Taylor On Gold, Markets & Deflationary Spiral
Jay Taylor
TRADER ROG'S CORNER
HORSES, GOLD, DOW, AND THE NASDAQ
"A market is the combined behavior of thousands of people responding to
information, misinformation, and whim." -Kenneth Chang
Horses do some very irrational things causing a combination of
exhilaration, fear, and excitement. To me, it sounds like a hot day at the
track or just a few minutes in the New York trading pits. Unfortunately,
they can both inflict some real tears and pain. On this beautiful fall day,
we are on the edge of one or the other for gold, silver, and the Dow,
NASDAQ, and Amex markets.
This is it. This is the fork in the road, that point in time, to the get
the answers everyone has been waiting for. Either the general stocks tank
and metals begin to run, or vice versa. My key projected days for our
expected excitement are September 13, 17, and 20. The 10th has passed with nary a murmur, which I considered an action possibility. The Plunge
Protection Team jumped in last week to sell gold and buy the S&P500s. Please notice the last few times they have done this, with each succeeding
occurrence, it has taken more buying and selling to achieve the same milder
outcome.
Gold was hit hard on Friday and stayed even; then went up. Our weekly gold
chart is in a pennant continuation pattern without a bias up or down, but
sideways. The U.S. dollar has done this as well, but closed lower Friday to
88.37, losing .046 on the September weekly chart. The dollar closed on a
down bar, meaning more weakness for Monday's open. Conversely, gold has
closed on an up bar showing strength for next week's trading. It is my
opinion that gold and the U.S. dollar are slowly becoming decoupled.
Normally, they march along as perfect, inverse opposites; but in the last
two weeks or so, gold is beginning to go its own way, not paying quite as
much attention to the dollar. This says to me, the gold buyers are
beginning to view gold as a currency instead of just a commodity.
To further reinforce that thought, the Chinese have opened Shanghai for
public gold trading, have told their citizens to buy gold, and even more
important, they told those same citizens not to sell or trade, but buy and
hold. What do you suppose happens to the gold market when even a tiny
portion of one billion people are told to buy and hold gold? This, to me,
was the biggest news on gold for the weekly report. In other news this last
week, an Australian gold miner went bankrupt to the tune of $800,000,000 as some massive failures in hedging efforts were experienced. However, I don't see too many more of these types of things hanging over the gold markets.
Our next leg up in gold is 408. If we close 3 times over 408, that support
is considered reestablished, and then we go to 416. I think it will take
only one or two nasty Dow days, which are expected shortly, then gold will
drive higher with more velocity than previous Dow sell-offs. If you try to
consider all aspects of these markets, I personally cannot find one good
reason to buy any Dow stocks. Yes, the corporations are flush with cash
(running scared), and yes, a few have shown some decent profits (after
several cost exclusions), but the chart tracks, consumer attitude,
unemployment, war, fear, debt, poor dollar, etc., etc., are all overwhelmingly negative. Those corporate "one time charges" and those "exclusions" are beginning to sound like CPI reports that tell us food and energy don't really count, and should therefore be excluded. Yeah, right. We probably should exclude all the new junk bonds being sold as well. New junk bond sales are up over the last three weeks. I guess if you can't earn it, just go borrow more.
December silver closed on a down bar, showing more weakness for next week. Remember, silver is either two weeks behind or ahead of gold, so the weekly reactions will not be quite identical. Silver closed at $6.16 for the
December contract. Use the Decembers for best information from now on in
2004, for both weekly and monthly tracking. While silver got slapped and
gold didn't, silver is still in the mode for rallies. Do not worry about silver; it's just being its usual erratic self in the daily trading of a tiny market. Treasury Bonds are nearing a top while still rising and the Dow is headed down. Watch 9815 for Dow major support.
Nobody wants bad news for any particular segment of the markets. However,
it can't all be peaches and cream for all sectors, all the time. In reality, there are never bad markets and good markets, but all markets experiencing change together. While the end of the world is not at hand, we see some very severe disruptions, which the world has survived many times before. Problems arise and problems are solved. It's our job here at Jay Taylor's Gold & Technology Stocks to find our readers the best positions and information, and to give you the tools to make money. Nobody is such a mind reader or so brilliant they can call and time the markets perfectly. It might seem desirable, but if anyone possessed those powers, as if these powers existed, the markets would evaporate in a flash. However, using both the fundamentals and the tools of charting and technical trading, we feel
we can help you stay on the best trends.
If you study many years of charts and try to pick the best times to buy and
sell for the longest rallies or longest shorts, you would be out of the market a great deal of the time. Metals are going to run this month and next; then we expect a large wave of profit taking. After this, you could see a nice little Dow comeback rally, which will sucker in a host of buy and hold buyers. By mid-January 2005, metals rally again, and non-metal stocks will get very nervous and choppy.
