Dan Norcini gold update 4 May

Hourly Action In Gold From Trader Dan

from Welcome To Jim Sinclair's MineSet by Dan Norcini

Dear CIGAs,
Gold priced in Euro terms, or Euro Gold as I prefer to call it, notched a brand new all time high at today’s PM fix finally clearing the 900 level as it was fixed at €907.281. Yen gold also made another high at the PM Fix as did Sterling gold. This was prior to the selling barrage that swamped the commodity world in New York as the hedge funds were busily disengorging themselves of anything that was remotely tangible and rushing wildly into the safety of, (drum roll here), paper bonds. Yessiree Bob, that is what I call a nice, “let me sleep comfortably” trade. Uncle Sam is issuing these scraps of paper by the trillions and investors can’t get enough of them throwing away gold in the process. Exchanging gold for paper scraps whose yields are dropping off a cliff – excuse me while I shake my head as I marvel at this display of mental acumen by the boy wonders of the hedge fund world. One computer algorithm to rule them all.
Don’t let today’s blind selling panic shake your settled conviction concerning gold. Any setback in price is not going to last long as the causes behind the continued strength in gold are intensifying, not lessening. Investors rightly fear a contagion effect from Greece towards other weaker members of the Euro zone such as Spain and Portugal. Then there is Italy and perhaps some of the Eastern European nations bordering on the Euro zone.
This pales in comparison to what is occurring in the states here in the US but the financial press will have nothing to do with that – for now. German banks are stuck holding gobs of Greek debt but how would you feel holding gobs of California’s, or Illinois’s, or New York’s debt. What got the ball rolling downhill for Greece, even though everyone and their mother knew about it for a while, is the ratings downgrade by the rating agencies. Eventually those “way behind the curve” folks will get around to training their guns on the various US States. That is when things will get nasty.
With all this commodity related selling, copper is getting beaten with an ugly stick having lost .40 over the last month and has now surrendered all of its gains for the year. The weekly chart still shows a market in an uptrend however so this indicator has not completely rolled over as of yet. It would have to drop below $3.00 to have me concerned about a double top although price is approaching both the 40 week and 50 week moving averages. If it is going to hold, it will hold at either one of those two levels. That means copper bulls need to come up with some sort of convincing argument to justify a resumption of the uptrend sooner rather than later.
Weakness in the base metals as well as platinum and palladium helped pull silver lower today.
Crude oil, another key commodity and forward looking indicator, is not escaping the selling wave today either but at this point is still trading higher than where it began this year. It too has a weekly chart which shows a market in an uptrend. I would have to see crude oil trading below $70 to say definitively that a longer term top is in. Crude could very well work in a broader trading range with a higher bias as it is entering a seasonally strong period. It spent the better part of February and March working between 83 and 78 before moving up to its current range between 87 and 80.
The equity markets have not been very kind to would-be shorts ( I should know) but today’s cascade into the abyss has created some serious technical chart damage. The S&P has been a one way trip north for three months now and it finally appears that the “nothing but blue skies” crowd has had a dose of reality. Soaring profits for the financial stocks has led many to conclude that the banking system is back on solid ground and given rise to hopes that lending would be picking up as the economy supposedly garnered strength on the willingness to borrow once again. The problem is that the banks are making money not by lending but more so by trading. Why take on risk when you can trade virtually risk free has been their motto. The higher the long bond moves in price, the tougher it is for them to play the interest rate differential game.
The S&P is now sitting squarely on its 50 day moving average on the daily chart. A breach of this level which cannot be recovered before the closing bell or additional downside action tomorrow that cannot recapture this level, is going to turn many technical indicators that the funds use to the sell side. The onus is now on the bulls to perform and see whether or not they can avoid handing control over the market to the shorts. They have proved quite adept at snatching victory out of the jaws of defeat this entire year. One thing working in the favor of the bulls is that the longer-term oriented weekly chart still shows the S&P in an uptrend with price well above the rising 40 week and 50 week moving average although a poor close by the end of this week will tend to confirm the bearish engulfing pattern shown on this same weekly chart. How this market closes Friday of this week is going to set the tone for some time.
The long bond took to the heavens today as it surged past my initial target near the 119 ^20 level moving al the way to 120 ^01 before setting back a tad. A strong finish to the week would set the bulls up for a decent shot at 121 ^10. About those higher yields on your bank savings accounts – forget about those for now.
Based solely on the price charts as of today, one would be hard pressed to find the “V” shaped recovery chatter having any credibility.
One last comment about the HUI – the mining shares continue to be on the receiving end of the hedge fund ratio trades. They got hit with a double whammy – talk of a 40% Australian tax yesterday plus today’s severe broad equity market sell off was too much for mining share bulls to handle. We will be watching to see when buying support emerges in this sector. The shares are no longer the indicator for gold as they once were, not with the advent of the gold ETF’s which have siphoned off a considerable amount of investment money that would otherwise be finding its way into the miners. Those who designed those infernal creations, knew what they were doing.
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini

GLD SLV Option update

Sold the GLD 110 calls at 18.0, rendering a 10.8% return.  I more or less missed this move and was not positioned right so I bailed.

The SLV 17.0 calls are in danger of being stopped, with my stop loss limit at 3.55.  If stopped, I will have about a 3% gain on the trade.  Again, I was not in the right place at the right time and I do not want to push a position i am not wild about.

Another trade will present itself no doubt.

4 May chart update

GLD continues the slow grind and potential divergence can still be seen on the chart, shown with blue trendlines.  If the grind continues, divergence will dissolve and the issue fails to be an issue.  We opened and closed above the Bollinger band and we can expect that to happen 2.5% of the time, providing resistance for further progress.  Support comes in at previous resistance at 114.20.  Further support lies at the 18 day MA at 113.16.  This is also the Fibonacci 61.8% retracement line. 

6 Mo: "

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A new concept I am working on is the Elder impulse System.  It is designed to catch the big momentum move and then bail when the pressure starts to subside.  My thinking is to use this type of thing for short term trades and as a entry exit aiding tool for more long term type trades.  Read about it in the Chart School at Stockcharts.com.

The Impulse chart is showing green which indicates the momentum trade is still strong, with the slopes of the MACD histogram and the 13 EMA being positive.  Since we are above the 65 day EMA, this renders a long buy signal.  If the MACD histogram slopes turns negative, the chart will paint a blue bar indicating an exit from the long.  A red bar indicates both the MACD histogram and 13 day EMA slope is negative and would in itself indicate a short sale trigger.  But, in this case with the 65 day EMA slope positive or below the current price, it indicates the longer term trend is still up.  Therefore all short sale triggers must be ignored.

Elder Impulse System, daily: "

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SLV is also showing potential divergence, shown in a rather stark manner by the MACD histogram.  On the positive, divergence isn't really showing in RSI or stochastics.  I suspect silver may have a bit more upside potential than gold in the short term.  Price is right at resistance of 18.45.  Support is coming in at the previous high of 18.17 and further at the 18 day MA 17.86.  We are still under an over-bought reading on the RSI with an indication of 66.33.

6 Mo: "

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The Elder Impulse chart is painting green bars with positive slopes on the histogram and 13 day EMA. The divergence is shown on the histogram.  The Force Index is a new concept for me and I am including it to see if it is useful as trend verification or divergence tool.  Learn more about it in the Charts School. It is showing divergence in that lower readings are associated with higher prices over time.  The question that needs to be answered is how long can this indicator show divergence before it manifests a reversal?  Until I have a feel for that I will be basing my analysis on my usual indicators.

Elder Impulse System, Daily: "

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The miners have lagged for some time and now appear to be losing momentum before the actual metal.  On the other hand, GDX did make it to over-sold territory on the RSI, while the metals are still working on it.  The divergence is also present on this chart.  We hit overhead resistance and retraced yesterday.  support is coming in at the low from yesterday around 49.20, which is also the Fibonacci 61.8% retracement.  Stochastic remains above 80, but a cross there suggests a pullback to the 18 day MA or 48.12.  That is what I was betting on when I covered the shares at 51.

6 mo: "
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The Impulse chart is painting a blue bar, or signaling an exit from long trades.  Interesting, because I covered using my usual setup and it agreed with the Elder Impulse System.

