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Tuesday, November 30, 2004

Confirmation

Today 30 year bond prices went below the neckline confirming the head and shoulders topping pattern of the bonds. Look for continueing rising mortgage rates and forclosures on people with variable rate mortgages on their houses.
http://futures.tradingcharts.com/chart/TR/C4
Rising interest rates? Expect rising gold and silver prices. You probably will not hear about bond prices from me for quite a while. They should just head down.

Monday, November 29, 2004

The Right Shoulder

of the larger head and shoulders pattern of the 30 year US bonds was completed today with a large down move of about 1.06 which brought the price down to the neckline of the head and shoulders. That was fast! :
http://futures.tradingcharts.com/chart/TR/C4
The confirmation of the head and shoulders pattern is when the price of the bonds go below the neckline.

It's estimated that a third of American house "owners" have variable rate mortgages. A point or two increase in their interest rates can make most of them loose their houses since some huge percentage of Americans are in debt to virtually their limits. Most variable rate mortgages were taken out in the last couple of years with interest rates at 40-45 year lows. Not such a smart thing to do when you know you are going to have debt for many years and do not lock in low interest rates for the long run. Funny, but the US federal government is doing the same thing. They haven't issued any new 30 year bonds for a fair number of years now. It's insanity when you think about it. Anyways, it's normal for interest rates to be rising with rising gold and silver prices. That makes sense since the dollar is being trashed by too many being created out of thin air. People loaning dollars will be getting back dollars that have less value than when they loaned them. So they want higher interest rates to be compensated for the decreasing value of the dollars that they are going to be paid back with. Since the USD is losing value, more of them will be demanded to buy gold, silver and a huge number of other things. Or, in other words, since the supply of dollars is increasing, therefore devaluing the dollars, more of them will be demanded for the usual stuff we buy. Of course this wouldn't be possible if we did not have the Federal Reserve central bank. After all, primarily its job is to create "money" out of thin air with the same affect counterfeiting has on the value of the dollar. No wonder it's unconstitutional.

Sunday, November 28, 2004

The USD Trend Line

The USD's downward sloping trend line is steep, substantially below 45 degrees down from the horizontal. Some charts on a computer screen have sides that are a lot longer than their tops and bottoms. The scale of these charts would accentuate the steepness of a down trend line. So lets look at a squarish chart of the USD. Here's a 9 year chart:
http://futures.tradingcharts.com/chart/US/M
Still a pretty steep down trend. True, the dollar moved roughly sideways for 10 months this year before going lower. That would make the trend line not as steep. So the trend line needs to be adjusted upwards a bit to allow for the pause the dollar took. Still it looks steep. To draw a downward trend line, connect the highest high you can with the lowest high you can without any prices intersecting that line between those 2 points.

The dollar topped out in the middle of 2001. It almost made it back that high at the end of the 2001. So lets call about the end of 2001 the beginning of the USD's downtrend. For the next 2 years the dollar went from 121 to 85. That's a 30% drop in just 2 years for the world's main reserve "money" for central banks around the world. By the way, this is a drop relative to a group of or basket of other country's "monies". Seems like a lot for the world's *reserve* "money".

Well, it's been making a number of shoulders on the way down. The last pair of shoulders it made recently produced a neckline that calls technically for a lower target of about 50 for the USD, which would be a 59% drop from the top. This some how doesn't seem to cool for the world's reserve "money" to put it mildly. So I expect some big time rockn-n-rolln in the near future at least in the US. This should have an affect on many parts of the rest of the world, too.

How much further out in time till the dollar hits 50? Don't know. But one thing that can be done to get an estimate is to print out the chart and tape it to extra paper to be able to extend the horizontal lines to the right, and add more of them downward, and extend the vertical lines downward, and add more of them to the right. Then extend that trend line downward.

The extended trend line, if it doesn't get broken, says a little bit after the start of 2008, or a little over 3 years from now, or about 6 and 1/2 years for the dollar to go from 121 to 50, down 59%. The seat of my pants says it could happen a little sooner. Say roughly 60% in 6 years. Will the dollar still be the reserve "money" of the world by then?

Gold and silver move inversly to the dollar. And once this once in a generation bull market really heats up, sometimes a lot inversly. Since on Friday, the USD, for the first time, went below the 1995 low, making a new all time low, this bull market could be heating up real soon.

Friday, November 26, 2004

The Dow and the Dollar

Last Thursday the Dow topped out, at least temporarily. On Friday it went back down below the previous low with gusto. That was a 2-b end of upward trend signal. It had 4 days to do it but did it on the first day. Makes sense after about a 10% move up in about a month. Plus, it's just plain 'ol outrageously expensive. Prices have moved up since then, but not above the last high. That's normal.

Thursday the USD went down for a fifth day in a row. Today, Friday, it went down more and then bounced up almost a dollar. Makes sense since it was down almost to the 1995 low which is a major support level. So, those two points say that it could be a little while till the USD breaks down through the last support level and heads down into unknown territory.