Like all horse races, the metals markets and the others keep changing
positions while the race is run. We think gold is the next Secretariat and
will be the huge winner for many years to come. Further, the Treasury, the Fed, and several other factors are all doing their level best to cut the
legs out from under the big stock markets, our currencies, and anything else they can find to mess up. Those are horses you do not want to ride. If you do, you will not only get tossed, you will get stomped, and the pain could be unimaginable.
This Week's New Rally Trend: Canada has a 2003 budget surplus, and the
highest relative to its GDP. As we told you recently in a previous issue, we expect the Canadian dollar to rise to parity with the U.S. dollar. This means at least 25% up and possibly more. Further, while they have debt, it is nothing like the USA's. Canada means mining, and mines are rallying. Not only are they moving up in precious metals, but in base metals and other commodities like coal, oil, nickel, copper, natural gas, grains, and of course precious metals and diamonds.
Buy gold, buy Canada, sell the Dow and the dollar, get out of debt, and be happy. And watch out which horse you intend to ride. Some are better than
others. Just stay off the really crazy ones like those favored in most big
funds. - Trader Rog
DEFLATIONARY SPIRAL HAS BEGUN
It is the author's opinion that the United States and most of the world is
headed into a long-range economic deflation, with the U.S. dollar dropping
dramatically in value. At this time, corporations have lost pricing power,
taken on too much debt, and are faced with a shrinking marketplace.
Individuals and families see inflationary prices in some items, indicating
the opposite of deflation. Prices inflating are food, energy, and metals.
Food has inflationary components like energy, fertilizer, transportation,
labor, health care, drought (weather related shortages), packaging, and
Chinese and Indian competitive diet upgrades. Energy is rising due to basic
shortages of worldwide oil supplies. Base metals have inflated mostly due
to a Chinese import and building boom in industry, manufacturing, utilities, housing, and standard of living enhancements. This very rapid, Chinese Westernization has enabled China's citizens to skip some generational living standards, going from essentially rural to ultra modern urban, leaping over intermediary growth steps. This phenomenon has placed outrageous needs for commodities on a system that is unable to provide near
enough.
The U.S. dollar is suffering from overprinting, enormous public and private
debt, with little or no savings at hand. Consumers are spent to the hilt,
having gutted their house equity to buy goodies, and are buried in credit
cards and other payments. Rabid overspending has created a nation of
deadbeats with deadbeat governments and corporations. This situation
requires approximately $1.8 billion of foreign investment dollars flowing
into the U.S. per day to keep interest rates from rising and thus to keep
the over-indebted American economy from collapsing. A long series of bear
traps lies ahead in the road. It will only take one, and the trip wire will
set off a cascading series of events, crashing the global system. In
addition to the overspending and debt, we have four other major hurdles to
overcome.
First is the global terror war, which to be getting worse not better. The
Iraq part of it was estimated at over 200 billion just last week, and it's
not over yet.
Second, the oil prices are only going to get worse. With the modernization
of China, India, and other Asian countries, oil competition is all the more
fierce. The "oil tax" is a big one. Some claim it's only 1% of the American
economy, but I seriously doubt that little number. Worse than that, we are
headed for a much higher oil price support level on a commodity becoming
scarcer and more expensive by the day.
Third is competition for food. Drought has smashed crops in China to the
extent they are a new net importer of basic foods and grains while
simultaneously improving (Westernizing) their diets. India has drought
problems as well, and between them, India and China have over 1.7 billion
mouths to feed.
Fourth is the fact America has off-shored its manufacturing jobs and
technology to Asia. Our auto industry is 25% of American employment. We are non-competitive and losing market share year by year. I saw a number
recently saying we are exporting our jobs, livelihood, businesses, and
technology at the rate of 1 to 2% per year. In ten years we can all be
cleaning each others' clothes, washing floors, and working at McDonald's or
Walmart, if in fact we will be able to afford to shop there.
Yesterday, I read of a neat business plan where Asians in America can
measure a part with computers, digitize the computer info, and e-mail it to
Asia, where they input the data into computer driven milling machines which
automatically copy and produce the part about 75% cheaper than we can
produce it. It's just a copy rip off accomplished in a flash. Naturally this destroys the original part designer and manufacturer. That identical part goes on the market for sale within days of the theft. China says they are going to crackdown on intellectual property theft, but you can be assured that's just window dressing talk. How does the part owner expect to get relief? Can he sue? What a bad joke.
September 18, 2004
Jay Taylor, Editor of J Taylor's Gold & Technology Stocks
www.miningstocks.com
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