So Max Keiser’s “crash JPMorgan” campaign didn’t manage to do much, but in a surreal twist of fate they seem to have crashed themselves in the course of activities they are not supposed to be doing any more, ie proprietary trading on their own behalf.  From Zerohedge

The world’s largest prop trading desk just went bust.

A month ago we warned that JPM’s CIO office is nothing short of the world’s largest prop trading desk. Not only were we right, but what just transpired is just shy of our worst possible prediction. At the end of the day, the real question is why did JPM put in so much money at risk in a prop trade because we can dispense with the bullshit that his was a hedge, right? Simple: because it knew with 100% certainty that if things turn out very, very badly, that the taxpayer, via the Fed, would come to its rescue. Luckily, things turned out only 80% bad. Although it is not over yet: if credit spreads soar, assuming at $200 million DV01, and a 100 bps move, JPM could suffer a $20 billion loss when all is said and done. But hey: at least “net” is not “gross” and we know, just know, that the SEC will get involved and make sure something like this never happens again.

As for what we said before, we will just repost the whole thing as we were, once again, right.

From April13: Why JPM’s “Chief Investment Office” Is The World’s Largest Prop Trading Desk: Fact And Fiction

For the fiction, we go to JPM’s conference call transcript where we had the following disclosures.

• “I did want to talk about the topics in the news around CIO and just take a step back and remind our investors about that activity and performance. We have more liabilities, $1.1 trillion of deposits than we have loans, approximately $720 billion. And we take that differential and we invest it, and that portfolio today is approximately $360 billion.We invest those dollars in high grade, low-risk securities. We have got about $175 billion worth of mortgage securities, we have got government agency securities, high-grade credit and covered bonds, securitized products, municipals, marketable CDs. The vast majority of those are government or government-backed and very high grade in nature.We invest those in order to hedge the interest rate risk of the firm as a function of that liability and asset mismatch.”

• “We hedge basis risk, we hedge convexity risk, foreign exchange risk is managed through CIO, and MSR risk. We also do it to generate NII, which we do with that portfolio. The result of all of that is we also need to manage the stress loss associated with that portfolio, and so we have put on positions to manage for a significant stress event in Credit. We have had that position on for many years and the activities that have been reported in the paper are basically part of managing that stress loss position, which we moderate and change over time depending upon our views as to what the risks are for stress loss from credit. And I would add that all those positions are fully transparent to the regulators. They review them, have access to them at any point in time, get the information on those positions on a regular and recurring basis as part of our normalized reporting. All of those positions are put on pursuant to the risk management at the firm-wide level. They are done to keep the Company effectively balanced from a risk standpoint…. “ Of course, when you own the regulators, it is not much of an issue… And would it be the same regulators who we have now confirmed don’t understand the first thing about markets?

• “All of those decisions are made on a very long-term basis.”  Indeed – and theNorway sovereign wealth fund bought Greek bonds investing in “eternity.” Only problem is eternity came far faster than expected.”
  

• “The last comment that I would make is that based on, we believe, the spirit of the legislation as well as our reading of the legislation and consistent with this long-term investment philosophy we have in CIO we believe all of this is consistent with what we believe the ultimate outcome will be related to Volcker.”

For the facts, we go to Bloomberg again, which was the first to break the Bruno Iksil story, and which exposes without shadow of a doubt why the Chief Investment Office is nothing but the world’s largest prop desk. But hey, just as Goldman named it frontrunning service the “Asmymetric Service Initiative” thereby magically not making it a frontrunning service, naming the world’s largest prop desk the “Chief Investment Office” makes it no longer be the world’s largest prop desk.

Here are the highlights. First on the CIO group:

• Achilles Macris, hired in 2006 as the CIO’s top executive in London, led an expansion into corporate and mortgage-debt investments with a mandate to generate profits for the New York- based bank, three of the former employees said.
• Some of Macris’s bets are now so large that JPMorgan probably can’t unwind them without losing money or roiling financial markets, the former executives said, based on knowledge gleaned from people inside the bank and dealers at other firms.
• The CIO’s growing size and market power have made it an increasingly important customer to Wall Street’s trading desks and a market influence watched by hedge funds and other investors, the former employees said. Iksil’s positions in credit-derivatives have become so large that some market participants dubbed him “Voldemort,” after the villain of the Harry Potter series who’s so powerful he can’t be called by name.
• “What Bernanke is to the Treasury market, Iksil is to the derivatives market,” Bonnie Baha, head of the global developed credit group at DoubleLine Capital LP in Los Angeles, where she helps oversee $32 billion, said in a telephone interview.
• Macris’s team amassed a portfolio of as much as $200 billion, booking a profit of $5 billion in 2010 alone – equal to more than a quarter of JPMorgan’s net income that year,one former senior executive said.

And far more importantly on the background of the guy behind it all. It kinda, sorta sounds like he is a… gasp…. prop trading kinda guy

