Financial topics

[RDRUNR]

This might just be the 80's all over again when it went from $1650 to $350oz in 1 year.

This is a generational crisis period and America has really issued too much fiat money during or leading up to the previous 3 generation crisis periods and this seems no different. In 2 of these the paper money became nearly worthless (hyperinflation) and in the 3rd case they only saved the paper money by making ownership of gold illegal.

So it is a generational thing. Time for hyperinflation.

And how do you account for more money being taken out of the system (lost defaulted debt) than has been totally put into the system (QE, part of QE2, etc). Stock markets alone have lost more than the value of what's been printed. Then take the US Housing bust, trillions lost.

Read my post on "visit the German History Museum and learn about Hyperinflation"

[richard5za]

Stock markets alone have lost more than the value of what's been printed.

Inflation and deflation is about the amount of money chasing goods and services in an economy. If the amount of money in the real economy reduces and so each $ becomes more valuable then thats deflationery. Debt default can be deflationery if that results in the banks having to curtail their lending so that there is less money in the real economy. But if the banks are shored up so that they can carry on as usual then thats not deflationery. Stock market valuations have no effect unless the money is brought to the real economy. For instance if I buy 1 million shares in ABC and the price goes from $ 1 to $ 1000 there is no inflationery efect unless I sell the shares and buy goods and services. Likewise there is no deflationery effect if my shares in ABC drop to 1% of their former value.
If a government has full control of their currency they can print as much money as they like. The Euro problem is that the countries in debt trouble have no control over their currency.
The arguement against deflation in the USA is that deflation will be economic suicide for the USA and the authorities will simply print money. But defaltion in the USA is possible if unforseen circumstances force it upon the USA, or the authorities make misguided policy decisions.
Hope this helps.

[richard5za]

Gold and silver prices have been tracking each other for the last couple of days Higgie. See below chart. If silver goes to $ 20 what will gold do?

Gold and silver intraday.jpg (111.29 KiB) Viewed 5432 times

[Higgenbotham]

Real time price movement indicates to me that $20 is likely by about October 5.

I am hoping to learn something new, here. As a chartist I would have said "not possible to be at $ 20 by October 5". Here are both daily and weekly silver Comex charts. I agree with your interpretation to sell out in April - it was a very overbought market waiting for a correction e.g. the RSI was much too high, etc. But if you look at the fall from $ 40 to $ 30 on the daily chart (dots are the closing prices and the lines the daily price range) this looks more like there is a considerable element of panic / forced selling to me probably a result of the correction in gold. Its now an oversold market.

You are saying the silver market is oversold at present. Consistent with that interpretation, the silver market was overbought for weeks before the April high. The service has penciled in the black lines where RSI is 80 and 20, as their definition of overbought and oversold (the actionable levels). The market is not yet to the oversold level. It doesn't have to get there. You've mentioned MACD in other posts. The daily MACD has not ticked up yet, so there is no indication the downtrend is complete.

Another thing I would mention is if you are going strictly by charts regardless of market, then it might be helpful to look at the daily of the S&P using the same parameters. I would wager that as the S&P fell in early August that the RSI and MACD appeared as they currently do on the silver chart long before the August 8 low, which likely would have occurred with the daily RSI well under 20. For further analysis, I would highly recommend looking at the 2008 topping formation in silver, which is very similar to the 2011 top.

I didn't sell at the April top using any known methods. I used my own cyclical methods that are based on years of study of event sequences that occur in parallel. So far as I know, nobody in the world uses these methods and I don't tell anybody how I do this. A few weeks or months before the April top occurred, it was not possible (so far as I know) to say it was going to be a silver top with a stock market top to follow a few days later (you can also go back in the archives to see that I sold the exact high in the stock market on May 2). Earlier in the year, I thought the late April event would be a muni bond market collapse with many municipalities and states going bankrupt.

[jdcpapa]

Stock market valuations have no effect unless the money is brought to the real economy. For instance if I buy 1 million shares in ABC and the price goes from $ 1 to $ 1000 there is no inflationery efect unless I sell the shares and buy goods and services. Likewise there is no deflationery effect if my shares in ABC drop to 1% of their former value

Greeting,

Stock market valuations = The wealth effect = Consumption = Supply and Demand = Inflation or deflation

Regards,

[richard5za]

Stock market valuations = The wealth effect = Consumption = Supply and Demand = Inflation or deflation

At a private individual level the wealth effect influences consumption and therefore inflation / deflation. But the money comes from investments to puchases i.e. into the real economy. And the other way round it would reduce consumption and be deflationery. But the back bone of stock markets are institutional investors such as pension funds, and the consumption effect is very long term

[richard5za]

I didn't sell at the April top using any known methods. I used my own cyclical methods that are based on years of study of event sequences that occur in parallel. So far as I know, nobody in the world uses these methods and I don't tell anybody how I do this.

Higgie, I am watching with fascinated interest. Silver at $ 20 by October 5 or there abouts cannot be predicted by charts, or any other method that I know about. So you seem to have something unique. And yes, I use a lot more measures than RSI, MACD, etc. I am a great beliver in Elliot. And I also use the secular bull and bear trends developed by Crestmont for my long term investing strategy. I make most of my money in the longer term. I have a long term interest in gold, since 1974 in fact, but mostly I am not invested in gold or miners, only when I see a long term trend develop, the 1970's and the last roughly 7 years, otherwise not.
In a secular bull market e.g. from 1981 through to 1999 all one needs to do is pick some quality stocks and your investment will increase many fold. It doesn't need much investment work. In a secular bear as we have experienced since 2000 you either stay in cash or get smarter and work harder on your investments, such as gold, or share pick the winners, etc Crestmont describes secular bulls as 'sail boat' investing, and bears as 'row boat' investing. Its exactly that.

[RDRUNR]

There is one more spanner I'd like to throw into the deflation/inflation and bull/bear market theory... that of retiring boomers. It "started" 2 years ago and has a run of 10-(15?) years. This is a time when consumption will drop, jobs will disapear and debt will have to be repaid or defaulted on. Plus, what are these new retiree's going to live on when debt is at an all-time high?

[Higgenbotham]

Higgie, I am watching with fascinated interest. Silver at $ 20 by October 5 or there abouts cannot be predicted by charts, or any other method that I know about.

On a trading board, an e-waver who predicted yesterday that silver will break below $20 next week:

"Silver
Thursday 10:07 AM
Looks to be in a bearish triangle also. Based on the size of the triangle, we should see silver at $20.00 or less by this time next week."

I know a multi-millionaire former floor trader who went long multiple gold contracts and took delivery very near the lows the year gold bottomed (1999). He messaged me yesterday saying he thinks the bull market in gold is over. He has sold some but was asking me where I thought he should sell the rest of his gold.

"9/29/2011 8:31:53 A.M.
Hey XXX,
I feel highly confident that the mini bubble in gold is over. (12 years is a pretty long run)"

I'm not saying the fact that other people see similar makes me more likely to be right. Just showing that using the same basis (charting) these conclusions are being drawn by people who have experience.

[jdcpapa]

Stock market valuations = The wealth effect = Consumption = Supply and Demand = Inflation or deflation

At a private individual level the wealth effect influences consumption and therefore inflation / deflation. But the money comes from investments to puchases i.e. into the real economy. And the other way round it would reduce consumption and be deflationery. But the back bone of stock markets are institutional investors such as pension funds, and the consumption effect is very long term

Agreed with a caveat to the psychological effect of perceived wealth.