Alf Field's last technical work on Gold

The current situation:

The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.

Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.

I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?



Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original “back of the envelope” template to much higher levels, as follows:

Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $700 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)

Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.

Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in “Crisis Cogitations” for a five fold increase in money and prices in order to arrive at a “Less Hard” economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.

It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.

In “Crisis Cogitations” it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a “safe haven” investment may be large enough to cause the metal to perform better than cash or Government Bonds.

The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.

Alf

UN team warns of hard landing for dollar

UN team warns of hard landing for dollar

By Harvey Morris in New York



The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.

“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.

Publication of the annual survey by the UN’s Department of Economic and Social Affairs, its trade organisation Unctad and UN regional bodies, was brought forward by a month in the light of the financial crisis. It was launched in Doha to coincide with the UN-sponsored development financing conference in the Qatari capital.

The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.

The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.

Rob Vos, a Dutch economist who heads the UN’s policy and analysis division and who is responsible for the annual economic review, said the global economic pain could be eased if governments co-ordinated a spate of stimulus packages that were already under way.

“There has been a sea change in attitudes in favour of intervention and concerted action,” he told the Financial Times. He welcomed statements from US president-elect Barack Obama’s transition team in support of spending on infrastructure

'Revolution, food riots in America by 2012'

I told my local pharmacist two years ago that the US stock market would, sooner or later fall 70% and guessed that the low in the sociopolitical mood would be marked by
the trashing of hundreds of supermarkets. Just call me Cassandra, I guess.

I saw the level of debt and leverage as the issue and the chief indicator the peak in the indexes in 2000. Its been a bear market rally since 2003, which is why, imo, stocks are crashing now without relief, we have had a hedge fund and leverage and shadow banking sector driven bear market rally allready, now we get the generational lows.

How long did it take the UK stock market to recover its inflation adjusted highs after the GD? I don't know offhand but that I surmise is the likely time period involved going forward. Readers might like to consider why I point to that example in this case.

The major dudes of the forcasting biz seem to be coming around to the view I expressed 2005-7.

"The man who predicted the 1987 stock market crash and the fall of the Soviet Union is now forecasting revolution in America, food riots and tax rebellions - all within four years, while cautioning that putting food on the table will be a more pressing concern than buying Christmas gifts by 2012.

Gerald Celente, the CEO of Trends Research Institute, is renowned for his accuracy in predicting future world and economic events, which will send a chill down your spine considering what he told Fox News this week.

Celente says that by 2012 America will become an undeveloped nation, that there will be a revolution marked by food riots, squatter rebellions, tax revolts and job marches, and that holidays will be more about obtaining food, not gifts.

"We're going to see the end of the retail Christmas....we're going to see a fundamental shift take place....putting food on the table is going to be more important that putting gifts under the Christmas tree," said Celente, adding that the situation would be "worse than the great depression".

"America's going to go through a transition the likes of which no one is prepared for," said Celente, noting that people's refusal to acknowledge that America was even in a recession highlights how big a problem denial is in being ready for the true scale of the crisis.

Celente, who successfully predicted the 1997 Asian Currency Crisis, the subprime mortgage collapse and the massive devaluation of the U.S. dollar, told UPI in November last year that the following year would be known as "The Panic of 2008," adding that "giants (would) tumble to their deaths," which is exactly what we have witnessed with the collapse of Lehman
Brothers, Bear Stearns and others. He also said that the dollar would eventually be devalued by as much as 90 percent.

The prospect of revolution was a concept echoed by a British Ministry of Defence report last year, which predicted that within 30 years, the growing gap between the super rich and the middle class, along with an urban underclass threatening social order would mean, "The world's middle classes might unite, using access to knowledge, resources and skills to shape
transnational processes in their own class interest," and that, "The middle classes could become a revolutionary class."

In a separate recent interview, Celente went further on the subject of revolution in America."There will be a revolution in this country," he said. "It's not going to come yet, but it's going to come down the line and we're going to see a third party and this was the catalyst for it: the takeover of Washington, D. C., in broad daylight by Wall Street in this bloodless coup. And it will happen as conditions continue to worsen."

"The first thing to do is organize with tax revolts. That's going to be the big one because people can't afford to pay more school tax, property tax, any kind of tax. You're going to start seeing those kinds of protests start to develop."

"It's going to be very bleak. Very sad. And there is going to be a lot of homeless, the likes of which we have never seen before. Tent cities are already sprouting up around the country and we're going to see many more."

"We're going to start seeing huge areas of vacant real estate and squatters living in them as well. It's going to be a picture the likes of which Americans are not going to be used to. It's going to come as a shock and with it, there's going to be a lot of crime. And the crime is going to be a lot worse than it was before because in the last 1929 Depression, people's minds weren't wrecked on all these modern drugs - over-the-counter drugs, or crystal meth or whatever it might be. So, you have a huge underclass of very desperate people with their minds chemically blown beyond anybody's comprehension."