Daily Elder Impulse System, Daily: "

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John williams on hyper-inflation

The bold emphasis is mine.  I think every one needs a couple of months of dry goods and household staples.  Stuff like toilet paper, basic cooking supplies, and hygiene items will be the first to be gone.  Just in case, it would be nice to have a solar oven, a Berkey water filter, and a moonshine still (who wants to endure the greatest depression with a good martini?) just in case it really gets ugly.   John Williams: A Hyper-Inflationary Great Depression Is Coming

By Gold Report May 3 2010 12:23PM www.theaureport.com

ShadowStats' John Williams has done his math and believes his numbers tell the truth. He explains why the U.S. is in a depression and why a "Hyper-Inflationary Great Depression" is now unavoidable. John also shares why he selects gold as a metal for asset conversion in this exclusive interview with The Gold Report. The Gold Report: John, last December you stated, "The U.S. economic and systemic crisis of the past of the past two years are just precursors to a great collapse," or what you call a "hyper-inflationary great depression." Is this prediction unique to the U.S., or do you feel that other economies face the same fate? John Williams: The hyper-inflationary portion largely will be unique to the U.S. If the U.S. falls into a great depression, there's no way the rest of the world cannot have some negative economic impact. TGR: How will the United States' decreased economic power impact global economies? Will the rest of the world survive? JW: People will find to their happy surprise that they'll be able to survive. Most businesses are pretty creative. The thing is, the U.S. economic activity accounts for roughly half that of the globe. There's no way that the U.S. economy can turn down severely without there being an equivalent, at least a parallel downturn outside the U.S. with its major trading partners. When I talk about a great depression in the United States, it is coincident with a hyper-inflation. We're already in the deepest and longest economic contraction seen since the Great Depression. If you look at the timing as set by the National Bureau of Economic Research, which is the arbiter of U.S. recessions, as to whether or not we have one, they've refused to call an end to this one, so far. But assuming you called an end to it back in the middle of 2009, it would still be the longest recession seen since the first down-leg of the Great Depression. In terms of depth, year-to-year decline in the gross domestic product, or GDP, as reported in the third quarter of 2009, was the steepest annual decline ever reported in that series, which goes back to the late '40s on a quarterly basis. Other than for the shutdown of war production at the end of World War II, which usually is not counted as a normal business cycle, the full annual decline in 2009 GDP was the deepest since the Great Depression. There's strong evidence that we're going to see an intensified downturn ahead, but it won't become a great depression until a hyper-inflation kicks in. That is because hyper-inflation will be very disruptive to the normal flow of commerce and will take you to really low levels of activity that we haven't seen probably in the history of the Republic. Let me define what I mean by depression and great depression, because there's no formal definition out there that matches the common expectation. Before World War II, economic downturns commonly were referred to as depressions. If you drew a graph of the level of activity in a depression over time, it would show a dip in the economy, and you'd go down and then up. The down part was referred to as recession and the up part as recovery. The Great Depression was one that was so severe that in the post-World War II era, those looking at economic cycles tried to come up with a euphemism for "depression." They didn't want to create the image of or remind people of the 1930s. Basically, they called economic downturns recessions, and most people think of a depression now as a severe recession. I've talked with people in the Bureau of Economic Analysis and the National Bureau of Economic Research in terms of developing a formal depression definition. The traditional definition of recession—that of two consecutive quarters of inflation-adjusted contraction in GDP—still is a solid one, despite recent refinements. Although there's no official consensus on this, generally, a depression would be considered a recession where peak-to-trough contraction in the economy was more than 10%; a great depression would be a recession where the peak-to-trough contraction was more than 25%. We're borderline depression in terms of where we're going to be here before I think the hyper-inflation kicks in. You've certainly seen depression-like numbers in things such as retail sales, industrial production and new orders for durable goods, where you're down more than 10% from peak-to-trough. In terms of housing, you're down more than 75%, and that certainly would be in the great depression category. With hyper-inflation, you have disruption to the normal flow of commerce and that will slow things down very remarkably from where we are now. TGR: After a period of recession, isn't inflation considered a good sign? JW: There are a couple of things that drive