This article is going to throw another idea into the pot about computer based algorithms with an idea borrowed from Microbiology titled “Quorum Sensing”. Nature has been in the business of survival and evolution for billions of years, so it should come as no surprise to most that artificial intelligence and computer based design have been borrowed from studying the human mind. Now what do microbes have to do with how computer based trading is performed. A short-course in Microbiology will be required, but it will quickly be tied into how trading software is “sensing” its environment and how the common investor can use this knowledge to derail these trading patterns.

Theory

Quorum sensing within bacterial populations involve opportunistic pathogens slowly dividing and remaining below the detection of the human immune system. When a suitable sized population has developed and chemical-based signal feedback from a suitable population has been established, a series of genes are activated which then cause rapid proliferation, thereby overwhelming the host and not allowing the immune system an appropriate amount of time to generate an immune response, whether it is innate or an antibody-mediated response. Quorum sensing is dependent upon distribution and concentration of a population which in a nutshell, a response is based upon a threshold number of components detected to induce a response.

Insect populations us quorum sensing to determine where to nest, so at any level, a “component” could be a chemical-based signal concentration from bacteria or a certain number of visible insects…there really is no limit to the imagination where this principle takes place. The important thing to understand is that the “component must be quantifiable. So, how does this principle fit into trading?

There have been numerous articles in publication as of late regarding computer based algorithms and how they can literally trade. An interesting point stated that 1 nanosecond was how quick trades could be initiated. Generally for every seller, there has to be a buyer, so if one computer wants to buy puts or calls, there in theory should be a an opposite trade hitting the market. The problem with this system is that naked shorting is often implemented and even if a nanosecond trade is implemented and then pulled, it can set of a cascade of events that can exacerbate a trend. Although this sort of trading activity can have short-term implications, a bull market trend can never be stopped…an example of this is gold because if Central Banks had their way, gold would still be at $252/ounce.

Having algorithms based upon certain technical metrics or tuning Bernanke speech comments into 1′s and 0′s with other collective information to generate a sell or buy signal can have benefits, but if the wrong trade is made, then events such as MF Global can happen. Quorum sensing requires examination of components within a given system or systems under study to determine if a certain threshold has been reached, based upon concentration and distribution. As an example, 5×10⁶/unit area represents a trigger for a quorum sensing response, but if it is spread out over a larger area (distribution), the concentration is not at a threshold level to generate a response. Area could also apply to demographics, or more importantly, volume.

The notion that volume precedes price is an stock market adage as old as the hills, yet this has direct application in today’s market. Volume sounds simple but it has many derivative measurements that can quickly make one’s head spin: shares/minute, ratios of share changes in a given sector, integral of share volume, $/number of shares/minute etc. Etc. What could take an individual a solid day to compare metrics can be completed by a computer in a very short period of time, with an answer spit out as “buy”, “sell”, “short” etc.

Each individual component of a computer algorithm may be simple, but layering many different components into the mix with integrals (summation) and derivatives (rate of change) quickly becomes infinitely complex but in the end, the generated result is simple, either DO or DO NOT for executing a trade. With computer based trading, trying to trade the short-term will work against anyone, because one second can be broken down into 1×10⁹ seconds (nanosecond), which as Cris Sheridan pointed out is equivalent to 31.7 years. To succeed, investors must think of time with respect to geological time scales such as Eon and Supereon if trading can be performed at 1 nanosecond.

Computer based trading causes events that may have taken longer to unfold happen in a much more condensed format. Establishing positions in rising trends with some technical analysis can alleviate attempts to get thwarted out of positions, but investing in gold and silver stocks as well as bullion itself have seen most participants witness the inherent volatility. Never use leverage in these markets, because a downward move can literally wipe you out…play with the chips you have in your hand and that is it.

For every offence, there is a defence, so what methods are available to counter quorum sensing in financial markets? Translating FED or Presidential speeches into probability codes for market reaction is easy…different agencies or news feeds could have double speak, which would essentially be “Quorum Quenching”…a disruptor causing a breakdown of the internal communication between components to “sense” that an appropriate density/concentration has been established. Many new Biotech drugs are being developed to disrupt quorum sensing of pathogenic bacteria, such as MSRA.

Since, many different companies are likely to employ some version of quorum sensing, it should not be viewed as illegal to combat it. Quorum sensing based upon volume analysis is rather hard to come up with a method of disrupting algorithms, but if they are tied into market events or news, then having news statements written such that an either/or situation arises would likely cause computers to not generate an execution order (buy, sell, go short etc.). It is nearly impossible to combat software that has quorum sensing, so the only way as an average investor it to follow the advice of a quarterback… “Go Long”.

Tying this into the Contracting Fibonacci Spiral Cycle I came up with last July, entering at stock market bottoms and at stock market tops will be important, because the swings of the market will be huge based upon the nature of positioning we are within the cycle, coupled to computers sensing when a mid-term top is put in place. Computers are based upon human emotion, so the best way to fight fire is with fire. Know the important points for entry and exit and get out before computer software executes large trades that reverse the general trend. Software that has neural network capacity with quorum sensing will require having superior source code as the CFS oscillations really begin to tighten up…otherwise a company has the ability to go bankrupt in milliseconds going forward.

We have precise dates for when the broad stock market tops out, along with precious metals based upon the CFS, so these points in the future should be respected. There will be significant volatility going forward, yet there will be order within the chaos.

Application

The first portion of the article was rather heavy into the theory of Quorum Sensing, but was required to give a really good feel for how it works and how it is difficult to avoid unless future time points for market turns are known. This is probably the easiest way to perform Quorum Quenching…anticipate what computers will do and then align trades for riding the trend. The following three charts with complete analysis are based upon Elliott Wave analysis, but have time assignments with heavy influence from the CFS, full stochastics and Bollinger bands on daily, weekly and monthly charts.

The short-term Elliott Wave count of the US Dollar Index is shown below, with the thought pattern forming denoted in green. Although a top is indicated for early April, action of the past few weeks suggest it may extend into mid to late April. The move up since September represents a contracting triangle. This lower Degree wave is part of a larger triangle pattern that appears to be upside exhaustion pattern. For this pattern to have credence, the decline must retrace the move to the breakout point of 73.58 in an equivalent or lesser amount of time that it took to form…if so, then this pattern has been accurately depicted. This would put the latest point in time to break beneath 73.58 at 8 months out, or November….I expect this level to be tested no later than August. A 2-4 month battle between 72-73.5 will ensue, followed by a very sharp decline to the 64-66 area….this level should be reached no later than summer 2013.

Figure 1

The mid-term Elliott Wave count of the US Dollar is shown below, with the thought pattern forming beneath in green. The US Dollar took 4 months to bottom longer than anticipated last summer, so mentally shift the pattern over 4 months and it fits rather well. At present, wave [E] of a triangle forming since 2008 appears to be nearing completion, with a high degree of correlation in price action for waves [A], [B], [C] and [D] (a uniform triangle??)…wave [A] was the most violent move of all, which fits with a triangular classification. At present, the % retracement of wave [C] was 50%…I was looking for a move to 61.8% but this given weakness is extremely bearish for the US Dollar over the course of next 10-18 months. Two key important support levels are 73.5 and 72.0…the US Dollar should have a 2-4 month battle in this range beyond August before breaking down and trying to establish a bottom. Natural Fib supports lie at 64-66, based upon downside projections for breaking beneath a long-term triangle. When the US Dollar does bottom in early to mid 2013, it will start to rise as deflation kicks in, which in turn will promote a liquidation of all tangible assets as loans etc. are called in. A rise in the US Dollar to the 72 level should occur, which suggests that the price of gold with the US Dollar at 72.0 is where before breaking down is approximately where it can be expected to correct to. We are looking for approximately $3000/ounce gold in early to mid 2013, with a minimum correction to at least $2200-2400/ounce. We are in a very choppy environment that will only get choppier going forward…

Figure 2

The long-term Elliott Wave analysis of the XOI is shown below, with the thought pattern forming denoted in green…not a perfect fit, but it is following the overall trend. Expect to see a decline to at least the 1138-1191 area before heading higher…please note that 1191 is the minimum expected value to be seen before the present correction is over. I have a top indicated in October, but it more than likely will extend into late November/early December. Do not forget that high oil prices will eventually stop the economy…the broad stock market will sense this 6 months out, so commodity prices could keep barrelling higher without stock market participation until June 2013. Please note that the HUI could be the exception to the rule, given 18 months of sideways price action…a move to the upside in gold stocks is not expected to occur until mid to late April due to strength in the US Dollar.

Figure 3

To summarize, “If you can’t beat’em, join’em”…it is impossible to trade against a computer that can literally complete a trade cascade before one can even click the mouse to execute a personal trade. To counteract this, make sure that the current market environment is thoroughly understood and know when the time posts for when market tops and bottoms are due to arrive on the journey through time. Easier said than done, but this is the only way the average investor can stand a chance…positioned trading within defined market trends.

So far, the CFS has aided immensely at being on the right side of the market since last July…granted the depth of declines can be hard to predict, but nonetheless, the market has been following the preset course we are on. CFS is based upon the collective human psychology and how the markets respond along with social mood at a particular point in time is related to this. I am certain once the CFS has completed, it will eventually be accepted and add a new dimension into Socioeconomics, but for now, is likely to be viewed in disbelief. For anyone who is interested in learning more about the CFS, simply Google my name alongside Contracting Fibonacci Spiral and 6 different articles should pop up. If one goes to http://www.safehaven.com/author/21/david-petch the top 7 articles, starting with 7^th down are all the published series on the Internet.

I am sure there are novel ways of Quorum Quenching that could disrupt large company software…by trade I am a scientist in Biotech, so computer programing is a very long stretch from my formal training…perhaps others with training in this area may post articles on how quorum quenching strategies. Some of the best applications in some fields however often have “borrowed” concepts from others.

Have a great day.

David Petch

March 25^th, 2012

With the 2012 elections looming, politics are increasingly dominating newsflow. And it is only going to get worse, news will be all politics all the time by summer. Speculators and investors will be watching with great interest, as these elections’ outcome will impact the markets for years. But provocatively, the fortunes of the stock markets will heavily influence voters’ psychology and therefore the results.

Sentiment, or how people feel about the state of things, is incredibly powerful. We all experience it every day of our own lives. When things are going well, we tend to see everything through rose-tinted glasses. Right after you get a nice raise, a flat tire isn’t too distressing. But when we are faring poorly, everything feels more ominous and wearying. That same flat tire when you are battling adversity could be crushing.

While it is private triumphs and struggles in our own little lives that generate most of our personal sentiment, broad macro factors also play a sizable role. There are events that shape collective psychology, sentiment on a national level. Remember how terrible we all felt after the 9/11 terrorist attacks? Even news that doesn’t directly touch our lives can really alter our psychological states.

But it is not just one-off events that can deeply impact our collective psyche. There are also factors that heavily influence how we all feel on an ongoing basis. And chief among them is the state of the US stock markets. When the markets are strong, we all feel better about everything. The sky is bluer and the grass is greener. And when the markets are weak, a nagging aggregate sense of pessimism emerges.

This is perfectly logical for speculators and investors, as the fortunes of the stock markets greatly affect our wealth. You will feel a heck of a lot different if your portfolio is down 20% rather than up 20%. The former will lead to general pessimism that pervades all aspects of your life, while the latter will spark similarly-far-reaching optimism. Everyone with capital in the markets has experienced this in spades.