The George Washington blog has compiled a list of quotes attesting to Celente's accuracy as a trend forecaster.

"The Trends Research Institute is the Standard and Poors of Popular Culture." - The Los Angeles Times

"If Nostradamus were alive today, he'd have a hard time keeping up with Gerald Celente."- New York Post

So there you have it - hardly a nutjob conspiracy theorist blowhard now is he? The price of not heeding his warnings will be far greater than the cost of preparing for the future now.

What’s Really Going On? or…

Why Did I See it Coming and “They” Didn’t?

Steve Keens critique of current economic models is a must read.

Only higher interest rates will do

The US dollar must fall 50% and real rates (inflation adjusted) must be about 5%, only if the US starts saving can the world economy recover. Savings and investment in new capital goods and the abandonment on the demand of the worlds savings.

Funny how interested individuals can see through the fog even though the professionals, esp. the X-Gens can't see past the default setting, the status quo. Boomers at least knew people who had experienced the Great Depression and WW2. Boomers can even recall the bear market of 72-80.

Most professional economists are prisioners of the assumptions of their models.

This is the essentials of that argument:

Should the Fed intervene to reduce interest rates at the long end of the curve? Fed Chairman Bernanke’s intimation today that the might do this got the market’s undivided attention.

The answer depends on whether the policy objective is to get Americans to consumer again, or to get them to save.

Edmund Phelps,the 2006 Nobelist in economics, reminds me of a warning he issued in a March 14, 2008 op-ed in The Wall Street Journal:

The Fed’s view seems to be that the natural interest rate has decreased with the business downturn. But this too is uncertain.

We should consider Hayek’s argument that the upheavals in a boom may change the natural rate of interest. If the boom left it elevated, failure by the central bank to raise its interest rate correspondingly would cause inflation to begin rising. Something like that may be happening now.

I would add another possibility. Consider the sharp decline over the past year in Americans’ stock market wealth. This means, at unchanged interest rates, a decrease in their income from wealth.

For households to be willing in such straitened circumstances to save as much as before — cutting their consumption by the whole amount of the drop in their income from wealth — they would have to be compensated with a higher interest rate. At unchanged interest rates, people will not want to leave consumption in the present so pinched. So natural interest rates are driven up.

There may be other mechanisms at work. Uncertainty reigns. But if the above scenario comes to pass, the Fed cannot keep interest rates as low as now for very long. We may see in the near future higher interest rates and higher unemployment than have prevailed in the recent past.

Prof. Phelps is exactly correct, in my humble opinion. As Francesco Sisci and I wrote recently,

In the rush to prop up America’s financial institutions, foreign economic policy seems remote from Washington’s agenda. America wants to revive the mortgage market and consumer spending. The effort is doomed to failure. For a quarter of a century the American consumer has been the locomotive of the world economy, and now the locomotive has derailed and taken the rest of the world economy with it.

Recovery requires a great change in direction of capital flows. For the past decade, poor people in the developing world have financed the consumption of rich people in America. America has borrowed nearly $1 trillion a year, mostly from the developing world, and used these funds to import consumer goods and buy homes at low interest rates. The result is a solvency crisis of the American household, which shows up as a solvency crisis for financial institutions. If we reckon the retirement needs of households as a liability, the household sector is as good as bankrupt.

No recovery is possible unless American households can save, and they cannot save in an economic contraction when incomes spiral downwards. To save, Americans must sell goods and services to someone else, and a glance at the globe makes clear who that must be: nearly half the world’s population, and most of the world’s capacity for economic growth, is concentrated in China and the Pacific Littoral.

Not a genius: Buy Gold ~ Marc Faber

Days after Marc Faber advised every American to hold his gold outside of the United States, he comes back to the issue of the yellow metal in his latest client newsletter:

Faber describes the scale of wealth destruction over the last 12 months (and around the world) as complete and unprecedented. Ed Harrison (Credit Writedowns) describes Faber's thinking to mean that the government is going to reflate in order to avoid depression, and that means gold is more valuable. The government could even confiscate your gold again very soon.

Faber

Stocks around the world are down by 50%, property prices have collapsed and commodities are in some cases down by 50% or more. World stock market capitalisation is down by approximately 50%, which equals losses for equity holders of around $30 trillion. Add to this the losses from non-government bond portfolios, CDOs, MBSs and assets such as ships (the Baltic Dry Index is down by more than 90%) the losses that investors and businessmen have taken are simply colossal.

Commodity, losses have been staggering especially for industrial commodities whose demand is driven by industrial production and capital spending. Nickel is down from a May 2007 peak at $53.452 per ton to around $10, although he adds, individual commodities can have widely diverging performances the same way in the stock market different sectors and stocks do not reach peaks and troughs at the same time.