• It’s Macris, not Iksil, who was behind the strategy that led to an unprecedented build-up of credit risk in JPMorgan’s chief investment office, three former employees of the bank said. While they expressed doubt Iksil can unwind his positions without causing a dislocation in the markets he trades, they also said JPMorgan probably can afford to hold the assets until they mature and so won’t be forced to sell them.
• In 2011, corporate revenue of $3.3 billion included $1.6 billion of securities gains and produced $411 million of net income, the bank said in an annual filing on Feb. 29. By comparison, JPMorgan’s investment bank reported $26.3 billion in revenue and $6.8 billion of net income in 2011.
• Since 2007, the value of securities held in JPMorgan’s chief investment office and treasury has more than tripled to surpass $350 billion from $76.5 billion, according to company filings.
• Profit, not risk management, guided the purchases, according to the former employees. One of the employees, who previously held a senior executive position at the bank, said Dimon even ordered some of the trades himself.
• Dimon pushed the unit to seek bigger profits by buying higher-yielding assets, including structured credit, equities and derivatives, and ramping up speculation, according to two former employees.
• In London, Macris expanded his team, adding expertise in credit and fixed-income trading. A Greek citizen, Macris previously was co-head of capital markets at Dresdner Kleinwort Wasserstein before joining JPMorgan in 2006. In that role he helped oversee a unit that made proprietary trades, or bets with Dresdner’s own money, according to two people who worked with him at the time.
• Before joining Dresdner, Macris oversaw currency trading at Bankers Trust, now part of Deutsche Bank AG. Macris was an idea- generating machine who was blunt and didn’t suffer fools, said Duncan Hennes, who worked with him at Bankers Trust.
• At JPMorgan, Macris hired Evan Kalimtgis, a former head of credit portfolio strategy at Dresdner, to help with risk management, according to one former employee.
• In 2007 Javier Martin-Artajo, who had been Dresdner’s head of credit-derivatives trading, joined JPMorgan in London. George Polychronopoulos, who worked at hedge fund Endeavour Capital LLP, also joined the London office in 2009.
• Martin-Artajo, Polychronopoulos and Kalimtgis didn’t return calls and e-mails seeking comment.
• While Macris had a mandate to make money from the beginning, he didn’t start putting on big bets until after the credit crisis in 2008. Two of the former executives said the following year he bought AAA-rated pieces of collateralized debt obligations. As competitors dumped securities and prices slumped, Macris’s group at JPMorgan emerged as the biggest buyer in some markets, said one former executive at the bank who was familiar with the trades at the times.
• In one example, a New York-based CIO trader named Jonathan Horowitz bought about $1.1 billion of AAA-rated portions of collateralized loan obligations for about 80 cents on the dollar in November and December 2008, people familiar with the matter said at the time. Horowitz declined to comment.

Finally, the most damning evidence that JPM’s World’s Biggest Prop Desk^TM, elsewhere known as the CIO, has to be dismantled lest it suffer the fate of all other massive prop desks, which promptly blew up in the days after the Lehman failure, is the following:

• One public sign that the chief investment office does more than hedge: Its trading risk is on par with that of JPMorgan’s investment bank.
• JPMorgan’s annual report for 2011 shows that the CIO stood to lose as much as $57 million on most days of the year. That compares with $58 million for the investment bank, which includes Wall Street’s biggest stock- and bond-trading units.
• Another sign: The relationship between the CIO and the investment bank’s sales and trading desks is strained, two former employees said. Employees in the CIO get a smaller share of their trading profits than those in the investment bank, giving Dimon a cost-management incentive to direct more trading through the CIO, one former executive said.

Hence: JPMs “Chief Investment Office” = World’s largest prop trading desk. But hey, just repeat “Assymetric Service Initative” … “Assymetric Service Initative”  … “Assymetric Service Initative” three times … and it becomes truth.

Could be..  William Weytens from http://profitimes.com explains why it’s entirely possible in a great article, but you do also have to factor in that if Europe causes a global banking meltdown, that the metals might drop more instead, firstly though, watch the video to your right to understand why you ought to be buying physical.

Silver Ready For Take-Off?

After a very turbulent year, silver now looks set to take off again. In this article I will tell you why I think so. First of all, let’s look at the Commitment Of Traders reports. Commercials have yet again reduced their Net Short position in Silver, which is now close to the low of 2003 at the beginning of the Bull Market. Commercials are generally seen as the “smart money”, so if they reduce their Net Short Position, they expect price to rise (or at least not drop substantially).

The reason why Commercials are the “Smart Money”, is that – unlike the millions of small investors who burn their hands by buying high and selling low – they tend to “Buy” low (reduce short positions as price declines) and “Sell” high (increase short positions as price rises). This can be seen in the following chart. There seems to be a very high correlation between the Sentiment charts of Sentimentrader.com and the Net Short Positions of Commercials:

The fact that one should “Buy Low” and “Sell High” is the best way to invest can be seen in the following chart. As Sentiment (or Commercials Net Short Positions) climbes into the orange area, it’s time to become cautious.

It sure can rise (substantially) higher, but cautiousness is the first step in detecting tops. The second step is to look at perspective. Sentimentrader indicators are overlaid with standard deviation bands that show you how extreme the current reading is compared to its recent history. So if sentiment rises above the red standard deviation band, we know that this is an unsustainable situation, and that sentiment has to reverse (decline) over time.

On the other hand, when sentiment drops below the green standard deviation band, we know that this is also an unsustainable situation, and that sentiment has to reverse (rise) over time.
The red circles on the chart below show that good Exit points occured when sentiment was above the red standard deviation bands.

The green circles on the chart below shows that good Entry points occured when sentiment was below the green standard deviation bands. However, the best entry point of the last 5 years was in 2008. This was a time when both Sentiment and Commercials Net Short positions reached extreme lows. Currently, we are in a similar situation, which could mean that silver is at or at least very close to a bottom, and that it could take off pretty soon…

In fact, when we look at the chart below, we might be in an even BETTER position now than in 2008. As price declined in 2008, the Accumulation/Distribution index declined as well. Unlike 2008, the Accumulation / Distribution index has made brand new highs recently, despite the fact that Silver is off about 35% from its all-time high…

Another bullish factor now is that, as price declined, volume declined as well, which was not the case in 2008. It looks like the massive drop a couple of weeks ago – which took silver down to $26 – was the “perfect” entry point, price wise. However, in my opinion there are “better” entry points at levels slightly higher than today. Let me explain why. If you would have bought when silver hit $26, you would have done an AMAZING Job. Congratulations to those who did.

However, if you did, you were catching a falling knife. There was a huge risk that silver would drop even lower, maybe as low as $20, which is about the breakout point of the autumn of 2010. I personally always look at Risk to Potential Reward. At $26, the risk of Silver dropping another $6.5 was too high for the potential $6.5 I could make. That’s a 1-1 ratio, since you can loose just as much in case you are wrong as you can gain in case you are right.

I like better those kind of situations where you get a risk-reward ratio of 2 -3 (you can gain twice or 3 times as much as you can loose), and I don’t have to think twice when I get a situation that gives me a Risk-Reward ratio of 5.