But unfortunately the majority of Americans are not investors. The key prerequisite to investing is to first spend less than you earn, to live below your means long enough to build up surplus capital. Many people lack the discipline to live leaner, and thus never save enough to meaningfully invest. And many others struggle with incomes so low that saving is an impossible burden that would leave them hungry.

Yet provocatively, even this majority without a stake in the financial markets is heavily influenced by their fortunes. Sometimes I marvel at this. Why should people without any investments even care if the markets are up or down? But after a quarter century of trading and studying the markets, it is ever-more apparent to me that they do. Even if they don’t realize it, the stock markets greatly color their sentiment.

The clearest example of this is the most-extreme market event of our lifetimes, 2008′s once-in-a-century stock panic. In a single month, the flagship S&P 500 stock index (SPX) plummeted an epic 30.0%! Think about that a second. In a matter of weeks, nearly a third of the entire wealth invested in the US stock markets simply vaporized! And that was a major fraction of our nation’s wealth as a whole, a disaster.

While the investors and speculators with capital deployed understandably felt devastated, so did everyone else. The plummeting stock markets led to a crippling widespread belief that a full-blown depression was approaching. Fear, anxiety, and pessimism soared everywhere, even in people who didn’t lose a dollar in the panic. Our collective psychology was absolutely rotten, mired in deep worry.

This shock to our psyche almost certainly radically altered the outcome of the 2008 elections. We went to the voting booths just one week after October 2008′s initial stock-panic lows, when fear remained viscerally overpowering. Even though the SPX had bounced 18.5% higher in this short span leading into Election Day, it was still 17.1% lower than 5 weeks earlier. Scared, worried, anxious voters always tend to kick out the incumbents!

Barack Obama had run on the amorphous concept of “change”, and inspired many Americans with his hopeful rhetoric. Yet he was an underdog on many fronts, young and inexperienced. But the sheer psychological shock of the stock panic allowed him to eke out a narrow victory over John McCain, winning 52.9% of the popular vote. Countless independents gave Obama a shot because they were scared about the stock markets and economy.

Interestingly, the fragile markets weren’t too excited about Obama’s victory given his campaign promises of massive tax hikes on investors and crushing regulations on the companies we own. The SPX plunged 5.3% the day after Obama’s win, ultimately free-falling another 25.2% lower over the next couple weeks or so. But it was extreme economic anxiety, mostly fueled by the stock panic, that slaughtered the incumbents.

And as the stock markets inevitably recovered out of that extreme fear maelstrom, Obama’s job-approval rating in the polls was closely correlated with the SPX. Elite polling firms like Gallup run fascinating daily polls. It is remarkable just how closely Obama’s fortunes match the stock markets’ own! During major stock uplegs Obama’s job-approval rating rises, and during major corrections it falls. Check out Gallup’s 3-day rolling-average Obama job-approval and job-disapproval ratings superimposed over the SPX.

When the stock markets are strong near highs after major uplegs, Obama’s job-approval rating is high and his job-disapproval rating is low. This was most pronounced last spring, after a major SPX upleg topped. But when the stock markets are weak near lows after major corrections, this flips. Far more Americans disapprove of how he is handling things compared to those who approve, like last autumn.

Why is this? Why is our entire nation’s collective sentiment so heavily influenced by the state of the stock markets when the majority of Americans aren’t investors? I’ve pondered this a great deal over the years, and have some ideas. I suspect the biggest factor is the media, with economists shouldering much of its responsibility. Personal relationships also likely play a major role in the stock markets’ influence.

Most of the people who work in the mainstream and financial media are not poor, they have indirect stock-market investments through their retirement plans. So like all investors, they feel better when the stock markets are thriving and worse when they are languishing. This market-driven psychology creates an unavoidable selection bias in the stories they choose to cover and how they report on them.

Compounding this is economists, who are naturally the primary source of interviews and commentary on news stories about the economy. Economists are notorious for their weathervane-like reactions to stock-market swings. They are wildly optimistic after the stock markets have enjoyed a big rally, and dismally morose after a major selloff. So their own sentiment heavily colors the stories they are interviewed for.

Much economic data isn’t inherently bullish or bearish. Economists must choose how to interpret individual data points. An unemployment rate of 8% is perceived differently by these dismal scientists depending on what the stock markets have been doing. After a big rise, it will probably be seen as bullish and heading lower. But after a big fall, this same number will likely be interpreted as bearish and trending higher.

If you want to dig deeper into news psychology and economists’ sentiment, I’ve written past essays exploring both. But the end result is the news stories average Americans read or watch, in every medium, tend to be more optimistic when the markets are up and more pessimistic when the markets are down. While you certainly have experienced plenty of this, you can easily verify this phenomenon empirically.

Use the Web or a local library to look up past copies of major newspapers and news magazines from particular dates. The first is late April 2011, when the SPX was enjoying new bull-market highs after a major upleg. The great majority of the stories then were positive and optimistic. The second is late September 2011, when the SPX was plunging to scary correction lows. Most stories then were negative and pessimistic.

We are all heavily influenced by the media we consume, and the people who produce and contribute to those stories are heavily influenced by the state of the stock markets. Personal relationships also come into play. Even people who aren’t investors know and usually work for people who are. So when they hear their friends or bosses frightened or excited about the markets, it often leads them to think similarly.

Small business has always been the engine of economic growth in America. And the entrepreneurs who start businesses and work hard enough usually achieve success. By the time they can hire other people to work for them, they have often generated plenty of surplus capital. They generally invest a major fraction of it in the stock markets. So as business owners talk with their employees, their sentimental state really rubs off.

And businessmen are greatly influenced by the state of the stock markets in a major indirect way as well. When stocks are up, everyone tends to spend more. And vice versa. Economists have long coined this “The Wealth Effect”. When you aren’t anxious or worried about your job, you are much more likely to buy things. But when you are scared, you tend to pull in the horns and save just in case your income falls.

This phenomenon seriously impacts the lifeblood of small business, revenues. Nothing is more important to small businessmen than sales! And when the stock markets are up so everyone feels better about everything, sales tend to boom. But when the stock markets are weak and people get scared, sales slump. So small-business sales, and hence owners’ psychology, is deeply affected by the stock markets.

You can test this out yourself too. Most of us frequent some small businesses for goods or services, and it is easy to gradually get to know the owners or managers. Every few times you go in to buy something, ask them how sales are doing. Are they seeing the economy improving? After you establish baseline responses, ask the same questions when the stock markets are high or low. Almost without fail, they’ll tell you business is slow after a major stock-market selloff.

And business owners are much more likely to shelve expansion plans when the stock markets have recently slid. So their employees not only realize the owners are worried, but they see long-time plans put on hold which makes them fear for their own jobs. The fortunes of the stock markets affect business in multiple major ways, and even the non-investor employees can’t help but to assimilate the resulting market-driven sentiment.

So regardless of the exact mechanisms, even the majority of Americans who aren’t directly invested in the stock markets have their sentiment heavily colored by the SPX’s fortunes. When the markets are thriving they feel more secure in their jobs and expect to see raises over time. When the markets are bleeding, they get worried and anxious and extrapolate forward a bleaker future with less income.

One of the most famous political phrases in modern history was created by Bill Clinton’s infamous campaign strategist James Carville. “It’s the economy, stupid.” This phrase was hammered relentlessly to help unseat George Bush the elder. We Americans really do vote our pocketbooks. If we feel our lot in life is improving under an Administration, we aren’t likely to vote against it. But if times are tough, we don’t hesitate to boot out the incumbents. New management brings new hope.

And the stock markets truly are the dominant driver of all economic psychology. While it is certainly true that unique situations in individuals’ lives are stronger influences, on the national collective level nothing rivals the stock markets’ broad impact. So just like the 2008 elections and the ones before that, the 2012 outcome will be majorly influenced by what the stock markets are doing in the months leading up to November 6th.

If we see a strong SPX rally in September and October, and the stock markets are near highs in early November, Barack Obama’s odds of winning a second term will be much higher. But they are much lower if we see an autumn stock-market selloff batter the SPX near lows heading into the actual voting. As polarly divided as our country is politically these days, the prevailing fortunes of the stock markets will very likely decide the upcoming elections! All it takes is a few-percent swing among independent voters.

So what is likely to happen? A couple weeks ago I wrote an essay on the state of the SPX’s current cyclical bull market and the latest upleg within it. For a variety of technical reasons on several time scales, today’s rally is likely to persist until late spring at least. Summer is even a possibility, depending on how high the SPX gets relative to its secular-bear resistance of 1500 before that. Soon after 1500, we are due for either a major correction or possibly a new cyclical bear market.

If this upleg crests too early, so the correction is over by late summer and the SPX can rally into autumn, the Democrats have a better chance of winning. But if this upleg crests later, or the SPX lingers near highs during the summer before correcting like it did last year, the subsequent selloff (correction or new bear) should hit in autumn. And that would give the Republicans a much better chance of winning.

In pure market terms, politics aside, this second scenario looks more likely based on my research. The flagship S&P 500 only has to rally another 10% or so from here to hit its decade-old secular-bear resistance of 1500. And that would make for an easy and gradual ascent into late spring, no sharp surges sparking upleg-killing excessive greed, before the stock markets’ usual May seasonal peak.

By mid-May this latest SPX upleg would be about 7.5 months old, and would have powered 37% higher in total if 1500 is indeed achieved. And the stock markets naturally tend to grind sideways in the summer anyway, when anxiety gradually builds for big selloffs that are most likely in autumn. Interestingly this year, politics and the stock markets will interact to gradually ramp anxiety heading into the next major selloff.

As we’ve clearly seen in the past several months, the higher the SPX travels the better Obama’s polling numbers get. Due to the markets’ dominant influence on national psychology, this will continue as long as the stock markets keep grinding higher on balance. So by the time today’s upleg peaks in late spring or summer, the Republicans will look like they don’t have a prayer of winning. Their discouragement will be rampant.

But the investors and businessmen dominating the stock markets are generally not Obama fans at all. We don’t want his additional crushing punitive taxes on hard-working successful people who already shoulder the vast majority of this entire country’s tax burden. And we don’t want more inane regulations that strangle our businesses and force us to spend more and more time filling out paperwork for useless meddling bureaucracies.

So as higher stock markets lead to more general optimism, oddly the core investor crowd is going to get more pessimistic and worried as Obama’s star rises in the polls. This will lead to discouragement and despair that will coalesce into selling and accelerate the correction or new bear market. And the resulting falling SPX will gradually taint America’s psychology as a whole heading into the elections. The timing of any major SPX lows relative to Election Day will be exceedingly interesting to watch!

Almost all short-term stock-market price action is driven by traders’ collective sentiment. So at Zeal we try to carefully consider everything that influences it, including politics. Then we do the opposite of what consensus thinks best, buying low when others are scared and selling high when others are greedy. Our prudent contrarian trading approach has proven wildly successful. Since 2001, all 598 stock trades recommended in our subscription newsletters have averaged stellar annualized realized gains of +48%!

You too can share in the profitable fruits of our labors. We publish acclaimed weekly and monthly subscription newsletters loved by speculators and investors worldwide. In them I draw on our vast experience, knowledge, wisdom, and ongoing research to explain what the markets are doing, why, where they are likely heading, and how to trade them with specific stock trades as opportunities arise. Subscribe today and start thriving! We also publish popular fundamental stock reports.

The bottom line is stock-market fortunes heavily influence politics and election outcomes. We all feel better after the markets have rallied to highs, and worse after they have sold off to lows. This influences our perceptions of the state of the economy and our own prospects, and we all vote with our pocketbooks. So rallying stock markets are good for incumbents, while falling ones often see them booted out.

