Friday, June 08, 2012


We are getting some of that basing action I was talking about here in Gold. This is going to sound overly dramatic, but it is my view that the battle to stop this from falling off a cliff is on right here at a theatre near us. As most readers know I think this whole move is probably the biggest scam ever perpetuated on the general public, and the mustard is very close to coming off the hot dog on it. There are governments and big money involved in manipulating this price up for this long. They cannot afford to let this thing go south. If were to roll over here people who have been burned, and there will be millions of them, are going to cry foul. Ironically they should have no legitimate complaint. Contrary to what people seem to think at times, there are no guarantees in investing. Some times things rise, some times they fall. We do see the government trying to pick winners and losers, and this is how these bubbles keep getting formed. They always want to have something rising to give people a place to go to have opportunity when other things decline in price.

One of the things that always cracks me up is the flawed logic people get suckered into over and over and over again. It is the same play call every time, just the players and teams are different. It starts with what often is a legitimate move in price caused by fundamentals. Once that starts we get a momentum phase where a few people start catching on, and once the investment groups see that the marketing campaign starts. At the beginning only the pros are in, they have to get the public in to really push price. This is where bogumentals are formed. These are bogus fundamental reasons why price has to rise forever. These are slowly disseminated. Of course the most common phrase that starts to travel around in sync with the bogumentals is the "it is different this time" comment. Usually there begins to be some push back against the marketing onslaught by people who have seen these things happen over and over, and know the ending. These party poopers are always early, but never wrong. In this case of course the bogumentals are that Gold has always risen during times of crisis and it is a great store of value. In real estate it was "they are not making any more land." In stocks during the internet craze it was "the internet has changed the world, company earnings don't matter."

The party poopers are pile driven right into the ground, and typically at this phase will give up and just remain silent. Once the marketing campaign gets into full swing and Joe Q Public has bought in, that is when we see the price skyrocket upwards. During this phases all sorts of newmentals get created. These are newly created ratios that have never been looked at in the history of civilization, but they have been curve fit to support an indefinite rise in prices. My favorite one of these is the percentage of people that own gold now vs prior times as a percentage of the public. Are you frickin kidding me? That is beyond funny to me, and I am shocked that anyone would be so stupid as to listen to this kind of nonsense. If I had any I would not want anyone to know. In the world envisioned by the promoters gold will be the only thing anyone wants in barter during a Mad Max era that is approaching. Of course in that instance people are just going to kill those who have it and take it from them to survive. These pinheads never think far enough through this crap they spit out. Unfortunately we all make it way too easy for them because we buy anything they say. If a loaf of bread is $2000 trust me having some gold is not going to help you much.

Just look at how often the President of the US lies to all of us. Why in the world would you think less important people aren't lying to you go benefit themselves? This might sound overly cynical, but just turn on the TV if you think the people controlling what is happening are all honest folks. I will never forget in my younger years I was working for a company when a rumor surfaced late one day that we had been sold. There was a long voice mail from the President and Owner refuting the story and telling everyone that everything was fine. The next day the formal announcement was made of the sale, not 24 hours later. He lied to us to make money, business as usual. 

During these manias, once you get enough people bought into the scheme, prices really extend. It is at this stage unfortunately, that some greed starts to creep in, and this is what ultimately leads to the whole scheme unraveling. They start finding other ways to invest even more money in the scheme. People see friends making a killing and want in on the action. Now we get advertising that is inescapable. We get over leveraged pushing price farther and farther. Everywhere we look it is the talk of the town. Sound familiar? At this point the smart insiders know the game is over, but they do everything they can to hold price up for as long as they possibly can. Generally this results in prices initially falling slowly, remember stocks, they did not just crash in 2000, go look at the charts, it took awhile before it happened. The same was true for real estate. I remember this very well because I sold all my real estate in September of 2005 and was surprised prices did not really roll over for about a year. However, what did begin almost right after I sold, was an under the hood deterioration in real fundamentals that matter. There are always those that see this early, but many do not want this getting out so they keep quiet. Those who do voice it are pummeled. I was clobbered I don't know how many times telling people to sell in 2005.