Look at 2008. As long as price was below the 50EMA, you shouldn’t have bought. The best time to buy in my opinion was early December 2008, when price broke above this 50EMA and both the RSI and MACD broke out above the red resistance lines.

At that point you had a BUY point.

You wouldn’t have bought at the extreme lows, but taking this 50EMA as a stoploss, would have minimized your losses, while you could have let your profits run. In fact, this 50EMA was at that point at the same level as the horizontal resistance line underneath the lows of 2006 and September 2008. A breakout above that level was extremely important going forward.

We are currently in a similar position, as there is resistance at $34 which acted as support in the first half of 2011.

The 50EMA is now at the same level as this red resistance line, and both the MACD and RSI look set to brake out above their red resistance lines…

Combine that with the severely depressed sentiment in Silver and the low Net Short Positions of Commercials, and we have the ideal cocktail for a nice rally in silver prices…

Silver tends to follow Gold, so we should also look at sentiment in Gold.

Once again, we can see that the Standard Deviation Bands provide good Entry and Exit points. Sentiment in gold is now pretty bearish, and is close to the green standard deviation band.

When we look at the Gold:Silver ratio, we can see that the ratio is now facing strong resistance at the 38.20% Fibonacci Level. IF the ratio would take out this resistance, it looks headed towards 60, which is the 50% Fibonacci Retracement level.

However, if that were to happen, both the RSI and MACD will most likely make a lower high, causing negative divergence, meaning this “rally” should be “sold” (which means one should BUY silver in favor of Gold in my opinion).

The MACD looks set to roll over, which means the ratio looks ready to drop.

Silver is ready for take-off. The question is, ARE YOU?

If you are interested in similar analyses, trading updates, or if you would like to know how to trade options, make technical and fundamental analyses, please visit www.profitimes.com and feel free to sign up for our services!

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, and we are still buying now, it may be 10 or 20% higher in a few months

• Buy Allocated Physical Silver safely online here

• Buy Allocated Physical Gold safely online here

Whilst we appreciate that it can be difficult watching the numbers assigned to your metals holding dropping suddenly and sharply, it is always important to understand the context within which the drops should be viewed, i.e. perfectly natural market movements in bull markets.  It is well recognized fact that bull markets mostly happen with the majority of people watching, but too cautious to get involved, that is until they near their tops, and everybody then piles in.

It is not called “Climbing the wall of worry” for nothing, worry is not the danger sign, the danger sign is once everybody accepts it as “the norm” and that “you can’t lose” - that’s when you need to be worried. Here’s another great article on the nature of previous metals corrections by  Jeff Clark of Casey Research

Precious Metal Pullbacks in Perspective

If you’re bullish about the long term for gold and silver, it’s mouthwatering to watch them undergo a major correction after taking earlier profits that added to your deployable cash. For a little historical perspective on pullbacks, consider the following charts.

The current 15.6% gold decline, while considered a “major” correction, is not out of the ordinary, particularly following the late summer spike. And after each big selloff, there was a price consolidation phase that in every instance led to higher prices. The message: hold on, and buy the big dips.

Not surprisingly, silver’s biggest corrections are larger than gold’s.

This is also true for the rebounds; they’ve been quite dramatic. If we apply the biggest three-month recovery of 44.3% to the current correction, that would take silver to $40.63… meaning we probably shouldn’t expect $60 silver by year-end.

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, if you  think now might be a good time protect your wealth with Gold &/or Silver:

• Buy Physical Silver safely online here

• Buy Physical Gold safely online here

Another must-read piece from Nadeem Walayat laying out the road ahead for the UK..

[hint] UK SAVERS!! – CALL THE POLICE! – THERE IS AN ONGOING ROBBERY OCCURING ON YOUR SAVINGS RIGHT NOW! [/hint]

Euro Collapse, U.S. Debt Ceiling Default Armageddon Irrelevant to Stocks Stealth Bull Market?

By: Nadeem_Walayat

The financial news is bad, very bad, don’t see how it could get much worse with europe’s debt default contagion spreading to Italy and Spain sending bond yields soaring to Euro life-time record highs, whilst in the U.S. there is talk of imminent debt default on failure to raise the debt ceiling prompting the mainstream press talking heads aided by the BlogosFear to once more iterate a busted flush that the stocks bear market is about to resume (just as has been the case for the past 2+ years).

Remember a month ago with Greece tottering on the brink of default and the Dow down 7% from its bull market high ?

What has happened since ?

The Dow has rallied by 800 points! So yes there has been a crash but it has been to the UPSIDE.

Lets stay with the Euro-zone debt crisis, yes the PIIGS are bankrupt, and they are not alone, so is Japan, Britain and the United States, that is nothing new, it is not news, it is the sovereign debt mega-trend which is driving the INFLATION mega-trend as I wrote about at length over 18 months ago, in that there is only one answer to the sovereign debt crisis of the west and that is INFLATION, to INFLATE the debt away, there is NO OTHER ANSWER, and NOTHING has changed.

The Inflation Mega-Trend will run for this whole decade and I have included some 50 pages of wealth protection strategies in the Inflation Mega-trend ebook that remain just as valid today (FREE DOWNLOAD).

Mainstream Media and BlogosFear

I am going to cut through the BS and tell you like it is. The mainstream press is populated by journalists who think they are economists, but wait its worse, they then regurgitate at length the views of vested interest academics who’s models NEVER match reality. NEVER! EVER! Why ? Because they lack the most fundamental requirement for being able to generate accurate analysis and that is the market forces of profit and loss instead rely on funding to follow schools of thought. If there is no consequences for being wrong then that is all they will ever be for it is far easier to pump out commentary for print deadlines than to take the time to formulate strategies upon which ones hard earned cash is depending.

Another point to consider is that the mainstream financial press most of the time are having conversations with salesmen, be they CEO’s selling their companies stock or, salesmen that just want to pump a service that they are forced to promote as a consequence of being unable to compete in the derivatives and commodities markets. Still worse are the media whores that tend to spend more time in TV make-up rooms than sat in front of market trading screens that they seek to commentate upon, whilst jumping from channel to channel.