Heading into the 2012 elections, this latest upleg and maybe even the entire post-panic cyclical bull are likely to top this spring or summer. This means a selloff is likely in the cards for late summer or autumn, and it could be either a major correction or the birth of a new cyclical bear. The weaker the stock markets look heading into October, the higher the odds we will elect a new President on November 6th.

Adam Hamilton, CPA

February 24, 2012

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The US stock markets have been on fire lately, still marching higher even after the S&P 500 powered to its best January in 15 years. Doubted from its very birth, this latest stock-market upleg continues to inexorably climb the proverbial Wall of Worry. But while bears keep on arguing for its imminent demise, today’s upleg actually still has plenty of room to run higher. Despite the naysayers, it isn’t too late to buy in yet.

To understand where the winds of probability are likely blowing the stock markets next, we first have to gain crucial perspective on where they have been. And good charts are worth far more than a thousand words. When the flagship S&P 500 stock index (SPX) is considered over short-term, cyclical, and secular time frames, a strong bullish case emerges for the stock markets even from today’s recovered levels.

The SPX’s latest upleg was born stealthily from the depths of despair in early October. After Obama’s mind-boggling profligacy forced the first downgrade of the United States of America’s credit rating in our nation’s long history, the stock markets plummeted in early August. But although fear was actually more than extreme enough for that to have been the correction’s bottom, a secondary low was in the cards.

After recovering sharply by late August, an erroneous US employment report (later completely revised away) helped ignite serious recession fears. By late September they had mushroomed into a full-blown recession craze, so bears were coming out of the woodwork forecasting another imminent SPX plunge. Excitable economists corroborated this outlook, misleading countless investors into selling near lows.

But as I wrote in early October right when everyone was convinced the sky was falling, the radical oversoldness plaguing the stock markets then was actually very bullish. But the only traders able to buy near lows to ride entire uplegs are the hardcore contrarians, who have spent many years steeling themselves to fight the crowd. Only we have cultivated the necessary discipline and courage to buy low in times of extreme fear and anxiety when few others will.

And indeed the stock markets soon started rocketing higher out of those hyper-oversold lows after fear slammed into its effective ceiling. Despite the financial media and economists entering October super-bearish and forecasting a stock-market swoon and a new recession, that month ended up enjoying the biggest monthly rally the SPX had seen since December 1991! It was the best October since 1982′s!

The moral of this story is crystal-clear. Times riddled with fear and anxiety are the worst time to succumb to peer pressure to follow the herd and sell. The more uncertainty, the more scared traders as a group are, the better the buying opportunity. And while today’s fear, anxiety, and uncertainty are nothing like early October’s, there is still plenty out there. Uplegs don’t top until these worrying emotions are eradicated.

New Europe fears, centered around ballooning sovereign-debt yields, dragged the SPX back down again in mid-November. But this short-lived swoon merely served to establish a higher low that defined the beautiful uptrend rendered above. An upleg is simply a period of time where major stock indexes gradually carve higher lows and higher highs. I discussed this nascent uptrend in early December.

But despite the SPX continuing to climb on balance, lingering pessimism from the recession craze remained popular in December. The bears rightly pointed out that the SPX couldn’t break back above its critical 200-day moving average. 200dmas are the most important technical line of all, and often mark the demarcation between bull and bear. After months of challenging its 200dma, the SPX couldn’t break out.

But all that changed on 2012′s first trading day, when a relatively-modest rally drove this index decisively above its 200dma. And ever since then, the stock markets have been off to the races. Despite a mild pullback in late January, the SPX still achieved its best opening-month performance since 1997. The SPX’s 50dma even climbed back above its 200dma, the fabled Golden Cross technical indicator.

Golden Crosses are famous because they often signal major new upside runs, and even entire bull markets. As more and more investors and speculators who had been languishing in zero-yielding cash realized this, capital continued returning to equities this month. By the middle of this week, the SPX back up to 1350 totally erased the great majority of the summer correction that so terrified everyone.

The mighty benchmark S&P 500 has now powered 22.8% higher in the 4.2 months since its early-October bottom. This exceeds the common technical milestone for defining “a new bull market” of a 20%+ move! But despite the SPX faring so well now, pessimism and bearishness still dominate discourse. The same brilliant luminaries who missed this upleg in the first place are now calling for it to roll over and die!

They were unquestionably dead wrong in early October when arguing for a new bear market, yet investors and speculators still eagerly listen to them today. It blows my mind, as credibility in trading is totally dependent on one’s track record. At Zeal we were very publicly bullish in early August and early October when everyone was scared. Back in late June I argued why a new stock bear was pretty unlikely, and in early September I showed how the sharp August selling was nothing like that seen early in new bears.

If some analyst or commentator today is frightening you into not participating in this powerful upleg, check his track record for crying out loud! Go read what he was writing in late September and early October. Was he super-bearish right near the correction’s bottom back then just like nearly everyone else? If he was, if he is not a contrarian, then there is no reason why he should influence you today.

The SPX’s strong upleg since that fear climax is now set in stone on the charts. We’ve seen higher lows and higher highs despite formidable lingering fear and anxiety. Despite Europe’s perpetual big-government problems, despite unfounded China growth scares, despite the Obama Administration pissing away taxpayers’ hard-earned money (and borrowing trillions more) like drunken sailors, the stock markets are still rallying.

While this short-term perspective decisively proves this upleg’s strength, the longer cyclical and secular perspectives argue for its staying power. It is crucial to realize that all bull-market uplegs climb a wall of worry, doubters and naysayers constantly challenging their validity. So we have to discount all that bearish noise, it is always there. Long-term technicals continue to overwhelmingly declare that this upleg is righteous and still has plenty of room to run higher.

This next chart compares the SPX’s current cyclical bull that was born out of the secondary stock-panic lows in March 2009 with a key technical indicator, the Relative SPX. Based on my simple, powerful, and very profitable Relativity trading system, the rSPX restates the S&P 500 as a multiple of its own 200dma. These multiples are perfectly comparable in percentage terms over time and tend to form nice horizontal trading ranges.

All cyclical bull markets flow and ebb, exciting uplegs are followed by challenging corrections. This dynamic is absolutely necessary for keeping sentiment balanced, which ensures a healthy bull with maximum longevity. Excessive greed after major uplegs can only be erased by corrections and the excessive fear they spawn. And out of those fear climaxes the next major upleg is born, the cycle begins anew.

Today’s young upleg is actually the third of this SPX cyclical bull’s. The first rocketed 79.9% higher in 13.5 months, its massive gains largely a function of the preceding deeply-oversold secondary stock-panic lows. This dragged the rSPX to very overbought levels over 1.10x, the SPX was trading more than 10% above its 200dma. So the first correction immediately followed in mid-2010, a 16.0% swoon over 2.3 months.

Just after that correction, much like today, ostrich investors reigned supreme. Scarred by 2008′s epic once-in-a-century stock panic, investors are so gun-shy that they believe every material selloff is going to cascade into another panic-like event. But this is incredibly irrational, as the next 100-year storm certainly isn’t due a few years after the last one. So the usual bull-market wall of worry paralyzes them into inaction, their capital languishes in cash yielding nothing. Inflation actually erodes their capital!

But as the second upleg of this SPX cyclical bull subsequently proved, sidelined investors miss out on huge gains. The SPX climbed another 33.3% in 9.9 months, peaking in spring 2011. By then once again the SPX was overbought per the Relative SPX technical indicator, spending much of early 2011 trading above 1.10x. We and our subscribers capitalized on this greed by selling many trades we had bought cheap the previous summer after the first correction for very large realized gains.

As I warned in April 2011 when everyone was bullish and greedy without a concern in the world, another SPX correction loomed. Did your advisors warn you about topping stock markets as that second upleg matured? Go back and read what they were writing in April 2011. If they were super-bullish like everyone else at that major topping, why on earth would you trust their pessimism and anxiety today?

While that second correction was slow in coming, it finally arrived with a vengeance in early August when Obama’s horrific overspending came home to roost in the USA’s once-vaunted credit rating. By the time that secondary recession-craze low arrived in early October, the SPX had tumbled 19.4% in 5.2 months. And out of that very despair and extreme fear, today’s third upleg of this bull was born.

Take a look at this third upleg in the context of this entire cyclical bull’s chart. It’s still pretty small in the grand scheme, right? It has only rallied 22.8% in 4.2 months compared to the earlier uplegs’ 33.3% in 9.9 months and 79.9% in 13.5 months. Granted, that first upleg was far larger than average emerging out of those radically-oversold secondary stock-panic lows. But today’s mere 22.8% in 4.2 months is still much too small even for an average cyclical-bull upleg.

And though the SPX is nearing new cyclical-bull highs again (exceeding April 2011′s post-panic peak of 1364), it hasn’t even hit this bull’s uptrend resistance yet. As the second upleg was topping, the SPX spent the better part of a half year over this line! And look where the last Golden Cross happened, in late 2010. At that point as the SPX neared new bull highs, much like today, the second upleg still remained very young. Odds are today’s third upleg is similarly young relative to the recent Golden Cross.

When the second upleg was peaking, the SPX spent several months in overbought territory exceeding 1.10x its 200dma. Today the SPX isn’t even overbought, having yet to get anywhere close to even approaching this overbought metric based on the latest 5 calendar years of trading data. The more I study this chart, the more silly the bears’ endless worries today about this upleg’s staying power seem.

Despite their excellent January and nice 4-month run, today’s US stock markets are certainly not overbought within cyclical-bull-to-date context. And the recent technical action looks absolutely nothing like that seen near the toppings of this cyclical bull’s first and second uplegs. It is illogical and irrational to assume mere anxiety and the usual wall of worry will slay today’s young upleg so prematurely.

This final chart is probably the most valuable perspective of all, and the hardest to obtain. It zooms out to the secular time frame, showing the entire secular stock bear since 2000. This secular analysis was the major reason why I correctly argued against the crowd in summer 2011 to declare this cyclical stock bull almost certainly wasn’t finished yet. If you understood this before the latest correction, there was nothing to fear but fear itself.

Secular stock bears are gigantic 17-year sideways grinds driven by Long Valuation Waves. In this chart the SPX’s current secular bear since 2000 is superimposed over the last secular bear straddling the 1970s. Within these giant secular trading ranges, an endless series of shorter cyclical bears and cyclical bulls alternate. Investors and speculators who understand these can earn fortunes in secular bears!

Way back in early 2000, the first cyclical bear of this secular bear (which I predicted in 2001) started hammering the stock markets lower. It ultimately led to a brutal 49.1% loss in 2.6 years. And out of that despair, a new cyclical bull within the secular bear was born. It ultimately powered 101.5% higher in 5 years by late 2007. With the SPX back up at its pre-secular-bear highs, another cyclical bear was due.

And indeed it started out normally in late 2007 and early 2008, but then that crazy stock panic greatly accelerated it. By the time the dust settled after that once-in-a-lifetime fear superstorm, the SPX had plunged 56.8% in just 1.4 years. But at least that cyclical bear was over. Out of those lows, today’s cyclical bull was born. As you’d expect after a stock panic, it has been exceptionally strong. As of its latest high in April 2011, this cyclical bull had catapulted 101.6% higher in merely 2.1 years!

Now the normal rule of thumb for the cyclical bear-bull cycles within secular bears is they cut the stock markets in half before doubling them again. A cyclical bear usually leads to 50%ish losses, and the subsequent cyclical bull usually leads to 100%ish gains. The net result is a gigantic sideways grind, but it is still super-profitable to trade if you take the time to understand the underlying cyclical bear-bull cycles.