Ultimately things are done to try and manipulate the price to keep it from falling once we reach the crescendo phase. In this case governments buying Gold is one thing that comes to mind. If they can keep the supply tight, they think they can keep the price up. I think we are in this phase now where the initial fall has happened, and we are in the manipulate to stop the fall phase right here. We are on the verge of the falloff they can't stop if it begins. If other bubbles are any indication of what is likely to happen here, they will be able to hold the price here for awhile. However, if we also follow what happened after that, the price inevitably went where it was going to go all along, back down to where fundamentals dictate it should go. In this case that would be under $500.

That is just a winging it unedited review of where I think we are in the bigger picture here. If this is correct we should hold here for a little bit. If for some reason they can't hold it here, look out below. When the liquidation phase does hit this it is going to be incredible to watch. Scared money does not leave a pretty trail when it leaves.

Trust but verify folks. Look at the historical charts they don't support the marketing campaigns claims.

Have a great weekend


Michael Tredr said...

it was hard for me at first to articulate how I felt when I heard about the private sector being "just fine"..but then i remembered that old star trek episode when kirk and co. go into that alternate universe and see crazy versions of themselves.

i wish i could say more, but i think you've covered it all here.

you think the markets have gone into rest mode for now or is this the beginning of the REAL move? lol, good lord - i can't even believe I'm seriously considering that possibility.

Vikas said...

Chris, do you think the 30 year bonds will try to reclaim their highs here once more to the 151-152 level? I'm thinking about going long ZB here at the 148 level, and would like your take on it please. Thanks.

Chris Johnston said...


It is so tough to trade the indexes now since you are basically competing against the Federal Reserve if you take shorts. My tools tell me to sell bounces here so that is where I am looking. There are all sorts of things to look at when trying to get a bigger picture feel, and most of them point down. However, because of what the Fed has done valuations of stocks are on the low side, so from that standpoint as a value investor, one could justify buying here. I don't trade that way.


My short term tools appear to be setting up for a sell signal in Bonds here. The Bond system indicates a buy at the open tonight there but that trade appears to be one that might be filtered, I have not looked at it closely enough yet. Net net, I am not looking for anything big on the long side here in terms of a short term trade, and am leaning to looking for shorts.

However, the trend is up, and until I see something that tells me we have at least a short term trend change, I will not short it. We are nearing the time of year when a low normally happens and we have gone straight up so we have a possible seasonal inversion coming.

When I put it all together this is what I come up with. The ES appears setup to rally in the very near term to me, the next week. This should take us up into the sell zone, where my bands were on the chart I showed a week or so ago. If that were to occur, it is likely bonds would decline while stocks rally. If I am wrong about the stock bounce, Bonds will likely rise right from here.

Follow what your rules say and not what I am doing. I am not clear on Bonds right here as you can tell.

John M said...

Man, I love posts like this one. It's like a clear, proven roadmap of the same crap that happens over and over and over, that the majority of people just never see and never figure out. You should get some kind of medal or award for stating how these things work in such an easy to follow fashion. But of course, the people who most need to listen won't, and the carnage will come just like it always does in these situations.

Excellent, excellent post, Chris. Thanks.

Anonymous said...

Hi Chris,

I was wandering if you could help me with one of your charts please.

Is the swing chart that you are featuring a LW addon or is it in general available to Genesis users ?

What do the (3,0,2) parameters mean ?

Please keep up the great work

thank you in advance

Chris Johnston said...

Alex, I am not sure if that is a standard genesis feature or not. It is not necessary, you can see swing points with your naked eye and this software ignores some of the correct ones. It is only on that chart because it was a template I happened to hit by mistake when creating it for the blog post.