inflation. The one that you're describing is the relatively happy event where strong economic demand is exceeding production, and that's pushing prices higher, as well as interest rates. That's a relatively healthy circumstance. You can also have inflation, which is driven by factors other than strong economic activity. That's what we've been seeing in the last couple of years. It's been largely dominated by swings in oil prices. That hasn't been due really to oil demand, as much as it has been due to the value of the U.S. dollar. Oil is denominated in U.S. dollars. Big swings in the U.S. dollar get reflected in oil pricing. If the dollar weakens, oil rises. That's what you saw if you go back to the 1973-1975 recession, for example. That was an inflationary recession. Indeed, the counterpart to what you were suggesting earlier about the strong demand and higher inflation is that usually in a recession you see low inflation. The '73 to '75 experience, however, was an inflationary recession because of the problem with oil prices. That's what we were seeing early in this cycle, where a weakening dollar rallied oil prices, and then the dollar reversed sharply and oil prices collapsed. We have passed through a brief period of shallow year-to-year deflation in the consumer price index, but, as oil prices bottomed out and headed higher since the end of 2009, we're now seeing higher inflation, again. I'm looking at hyper-inflation, which is a rather drastic forecast. This has been in place as an ultimate fate for the system for a number of years. Back in the '70s, the then Big 10 accounting firms got together and approached the government and said, "Hey guys, you know you need to keep your books the way a big corporation does. You're the largest financial operator on earth." The government then, as well as today, operates on a cash basis with no accrual accounting and such. Yet, over a period of 30 years, the accountants and government put together generally accepted accounting principles, or GAAP, accounting for the federal government and introduced formal financial statements on that basis in 2002, which supplement the annual cash-based accounting. If you look at those GAAP-based statements and include in the deficit the year-to-year change in the net present value of the unfunded liabilities for Social Security and Medicare, what you'll find is that the annual operating shortfall is running between $4 and $5 trillion; not $500 billion as we saw before the crisis or the $1.4 trillion that they announced for fiscal 2009. Now to put that into perspective, if the government wanted to balance its deficit on a GAAP basis for a year, and it seized all personal income and corporate profits, taxing everything 100%, it would still be in deficit. It can't raise taxes enough to contain this. On the other side, if it cut all government spending except for Social Security and Medicare, it still would be in deficit. With no political will to contain the spending, eventually the government meets its obligations by revving up the currency printing press. TGR: With all this new paper money coming into the system, wouldn't we see a bigger bubble than we've ever seen prior to a hyper-inflationary great depression? JW: No, in fact, it's a very unusual circumstance that we have now. Put yourself in Mr. Bernanke's situation—he had to prevent a collapse of the banking system. He was afraid of a severe deflation as was seen in the Great Depression, when a lot of banks went out of business. The depositors lost funds and the money supply just collapsed. He wanted to prevent a collapse of the money supply and keep the depository institutions afloat. Generally, that has happened. The FDIC expanded its coverage and everything that had to be done to keep the system from imploding was done. The effects eventually will be inflationary. In the process, what Mr. Bernanke did was to expand the monetary base extraordinarily, more than doubling it over a period of a year. The monetary base is money currently in circulation plus bank reserves. If you go back to before September 2008, the bank reserves were in the $50 to $60 billion range. Where the currency was maybe $800 billion, we've gone over $2 trillion in total reserves. Most of that is in excess reserves and not required reserves that banks have to keep to support their deposits. Normally banks would take their excess reserves and lend them out into the regular stream of commerce, and in doing so, that would create money supply. Instead they're leaving the excess reserves on deposit with the Fed. Money supply and credit are now generally contracting. We're going to see an intensified downturn in the near future. I specialize in looking at leading indicators that have very successful track records in terms of predicting economic or financial turns. One such indicator is the broad money supply. Whenever the broad money supply–adjusted for inflation–has turned negative year over year, the economy has gone into recession, or if it already was in a recession, the downturn intensified. It's happened four times before now, in modern reporting. You saw it in the terrible downturn of '73 to '75, the early '80s and again in the early '90s. In December of 2009, annual growth in real M3 turned negative. It's now at a record low in terms of decline, down more than 6% year over year. What that