But the secondary stock-panic lows ushered in by the new Obama Administration’s withering attacks on investors and capitalism in early 2009 dragged the SPX lower than the usual 50% cyclical-bear losses. So today’s cyclical bull launched from a much-lower base than precedent. Thus the doubling we’ve seen in the SPX since then is a bit misleading. Cyclical bulls tend to carry the SPX back up to its secular resistance, which is around 1500 in this secular bear.

Thus as long as the S&P 500 is below 1500 or so, as long as this secular resistance doesn’t threaten this upleg, it still has plenty of room to run. Thanks to the stock panic, the preceding cyclical bear was considerably larger and deeper than normal. And therefore of course the mean reversion out of such an ultra-rare event, the subsequent cyclical bull, ought to be proportionally larger to the upside.

So as I’ve argued since summer 2009, today’s cyclical bull is highly likely to challenge 1500 before it rolls over into a new cyclical bear. And with the SPX merely around 1350 this week, we still have lots of room to run before secular-bear resistance looms. There is also one more important secular argument in favor of today’s cyclical bull not being mature yet, the average duration of mid-secular-bear cyclical bulls.

As I discussed back in June, the average lifespan of mid-secular-bear cyclical bulls during our current secular bear and the previous one straddling the 1970s was nearly 3 years each. At our current cyclical bull’s latest interim high last April, it had only run for 2.1 years. It was far too young to give up its ghost! And after a stock panic, the odds heavily favor the rebound cyclical bull actually being longer than average rather than shorter. That is necessary to help rebalance away the extreme panic sentiment.

These secular arguments in favor of today’s SPX upleg having room to run yet are very powerful and compelling. Not only is this benchmark stock index still well below today’s secular-bear resistance near 1500 that is the highest-probability cyclical-bull upside target, but this cyclical bull remains too young relative to average mid-secular-bear cyclical bulls. There is no reason to fear a new cyclical bear yet.

There you have it, and perspective is everything for successful investing and speculating. While the bears fall all over themselves fretting about the latest Greece debacle, and economists froth at the mouth trying to conjure a recession into existence from isolated data points, longer-term technicals and sentiment resoundingly declare today’s SPX upleg is far from over. But the incessant daily noise is distracting traders, keeping them cowering in fear, hiding in cash, and losing out on huge gains.

But thankfully it is not too late to participate. While the easy general-market gains have already been earned, great opportunities exist elsewhere as other sectors start racing to catch up with the SPX. My favorite is the commodities stocks, which continue to be incredibly unloved due to excessive US dollar strength. But as this SPX upleg continues gradually climbing, the safe-haven dollar will keep rolling over igniting a heck of a fire under beaten-down commodities stocks.

And few can help you thrive in this sector like we can! At Zeal, we are dedicated students of the markets and therefore hardcore contrarians. We walk the walk in buying low when others are scared, and selling high when others are greedy. Since 2001, during this brutal secular stock bear when the SPX was flat, all 598 stock trades recommended in our subscription newsletters have averaged stellar annualized realized gains of +48%! You too can share in the hugely profitable fruits of our labors.

We publish acclaimed weekly and monthly subscription newsletters loved by speculators and investors all over the world. In them I draw on our vast experience, knowledge, wisdom, and ongoing research to explain what the markets are doing, why, where they are likely heading, and how to trade them with specific stock trades as opportunities arise. Subscribe today and start thriving! We also publish comprehensive fundamental reports on our favorite stocks in promising sectors. The latest covers the super-high-potential junior gold producers. Buy your report today!

The bottom line is despite the bears and naysayers, today’s SPX upleg still has plenty of room to run higher yet. This upleg remains way too small and short-lived by cyclical-bull-to-date standards, and the SPX is nowhere close to being overbought yet. The recent technicals we’ve seen look absolutely nothing like the topping events at the ends of this cyclical bull’s first and second uplegs.

And from a longer secular perspective, the SPX is still well below its secular bear’s resistance of 1500. On top of that, today’s cyclical bull following a once-in-a-century stock panic hasn’t even reached average duration yet. All this means the odds remain heavily in favor of both this cyclical bull and its current upleg still having plenty of room to run. It isn’t too late to buy in if traders can overcome their fears.

Adam Hamilton, CPA

February 10, 2012

So how can you profit from this information? We publish an acclaimed monthly newsletter, Zeal Intelligence, that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research. Please consider joining us each month for tactical trading details and more in our premium Zeal Intelligence service at … www.zealllc.com/subscribe.htm

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Based on the January 27th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

According to Goldman Sachs, gold provided the best returns of all commodities in the past five years when adjusted for volatility and says the rally will continue as options traders signal no change in the metal’s relatively low risk.

The Bloomberg Riskless Return Ranking shows the Standard & Poor’s GSCI Gold Total Return Index produced a 6.5 percent risk- adjusted return in the five years that ended last week, the highest among 24 commodities tracked by S&P, data compiled by Bloomberg show. Silver, the next-best performer, yielded a risk-adjusted gain of 3.1 percent, while a total-return index for all raw materials slipped 0.2 percent.

Goldman Sachs forecasts gold will reach a record this year. In a Jan. 13 report Goldman Sachs said that gold futures will advance to $1,940 an ounce in 12 months. Morgan Stanley forecasts the metal will climb to a record average $2,175 in 2013. David Einhorn’s Greenlight Capital Inc. said in a Jan. 17 letter to investors that the fund continues to hold gold and gold-mining equities because of concern that global fiscal and monetary policies “tempt fate.” George Soros increased his stake in SPDR Gold Trust (GLD), an exchange-traded fund tracking the metal, to 48,350 shares as of Sept. 30 from 42,800 and added options, according to Securities and Exchange Commission filings. Soros reinvested in gold shares after selling 99 percent of his holding in the first quarter of last year.

Nouriel Roubini, the economist who predicted the 2008 financial meltdown, said last week that the risks that spurred market volatility last year will keep swaying asset prices and the global economy. He listed as “persistent problems” rising commodity prices, saber rattling and uncertainty in the Middle East, the spreading European debt crisis, increased frequency of “extreme weather events” and U.S. fiscal issues.

In other news, we ran across unconfirmed reports that India may barter some of its gold holdings with Iran, in exchange for crude oil. The report, which appeared in an Israeli website, coincided with the visit of an Indian official delegation to Tehran to find ways to continue the bilateral trade despite the sanctions imposed on Iran. Use of gold as currency may help India get around the proposed freeze on Iranian central bank’s assets and the oil embargo that the EU foreign ministers have agreed to impose on Monday. India depends on imports to meet around 80% of its oil requirements and Iranian crude accounts for a 12% share in India’s total oil imports. Naturally, this is a step toward re-introducing gold as a major international currency, which is a very bullish factor for yellow metal’s price.

To see if the short term picture is just as bullish for the precious metals sector, let’s turn to the technical part with the analysis. This week we will focus on the mining stocks. We will start with the XAU Index and the very long-term chart (charts courtesy by http://stockcharts.com.)

In the very long-term XAU Index chart, a move above an important long-term support/resistance line is seen. The recent breakdown is therefore invalidated (just like it was the case with previous similar moves), and the recent strong move should be viewed as a bullish confirmation of this fact.

In the long-term HUI Index chart (proxy for gold stocks), a sharp rally has taken place following the recent fake-down (instead of breakdown) below the 500 level. This is very much in tune with last October’s trading patterns which were followed by a sharp rally in which the index rose in excess of 20%. Such a rally appears possible once again.

The next few days could see a small move to the downside, but a reversal will most probably follow. The above chart has very bullish implications and suggests a major move up is in the cards.

In the short-term GDX chart, the miners have followed an interesting path. The recent decline took miners to the October 2011 level. If the correction is over, then expect a move to the upside similar to the previous one. Calculating the medium-term resistance line brings us to a likely target around $58.

The miners appear to be heading to the $58 level where the declining resistance line and the 50% Fibonacci level coincide. Once this short-term resistance line is reached, a pause in the rally is probable after which an additional period of rally seems likely.

Overall, the situation in miners is a mirror of what we wrote in our essay on January 27^th, 2012 on the bullish outlook in the precious metals market:

(…) the breakout in euro above the short-term declining resistance line has been confirmed, which is bullish for euro and bearish for dollar. The situation for the general stock market is a bit unclear for the next few days, but the outlook remains bullish for the weeks and months ahead. Based on correlations, these factors do not disrupt our bullish view on the precious metals sector.

Summing up, the situation in mining stocks remains bullish. The miners’ sharp increase has confirmed the similarity with the late October trading pattern, and the implications are bullish from here.

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

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Global Macroeconomic Analysis Through the Austrian Lens
By Theodore (Ty) Andros

The saga continues as we head into 2012. That saga is the demise of Ponzi finance and an ASSET-backed economic model in the developed world. We do not know whether the currency and financial system extinction event will occur this year or ten years from now. The questions we hope to answer in this 2012 economic analysis regard only the unfolding of short to intermediate-term ups and downs in economies, financial systems and societies. We will be covering different sectors of the 2012 economy (stocks, bonds, precious metals, commodities, real estate, etc.) over the next several editions of TedBits; this is part one — a global-macro Austrian overview, the BIG PICTURE so to speak. Don’t miss future issues; subscriptions to TedBits are FREE at www.traderview.com/subscribe/

What we do know is that the demise of the DEVELOPED world’s currencies, financial systems and economies are set in stone, just as one’s fate is sealed when they slip below the EVENT horizon of a cosmic BLACK hole. This time the black hole is INCOME destruction from centrally-planned economies, runaway welfare states, crony capitalism, regulation, taxation and endless MONEY printing out of thin air… a toxic cocktail of wealth destruction.

A DEPRESSION has been written into law in the United States by the Socialist-progressive, legislative supermajorities of 2008 to 2010 in the form of (1) Permanent government expansion (20-25%) via the misnamed STIMULUS Bill, Obama Care (which is no more than NATIONALIZING, further politicizing and
tax goodies for sale to the highest bidder/campaign contributor) along with the health care industry, and finally Dodd Frank (more financial regulation for sale and political allocation of credit). These bills are wrapping themselves like PYTHONS around the largest economy in the world. And (2), SQUEEZING the life out of the economy via 80,000 pages of new regulations a year (sold to the highest bidder from K Street, aka lobbyist row and the biggest campaign contributors), poorly written and in haste by unelected bureaucrats who have no experience in the industries and businesses they are regulating.

These regulations are nothing less than central government nationalizing the private sector by stealth, and directing economic activity to CRONY capitalists. Crony capitalists gain these monopolies through regulation; they can behave like any monopolist by providing less to the public for a higher cost. This is the Congress and Executive Branch PAYING OFF special-interest campaign supporters.

The increasing cost of central planning and Socialism can be easily seen in this graphic:

These are explosions in regulations and they represent the prohibition of INNOVATION, RISING PRODUCTIVITY and CAPITALISM (more goods and services for less money) by LAW. Has anyone heard of a law or regulation being repealed? Very rarely. The Executive Branch is in a rush to get control of these industries whether it is done right or wrong. Unfortunately, it is only just beginning; less than 20% of the new laws and regulations have been implemented and as they unfold the depression will deepen.

Exploding uncertainty and impediments to growth are killing the prospects of entrepreneurs.
What will become known as the greatest depression in history HAS BEGUN and will continue to unfold.