FEAR

All of this is further regurgitated at length by the BlogosFear, a phrase that I coined some years ago as a consequence of the perma-doom mindset regardless of the reality of a situation. However, the media and the BlogosFear being ignorant of the facts is nothing new, for it is the human condition for those that seek to exert power over others to nearly always be pessimistic of the future which has its roots in Religion Driven Fear of what God will do to you if you do not obey those that purport to have a direct line to him, so we are talking about something ingrained in our genes that goes back hundreds of thousands of years.

Everything is driven by FEAR, Preachers use it (of all faiths), Politicians definitely use it, the mainstream media cannot get enough of it with 9 out of 10 stories being bad news, and off course there are the FEAR driven insane fanatics hell bent on killing as many innocents as they possibly can such as the Norwegian Nazi, though the real secret behind his craziness is probably more to do with him never having been able to get a girl friend and hence needed to find others to blame for his own inadequacies which over time resulted in mental illness and finally evil deeds.

The reality of the real state of the world is that of continuing global economic growth coupled with exponential innovation and technological advancement, 20 years ago few could foresee how the Internet would change the way we work and learn resulting in huge gains in productivity, as will technologies such as BioTech, Artificial Intelligence and Robotics change our world enormously over the next 20 years, resulting in a many fold increase in worker productivity, these good news mega-trends will rarely make it into your gloom and doom mainstream press that only knows how to sell fear, which is why most investors will miss these mega-trends.

The Eurozone Debt Crisis Reality

The bond vigilantes are heavily short illiquid debt markets i.e. Ireland, Greece and Portugal, which goes a long way to explain why Italy has been targeted as shorts are cashing out of illiquid markets and opening positions in Europe’s biggest most liquid bond market, Italy!

This is reflected in recent bond market price action as yields for Italian debt are on the rise whilst yields in the likes of Greece have fallen a little, that is the reason for current price action, and NOT the noise you are hearing in the mainstream press about x,y,z – none of which reflects reality of bond markets price action.

The mainstream press focuses in on just one or two elements without comprehending the reality of the actual situation in that:

a. The PIIGS are NOT the whole they are one small part of the Euro-zone economy that is NOT contracting but growing with Germany literally booming as a weak Euro gives it a great comparative advantage both internally in the euro-zone and externally to the whole world that far out weighs the actual net costs of bailouts, even the FT’s mighty Martin Wolf failed to get it as illustrated below:

Financial Times July 2010, Martin Wolf is worried that the concerted austerity of Germany, Britain and other industrialised countries may “destroy the recovery”.

Germanys economic boom is the flip side of the PIIGS sovereign debt crisis as I have been mentioning since at least early May 2010 – Greece Economic Depression Resulting in INFLATION NOT DEFLATION Surge ) and again 09 Aug 2010 – UK Economy GDP Growth Forecast 2010 to 2015.

Bottom line – The large industrialised export orientated areas of the Eurozone such as Germany are going to BOOM! Therefore the PIGS sovereign debt crisis is old news. The U.S. looks set to experience sluggish growth.

He also failed to get that Britain is stealth defaulting on its debt by means of high inflation during some email exchanges with him over a year ago, I wonder if he has now changed his opinion after a year of high UK inflation?

The bottom line is that the mainstream press is good at looking in the rear view mirror and telling your what has already happened, but because they lack the fundamental mechanism of profit and loss in their analysis they will by wrong at least 80% of the time on any market or economic outlook, think about that, even a coin toss is a 50/50 proposition!

b. That the debt crisis calls for money printing, regardless of what the politicians and central bankers state this is what will follow as we are witnessing with the latest Euro 109 billion bailout of Greece that is a stepping stone towards a Euro-bond with all of the ramifications it will have for the core Euro-zone interest rates.

c. That the PIIGS will default on their debts, infarct Greece and Ireland HAVE defaulted because the borrowers are being forced to except longer terms and lower interest rates than the market interest rates, a so called orderly default is taking place.

The announced orderly default does NOT solve anything, because Greece is still left with a huge and growing debt mountain, so this is just another milestone on the path towards further defaults. All the Euro-zone has done is to buy some more time for Greece.

Therefore depositors need to continue to protect themselves against PIIGS defaults and the Inflation Mega-trend (see my last article of 29th June 2011), as bond holders are being marched towards loss of capital so will ultimately depositors, in one way or another, in the UK it is stealth default by means of high Inflation, in the likes of Greece it is in your face default.

PIIGS Lesson for U.S. and UK on Interest Rates

Central bankers in the US and UK have managed to get away with murder where interest rates are concerned that especially in the UK lag far behind even the highly suspect official CPI inflation rates. However as the soaring PIIGS market interest rates of as high as 30% illustrate that UK and US interest rates of 3% on 10 year debt is NOT sustainable especially as debt to GDP levels continue their inexorable trend to above 100% of GDP even after most of the real debt and liabilities have been excluded from the calculations, therefore official debt is just the tip of the ice-berg much as UK and US bank exposure to PIIGS debt is just the tip of the ice-berg of potential losses as it excludes derivatives positions such as CDS.

The experience of the PIIGS and history before them has shown that failure to get a grip on budget deficits, debt and future liabilities WILL result in sharply higher market interest rates even if the Bank of England and the U.S. Fed remain deaf dumb and blind to their own debt crisis as they point the finger at the likes of Greece today.

The problem is that most people won’t realise how bad the current debt crisis is in the UK and USA until they actually have to face the consequences PIIGS style of soaring market interest rates even if the irrelevant official rates remain stuck at near 0%. This public reluctance to face reality of unsustainable deficit spending is manifesting itself in public sector workers demonstrating and striking against cuts without which the markets WILL force the governments hands who will respond with not 4.2% UK CPI Inflation but panic level of money printing that pushes inflation rates to above 10%.

Therefore the imperative remains for the UK and US government to focus on cutting the budget deficits asap whilst they have it in their means to do so rather than be forced to act by the markets.

