Graceland Updates 4am-7am

Oct 26, 2009

1. A man falls from a 3 storey building on the concrete below. The ambulance arrives. The man has actually got himself into a standing position despite having a shattered back. He noticed a rope hanging down from the building and pulled himself up and tied the rope around his hand, holding himself upright.

2. The ambulance crew looks at him and exclaims, “He’s Healed!”. They drive off leaving him there. A few minutes later, he dies.

3. The major global economies are that man. Two consecutive quarters of positive GDP growth are the equivalent of the man dragging himself to his feet with a money printing rope.

4. Many analysts are wasting their time with their wet noodle fantasies that “the banks might have to raise rates to prevent inflation”.

5. The reason the banks would raise rates is to cut the rope holding the economic man upright. Not to help anyone. The sole reason the central banks exist is to take what you have. The commercial banks would love rates to go higher. So they can continue their world’s largest repo of real assets.

6. If you think the central bank ambulance is coming to help you, I think you’ll find their real plan is to race to the accident scene, an accident they created, then run you over and leave you for dead.

7. Any clown act of raising rates now won’t serve to “pre-empt” any inflation. It will blow out the economic recovery candle with an F5 Tornado. And it will be followed by massive money printing as govt tax revenues, already in the tank, go into a coma.

8. If you run a business, do you mark your sales to model, or to what actually comes in? It’s like a salesman counting on “the big sale” that hasn’t come in yet. Maybe it will. More likely: It won’t. Nortel and Enron are two examples of companies that engaged in excellent mark to model accounting. After losing ALL their money in spectacular fashion there, the public now clamours for an even bigger version. And the banksters are more than willing to oblige them. The fundsters and the public are all signing off daily on new loans from the banksters to place bets on which country will raise rates the most, so they can load up on that currency and make “free money”. I guess we’ll see how free it turns out to be. Picture a company raising the dividends on their stock while sales melt into the ground and they issue more and more stock to cover operating expenses. Maybe that IS a great situation, maybe the dividend raise is great news. I see it more in terms of an act of madness. The interest rates a country pays on it’s debt are like the dividend on a stock.

9. I personally don’t pay too much attention to the charts that show an inflation-adjusted gold price, although I do keep an eye on them for a technical picture, for trading purposes. I view gold as item against which ALL other prices are measured, not the dollar. There are no major brokerage accounts in “ounces”, but my over all view is that gold is the foundation against which all other items are measured. If a bunch of other items rose against gold, well, at some point they will fall against it. I don’t see gold’s “real” price as $2000 an ounce. For example, if house prices rose an average of 6% a year against gold, so it takes more gold now to buy a house than it did in 1970, my view is that eventually prices will revert towards the long term historical mean pricing. A price that may be higher or lower than the 1970 house pricing, in terms of the number of ounces required to buy a house. This is separating the “big view” of gold from trading it. While gold may operate behind the scenes of the paper currencies most of the time, it is nonetheless always operating in its role as a control mechanism on all of them.

10. When removing money from your brokerage account after booking pgen wins, my suggestion is to act conservatively, but take into account your mental state. Sometimes we NEED a win, mentally, after a long buy program with no rallies of size. Other times, you can remove money and then the market moves down decreasing your account value, wiping out the amount of dollars you just took out. That can be demoralizing. Most investors operate with far too big a focus on “multiplying” reward. 99% of investors end up leaving this planet as lifetime market losers. The only thing they multiply is losses by putting more money to “work” in the market. Let’s say you have $200,000 in the markets and you’re able to remove $2000 a month while keeping the 200k number relatively steady. Maybe you set a goal of building that to 210k at risk, and removing $2100 on a monthly basis. The markets are not govt bonds. You can’t “order up” corrections and rallies of the size and timing you may like. It’s a BATTLEFIELD. Look no more than one month ahead in your planning. Planning on market events to turn $200k into millions should centre around tiny increases in your pgen buys and sells, not some guru’s market call.

11. I talked yesterday about the Australian Dollar, one of the two major resource currencies. The other one is the Canadian dollar, referred to some as the “Canadian”, the “Cando”, and the “Cbone”. I use the term cbone, as it represents the spinal column, the backbone, of the country’s govt, financially speaking. A dangerous view has emerged in the gold community, one that assumes that because a nation has commodities, that nation’s economy is somehow immune to the global crisis. Rising commodity prices can translate into a a rising currency against the US dollar, but this is not necessarily going to translate into a booming economy in the resource nation, particularly when in the case of Canada for example, that nation is the largest trading partner of the United States, even larger than China. We are still very EARLY in this global crisis.

12. Let’s take a look at the Canadian dollar against the Australian. The Australian has risen 50% against the USD while the Cbone has only risen about 25%.

13. Before consider where these currencies might be going, first simply look at the picture of the chart. Is there weakness? Here’s a look at the monthly chart of CAD/AUD: Cbone/Aussie Monthly Chart

14. The chart has dropped from 1.40 to about 1. That’s huge weakness. Looking at the indicators, what I see indicates that while a number of the indicators have dropped down, they could drop lower, and do it quickly if they do. That makes buying the CAD against the AUD in a price plop [one big purchase instead of many small ones at differing prices – a 'pyramid'] a very bad idea. But after a fall from 1.40 to 1, I have to consider opening a pgen. If you are in the US, and were looking to place money in both the Aussie or Canadian via a pgen, I would be not rule out one over the other, but I would place more money into a Canadian dollar pgen right now. The fact that Canada is NEXT DOOR to America makes that decision a DONE DEAL.

15. Of course, right now both the AUD and CAD have risen substantially against the USD so any pyramid that take into account substantial possible weakness, or, if you are aggressive, have a peak set much higher than current pricing.

16. The weekly chart of CAD/AUD looks like a magnified version of the picture I’m getting from the monthly chart: CAD/AUD weekly chart

17. The indicators are quite oversold, but a kind of “final washout” seems possible. I wouldn’t go so far as predicting any such washout, but I would prepare my pgen buys and sells to account for the possibility.

18. The daily chart: CAD/AUD Daily Chart . This looks much more like the CAD is poised to rally against AUD for the next 1-3 weeks, based solely on the action in the daily chart. I personally would not bet money on such an event in a price plop, but I would in a pyramid.

19. I see Harry Schultz has issued a “speculative buy” on DBA-nyse, the food ETF, based on a triangle type breakout. Well, I was a seller into that breakout, but I believe a huge base is either completed or nearly completed. Most investors tend to ignore running pyramids on the foods because they aren’t “sexy”. I’ll continue to repeat: Most investors will get RICHER if you focus on items that do NOT grow, like a companies do. Focus on commodities that CYCLE. Picture a child riding a bike. The pedals turn around and around and around. The price of sugar, corn, wheat, and soy could go to zero, yes.

20. [But] The ODDS of that happening are tiny. Picture food prices gyrating up and down for the rest of your life. I think the ultimate Gambler’s portfolio would actually have a gold and food foundational pyramid that “finances” VERY aggressive gambles in the rare earth metals.

21. I believe those of you trading items like oil, gas, even gold, in the futures markets with mini futures should take a look at FOOD. A corn mini contract is $4000. An oil mini contract is $40,000. Try applying $40,000 to corn in a pyramid formation with TEN cotracts (bullets) rather than a price plop into oil.

And sleep well!

Cheers

Stewart Thomson

Graceland Updates