“There is no means of avoiding the final collapse of a boom brought about by credit expansion.  The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
~ Ludwig von Mises

The Keynesians’ approach is articulated quite nicely by former Treasury Secretary, Larry “canary in the coal mine” Summers:

“The central irony of financial crisis is that while it is caused by too much confidence, too much borrowing and lending and too much spending, it can only be resolved with more confidence, more borrowing and lending, and more spending”. ~ Lawrence Summers

Of course, today’s government, elites and banking leaders have chosen the latter route as have ALL those who have gone before them. In the long run NONE have succeeded. This will destroy Keynesian Economics and expose FIAT money as the fraud that it is. This is multi-century fraud; it has been perpetrated over and over again by the same group of banksters, elites and their descendants. Hereafter known as “The powers that be,” they own and control 60 percent of the world’s wealth one way or another and they control most, if not all, of the governments in the developed world. The booms and busts they engineer is how they gather their wealth; investors must learn how to PIGGYBACK and PREY upon this process. They have performed this dozens of times and are doing so now!

The founding fathers of the United States were fully aware of their efforts and successfully eluded their grasp until Woodrow Wilson committed the ultimate treason. He PRIVATIZED the central bank and set in motion the idea that the US economy would be run for the benefit of the BIG BANKS and brokers. In exchange, he granted a monopoly on money for unlimited FUNDING of progressive government. Leviathan government here we come. It is illustrated by these cartoons from 1913:

Investors are being confronted with the fight of their lives: How to protect and build their portfolios during a FIAT currency and credit-based, financial system extinction event. Eighty investors out of a hundred will LOSE most, if not all, of their wealth. The other 20% will gather that wealth to themselves through foresight, a solid understanding of financial history and applied Austrian Economics as outlined by Ludwig Von Mises, Frederic Hayak and Bastiat.

WE ARE SEEING THE GREATEST OPPORTUNITY IN HISTORY as this is the greatest FIAT currency and credit-based INSANITY in history. The last great depression provided the basis for some of the greatest fortunes in the world, and this time the opportunities are MANY TIMES GREATER. What is happening now is simply HISTORY repeating and this is the biggest episode EVER. The entire world is afloat in an ocean of FIAT currency; never in history has this been so.

ABSOLUTE-Return Alternative Investments (with the potential to thrive in up, down and sideways markets) are essential in preserving and building your wealth. Investors must preserve purchasing power FIRST. Learning to invest as markets zoom up and down (re-pricing due to the behavior, past and present, of public servant, elites and banksters) will challenge you as never before. Creating these investments is what I do for a living.
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THIS GAME IS OVER and it will not return until the great deleveraging is OVER. The volatility this will create is a RARE opportunity. The greatest credit bubble in history is in the process of becoming history. The volatility will be enormous, and volatility is opportunity for the prepared investor. BUY and HOLD is DEAD. Gold and silver-backed, absolute-return alternative investments are part of the solution. At Traderview, we specialize in this type of investment… Click here to request more information

Looking at two different rates of calculating inflation (1990 and 1980 versions by www.shadowstats.com) provides prospective on how political correctness has INFLUENCED an accurate measure of the price changes confronting investors and consumers today:

Mal-investments and financial repression can be identified if your investments DO NOT YIELD more than inflation (as measured above) plus 1 to 3 percent, thereby providing a REAL return AFTER INFLATION. If your investments do not, then you are losing REAL wealth at a compound rate by which they underperform. For example: If you buy a 10-year Treasury Bill yielding 2 percent, then you are LOSING 4 to 8 percent compounded annually. Eventually these mal-investments will FALL in VALUE until they yield more than the inflation rate and provide a REAL return. You can apply this to stocks which yield 2 percent if you look at the S&P 500 or real estate. All will eventually decline in value until they provide a real rate of return after inflation and the REAL return will justify LENDING for the purchase of them. THIS IS NOT DEFLATION.

The developed-world’s economies are TRAPPED in death….. er, debt spirals and they are literally in the fall of their existence. There is NO ESCAPE from this outcome. Government debt in the developed world is compounding at about 11 percent annually and has done so since the global financial crisis started in 2000. Worldwide debt has almost TRIPLED since 2000 in all sectors (finance, non-financial corporate, government and household) from approximately $80 trillion to almost $200 trillion.

While in REAL terms there has been NO INCOME GROWTH to service the additional borrowing. While GDP is growing at approximately 2 percent or less, nominally, and is negative 3-5 percent if properly adjusted for inflation (and this is a low ball).

Let’s see, GDP has compounded at a negative 2 percent since 2000, while debts have compounded at an 11 percent annual rate. So, for those with access to a printing press, money printing will have to do to repay these debts, and for those who don’t, disaster looms.

Even worse, the people who created the problem are incapable of solving it. Decades in the making, today’s economic and societal problems will not yield to more of the same policies. Furthermore, CREEPING SOCIALISM and STATISM will not solve the problems created by more of the same. The only remedy to this problem is the policies of wealth creation, semi-sound money and growth. Just like you or I cannot prevent death, neither can elites, public servants or banksters prevent the demise of the developed-world economies, currencies and financial systems. Their unrestrained greed, hubris and lust for control over others are the cause of it.

Big government PROGRESSIVES, aka liberals in disguise, now dominate political debate; whether it be Republican or Democrat, Conservative or Liberal, Tory or Labor, CDU (Christian Democratic Union of Germany) or SPC (Socialist Party of Germany), they are all bought and paid for by banksters and crony capitalists. They now control the halls of government as was predicted when the Federal Reserve was created in 1913. They can be compared to organized crime families, such as the Gotti’s and Gambino’s, fighting turf wars known as elections to see who gets the front-row seats for taking freedoms through runaway legislation, regulations, taxation and screwing the public they claim to serve. There is no difference between the two once they are elected; their job is to take freedoms and transfer public wealth to their supporters.

“When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you…you may know that your society is doomed.” ~ Ayn Rand, Atlas Shrugged

The thought of TOO-BIG-TO-FAIL banks is an attempted crime against nature; it is an attempt to outlaw death. The victims shall be the citizens. The required economic and social medicine to revive their economies is INCONCEIVABLE to them. Eating the most productive in their societies will only feed them until all the productive elements have been EATEN or have moved out of their grasp and into the emerging markets (which are solidly underway). Then the dust bowl of poverty will reign. You can’t eat money printed out of thin air or created with a keystroke.

The emerging world’s economies are in the spring of their SECULAR growth cycles. The wealth of the world has ROTATED as well as the ability to generate and grow wealth. These emerging tigers are hardy souls ready to compete for prosperity, and just as the developed world’s wealth and deep middle classes were created by industrial societies and capitalism, theirs will as well. This is the bedrock of Austrian Economics: Produce more than you consume, save and invest your wealth and create self-sustaining optimism based upon personal growth. As their economies RISE so will their political and military might.

“It’s not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.” ~ Charles Darwin

The world is EVOLVING and growing, some are embracing change and thriving and others are trying to legislate against it. Just like the waves strike the beach, the future will strike those that resist until they are vanquished. The lesson of King Canute approaches. The people legislating against change reside in the capitals of the developed world; those who are embracing it are in the emerging world.

The world FIAT currency and credit-based financial systems are ROTTEN to the CORE, sitting on what Von Mises calls MAL-INVESTMENTS. Those mal-investments form the foundation of the world’s financial and currency systems. If the risk contained in sovereign debt held as financial system reserves were required to be reserved against and marked to market, the banking systems of the developed world would be INSTANTLY BANKRUPT. They are operating in bankruptcy now through regulatory forbearance.

They have trillions and trillions of Dollars, Euros, Pounds, Yen, etc., worth of DEBT — also known as IOU’s, and furthermore they are IOU’s denominated in IOU’s! If one debtor doesn’t get you the other one will. These IOU’s are called ASSETS; unfortunately they are LIABILITIES of morally and fiscally bankrupt governments, central banks and their present and future citizens. Insane liabilities PILING up until the PUBLIC refuses to PAY. That day is approaching.

The idea that my 2-year-old son owes: $1,087,573 (on balance sheet debt $48,790 plus unfunded liabilities of Social Security, prescription drugs, Medicare and other unfunded liabilities of $1,038,783 as of 1/23/2011 www.usdebtclock.org) is absurd, obscene and immoral. Public servants who support borrowing 40 cents of every dollar to support current expenditures and argue for more borrowing or argue against reduced spending are nothing more than the DEVIL sending their constituents and future generations on a one-way ticket to HELL as DEBT SLAVES to bankers and lenders who PRINT THE MONEY out of THIN AIR. The public pays TWICE, once as interest on the debt which requires constantly-rising taxes, and again as purchasing power is invisibly reduced while the public’s money sits in the bank (your balance stays the same but always buys less)

Many of the public servants who made these promises and the beneficiaries who expect to extract these sums from my son’s future earnings through borrowing to pay for their current consumption are able-bodied people who did not plan for their present and future needs. They believed what was told them by the socialist teachers’ unions. They elect and support people who make these impossible promises to pay.

“Men prefer a false promise to a flat refusal” ~ Quintus Cicero

Wealth creation in the developed world has DIED; it has been killed by public servants, crony capitalists and banksters over decades — death by a thousand cuts over decades. Since REAL income and wealth creation has met its demise, in its place money printing out of thin air and inextinguishable debt has become its substitute to create an illusion of growth. Now those illusions are being UNMASKED as Mother Nature intrudes on those among us who live in them. As they WAKE UP to the realities of life the MAYHEM will ensue. Think about the movie The Matrix as it is a perfect metaphor.

In America we live in a post-constitutional country. The Constitution has been killed by central planners in Washington and banksters with the help of a corrupt Judiciary that has failed to PROTECT it and Americans from the unrestrained greed of the powers that be. These powers-that-be were well known to the founding fathers of the United States, and the wisdom, foresight and personal freedoms to produce and keep your wealth which they embedded in the constitution is now buried systematically by the schools to which we trust our children’s futures. If people were properly informed of these HISTORY LESSONS, today’s follies would not be considered.

Failing to understand history, today’s elites, public servants and banksters have the world on the path to repeat it. The “powers that be” encourage them to do so; they profit once during the credit bubbles and then again by taking the assets off the private sector’s hands at discount prices when they fall during the bust.

This is an epic battle pitting Mother Nature and Darwin against the most powerful men and Central Bankers in the world. In the developed world darkness is descending as policies implemented over decades now combine to create the perfect storm that will continue to collapse economic activity and freedom.

Deleveraging which is much talked about has not yet occurred. The trillions of dollars of unpayable debt has not been reduced globally. In the top ten developed economies BLOODBATHS for lenders and borrowers lie directly ahead. Take a look at a chart from a recent McKinsey Report alongside a CDS chart of the last 7 years by Bloomberg (20% of this money will NEVER be repaid):

Virtually none of the G7 countries illustrated have made plans to reduce borrowing in the public sector. These borrowed funds are used for CONSUMPTION and welfare spending. They just want to roll the money and borrow a little more each year, but the markets are saying NO, as Credit Default Swaps signal the end of the rollover trade and the true level of sovereign credit ratings emerge. None of these countries have invested the funds “past or future” in projects which can repay the money. Now lenders are beginning to ask questions of those without access to a printing press, and soon they will ask questions of those that do.

For prepared investors it is the greatest opportunity in history, for others it will be their demise. Most of the baby boomers will not retire with their stock, bond and pension wealth. That wealth is stored in paper and will fall to its intrinsic value, aka ZERO. It is propped up by uncountable piles of paper which have no value: for example most continental and US banks buy sovereign debt of one sort or another, they do not reserve against possible default or capital losses (if reserves were required or mark to market valuations required the financial system will be INSOLVENT OVERNIGHT) and they use leverage of 10 to 1 or more (quite often 30 to 1). What if this artificial bid provided by leverage is reduced? Apply this leverage to stocks, bonds and real estate and withdraw the future leverage (as is happening NOW) and you get the idea how far these MISPRICED assets and mal-investments can FALL.