U.S. Debt Ceiling Smoke and Mirrors Political Game

The mainstream press is telling you that a US default as a consequence of failing to agree on raising the debt ceiling will be catastrophic, well the only place your seeing this catastrophe being played out is in the mainstream press for it is invisible to the US stock and bond markets, after all the Dow is barely a couple of percentage points away from its bull market high!

As of writing there is no agreement between Obama and Boehner and apparently the deadline is imminent for action to ensure millions of cheque’s do not bounce.

As ever, the name of the gave is managing your risk, and the greatest risk is to depositors who run real risks of loss of capital for a mere pittance in interest that is at half the rate of inflation and does not reflect the risk they are exposed to, so if you have not already done so, go see my last article on what depositors should do to protect their wealth.

Whilst U.S. Bonds may have rallied on the debt woes of others but ultimately bond bulls will lose, because bond holders are betting on deflation instead the opposite is true as you don’t get deflation on a annual budget deficit of 11%, which is why stocks are rising i.e. as a manifestation of the inflation mega-trend NOT deflation mega-trend which would see the opposite to the be true aka early 1930′s wipeout.

I just do not understand why so many people are fixated on a re-run of the 1930′s for these past few years when the opposite has been transpiring as I warned of well over 18 months ago in the Inflation Mega-trend ebook. Instead the early 1930′s chart gets rolled out with an amended start date because it has turned out to be wrong for over 2 years now and some 100% on the stock indices, so yes, this does mean there would need to be a 50% crash in stock prices just for the deflation fools to break even let alone make money on worthless calls such as the Dow falling to below 1000. At the end of the day perpetually shorting of stocks that these bear market fools are engaged in and propose to others to do, is an unlimited liability risk as the upside is unlimited i.e. 100%, 200%. 300%,. demanding perpetual financing of short positions for ever, whereas the maximum Long risk is always limited to 100%. Therefore I am always far more careful in the management of short positions than long positions given the risks, especially when virtually all trading activity is further leveraged by X10 upwards.

The bottom line is that the debt ceiling political show is just that, a show for the electorate and mainstream media talking heads, whatever happens is irrelevant to the long term megatrend’s, and if there is any short-term panic, I will once more be seeking buying opportunities.

In fact if the debt ceiling talks do fail and the US government is forced to balance its books as a consequence of a freeze on spending, then that would be GOOD for the US Economy as instantly the federal spending will be cut by some 50%, so the market may take the opposite view on the future prospects for the US economy than that of financial armageddon being pumped out by the mainstream press and BlogosFear.

Gold and the Inflation Mega-trend

Gold breaking above and holding $1600 is evidence of continuing safe haven buying as capital seeks to escape to precious metals and lower risk emerging market currencies from all of the rampant money printing taking place.

I am no gold bug, for on face value it is not a good long-term investment, i.e. does not generate a return but demands a holding cost in terms of storage and insurance, but the gold bull trend of a near decade is a manifestation of the Inflation mega-trend that encompasses the loss of value of all fiat currencies that looks set to continue at an accelerating pace for the next decade, therefore so could the gold bull run also for for the duration of this decade long inflation Mega-trend. My long standing target as repeated in the Inflation Mega-trend ebook (Jan 2010) remains for gold to target $2,000 having achieved all of it’s interim targets as mentioned in the ebook. I will come back to an in depth analysis of Gold at a later date as I favour investments in other commodities such as Oil over the likes of Gold and Silver, especially as an opportunity appears to be brewing in gold stocks over bullion.

Stocks Stealth Bull Market Update

In my last in-depth stocks analysis (13 Jun 2011 – Stocks Bear Market Rally is Over Mantra About to Get Busted Again?) I concluded in an imminent bottom to be followed by the stock market carving out a base into late June / Early July before trending higher to target a new bull market high during Mid August as illustrated by the original graph.

Subsequent stock market trend continues to support my expectations, with the Dow pending a breakout to a new bull market high by mid August 2011. Basically the stock chart trend illustrates what I have stated earlier in this article in that both the Euro-zone and U.S. debt crisis are irrelevant to the stock market which continues to behave as it should. Current support lies at Dow 12,290 and resistance at 12,755, therefore immediate price action in advance of an ultimate breakout higher looks set to be contained within this tight range, which suggests all news on the debt ceiling front will be good news for the stock market regardless of whether the U.S. defaults or not.

However should panic strike and support fail at 12,290, then the Dow would likely revisit the June 2011 low of 11,860, which would act to just delay the inevitable breakout higher, but would give all you lucky guys and gals another great panic driven buying opportunity.

Bottom Line - The bull market in stocks will continue to lead the Inflation Mega-trend. The Sovereign Debt Crisis Induced Market Volatility such as that afforded by the US Debt ceiling failure default would present Great Buying Opportunities into primarily U.S. and Emerging Market stocks, commodities and UK Internationals, and presumably likewise for other International European stocks. Remember September 2008 and how you could have made a killing out of a crisis by bargain basement buying, in which respect always keep a shopping list of stocks then when others panic – BUY! Though my expectations are that a major panic does not look likely, so your debt crisis buying opportunity looks to have come and gone during mid June.

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Your debt crisis noise ignoring Mega-Trends investing analyst.

Source and Comments: http://www.marketoracle.co.uk/Article29471.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem’s forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook’s – The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREEDaily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

BuyGoldSilver.org say..

UK SAVERS!! – CALL THE POLICE! – THERE IS AN ONGOING ROBBERY OCCURING ON YOUR SAVINGS RIGHT NOW!

• Buy Physical Silver safely online here

• Buy Physical Gold safely online here

So there’s only so much telling you that we think Gold is going way higher we can do, so here’s a list of analysts who agree, and some of their predictions.

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, if you  think now might be a good time protect your wealth with Gold &/or Silver:

• Buy Physical Gold safely online here

• Buy Physical Silver safely online here

By Hi Ho Silver

I actively trade and invest in the Gold & Silver markets.

I started trading the equity markets in 1998 using a variety of trading methodologies, trading software, time frames and technical indicators. I have narrowed my toolbox to just a few to determine investment decisions.