So, US stocks could be topping out now for a long long time. Same goes for US bonds. Same goes for US real estate from what I can see. These three apparent topping items appear related to the USD trying to break down into new low territory. Makes sense to me. Weird though that it takes something big time significant like the USD at just about a new historic low point to top out these substantial big rallies in long term bear markets. What were these rallies waiting for? I guess something they couldn't argue with. It also seems to me that almost no Americans have a clue as to what's happening and what they are facing. It's the most amazing thing to watch.

Wednesday, November 24, 2004

Chinese Gold

The World Is Awash In Dollars

The US government has acted in an incredibly irresponsible manner, is wildly out of control, as the issuer of the world's reserve currency over the past number of decades. With wild abandon it has been creating USD virtually out of thin air so that the US, as a whole, can buy real goods and services from the rest of the world virtually for free. Finally the world is saying "enough". Watch out when the dollar goes below about 80, the last support level, the last low, from 1995. The USD index has never been that low before.

http://www.economist.com/

"The dollar’s demise"

(some tidbits from an artical in the statist rag The Economist. Finally, about 4 years after the dollar topped out in the middle of 2001, they are finally getting it.)

"Mr Greenspan’s words were significant because he was tacitly admitting what right-thinking economists the world over have long believed: that the emperor has no clothes."

"The dollar’s status as the world’s reserve currency—its preferred store of value, if you will—is gradually coming to an end."

"It is hard to imagine its hegemony remaining unchallenged when so many will have lost so much. And doubly so given that America has abused the dollar’s reserve-currency role so egregiously that its finances now look more like those of a banana republic than an economic superpower."

Thursday, November 18, 2004

Bonds and Major Foreign Holders

Bonds made a small head and shoulders topping pattern, about 2 weeks long,
in the last half of October.
http://futures.tradingcharts.com/chart/TR/C4

What could also be forming is a bigger head and shoulders topping pattern.
A larger left shoulder may have already formed during the end of
September. And the right shoulder may have formed this past week.
The neckline is there too. We just need prices to go below the neckline at
about 110.3 to confirm the pattern.

If bond prices go down, interest rates go up. Historically rising interest rates
go with rising gold and silver prices. And, it is about time that bonds start
heading down. They are soooooooooo expensive.

Conducive to declining bond prices could be the Major Foreign Holders of
Treasury Securities report. Some big countries may have stopped increasing
their purchases of Treasuries. Japan is a good example starting with
September on the left, then going back in time:
720.4, 721.9, 695.8, 689.3, 668.0, 652.4, 646.3, 614.5, 583.8
So these numbers could be part of the reasons that bonds look to be
topping out here.

Tuesday, November 09, 2004

Bonds and Spreads

The difference between the gold December futures contract and the gold June futures contract (a spread) has been climbing and is now up to 6.1. Bill Murphy at the Cafe, going over old data, says this is a similar situation to the gold take off back in '79. Contracts further out in time are being bid up more than normal probably because of inflation (rising prices type rather than the rising money supply type) fears.

This makes sense since another indication of this are the US government 30 bonds. They could very well have already topped out here and are busy forming a head and shoulders topping pattern. A shoulder, a head and a neckline have formed. A right hand shoulder is still needed. Then what is needed is for prices to go down below the neckline to confirm the head and shoulders topping pattern.
http://futures.tradingcharts.com/chart/TR/C4

Gold may start a serious run up after bonds have confirmed the head and shoulder pattern. We'll see how all this plays out. It's just something to be watching for. Speculation on my part. The other reason I don't expect an immediate explosion in gold is that it is at the top of its short term (about 2 months long) channel.

This could be why the HUI hasn't broken out into new high territory yet. It sure is trying, though. So, I'm looking for a big move up in the HUI, gold, silver about the same time as a big move down in the USD and bonds happens.

Saturday, November 06, 2004

'castpoint


Early, early Wednesday morning the FX market decided that
Bush had won the election and that this was particularly bad
news for the world, let alone the US and most Americans. It
drove the USD down a dollar in the next 12 hours. Several days
later I would guess that almost no Americans know this.

Friday was a bearish outside day for the USD.
Friday was a bullish outside day for gold.
Friday, silver missed a bullish outside day by a tad.

The USD Index's 85 level of support only supported the USD for
seven days.http://futures.tradingcharts.com/chart/US/C4
That's not much considering it was major support established
by the February bottom.

Next major support is the 80+ level. After that support is at
78. After 78? There isn't any. The Index has never been that
low before. The last measured move indicates the USD going
down to around 50+. The USD is saying that the US is going
into a major economic decline and therefore a major political
and military decline. Unfortunately it appears to me that most
Americans haven't a clue as to what they are facing, in the
near term as well as the long term.

What is needed now is a 'castpoint to try to determine when
the USD, as we currently know it, ceases to exist. There should
be big bucks to be made off of a 'castpoint with this objective.
If you don't know what a 'castpoint is, read Mark Stiegler's
Earthweb. What a neat use for a Ricardian contract.
http://www.systemics.com/docs/ricardo/