The greatest transfer of wealth from those who store it in paper to those who don’t is underway.

Socialism/Progressivism has always failed as an economic and societal model. It is the policy of “misery spread widely”, and it has been slowly substituted for capitalism and freedom for decades. We now live in the world of George Orwell’s 1984 and Animal Farm. Socialism is now called Capitalism; Central Planning is called free markets; saving, self-reliance and investing are now evil; and dependence on government and others is now a virtue. Up is down and black is white to the USEFUL idiots that control the voting booth. In the United States more people vote for a living than work for one.

In socialist economies the elites eat the last productive elements of society to supposedly save the public. They are LOCUSTS as are their something-for-nothing supporters, who have been impoverished by unsound money and the policies of insolvency. They will eat and consume everything in the developed world as well as tomorrow’s production. Like the preverbal LOCUSTS, they will eat everything including the roots of their societies and the seed corn for the next year’s harvest. This is what the developed world’s economies are facing…

“When the people find that they can vote themselves money, that will herald the end of the Republic. This constitution in time will fail, as all such efforts do. And it will fail because of the corruption of the people, in a general sense.” ~ Benjamin Franklin

Instead, public servants, elites, crony capitalists and banksters are transferring what wealth is left from the public to themselves one way or another. The public is only their fool for believing what they have been told by their government and banking masters. This is cannibalism of the worst sort and it results in the DEATH of wealth creation, for to create wealth becomes a CRIME against the mob and against those who don’t create wealth. Look no further than the White House leading impoverished mobs against the private sector; these people’s lives have been destroyed by the very people they are supporting: Progressive SOCIALIST/MARXISTS.

This is America today: Small-businessmen and women — the backbone of American job creation — are now called millionaires and billionaires and vilified by Washington DC and the mainstream media. They are turning anecdotes about Warren Buffet and extrapolating it to the small businessman next door, with the promise that any success he or she achieves will be taken from them by the revenue agencies. This is NOT a recipe for job creation.

The wealth of the developed world has been squandered by public servants and their masters in the banking industry and in its place are sclerotic, crony capitalist, socialist welfare states whose citizens have been turned into what Lenin called USEFUL idiots. While our parents paid cash for their purchases and their savings actually gained value as it sat in the bank, this process has been reversed since August 1971 when Bretton Woods II forever changed the definition of money — which no one realized at the time.

The people today are now no more than medieval serf’s — debt and tax slaves to governments and banksters — because the currency in which they are paid and store their wealth has lost its purchasing power, credit has been substituted as a means of maintaining lifestyles, thereby creating DEBT SLAVES. Currency as a means of storing wealth has become nothing but a cruel hoax. Sound money has gone the way of the DODO bird; it is extinct.

Gold is the currency of kings; Silver is the currency of merchants; Debt is the currency of slaves.
Debt is not MONEY

“Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.” ~ Daniel Webster

“We are in danger of being overwhelmed with irredeemable paper, mere paper representing not gold, not silver, no sir, representing nothing but broken promises, bad faith, bankrupt corporations, cheated creditors and a ruined people.” ~ Daniel Webster Speech in the US Senate, 1833

Of course, and this is where we find ourselves today isn’t it?

Ever since the department of education was created in the United States in 1980 and curriculum was taken out of the hands of local parents and teachers. Three generations of PUBLIC schools have brain washed the populations of the developed world to the point where they are unable to think for themselves, they are told what to think, not taught how to think. This misinformation is PREYED upon by the elites, public servants and banksters using the main stream media and indoctrination centers known as public schools.

“The opinion of 10,000 men is of no value if none of them know anything about the subject.”
~ Marcus Aurelius

Adam Smith wrote about the value of the public in determining future wealth in his seminal work “Wealth of Nations.” The productivity of an economy is partially a function of its citizens’ educations, their ability to logically solve problems and think critically, and their knowledge of history in order to prevent history’s lessons from being lost. Measured on this metric, the US and European school systems would receive an F for failure. Vast oceans of able-bodied citizens wait for jobs to be created which they are unable to perform.

Instead they have become dependents upon government. They have been taught to have faith in government and told they have a right to healthcare, basic needs and good jobs.

“It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” ~ Alexis de Tocqueville

These are the PROMISES of the developed world’s leaders and decades of governments on both the right and left; they have been taught to many generations who have faith in what they have been told. That faith is undergoing a severe test, as people wake up to the truth that you must produce something others will buy in order to thrive. As people are subjected to increasing AUSTERITY (reductions in WELFARE and BENEFITS) they will drive the POPULIST politicians’ attacks on those in the private sector that DO produce. Mobs will drive destruction of the private sector as they descend into desperation from UNSOUND money and as the false promises of government are REVEALED.

In Conclusion: When properly viewed and measured, NO RECOVERY has taken place since the first episode of the financial crisis in 2000, nor since round II in 2008. If expanded government spending, financed by debt, had not been (and continues to be) reported as GDP, then the DEVELOPED economies of the world would be imploding at a 4 to 12 percent annual rate, compounded annually since 2008. As the insolvencies of debt compound relentlessly, and wealth creation and incomes do exactly the OPPOSITE, you can expect the powers that be, elites, public servants, central bankers and crony capitalists to do what they have done ever since Bretton Woods II forever changed the definition of money.

When you have a gun pointed at your head what do you do? Duck or take the bullet? You can bet they will do just what you would do — duck and let the public take the bullet just as they have always done. So you can expect that THEY WILL PRINT THE MONEY. This is what the powers-that-be have done since the Federal Reserve was founded in 1913 and Bretton Woods II really unshackled the printing press. It is how they have solved every problem since that time except when Ronald Reagan had the guts to CUT government and reduce tax slavery which produced a boom.

Mother Nature is in the process of administering a crisis that will WIPE away the illusions, progressive lies and misinformation regarded as reality. This is a repeat of history for people that have forgotten. It is the destruction that must take place before growth in the developed world can RESUME and more people will be hurt than helped.

The illusions that you can have something for nothing and you are entitled to anything without earning it will be WIPED OUT. It is how all Socialist experiments end, without exception. Communist Russia and China have learned these lessons in the last 50 years and so will the developed world. Check out the 12 Conditions of MARXISM on the internet, you can see in every way that it is the definition of the developed world’s current economies.

Authors note: This is not DOOM and GLOOM; this is the greatest opportunity in generations for those that can apply history’s lessons and learn to set their investment sails in the proper manner. I am an absolute-return, alternative investment specialist. I create investments that are designed to thrive and preserve purchasing power as events unfold, regardless of market direction… To request more information click here

There are dozens of Greeces, Italys and Portugals in the United States: Illinois, California and Michigan to name a few. Insolvency after insolvency will emerge as regulatory forbearance is exposed as the institutional corruption that it is. Trillions in unpayable pension obligations, Social Security, Medicare and Medicaid obligations will NEVER be paid, or they will simply print the money to pay them until the money is accepted NO MORE. This is actually the way it will play out. A Crack-up Boom looms.

Until the right to PRIVATE property is restored wealth generation cannot resume and will continue to fail. Private property rights were ended at Bretton Woods II in August 1971. Between regulation and taxation, private property is nothing more than a myth, as is the myth that the dollar is as good as gold or money. It is an IOU as are all FIAT currencies in the world; the promises to pay by morally and fiscally-bankrupt governments, elites, and central banksters. This is why the middle class is desperate and destroyed; the purchasing power has been stolen out of their money, and in the process of maintaining their lifestyles they have become serfs and debt slaves.

In the next edition of TedBits we will be covering the 2012 Outlook for Stocks, Bonds, Precious Metals and the death of Capitalism. Don’t miss it. Subscriptions are FREE at www.traderview.com

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Despite gold’s powerful secular bull over the past decade, gold stocks remain vexing to investors and speculators. Though this metal’s miners have yielded truly colossal bull-to-date gains, they failed to leverage the record-high gold prices seen in much of 2011. So naturally traders aren’t very enthusiastic about this sector at the moment. But they sure would be if they understood the gold-stock upleg cycles.

No bull market, no matter how powerful, fundamentally strong, or long-lived, rises in a nice linear fashion. They all flow and ebb, surging forward two steps in major uplegs before retreating back one step in major corrections. Visualize a sine wave oscillating within a rising trend. This seemingly-capricious behavior is actually very beneficial to bulls’ health and longevity, it keeps sentiment (greed and fear) balanced.

And unsurprisingly gold stocks, with their extraordinary volatility, are no exception to this ironclad bull-market rule. Gold stocks’ amazing bull market has advanced in fits and starts. This technical price action is driven purely by sentiment, the same dynamic that affects every popular market. And since many gold-stock traders love gold’s timeless qualities with a nearly-religious fervor, emotions run higher in gold stocks than most other sectors.

Strong feelings really amplify the impact of sentiment. Gold stocks’ dazzling uplegs from time to time create huge gains that ignite unsustainable greed and euphoria. But that sucks in all near-term buyers too soon, leaving only sellers. So demoralizing corrections soon follow, dragging the great sentiment pendulum to swing all the way back to the opposite extreme of excessive fear and anxiety. This dynamic creates the bull-market upleg cycles.

Once you understand these gold-stock cycles, much of the anxiety about gold stocks underperforming gold vanishes. They are easiest to see in the flagship gold-stock benchmark, the NYSE Arca Gold BUGS Index. Thanks to its unwieldy name, this Basket of Unhedged Gold Stocks is better known by its symbol HUI (pronounced “huey”). Its component list is comprised of 16 of the largest and most-widely-held gold-mining companies in the world, so it’s a great proxy for major gold stocks’ performance.

While gold’s own secular bull was born in April 2001, the HUI’s started a bit earlier in November 2000. If you weren’t interested in gold back then, you can’t even begin to imagine the sheer degree of popular antipathy for gold and its miners. Only the bravest and hardest-core contrarians dared to tread in this left-for-dead wasteland in the early 2000s. But the HUI’s staggering performance since is one heck of an argument for the wisdom of contrarian investing!

Since its humble origins when everyone literally thought gold-stock investors were stupid and/or insane, the HUI has powered 1664.4% higher at best as of September 2011! Over this same secular span, the general stock markets as represented by the benchmark S&P 500 index actually lost 14.2%. Gold stocks have been one of the best-performing sectors of the past decade, if not the very best. Such gains should be legendary today, universally lauded.

But this sure wasn’t an easy road psychologically, actually far from it as any gold-stock trader will be quick to attest. The HUI advanced in fits and starts, its enormous uplegs were followed by vexing consolidations lasting well over a year. This made gold stocks a challenging emotional roller coaster for traders, all too easy to get bucked off of for all but the most disciplined. The last time I looked at HUI upleg cycles in late 2007, before the stock panic, I coined this behavior the surge-drift pattern.

Once every couple years or so, gold stocks surge to new bull-market highs in massive uplegs. The realized gains we and our subscribers have earned being heavily long during these surges have made us fortunes. Boy are they fun! But after these surges come the necessary reckonings to rebalance sentiment, in the form of drifts. So gold stocks drift sideways for a year or two after their surges, seeing much-smaller consolidation uplegs at best periodically.

This surge-drift dynamic is certainly logical when viewed through the lens of sentiment, which drives all short-term price action. After any massive upleg’s enormous gains, greed grows excessive. All near-term buyers have already bought in, and the traders who had positions early enough to ride the surges to huge profits are thinking about locking in their gains. Their selling soon caps the overextended surges.