Before I discuss my trading methodology, I would like to point out that:

• The financial markets are manipulated.

• Equity markets are casino’s filled with High Frequency Traders and should be avoided.

• The world is in a competitive fiat currency devaluation led by the $US.

• “Real” interest rates are negative, which is the perfect scenario for precious metals.

• The best way to preserve wealth is to become your own personal central bank through ownership of physical precious metals.

• Precious metals are in a Secular Bull market.

• The easiest way to make money in the financial markets is to buy an instrument in a Secular Bull market.

• One should always Buy WEAKNESS and FEAR.

• Silver is the “bitchy” metal and should not be traded using leverage.

• The manipulated PAPER market still rules the price of silver, but is changing quickly.

A little bit about me:

In 2006 I sold a property in London which tripled in vale after I bought in 1995. The profits were placed in offshore accounts earning nearly 8% interest. Then rates dropped…and my interest income disappeared.

I became interested in precious metals after watching Gold move from $450 to $850. When interest rates dropped to zero, I decided to become my own bank. In July 2008, I placed 50% of my profits into 1oz Britannia gold coins.

In only three years, these coins doubled in value. However, I realised my “profits” were not actual profits, but rather a preservation of wealth. Huhh??? Fiat currency wealth is lost through cancerous inflation and devaluation. As the cost of every day items rise in price your wealth disappears. Owning Gold and Silver PRESERVES your wealth because it increases in value at the same rate your home fiat currency is devalued.

I wanted to generate REAL profits. After researching Silver I realised it was undervalued due to price manipulation. I decided to invest another 25% of my property profits (which were still in an offshore account collecting .25% interest!) in silver in August 2010.

I rode Silver’s Autumn bull run to the $50 high using BullionVault. I continue to trade Silver to gain real profits.

Methodology:

• Use multiple Timeframe Confirmation. My analysis is based on the 60/120/240 minute charts.

• Use Channels, trendlines, moving averages, support/resistance, divergence, and other chart patterns.

• Use seasonality

As Silver is in a secular bull market, I will provide Entry points.

I take profits based on Seasonality. All entries will be based on the goal to take profits in December or Janary.

You can see some of my recent charts and work at TFMetals here.

The Guardian published an article today talking about “How to deal with grim economic news” discussing the way people deal with (or avoid) thinking about impending reality:

“for most people, most of the time, seeing or hearing any given headline about “economies in crisis” or “markets in turmoil” prompts a nebulous, hard-to-categorise kind of emotional reaction, somewhere between worry and bafflement, with a dash of frustration thrown in.

Even if you’re sufficiently financially savvy to understand what’s going on (and sources close to the author of this article confirm that he is not) it’s essentially impossible to gauge how panicked you should be. Reporters describe economic ructions almost exclusively using the language of human emotions: markets exude “panic”, behave “anxiously”, and “lose confidence” in politicians, while investors – which commonly means big institutions, not individuals – are “gripped by fear”. But for actual humans, knowing how to react is decidedly less clear.

One notion prevalent in some corners of popular psychology is that the best response to this predicament is to avoid consuming bad economic news altogether. If there’s nothing you can do about what’s happening, why bother pointlessly upsetting yourself? Proponents of this viewpoint, who apply it not only to financial headlines but to humanitarian disasters as well, like to quip that CNN stands for “Constant Negative News”

However even this is a step forward from full on denial, like this..

Most American’s Don’t Believe the U.S. Dollar Will Collapse

By Jeff Clark, BIG GOLD

In spite of constant headlines about debts and deficits, most Americans don’t really believe the U.S. dollar will collapse. From knowledgeable investors who study the markets to those seemingly too busy to worry about such things, most dismiss the idea of the dollar actually going to zero.

History has a message for us: No fiat currency has lasted forever. Eventually, they all fail.

BMG BullionBars recently published a poster featuring pictures of numerous currencies that have gone bust. Some got there quickly, while others took a century or more. Regardless of how long it took, though, the seductive temptations allowed under a fiat monetary system eventually caught up with these governments, and their currencies went poof!

You might suspect this happened only to third world countries. You’d be wrong. There was no discrimination as to the size or perceived stability of a nation’s economy; if the leaders abused their currency, the country paid the price.

As you scroll through the currencies below, you’ll see some long-ago casualties. What’s shocking, though, is how many have occurred in our lifetime. You might count how many currencies have failed since you’ve been born.

So what’s the one word for the “thousand pictures” below? Worthless.

Yugoslavia – 10 billion dinar, 1993

Zaire – 5 million zaires, 1992

Venezuela – 10,000 bolívares, 2002

Ukraine – 10,000 karbovantsiv, 1995

Turkey – 5 million lira, 1997

Russia – 10,000 rubles, 1992

Romania – 50,000 lei, 2001

Central Bank of China – 10,000 CGU, 1947

Peru – 100,000 intis, 1989

Nicaragua – 10 million córdobas, 1990

Hungary – 10 million pengo, 1945

Greece – 25,000 drachmas, 1943

Germany – 1 billion mark, 1923

Georgia – 1 million laris, 1994

France – 5 livres, 1793

Chile – 10,000 pesos, 1975

Brazil – 500 cruzeiros reais, 1993

Bosnia – 100 million dinar, 1993

Bolivia – 5 million pesos bolivianos, 1985

Belarus – 100,000 rubles, 1996

Argentina – 10,000 pesos argentinos, 1985

Angola – 500,000 kwanzas reajustados, 1995

Zimbabwe – 100 trillion dollars, 2006

So, will a similar fate befall the U.S. dollar? The common denominator that led to the downfall of each currency above was the two big Ds: Debts and Deficits.

With that in mind, consider the following:

Morgan Stanley reported in 2009 that there’s “no historical precedent” for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Our total debt now exceeds GDP by roughly 400%.

Investment legend Marc Faber reports that once a country’s payments on debt exceed 30% of tax revenue, the currency is “done for.” On our current path, analyst Michael Murphy projects we’ll hit that figure by October.

