulldog, have a libation of your selection, and let this concept work into the "Silence" that resides behind every thought.
What I am driving at is the real first time I have publicly stated my "Golden Rule." This, IMO, iron clad rule, which we shall deem "The Absolute Rule of Velocity & Gold Value" is as follows:
At "0" Velocity of Money and at "Infinite" Velocity of Money, the currency in question totally fails as money and the value of gold will approach "Infinity" in that currency; Up-trending until Velocity of Money reverses.
Zero Velocity of Money is a product of Deflation and the fear of an accelerating deflationary force. This would occur in a 1930-type situation in which the tools of the Federal Reserve, new or non-traditional, failed to function effectively.
Infinite Velocity of Money was exampled in the Weimar republic inflation in which workers had to be paid multiple timers a day as the value of the funds they were paid with plummeted in terms of the ability to purchase goods and services. This was in my opinion a ploy by the policy makers to inflate away the debt of war reparations by wanton expansion of the monetary base of the republic.
Now to the important article:
"Monetary Policy is not the force that it used to be."
By Stephan Cecchetti
Mr. Cecchetti starts off by saying "Has Alan Greenspan lost his touch?" The US economy seems to be floundering; unemployment is higher than it has been in nearly a decade. The dollar has tanked and inflation seems perilously low. Add to this an abrupt upward in long term interest rates and even a causal observer will wonder whether the Federal Reserve Chairman has placed too much trust in monetary policy."
Mr. Cecchetti makes a good argument that without business evidencing a significant lift in demand for goods and services there is little if anything that can translate monetary stimulation into economic activity, and therefore after a normal small recovery blip the US economy is head back into the tank.
What Mr. Cecchetti is saying is that CONFIDENCE proceeds monetary policy in today's world where loans trade and the person benefiting from the loan does not even know the original lender. Monetary policy does not proceed business confidence. The financial world today has transformed the banking industry into a totally impersonal entity called a bank, but in fact only a broker of loans now generally securitized in one form or another. The consumer today does not go to his or her local bank for a car or consumer loan. They charge too much and take too long. Today, auto and consumer loans come from overloading your credit card or pointing to and clicking on the finance icon from you local auto dealer. You find yourself in touch with an auto loan broker on the web. The desire of banks to make or not make loans no longer runs the economy. The Fed's policy used to stimulate the banks to act, and therefore business to act, but that link is broken by securitized and derivatives on everything. The Fed has no tools to make or break the huge securitized loan marker of all types that in size is larger than the Federal Reserve power-wise. However, I have informed vou that there is a tool also bigger than the Fed market-power wise that can break any securitized loan market and that is over-the-counter derivatives that are set wrong to the trend w money cost as those that have attacked the MBS market. What market is next?
What this article missed was that there is a chart you can look at monthly that will keep you informed of the need or lack of need for Viagra in the tools of the Federa1 Reserve. That chart is again run at the 'bottom of this article and it is "Velocity of Money" because that is the measure of CONFIDENCE (or lack thereof).
The Message of this article:
1. The fundamental support of the gold market is much more profound and deeper than even the gold community realizes.
2. There is sound fundamental evidence that historically and in percentage terms values gold well over $400 right here and right now.
3. It is absolutely clear why the Fed is relying on spin city and a Treasury bull operation via the EST to hold the equity market up against all odds to attempt to restore confidence. The why is a serious question of the viability of the tools at hand, or even contemplated.
4. We are headed to Zero Bound "Velocity of Money" if the present Bull market in equities fails to produce a long-term bull market of duration. This strategy of the Federal Reserve and US Treasury is the ultimate application of the "Greater Fool" theory. Gold at "Zero Bound Velocity of Money" reaches for infinite value and will reach the value per ounce in amount of reported gold held by the US Treasury in ounces, divided into external US liability as the value of gold at which the price of gold will stop its advance.
5. Zero Bound US Interest Rate is not the problem. The problem, not yet defined, but subjectively suspected, is "Zero Bound" Velocity of Money.
6. The use of the "Greater Fool Theory" to bull the equity market into a bull market for equities, plus the recognition that the tool of the Fed is no longer strong and able due to the transmission into a web based loan economy, into a securitized everything economy, into a derivative granted on every asset economy, is why the rate of growth of monetary aggregates has been contained in a downtrend since December of 2002. If you outlast the aggregates and nothing happens then what do you do. The answer is sneak out of the Fed boardroom and buy all the gold you can at whatever price it is selling at, because the markets will then see that the "Emperor has not clothes." The tools of the Fed are barren and sterile.
Note: the article is available if you subscribe to the Ft or at www.ft.com or by faxing me.
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