suggests is that in the immediate future you're going to see renewed downturn in economic activity. In all the prior instances that I mentioned, this event led recessions, except for '73 to '75. That's when you had the oil spike and a recession that came from that. When the money supply turned down in that recession, the economy accelerated in its decline. We're going to see something along those lines, now, with about a six-month lead time. You're going to have negative economic growth this year. The implications for that are extraordinary, because the projections on the federal budget deficit, a number of the state deficits, and the solvency and stress tests for the banking system all were structured assuming positive economic growth in the 2% to 3% range for 2010. Instead it's going to be negative. Many states are going to be in greater difficulty than they thought. Most likely, you're going to have federal bailouts there. The banks are going to have more troubles. All this means more government support, more government spending, greater deficits and greater funding needs for the U.S. Treasury. We have a global market that already is increasingly reluctant to hold the dollars and U.S. Treasuries. TGR: The U.S. dollar is still the reserve currency, and it's holding its value while the euro struggles. Wouldn't decoupling precede hyper-inflation? JW: I don't know if it will decouple from being the reserve currency formally, but it will de facto. The reserve status is the reason the dollar didn't collapse per se a year and a half ago during the September '08 panic. The movement is already afoot, however, to try to relegate the dollar to some status other than a reserve currency. For example, OPEC purportedly is looking to price oil in something other than U.S. dollars. The pressure is there to change the status. Again, if you start to see a great depreciation of the U.S. currency or a tremendous increase in lack of confidence in the soundness of the government's fiscal condition, there is a problem. You mentioned Greece, for example. The sovereign solvency issues there are minuscule compared to what we have with the United States, which is the elephant in the bathtub. The markets know it's there. The central bankers know it's there. Again, with the downturn in the economy, all the issues are going to be brought to a head. As they come to a head, there will be that effort to dump the dollar. I would expect that, indeed, it will be decoupled from its reserve status, although it could follow after the fact as opposed to before the fact. TGR: Major economic indicators suggest significant improvement; even the IMF has stated that we've averted a global depression. What are you seeing that these governing bodies are not? JW: What I'm using is a leading indicator of economic activity: year-to-year change in inflation-adjusted broad money supply. We're now seeing a very sharp year-over-year decline, which has not been seen since the 1990 recession. This indicator does not work always in the upside; it doesn't necessarily give you a signal for a rising economy. It is, however, basic. If you strangle liquidity you can always contract an economy. Deliberately or not, liquidity's being strangled. You're seeing very sharp declines in consumer credit, commercial and industrial loans and commercial paper outstanding. You are getting happy news from governments, central banks, financial markets, Wall Street analysts and the popular media, which does tend to cater to Wall Street. Such is standard practice. Happy news is what sells and you don't want to discourage people. The Obama administration, interestingly, started talking-down the economy when it wanted to get its stimulus package in place. As soon as that was done, it started talking-up the economy. Everything was just fine and dandy again. This is the most extraordinary downturn most people living today have ever seen. In terms of modern economic reporting, which basically started after World War II, we've never had a downturn as long or as severe. Perversely, the extreme nature of the downturn actually has warped recent reporting of seasonally-adjusted data to the upside. TGR: Earlier you mentioned that business around the world will survive in the event of a depression. Aren't there sustainable businesses in the U.S. as well? Won't an influx of printed currency and green-tech job creation offer some value? At some point, doesn't stimulus money become real cash producing real goods? Surely the economy would be viable at some level? JW: Not without income growth. There's nothing there that you've described to me that is growing, aside from inflation. To have sustainable growth in the economy, you have to income growth, net of inflation. That is not happening, and there is nothing in existing government stimulus that will cause real income growth. Beyond income issues, the problem with the hyper-inflation is that very quickly the use of cash will cease. Let me contrast our circumstance here with a very popularly followed hyper-inflation case that's now run its course in Zimbabwe. There you had probably the worst hyper-inflation that anyone's ever seen. After devaluation upon devaluation, they successively lopped the zeros off the bills. If you took a $2 bill that they first issued back in the '80s and then tried to come up with the equivalent of a $2 bill in the