Peter Bernholz, the leading expert on hyperinflation, states unequivocally that “hyperinflation is caused by government budget deficits.” This year’s U.S. budget deficit will end up being $1.5 trillion, an amount never before seen in history.

Since the Federal Reserve’s creation in 1913, the dollar has lost 95% of its purchasing power. Our government leaders clearly don’t know how – or don’t wish – to keep the currency strong.

Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the possibility of the greenback being added to the above list grows every day. And this will lead to serious and painful consequences in our standard of living. While money is only one of many problems we’ll have to deal with, you can protect your assets with the one currency that can’t be debased, devalued, or destroyed by irresponsible leaders.

Don’t be the investor who dismisses this message from history. Use gold (and silver) as your savings vehicle. Any excuse you have now will be meaningless and irrelevant when we enter that fateful period. Make sure you own enough precious metals to make a difference in your portfolio.

Because when it comes to money, worthless is not a fun word.

[Owning physical gold is good protection from the sinking value of the U.S. dollar; investing in the right gold miners can yield even higher returns. BIG GOLD focuses on the larger miners that have strong profit potential, and will help you build your wealth. Give it a ninety-day risk-free trial. Details here.]

© 2011 Copyright Casey Research – All Rights Reserved

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, if you  think now might be a good time protect your wealth with Gold &/or Silver:

• Buy Physical Gold safely online here

• Buy Physical Silver safely online here

Hi-Ho Silver

We are very pleased to announce that we have a very cool new contributor for the site starting today, one of the resident experts from the fantastic TFMetals forums, the one known as “Hi ho Silver” has agreed to be sharing his expertise and insight on the day to day metals and trading commentary with us.

For anybody interested Hi Ho’s  Silver thread on TFMetals starts here, and he’s been pretty much bang on the majority of time we’ve been following him, so we are very pleased to have his expertise here on the site, please do feel free to ask questions and / or add your thoughts.

We therefore look forward to having a much better idea of which direction things are going to be heading over the shorter term moving forwards..  :)

So much has happened since our last post here on the 3rd August when gold was at $1670 per Oz, Gold has rallied $242 to a record new high of $1912, and then of course, as with every huge rally comes the inevitable pullback, where it pulled back to $1704 (Oh Noes! the bubble has burst! ) ..So lets just get this straight, from $1670 to $1912, dipping to $1704 and straight back to $1829 is a bursting bubble?  ..not exactly, no..

A little while back we posted “just how high is gold going in 2011″ and it has turned out to be a fairly good guide thus far, even if it happened faster than many thought possible. It said:

Here’s what price levels could be reached based on the following percentage gains.

• 35% = $1,919.16
• 40% = $1,990.24
• 45% = $2,061.32
• 50% = $2,132.40
• 1979′s gain of 125.7% = $3,208.55

It thus seems reasonable to expect gold to surpass $1,800 this year, as well as reach a potentially higher level since the factors pushing on the price could become more pronounced.

Having peaked at just under the 35% point and now back to above $1800 (after the inevitable correction from all time highs)  and the strong traditional season not even started yet, we would have to agree that it’s quite possibly going to be as high as 50%, and possibly getting started, right about NOW. It is of course possible that further downside could occur first, and especially so like this but it also seems fairly certain to be transient in any longer term view.

Gold & Silver: The Smack Down Is Over

by Morris Hubbartt from 321Gold

US Dollar Chart

Dollar Commentary

• I am projecting that the USD falls to the 65 area on the above chart, likely in the Sept-Nov timeframe. Gold has started a huge devaluation of the dollar. The reason gold has been hitting highs is because of a serious loss of confidence in the world’s fiat currency system, one that is gaining momentum by the day.

• I see no reason to alter my target of 65. Recent economic data has caused one economist after another to steadily trim their growth estimates. The odds of a double-dip recession, or worse, are rising.

• Debt remains front and center, and committees of congress will try to work out an agreement. The problem is congress knows they need to diet, and they promise to cut back on their calorie intake after every “next election”. The situation is very serious, and a lack of credibility on this matter could create a confidence disaster. Gold’s skyrocketing price is offering politicians a warning that their actions are failing badly.

Bank of America Death Chart

• One of the most important lead indicators for the dollar and the economy is the bank stocks. Bank of America is the largest bank in the United States. This chart looks like the company is going to be delisted. It is an ominous sign for the banking industry, and the dollar.

• Some investors bought Bank of America on the news that Warren Buffett bought the stock. You need to ask yourself what kind of deal he may have really gotten, versus the deal you might be getting, if you buy the stock in the open market.

• Also, the “breakout” exhibited by the stock on the supposedly great news that Bank of America is in a desperate situation… is already a technical failure! I expect the dollar chart to mimic what you are seeing now on the price charts of the nation’s largest financial institutions.

Gold Super Highway Chart

Gold Analysis:

• Supply and demand are like truth detectors. Fresh gold supplies are mined and brought to market, but the rate it occurs at is physically limited. Compare the growth in the ability of miners to supply gold to the refiners with the ability of a central bank to print paper currency and decide which item holds the real value for you.

• The public is really just barely aware of the fact that fiat currencies are on fire. There are few places for people to run to outside of the fiat currency system. Gold offers liquidity and is fairly portable. What is most important right now is that gold has burst through the upper window of the previous uptrend. It has entered what appears to be, technically, a parabolic superhighway.

• The gold overshoot of the up channel has been truly spectacular. It took place around Aug 8th, and I then projected that gold would enter into what I termed, “the smack down zone”.

Gold Smack Down Chart

• This chart is a magnified view of the price action I projected would occur at the entrance to the superhighway price channel. This price correction could be your last opportunity to buy before gold goes to much higher prices, and does so at a much faster rate of rise.

• I continue to look at the top of the previous upper channel, which is approximately $1700, for the end of the correction target zone. This hard two-day correction feels like a clean-out type of move; a sort of vicious good-bye to gold’s price chasers. I have urged my people to add to gold positions this week, because the smack down zone is also likely your “last chance to buy zone”!