Major new highs also spawn widespread worries. Traders always wonder if they are sustainable or if prices will soon collapse back down to the lower levels everyone was comfortable with. So after a surge, a consolidating distribution phase kicks in. Existing gold-stock owners gradually sell, both to realize profits and because they grow discouraged as more time passes since the fast rallies died. But new buyers gradually replace them. The longer that prices consolidate near their new highs, the more traders come to believe they are righteous and fundamentally justified.

This surge-drift pattern continued unabated until 2008′s once-in-a-century stock panic. The monster fear superstorm spawned by that epic anomaly ripped every sector to shreds, even gold itself was hit hard. All this heart-stopping fear terrified gold-stock traders, who dumped these miners like they were infected with the Black Death. So the HUI plummeted to crazy levels not seen since mid-2003, even though gold merely retreated to late-2007 levels.

Just before that stock panic slammed the markets, the HUI had enjoyed a massive upleg driven by its fourth surge. So gold stocks were due to consolidate anyway when the stock panic interrupted them. But instead they were crushed to such ludicrously-oversold levels that their fundamentals demanded they rebound fast as I wrote extensively about at the time. We and our subscribers bought gold stocks near their apocalyptic lows in that panic’s dark heart, and were subsequently richly rewarded in the sharp post-panic recovery.

By late 2009 the HUI had regained its interrupted consolidation range, and by late 2010 gold stocks were once again surging to new record highs. This bull’s fifth surge was anemic for a variety of reasons beyond the scope of this essay, but it led to the consolidating drift we’ve found ourselves mired in over the past year or so. And at a year old, this drift is starting to get longer in the tooth by bull-to-date standards. Around this far in is when the next surge tends to start slowly marching higher out of the bottom of the drift.

For over a decade now gold stocks have advanced in this surge-drift pattern without fail, even an ultra-rare stock panic merely stretched out an in-progress drift. Surges gradually turned excessive fear into excessive greed and coined enormous realized gains for prudent contrarian traders. Then the subsequent drifts bled off that excessive greed until only fear and anxiety remained. This happened over long-enough spans for traders to grow comfortable with the new higher-price baselines.

Surge, drift, surge, drift, surge, drift. And since we are now in a drift, what comes next? A new surge! Gold stocks’ poor performance relative to gold in 2011 is not a harbinger of a sector that is doomed to fade, but a typical basing behavior we have seen many times before in this secular bull. The past year has bled off greed and enabled traders to accept the recent higher price levels as the new norm. Buyers are gradually returning, including elite hedge funds. This is a perfect setup for the next surge’s massive upleg!

One problem with secular-scale charts is the earlier price action always looks trivial in comparison with recent price action. While this distortion can be addressed with logarithmic charts, they introduce interpretation problems of their own. So in order to get a better feel for how large the HUI’s surge-drift cycles have been, this next chart annotates the size and duration of each major upleg and correction. Gold-stock surges have been fantastically lucrative to ride.

The first three surges’ massive uplegs that look minor visually on such a long-term chart were actually enormous. For an index to hit major new bull-market highs, the advances can’t be immaterial. We are talking about HUI gains near 145%, 125%, and 137% in merely 6 months to a year! While the last couple surges were more muted than those in the early years, they still saw huge 72% and 64% rallies over similar spans. If you are deployed in quality gold stocks during one of these surges, your capital balloons dramatically.

All the HUI uplegs over this entire bull (excluding the initial post-panic recovery) averaged gains of 80.7% over just 7.9 months! No matter how challenging the HUI’s surge-drift pattern makes owning gold stocks psychologically, the prize is well worth the pain. We are talking about 11 separate opportunities over 11 years to almost double your capital in gold stocks! This is incredible during a secular stock bear where the general stock markets merely drifted sideways.

But the necessary cost of these awesome uplegs was the subsequent corrections essential to rebalance sentiment. They protected this gold-stock bull from soaring too fast and burning itself out prematurely. Excluding that mind-boggling 70.6% plummet during the stock panic, the HUI’s average correction ran 26.1% over 2.8 months. Considering gold stocks’ enormous upside potential during a secular gold bull, such retreats are relatively minor in the grand scheme even for buy-and-hold investors who ride them out.

The latest big swing in the gold-stock upleg cycles was the 23.5% correction over 3.7 months that likely ended in late December. This is right in line with the average, and means the next cyclical move due is a gold-stock upleg. And given where we are in the surge-drift cycles late in a major consolidation, there is an excellent chance that this next gold-stock upleg will mushroom into a full-blown massive surge one.

While cycle analysis is purely technical by nature, fundamentals certainly support this bullish gold-stock outlook as well. A couple weeks ago I dug into where the gold stocks were trading relative to gold, their primary fundamental driver. And amazingly gold stocks are so unloved and out of favor today that they are back down near levels only seen before during the stock panic! The HUI would have to soar far from current levels merely to return to average valuations relative to gold.

When bullish fundamentals coincide with the end of a correction late in a drift in the gold-stock upleg cycles, it is about the best setup ever seen for gold stocks. They are now due for a major upleg, and more and more big-money traders including elite hedge funds are arriving at this very conclusion. With the gold price remaining so high yet gold-stock prices still so low, investors and speculators are starting to understand that gold stocks need to surge again.

Take one more look at this chart, and note where the HUI is today (call it roughly 500) and when it originally achieved these levels. Back in March 2008 when the HUI broke through 500 for the first time in history, gold was approaching $1000 for the first time ever. Yet today with gold 2/3rds higher, which translates into radically-higher profits for gold miners, the HUI is still languishing near 500. Mark my words, there is no way this anomaly is sustainable!

In the stock markets, any company’s stock price is ultimately bid up to reflect the earnings stream its underlying business can generate. Gold stocks are no exception. They aren’t going to stay at early-2008 levels while gold continues powering far higher. And this 2008 comparison is particularly interesting in terms of upleg-cycle analysis. You could actually make the case that the current drift is about 4 years old instead of just over 1, implying the gold-stock spring is more tightly wound. So the coming surge ought to catapult gold stocks much higher to make up so much lost ground.

But even if the next great surge to major new highs somehow tarries, we are still due for an upleg regardless. Today is a fantastic time in the gold-stock upleg cycles to buy gold stocks at low prices. And as the charts above show, such opportunities never last for long. With such high odds that the next major surge is due imminently, I sure wouldn’t want to risk not having big exposure in elite gold stocks.

These opportunities are magnified even more since gold itself is due for a major upleg as well. As I detailed last week, the combination of an overbought US dollar and oversold gold is a recipe for a strong upleg in the yellow metal. And nothing gets investors and speculators interested in buying gold stocks faster than a major gold rally. With the US dollar ready to launch gold, the gold stock opportunities are even more compelling.

At Zeal we’ve been actively trading this gold-stock bull since the very beginning. Over the past decade I’ve probably done more analytical work studying it than almost anyone else on Earth, devoting thousands of hours. The resulting knowledge and experience have led to gigantic realized gains in gold stocks for us and our subscribers over the years. Our overall trading track record since 2001 is stellar. All 598 stock trades (about 4/10ths gold stocks) recommended in our subscription newsletters have averaged annualized realized gains of +48%! Not too shabby during a secular stock bear.

And lately thanks to this bullish setup we’ve started buying again. This time we are focusing on junior gold producers, companies with far-better potential to soar than the majors in the HUI. We are drawing from the pool of our dozen favorites profiled in a comprehensive new fundamental report. This fascinating 34 pages is the fruits of hundreds of hours of expert world-class research, where we started out with around 100 junior gold producers trading in the US and Canada and gradually narrowed this population down to our fundamental favorites. Buy yours today while gold stocks still remain cheap!

All our hard work ultimately flows into our acclaimed weekly and monthly subscription newsletters. In them I draw on our vast experience, knowledge, wisdom, and ongoing research to explain what the markets are doing, why, where they are likely heading, and how to trade them with specific stock trades as opportunities arise. Wouldn’t you like our decades of experience in your corner, helping you cut through the noise to make better trading decisions? Subscribe today and start thriving!

The bottom line is this powerful secular gold-stock bull has always advanced in fits and starts. This surge-drift pattern has certainly been vexing psychologically for traders who don’t understand it. But it has actually enhanced this bull’s health by keeping sentiment balanced, a huge boon for its ultimate longevity. And today these gold-stock upleg cycles suggest a major surge to new bull-market highs is imminent.

After spending well over a year basing high, and remaining incredibly cheap relative to prevailing gold prices, gold stocks are starting to catch the attention of serious capital. As we’ve seen in the past similar situations late in consolidation drifts, the new buying feeds on itself and gold stocks are soon soaring. While it definitely takes a contrarian bent to buy after a long drift, the potential rewards are immense.

Adam Hamilton, CPA

January 20, 2012

So how can you profit from this information? We publish an acclaimed monthly newsletter, Zeal Intelligence, that details exactly what we are doing in terms of actual stock and options trading based on all the lessons we have learned in our market research. Please consider joining us each month for tactical trading details and more in our premium Zeal Intelligence service at … www.zealllc.com/subscribe.htm

Questions for Adam? I would be more than happy to address them through my private consulting business. Please visit www.zealllc.com/adam.htm for more information.

Thoughts, comments, or flames? Fire away at zelotes@zealllc.com. Due to my staggering and perpetually increasing e-mail load, I regret that I am not able to respond to comments personally. I will read all messages though and really appreciate your feedback!

Copyright 2000 – 2012 Zeal Research (www.ZealLLC.com)

In late April 2011, Cangold Ltd. TSX.V – CLD, signed a letter of intent with Brigus Gold Corp. (formerly Linear Gold). By paying one million dollars and issuing six million shares to Brigus, CLD entered into an option agreement to acquire a 75% interest in the Ixhuatan advanced stage gold project.

The Deal

To earn its 75% interest Cangold will be required to pay to Brigus a total of CDN$10 million and issue twenty million shares over a three year period. CLD also has to complete an independent third party feasibility study on the Campamento Deposit located on the Ixhuatan property.

Brigus will receive a payment of CDN$5.00 per ounce of gold in the Proven and Probable category included in the feasibility study and has a two percent net smelter royalty (NSR) on production.

Location

The Ixhuatan
property is in the north-western part of Chiapas State, southern Mexico, 100 kilometers (km) south of the city of Villahermosa. Chiapas State lies in the 450km long gap between the Trans Mexican Volcanic Belt to the northwest and the Central American Volcanic Arch to the southeast. The area is both volcanically and tectonically active and covers the triple junction of three crustal plates – the North American, Caribbean and the Central American. This tectonic setting has generated a highly favorable environment for the development of structures and the associated fluid flow required for major world class gold and base metal deposits.

Ixhuatan

The Ixhuatan
property comprises 4,176 hectares and there are several distinct styles of mineralization around the southern and western flanks of a highly eroded volcano.

The property is host to the Campamento Au-Ag deposit (carbonate base metal Au mineralization) and the Cerro La Mina Porphyry Cu-Au-Mo prospect.

Several other Au and Au-Ag mineralized zones and exploration targets have been identified. The San Isidro, Laguna Chica, Central, Caracol and Cacate prospects, are all located in a one to two kilometer wide, four km long corridor between the Campamento and Cerro la Mina deposits.

Both the porphyry and carbonate base metal mineralization on the property are prone to supergene gold enrichment and produce strong gold in soil geochemical anomalies.

The only other significant mineralization discovered to date, close to the Ixhuatan property, is the Santa Fe Mine area (The Santa Fe mine claims have belonged to Minera Frisco since the 1960′s, Minera Frisco is controlled by telecom tycoon and mining magnate billionaire Carlos Slim). The Ixhuatan property was acquired by Linear, in 2000, due to its proximity to the Santa Fe mine.