A key difference this time, as compared to prior liquidity injections and fiscal measures by the US Fed and Treasury that lead to bear markets (such as seen in 1973-74), is the huge leverage built up in the system since 1980 (afterall, in 1973, derivatives hardly existed and securitisation was largely absent).

Hence, when credit growth began slowing in 2007 and when asset markets sold off, a huge deleveraging process was triggered, which then brought about further price falls and caused further deleveraging. Volatility also increased to record highs, not just for equities but also for commodities, currencies and bonds.

To navigate successfully between all these volatile and often unpredictable market movements you need to be a genius, notes Faber. Or else, look for a safe heaven such as physical gold (gold miners and silver could, however, outperform for a while).

In any event, an environment of negative real interest rates is gold friendly and will be highly inflationary in the long run.

…The arguments for holding gold and worrying about inflation are still valid and I do think that gold is a good hedge against that eventuality. Faber makes a very good argument for why inflation may be the endgame.

However, so far, the deflation scenario is the one that seems to be taking hold - lower commodity prices, lower asset prices, and eventually lower consumer prices. As debt levels are high, this is the scenario to fear.

The Enigma of Martin Weiss

Martin Weiss says that: After more than six decades of growth, America is sinking into its Second Great Depression of modern times. The place is every home, business, and community.


Starting Now: America's Second Great Depression

"America's Second Great Depression is not a typical 20th century recession that happens to strike a bit harder or linger somewhat longer. America's Second Great Depression is the probable consequence of a great housing bust, a massive mortgage meltdown and the biggest financial crisis in history.

It promises to bring the worst wave of bankruptcies, job losses and wealth destruction any citizen under 90 has ever experienced.

It challenges the smartest minds in Washington, defies the deepest pockets on Wall Street and threatens to rip through our life with the force of a Cat-5 hurricane. And yet, among all those making the decisions that could forever change our future, no one has personal experience with a similar episode...

How long could the depression last? How much further can home prices fall? How far down will the stock market go? Will it be as bad as the 1930s? At this juncture, you can count on your fingers the number of serious analysts who believe that's even a remote possibility. And yet, stranger things have already happened, including the largest bank and insurance company collapses of all time.

Trouble is, there are no historical precedents for what's happening in this era. Any forecasts I make today, no matter how well researched, are not nearly as valuable as the awareness you will have of current events as they unfold in real time...

footnote:

My father, J. Irving Weiss, one of the few economists who not only advised investors during the First Great Depression, but actually predicted it. Dad was so proud of that unusual feat, he began telling me stories about it when I was just five years old. Vicariously, I lived through the Roaring Twenties, the Crash of ‘29, the massive bank failures of the 1930s, and the many years of human suffering that ensued.


Dad explains it this way:

In the 1930s, at each step down the slippery slope of the market's decline, Washington would periodically announce some new initiative to turn things around. President Hoover would give a new pep talk promising ‘prosperity around the corner.' And often, the Dow staged dramatic rallies — up 30% on the first round, 48% on the second, 23% on the third, and more. Each time, I sought to use the rallies as selling opportunities. I persuaded more of my clients to get rid of their stocks and pile up cash. I even told them to take their money out of shaky banks.

On the surface, it might have appeared that just sitting out the crisis got you nowhere. Actually, though, it was a great strategy for building wealth. Prices were falling — on homes, on automobiles, on almost everything. So the more prices fell, the more your money was worth. Just by saving money, stashing the cash, keeping your job and going about your daily life, you were building wealth. You didn't have to know about investing. All you needed to figure out was how to protect yourself from the bad times. Then, when we hit rock bottom — that was the time to start buying real estate, stocks or bonds.

The end of the entire decline came with two events: The inauguration of our new president, Franklin D. Roosevelt, and the national banking holiday he declared on his third day in office. But after three years of panics and crashes, most people greeted those events with dread. They thought it would be the beginning of another, even steeper slide. Some people even said it was the final chapter of capitalism itself. As it turned out, that was precisely the right time to pick up some of the greatest bargains of the century and make a lot of money.


RE: He is so enigmatic... Thomas. NEW 12/1/2008 9:40:11 AM
somehow mixing infomercial with what appears to be incisive commentary.
report post to moderator

RE: I hate that man aussiebear NEW 12/1/2008 2:47:54 PM
Last to the party. I have spoken to other people who he has burned with high end services that don't deliver. He lost me 10K in three months in 2004 and I had to pay him 2.5K for the privledge. The doco was all tacky "welcome to the party bigshot", Vinyl folders, Gold lettering, No responsibility. No engagement. You live and learn!

Always invoking dad. Yuk!