last form of the currency, it would be very difficult to do because it was so worthless. If you put a pile of those together to equal the original $2 bill, it would actually stretch from the earth to the Andromeda Galaxy. We're talking light years. There are not enough trees on earth to print them. Yet the Zimbabwe economy survived and functioned. They had a lot of problems, but they operated. The reason they functioned was because they had a back-up system, which was a black market in U.S. dollars. People switched out of the Zimbabwe dollar to U.S. dollars. They could live with that. In the U.S., we don't have a back-up system. TGR: You mentioned in a recent interview with CNN that you're recommending individuals move into both cash and gold. With the euro and the dollar in jeopardy, where does that leave us? JW: I don't like the euro. I don't think that's going to hold together, and I've thought so for some time. If it should break up and you have a new German currency, a new mark or something like that might be a strong one option. At the moment I like the Canadian dollar, the Australian dollar and the Swiss franc. For anyone living in the United States, rather than looking at the short-term volatility in the markets and trying to make money off of that, this is the time to batten down the hatches and to look to preserve your wealth and assets. In terms of preserving the purchasing power of your assets, the best thing I can think of is physical gold. That's worked over the millennia. I'm not per se a gold bug. It just happens to be a circumstance in which it's the cleanest asset around for that. You don't need to put all your assets into gold, but hold some. Hold some silver. I'd look to get some assets out of the U.S. dollar and look to get some assets out of the U.S. When I say outside of the U.S. dollar, again, I look at the Canadian dollar, Australian dollar, Swiss franc in particular. I think they will tend to do particularly well, whereas the U.S. dollar is going to become effectively worthless. As the dollar breaks down, you'll also likely see disruptions in supply chains, including shipments of food to grocery stores. People should consider maintaining stockpiles of basic goods needed for living, much as they would for a natural disaster. I sit on the Hayward fault in California. I have a supply of goods and basic necessities in case something terrible happens—natural or man-made—that will carry me for a couple of months. It may take that long for a barter system to evolve, which I think is what you're going to end up with; at least until a new currency system is reorganized and you get a government that's able to bring its fiscal house into order. No currency system in the U.S. is going to work unless the fiscal conditions that drove it into oblivion are also addressed. On a global basis, where the dollar is the world's reserve currency, 80% of currency transactions involve the U.S. dollar. There's going to have to be an overhaul of the global currency system. To gain credibility with the public, the powers that be likely will design a system that has some kind of a tie to gold, but that's purely speculative. TGR: From a personal investment point of view, you emphasized that this is a time to conserve assets, including gold and other currencies. How else can investors protect themselves? JW: I like physical gold and silver. I look to gold as a primary hedge. If you can come out of this holding gold, you'll be in a position where you'll be able to take advantage of some extraordinary investment opportunities that will follow. With inflation, real estate is usually a pretty good bet. It tends to hold its value over time. There may be periods of illiquidity, though, and it's not portable. Neither of those limitations is an issue with gold. Maybe gold will become the black market to support U.S. economic activity. It certainly would be the area that people will try to transfer their assets to as time goes along. You see people now as gold gets to a new high saying, "Oh my goodness, I bought at $200, and I can sell out at $1,100 making a good profit." What people don't realize is that they haven't made a real profit. What they've done is retained the purchasing power of the dollars that they invested in gold, and they've lost proportionately the purchasing power of the amounts left in dollar-denominated paper assets over the same time. Gold is a long-term wealth preserver. Again, where many people are used to an investment environment where they can buy a stock, make a quick profit and then sell, with gold you need to hold on for the long haul as an insurance policy, not as a quick investment. TGR: Thank you very much for your time. Walter J. "John" Williams was born in 1949. He received an A.B. in Economics, cum laude, from Dartmouth College in 1971, and was awarded a M.B.A. from Dartmouth's Amos Tuck School of Business Administration in 1972, where he was named an Edward Tuck Scholar. During his career as a consulting economist, John has worked with individuals as well as Fortune 500 companies. For more than 25 years he has been a private consulting economist and a specialist in government economic reporting. His analysis and commentary have been featured widely in the popular media both in the U.S. and globally. Mr. Williams provides insight and analysis on his website, www.shadowstats.com.