Investigation of numerous gold and copper zones at the former polymetallic (gold, silver and copper) Santa Fe mine indicated that the geological setting was a high sulphidation environment with the potential for a copper/gold porphyry system at depth.

A stream sediment geochemical study was carried out in the northern portion of Chiapas. The survey indicated strong gold in stream sediment anomalies on the Ixhuatan property and the properties geochemical anomalies were located during follow-up work.

Three areas of Au-Cu-Mo (molybdenum/moly) geochemistry – the San Isidro, Central and El Campamento zones – were found to be highly altered in a similar fashion to the Santa Fe area.

More than 89,000 meters of drilling in 342 holes have been completed on the Ixhuatan Project.

Campamento

Gold and silver mineralization occurs with base metals in veinlets and as wall rock disseminations with native gold and electrum being the dominant gold bearing minerals.

The first drill campaign was conducted on the property between May 2004 and October 2007. There was 69,679 m of drilling done in 282 drill holes. This drilling was completed on six separate targets but most of the drilling occured on the Campamento Zone.

Resource

The Campamento deposit contains a NI43-101 compliant resource estimate, using a using a 0.50 gram per tonne (g/t) gold cut-off, of:

Measured and Indicated – 1.041 million oz of gold and 4.4m oz of silver within 17.6 million tonnes (Mt) at an average gold grade of 1.84 grams per tonne and average silver grade of 7.79 g/t.

1.84g/t gold = $97.85 tonne @ $1654.10 gold per oz.

7.79g/t = $7.58 a tonne silver at $30.25 an oz of silver.

Inferred – 0.703m oz of gold and 2.26m oz of silver within 21.8 Mt at average grades of 1.01 g/t gold ($53.71) and 3.23 g/t ($3.14) silver.

Since the Campamento resource is already so well defined Cangold will concentrate on the engineering studies needed to move the deposit as fast as possible down the development path towards a full feasibility study. Metallurgical sampling has been initiated to facilitate initial flow sheet development and ascertain potential gold and silver recoveries. This work provides the critical information necessary for the completion of a scoping study. The next step would be starting a prefeasibility study in the second half of 2012.

Cerro La Mina

A second drilling campaign consisting of 20,027 meters of drilling in 60 holes was completed from October 2007 through December 2009. The emphasis was on defining the emerging gold-copper-molybdenum resource of the Cerro la Mina deposit 1.5 km ENE of the Campamento deposit, plus evaluation of the showings between Campamento and Cerro la Mina.

Infrastructure

Chiapas has good communications and highway systems. The Pan American Highway links the state capital, Tuxtla Gutiérrez, to the state of Oaxaca and the country of Guatemala. Highway 195 passes adjacent to the Ixhuatan property and joins Tuxtla Gutiérrez to Tabasco State’s capital, Villahermosa. Both cities can provide services, supplies and personnel.

The railway system and air transportation are also good with international airports located in Villahermosa and at Tuxtla Gutiérrez.

Access to the Pacific Ocean is from Puerto Madero, a port city near the Guatemala border.

Chiapas has four major hydroelectric power plants so electricity is plentiful and inexpensive.

Enviromental

Environmental regulations in Mexico are governed by the Secretaría de Medio Ambiente y Recursos Naturales (SEMARNAT).

Land Tenure

The ejido, a communal land system, is a distinctive part of Mexican history. Ejido lands are the lands surrounding villages and settlements. The ejidos own the surface rights to the lands near their villages. Land tenure for mineral rights are acquired through the national government.

Agreements have to be negotiated with each ejido to allow work to be carried out.

The projection of the Cerro La Mina magnetic (intrusive) and geochemical trends clearly continues northeast onto the San Francisco Jacona ejido area. Unfortunately the ejido, who control surface rights to Cerro la Mina, voted unanimously to deny access to their properties – Kinross withdrew from the option agreement with Liniar (Brigus Gold) after expending US$11,612,610.34 on the Ixhuatan project (on the Cerro la Mina showing) between October 2007 and December 2009.

Social Due Diligence

Cangold intends to work with the local communities in advancing the Ixhuatan project and will use a collaborative approach to project development after identifying all local stakeholders.

Potential

Linear and Kinross Gold Corporation agreed on September 6, 2007 for Kinross to earn up to a 70% interest in the Ixhuatan project by:

“Undertaking US$15,000,000 of exploration expenditure and making payments to Linear of US$101 million plus a production decision fee of up to US$15 million.”

When the San Francisco Jacona ejido refused permission for Kinross to work on their lands Kinross walked away from the deal with Linear. There was simply no way for them to potentially negotiate a deal, and then get the necessary results back from their work, within the time frame of their massive cash earn in commitment. The Campamento resource, while a very big deal for a junior was not, at the time, something a major mining company would option a property for, certainly not on those agreement terms. Kinross was hunting for something much bigger and they drilled plus 20,000 meters and spent $11m looking for it before they were forced to drop the deal.
Recall also that this was 2009, post-crash, and everyone was slashing exploration budgets. 

“The setting of the area shows similarities to that of the majority of giant porphyry deposits worldwide: it occurs above shallowly-dipping subduction, where an aseismic ridge is being subducted. The composition of the associated igneous rocks is alkalic, of the shoshonite suite, similar to those hosting such deposits as Grasberg (Indonesia) and Bingham Canyon (USA). The main prospects under exploration in the Ixhuatan area show abundant evidence for porphyry affinities, including very widespread biotite and feldspar alteration, and the appearance along the eastern margin of the area of a very thick advanced argillic lithocap similar to those found over porphyry deposits in other parts of the world.” Noel White, world renowned geologist

Conclusion

The Ixhuatan Gold Project already has, in the Campamento Deposit, a NI 43-101 compliant measured and indicated resource of 1,041,000 ounces of gold and 4,400,000 million ounces of silver, and another 700,000 ounces of gold and 2,250,000 ounces of silver in the inferred category – a total of 1,741,000 ozs of gold and 6,650,000 ozs of silver.

Cangold can earn 75% of the existing resource for taking what is already a scoping level project through feasibility.

“Sometimes it isn’t just about the resource, sometimes it’s also about the resourcefulness.” anon

Bob Archer, Cangolds president and CEO, and his management team are old Mexico hands, they are well established in the country having numerous good contacts. They know how to work there, that’s beside the fact they have proven they can secure projects and put them into production – Bob is also president and CEO of Great Panther Silver TSX with its two operating mines. It was Bob Archer who did the deal and bought GPR’s Guanajuato mine from a co-op of miners – and who also put the Guanajuato and Topia mines into production and secured the San Ignacio project, GPR’s next mine.

Cangold management has been in the country for a number of years and they know how to work in Mexico.

Cangold is currently trading at .31 a share. For this you get:

• 75% of the resource of 1,741,000 ozs of gold and 6,650,000 ozs of silver on the Campamento Deposit
  
• Maybe the potential of Cerro La Mina
  
• The showings between Campamento and Cerro la Mina
  
• A commanding position controlling a highly prospective district the main potential of which is for world-class epithermal and porphyry copper-gold deposits
  
• Excellent management, very experienced in Mexico and in dealing with the Ejido’s
  
• Tight share structure with high insider ownership
  
• Stocked treasury
  
• Minera Frisco – good neighbors to have
  

So is there more to the Cangold story than meets the eye? Perhaps, truly only time will tell, but it is an intriguing story, considerably de-risked, well supported by possible production from the current Campamento gold/silver resource and, in this authors opinion, currently undervalued based on its 43-101 compliant resource.

A company that is both on the path to production and profits, and has such enormous blue sky potential should be on every investors radar screen. Is Cangold on yours?

If not maybe it should be.

If you’re interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

Site membership is free. No credit card or personal information is asked for.

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Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

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Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

Richard does not own shares of Cangold Ltd. TSX.V – CLD

Cangold Ltd. TSX.V – CLD is a sponsor of Richard’s website aheadoftheherd.com

By Jack Chan at www.simplyprofits.org

Based on the January 20th, 2012 Premium Update. Visit our archives for more gold & silver analysis.

There are certain dogmas held sacrosanct by precious metals investors and one of them is that platinum is supposed to be more expensive than gold. That’s just the way it is. Quite a few eyebrows lifted and jaws dropped last fall when the yellow metals price overtook that of platinum. The historic switch took place on Sept. 2nd when Comex gold futures settled at $1,875.25 per troy ounce, just above platinum’s closing price of $1,873 per ounce. When you consider the price history of the two precious metals—platinum has traded at a $200 to $400 premium to gold—the reversal was astounding. Just to give you a better idea, before the 2008 Lehman Brothers crash, platinum was trading at more than $2,270 per ounce while gold was trading under $990 an ounce.

Platinum is much more rare in nature than gold. More than ten times more gold is mined each year than platinum. Unlike gold, which is either held in bank vaults or used in jewelry, more than 50% of the yearly production of platinum is consumed (used up) by industrial uses, mostly in the automobile industry. Some 40% is used for jewelry manufacturing and 10% for investment purposes. The Japanese seem to be very fond of platinum as they account for 95% of the platinum jewelry demand. There are reports in the press of a nascent interest in platinum jewelry in India, expected to make up 25%-30% of the total Indian jewelry sales in 2012.

The annual supply of platinum is only about 130 tons, equivalent to only 6% (by weight) of the total annual gold mine production. It is less than one percent of silver’s yearly output. Unlike gold, there are no large inventories of above-ground platinum. Therefore, any breakdown in the two major supply sources, South Africa and Russia, would catapult the price of platinum. An even more intriguing fact is that more than 90% of the world’s platinum production comes from only four mines: three in South Africa and one in Siberia.

During economic expansion, platinum prices tend to outpace gold given its dual role as both a precious and industrial metal. But when the economy slows down, platinum can often stumble. For example, platinum dropped below the price of gold back in the early 1980s, pushing the spread below 1.0 for the better part of 5 years as the economy slowly recovered. During the 2008 financial collapse, platinum prices fell from $2,252 to $774, a drop of nearly 65%. Both metals crashed. Gold nosedived due to hedge funds liquidations and investors dumped platinum bracing for a recession expected to flatten automobile sales. The metals reached parity in December 2008 as the price of platinum sunk amid the global financial crisis and a collapse in auto demand. Gold has since has put on a show stopping comeback reaching a high of $1,900 last summer, but platinum has yet to bounce back. As this goes to publishing, the price of gold is $1,655 and the price of platinum is $1,515.

Let’s take a look at the chart featuring platinum. You will see platinum at the bottom of the chart below and the platinum-gold ratio in its main (charts courtesy by http://stockcharts.com.)

On the above platinum to gold ratio chart (if you’re reading this essay at www.sunshineprofits.com, you may click on the above chart to enlarge it), we see an anomaly unlike anything seen in recent years. There have been several small breakdowns below the level of previous lows but none have held.

Platinum’s extreme undervaluation is not something is likely to persist for much longer. The ratio is now at 0.92 and once it begins to move higher, much more platinum buyers are likely to enter the market. Platinum’s price below the one of gold is something that investors view as a buying opportunity (as seen on the above chart) so the only factor that remains in place – preventing prices from moving higher – is fear. Once it subsides as investors see that platinum is not breaking lower, they will buy. This action will likely result in platinum to soon be outperforming gold, something which has not been seen for some time (except earlier this year).

Summing up, it appears that the situation in the platinum to gold ratio and for platinum itself is favorable and if you’ve been planning to diversify your holdings, it might be a good idea to consider this particular metal.

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All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits’ associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

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