GDX Head and Shoulders Chart

• Gold stocks are setting up for a major move! One of the most bullish technical patterns in technical analysis is the inverse head and shoulders pattern. That is the pattern you are looking at on this GDX chart. A secondary H&S pattern has also formed in the last three weeks, giving this technical situation even more firepower!

• Gold stocks have started moving with powerful volume. The H&S patterns project GDX will rise to $70, and I believe that number is simply a stepping stone target. Take a hard look at the next chart, and you will see why I believe a rise to GDX $70 is only the beginningof an immense move in gold stocks.

Gold Stocks To Gold Bullion Ratio Chart

• Gold continues to be a stellar performer in this debt crisis. Venezuela appears to be intent on nationalizing their mines, which may take future gold out of an already tight international market. The country is also moving hundreds of tons of gold out of Europe, which seems to have put additional pressure on the physical gold market.

• It is wise to prepare for a day when a shortage of gold becomes a real issue for investors. I’m referring to physical gold. Gold stocks have severely disappointed investors for many years now, in this bull market. That is about to change.

• My technical chart work continues to indicate that the smack down zone is your last buying opportunity, before an enormous move higher occurs in bullion, and gold stocks! The head & shoulders pattern on gold stocks is a powerful price activation mechanism. You are very likely to see gold stocks move well above $70, basis GDX, and stay there for years to come.

GDX vs S&P500 Chart

• I brought this situation to your attention several weeks ago when GDX was starting to outperform the S&P. I want to give you an update today. GDX is almost blowing the doors off the general stock market now, in terms of relative performance!

• My internal indicators point to a continuing and even expanding superior performance for gold stocks against the stock market! Gold stocks are drastically undervalued and are poised to begin an almost immediate and enormous catch up phase, relative to gold bullion. On the superhighway, I fully expect the gold stock “racecars” to actually pass gold bullion in terms of absolute performance.

GDXJ Action Chart

• This chart is a snapshot of the power of fuel cell volume. My technical volume analysis indicates the picture for gold junior stocks is stunningly bullish. Note that the fuel cell volume day has been followed by soft volume pullbacks. This is picture-perfect chart action for the bulls!

Silver Chart

• Silver offers an absolutely enormous opportunity, and price has held in very strong, in the face of a powerful MACD sell signal. In coming years, I’m looking for massive gains. Your strategy should be to buy the physical metal on significant price weakness.

• I issued a new buy signal on silver into the carnage that occurred on Wednesday. Physical silver is my second largest holding, second only to gold. I strongly advocate you hold a large core silver position!

BuyGoldSilver.org say..

..what we always say, we are 100% all in Gold & Silver, if you  think nowmight be a good time protect your wealth with Gold &/or Silver:

• Buy Physical Gold safely online here

• Buy Physical Silver safely online here

Gold Going Over $1600, Top 20 Quotes

by Michael J Kosares

The world’s investment community, including besieged private investors, is reeling at the twin terrors of sovereign financial breakdowns on both sides of the Atlantic. Gold has responded by rising nearly $150 in less than a month under heavy global demand. No sooner does the dust settle in Europe than something is kicked up in the United States, or vice versa, complicating the decision-making process and narrowing the options. We thought it would be interesting to catalogue in one place the best quotes on gold going over $1600 — the thought-provoking, the witty, the profound (not necessarily in order of preference).

Alf Field’s Last Elliott Wave Advisory

Editor’s Note: With gold going through the $1600 mark, I thought it a good time to dust off this classic piece of analysis by Alf Field first published at our USAGOLD website in late 2008. This remarkable analysis was Field’s last on the gold market, and for an admirable reason, which he reveals toward the end of the essay. ________

As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices.

The first article titled “Elliott Wave and the Gold Price” was published on 25 August, 2003. In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.

I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favour Prechter’s view. If it pushed above $382, then my bullish view would probably be favoured.

This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.

A roadmap for gold

Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or “road map”) of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.

The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.

I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300′s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.

In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.

There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.

Back of the envelope calculations in 2003

As this will be the last of these Updates, I will reveal my previously unpublished “back of the envelope” calculations in 2003. They were as follows.

Major 1 – up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);

Major 1 – down from $750 to $500 (a serious decline of 33%);

Major 3 – up from $500 to $2,500 (a Fibonacci 5 times the $500 low);

Major 4 – down from $2,500 to $2,000 (another serious decline);

Major 5 – up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)

A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.

I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from “Elliott Wave and the Gold Price” written in 2003 and referenced above:

“I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment.”

As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical outlook for gold when I made the dramatic change in our investment portfolio in 2002.

The technical analysis included the following:

# 1. The 21 year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.

# 2. The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.

# 3. In the 1970′s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.

The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions. Privately I referred to this as the “Big Kahuna” crisis.

I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities “throwing money at problems”, bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in “Seven D’s of the developing Disaster” in April, 2005, an article that can be found at:

http://www.freebuck.com/articles/afield/050428afield.htm

The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in “Crisis Cogitations” which was published just 2 weeks ago at:

http://news.goldseek.com/AlfField/1226560260.php

If you haven’t read “Crisis Cogitations”, I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.

Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.

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 1 - up from $256 to $1,015 (actually 4 times the $255 low);

Major 2 – down from $1015 to $699, say $700 (a decline of 31%);

Major 3 – up from $700 to $3,500 (a Fibonacci 5 times the $500 low);

Major 4 – down from $3,500 to $2,500 (a 29% decline);

Major 5 – 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.

Why quit writing these reports?

I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.

So it is Good Bye, Good Luck and God Bless,

Alf Field 25 November 2008 Comments to: ajfield@attglobal.net

This article reprinted at USAGOLD by kind permission of the author, Alf Field.

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By Michael J. Kosares
Michael J. Kosares , founder and president
USAGOLD - Centennial Precious Metals, Denver

Michael Kosares has over 30 years experience in the gold business, and is the author of The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold, and numerous magazine and internet articles and essays. He is frequently interviewed in the financial press and is well-known for his on-going commentary on the gold market and its economic, political and financial underpinnings.