GDX May 48 covered calls up 25%

3 Mo: "

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The covered calls worked like they we supposed to today, at one point the trade was up 25%.  Not bad for 1 day.  The divergence is still present in the chart, so nothing today has really changed.  It was a strong pullback followed by a pretty good rally of the low.  That leaves us with a potential reversal candle.  Reversal of which trend?  The uptrend or the 1 day old trend lower?  I do not know, but I will watch tomorrow for a clue. 

Weekend GLD

6 Mo: "

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GLD did well last week but closed Friday with a weak candle outside of the Bollinger band.  This may be showing that the market didn't want to hold the trade through the weekend, a natural tendency.  Or, it may be time for a pullback.  There is possible divergence forming in the MACD histogram and in Stochastic, shown on the chart with red lines.  This is a possible warning sign of reversal.  If momentum continues Monday to the upside, these divergences may fix themselves on their own.  RSI is still not over-bought with a reading of 65.77 and has more room to run higher.  Stochastic is setting up for a possible embed, 3 days above 80.  Bottom line: Monday should bring clarity as to how things may develop in the short term.

The weekly chart shows price on the breakout line poised to do something.  What will it be?

Three Year: "

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I am including a new chart showing the Elder impulse System.  Read about it in the chart school at stockcharts.com.  I am going to play with this thing to see if it is of use.  More later on Elder Impulse.

Elder Impulse System, weekly: "

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Goldman Sachs, Chess, and the Godfather

Damon Vrabel is the creator and narrator of Renaissance 2.0.  His work can be found on Nathan's Economic edge and I highly recommend everyone watch the series in its entirety.  He has broken the code and I think he is on the money with the assessment of Goldman.


Nathan's Economic Edge – noreply@blogger.com (Nathan A. Martin)
Published May 1, 2010 12:31 AM

Just this morning I was discussing that there were obviously games being played with Goldman. According to Mr. Vrabel, that game is chess.

And look at who he points to as a probably power behind the scenes, none other than the very same JPMorgan mentioned this morning:

Damon Vrabel - Goldman Sachs, Chess, and the Godfather


Between the SEC charges and the congressional panels, the government is finally doing its job going after Goldman Sachs, right? And this last week in April ends with the Justice Department picking up the baton, which puts Goldman under threat of criminal prosecution. Things have suddenly gotten serious.

Two weeks ago on a radio interview, I suggested the SEC investigation will either be a chump charge to pacify the masses or it might potentially be the beginning of the sacrifice of Goldman Sachs for reasons explained below. The Justice Department referral makes the latter more probable.

Criminal prosecution is indeed appropriate. Goldman deserves to be broken up. In fact, all banks of that size need to be broken up so that power is passed down to state and local economies, and countries are no longer held hostage by the mega firms. Is that what is happening here? Are we being saved from the financial parasites that have destroyed our economy?

Childlike Perspective: Left vs. Right

The left thinks so. The major media establishment is suddenly, as if by script, trumpeting the idea that government is cracking down on boogie man Goldman Sachs. This view says, “Yey! Our good government servants that have our best interests at heart are fixing those greedy Wall Street parasites.” That’s the entire purpose of the congressional panels—a stageshow for the Wall-Street-funded media to promote this narrative. But those very same government officials were the ones who did what Goldman Sachs representatives and the real powers behind Wall Street told them for the last 20+ years. They still get all of their money from Wall Street. Have they suddenly turned on the very people who feed them? Of course not.

The right thinks this crackdown is bad because Wall Street and Goldman represent a benevolent free market. This view goes beyond childlikeness and approaches insanity, like Goldman CEO Lloyd Blankfein thinking of himself as an angel from God. Wall Street, the Fed cartel, is a government creation. There is nothing “free market” about it. It is the most powerful monopolized cartel in the history of the world. Conservative media mouthpieces who trumpet Wall Street do not have a clue about our monetary system. They have never looked beyond the false religion of neoclassical economics, which conveniently ignores the issue of money.

Conclusion: rule out the simplistic view of the left and right. The Washington DC government has served Wall Street and big business for decades. There is no divide between big government and big business. They go hand in hand. Neither could exist without the other.

Adolescent Perspective: “They’re All Criminals”

Another group of people, far more accurate than the left vs. right disciples, think that Wall Street is just a predatory bunch. Bringing down Goldman Sachs would therefore be a good thing in their view. But they think DC government is a predatory bunch as well. They see through the salesmanship and PR pumped through the corporate media. They understand that frat boy behavior creates a self-serving clique whether on Wall Street or in Washington DC. In fact, they understand how the boys in both groups get their power from working together. It is all one club.

Conclusion: as correct as this view is, it leaves us paralyzed. Adolescents are brilliant at seeing through adult facades, but they may fail to see the higher level picture.

The Godfather: Who the Criminals Work For

The key to what is really happening is to understand that the suits we see on television are not in charge. A bunch of random self-serving people would not be able to pull off strategic, coordinated plans—the adolescent view is only half correct. There are people far above the pay grade of a senator like Chris Dodd or a wage servant like Lloyd Blankfein. He may be the top operating officer at Goldman, but by definition that means he is a servant of the ownership class—the Anglo mafia—that controls all money in the system. The fact that he earns a wage and gets a W2 at the end of the year means he and his firm are not in charge.

Goldman Sachs is effectively a capo regime. It is a powerful player in a game of controlled chaos. It was given a territory and was then expected to deliver the goods. And Goldman delivered better than all the other capos in the system. It reaped the rewards. Goldman’s officers were paid better than any other regime throughout the last several decades. Its hit men were the most productive. The most loyal—Rubin, Paulson, etc—have been inducted into the upper level circle around the Godfather and removed from the stressful street jobs that bring public scrutiny. Those guys made their hundreds of millions and no longer care whether Goldman exists or not. And from the Godfather’s perspective, there comes a time when capos have served their purpose. At that point, their life is in danger.

“The Game of the Century:” Bobby Fischer and the Queen Sacrifice

But capos typically are not sacrificed unless doing so would serve a Machiavellian purpose. So what would be the purpose of sacrificing Goldman? Well, in one of the more famous games in chess history, 13-year-old Bobby Fischer brilliantly pounced on his opponent and guaranteed victory by boldly sacrificing his queen on move 17. The queen is the most powerful chess piece. Average people would narrowly play a game defensively protecting their queen and assuming any chance to take your queen would lead to victory. But that elementary view would be precisely the weakness upon which a true chess mind, a Godfather, would prey. Beware of the bait being laid in front of you.

Goldman Sachs is very much analogous to a queen in the chess game being played by the ownership class—the richest pools of private capital controlled by multi-generational wealthy families that hover above countries via the central banking system. It has been one of the most potent pieces on the board for many years, its most recent attack being on the entire nation of Greece. But as the endgame comes into view, perhaps the most brilliant play to reach checkmate is now the queen sacrifice. Goldman employees had better be sending their resumes to JP Morgan Chase—a critical chess piece in the endgame that will be protected at all costs.

The Great Global Restructuring

What is the end game? The ownership class is attempting to restructure the world under a new financial system. We have had a global currency for a long time—the US dollar—but it has run its course. Wall Street has leveraged up the dollar as far as possible. The dollar now holds most nations hostage thanks to the power of the bond market, the central banking system. The ownership class needs a new debt-based currency and banking structure to maintain control as they pump the capital engine through the 21st century. This is why the G20 is working feverishly to build up the IMF, BIS, and new global financial rules. This time the production center will be China rather than the US, which is why China and Japan are the most asset-rich countries in the world while the western world is the most indebted. The west is on track for decades of slow decline while Asia is on the verge of seeing “the rising sun.”

So unfortunately the government vs. Goldman Sachs story has nothing to do with reforming Wall Street in the interest of average Americans. Rather it is a strategic move to further the endgame of consolidating Wall Street power, focusing public rage on Goldman to protect JP Morgan Chase, fueling new regulations to clamp down on the smaller banks that we so desperately need, and creating a global structure even bigger than the already “too big to fail” banking system. This may be setting up one of the biggest, most successful queen sacrifices in history. We should take the queen by all means—Goldman is a predator. But heed the lesson from 13-year-old Bobby Fischer. Be wary of checkmate.