Gold/Platinum Ratio And The Coming Depression

During the gold bull market of the 1970s, the Gold/Platinum ratio was in a significant uptrend. It went from about 0.2 to 1.4 over a 12-year period. That is a seven-fold increase. At the start of the current gold bull market (2001), the Gold/Platinum ratio was just a bit higher than 0.4. If the ratio was to emulate its performance during the last gold bull market, it could reach 2.8 (that is gold being 2.8 times the value of platinum).

Similar conditions to that of the 70s, which propelled gold and other commodities higher during the 70s, are present now. However, this time, due to the current higher debt levels relative to GDP, compared to that of the 70s, conditions are more in favour of gold than commodities like platinum (that are more reliant on economic activity).

In the chart below, you can see that debt levels relative to GDP were much lower than it was during the Great Depression, as well as what it is currently.

US Debt to GDP ratio

 

What this is telling me, is that we are going to have conditions that are more like the Great Depression, for the remaining part of this gold bull market. The economic decline, which will mainly come as a result of the debt bubble bursting, will negatively affect a commodity like platinum, when compared with gold.

Although commodities, like platinum, will outperform most asset classes over the next years, they will still depreciate significantly as compared to gold (and silver).

Gold/Platinum Ratio suggests much higher gold prices are coming

There is an interesting pattern developing on the Gold/Platinum Ratio. This pattern is similar to a pattern on the silver chart. Below, is a graphic which features the Gold/Platinum Ratio chart (top) as well as the silver chart (bottom) (charts courtesy of stockcharts.com):

 

gold platinum ratio similar to silver chart

The graphic is self-explanatory, and indicates that the Gold/Platinum Ratio is in a position similar to where silver was at the end of January 2011. If the ratio was to continue to follow the silver pattern, then we could have gold being 1.7 times the value of platinum in this year. This is consistent with my expectation of a significantly higher “real’ gold price (relative to stocks and most commodities).

Note, that it is more probable that an increase in the Gold/Platinum Ratio would mean higher nominal gold prices, instead of lower gold prices. This is due to the fact that the recent decline in the ratio corresponds more with the correction in the gold price, since September of last year.

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Warm regards and God bless,

Hubert

http://hubertmoolman.wordpress.com/

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved.”

Gold Price Forecast 2012: The Impetus for the Mania Phase in Gold

Gold and Dow Forecast 2012:

For gold to rise to levels significantly higher than the recent high of $1920, a new impetus is needed. Without additional energy from such an impetus, gold could just trade sideways for a very long time, or even fall further. See the following chart (from barchart.com):

Gold price forecast with support

There is only so much value in the world economy, and it is split between all the different instruments (like gold, silver, stocks bonds, etc.) where value resides.

For gold (and silver) to rise significantly, relative to other instruments of value, value will have to be diverted away from those other competing instruments. The printing of more money does benefit gold, but it does not necessarily benefit gold more than other assets—such as commodities, for example.

recommended: Why silver for a monetary collapse?

Historically gold has made its significant gains, relative to other assets (as well as nominally), not during inflation, but during deflation (Note: I am using the terms inflation and deflation very loosely in this case). These significant gold rallies historically occur when value flees instruments such as stocks and certain commodities.

Since the 1920s there have been three major gold rallies (1930s, 1970s and the current rally).  Below is a Dow Jones Industrial Average chart (from stockcharts.com) from 1900 to today.

On the chart, I have indicated the periods where a gold rally occurred. During the 1930s there was one big rally (increase based on the real price of gold – data from minefund.com) from about 1931 to 1934. During the 1970s there were two rallies, and I have also indicated two rallies since 2001.

All three major gold rallies came after a significant top in the Dow and the Dow/Gold ratio (1929, 1966 and 1999). A great portion of the 1930s and 1970s rallies occurred when the Dow was falling significantly. In fact, the biggest rise in the gold price occurred when the Dow was falling or was trading closer to the bottom of its trading range during that period.

• The 1932 bottom in the Dow came during the 1930s gold rally indicated. Also, the top in the price of gold came when the Dow was trading closer to the 41.22 low in the Dow than to the 381.17 high.
• The 1974 bottom in the Dow came during the 1970s gold rally indicated. Also, the top in the first of the two gold rallies of the 1970s came at about the low in the Dow in 1974.

From the above it is clear that the Dow was weak and/or falling when gold had its best rallies. In other words, much value was diverted from the Dow and related instruments to gold during these periods. A weak and/or falling Dow (or what it represents) was an impetus for the massive increase in the gold price during these rallies.

The current gold rally (since 2001) has mostly been during the time when the Dow has also been rising, with the exception of a short period in both 2002 and the end of 2008 to Feb 2009. The best of the current gold rally, since 2001, has been during a time when the Dow was rising as well. Therefore, based on the evidence from the 1930s and 1970s gold rallies, I believe the current gold rally has not yet had its best period – it is still to come. My current fundamental and fractal analysis of the Dow and gold supports this view.

Find me also at: picturegoldandsilver – gold and silver analysis contained in one image/picture

The Dow is currently trading close to its all-time high, and it is my opinion that gold will step into the next phase of this bull market when the Dow starts to fall. A falling Dow, with weak economic conditions, will be the impetus for the next massive rally in gold, just like it was in previous bull markets. A falling and/or weak Dow will in some way represent the diverting of value from stocks to gold. For more on the fundamentals of why a falling Dow will cause the next massive rise in gold, see my article called: Is a Gold Parabolic Blow-off Long Due?

My current analysis suggests that this is likely to happen soon, since gold appears to be bottoming (or has already bottomed), whereas the Dow appears to be looking for that final point (see this article for more details).

For more detailed analysis of gold, silver and the Dow, you are welcome to subscribe to my free service (on sidebar) or premium service. Also consider my fractal analysis report on gold, silver and gold mining.

Warm regards and God bless,

Hubert

(gold and silver newsletter)

Find me also at: picturegoldandsilver – gold and silver analysis contained in one image/picture

hubert@hgmandassociates.co.za

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved.”

2012, The Dow’s Annus Horribilis and Gold’s…

I must admit that I do not prescribe to the 2012 end of the world or end of an era phenomenon; however, my recent analysis suggests that 2012 could indeed be a very significant year.

I have been following a fractal (pattern) on the Dow chart for the last couple of years. I have written about it before, in a previous article. Basically, the Dow chart is forming a similar pattern to that which was formed in the late 60s to early 70s.

If this pattern continues in a similar manner to that of the late 60s to early 70s pattern, the Dow could indeed have an annus horribilis (horrible year). Below, is a long-term chart of the Dow:

I have highlighted two fractals on the chart. I have also indicated five points on both fractals to illustrate how they could be similar. Point 1 on both fractals was the exact point at which the Dow gold ratio made a significant peak. This is an important marker, and it gives credibility to the comparison of these two patterns.

It appears that the Dow is currently searching for that point 5. Point 5 could already be in, or it could be a little higher than the recent high (of 12 928). However, from a timing point of view, it is likely that we have reached point 5 already (a retest could still be possible).

If the current fractal continues its similarity to that of the late 60s to early 70s fractal, the Dow could have a horrible drop for most of 2012. I do not wish to speculate as to how low it will go; however, if it stays exactly true to the past fractal (fractals do not always stay exactly true), it could drop to 6000.

Since my other analysis suggests that we are at the end of era (an era of the corrupt debt-based monetary system), I would really expect the worst-case scenario. That means that a drop to 1000 is very possible (not necessarily in 2012), even though it appears highly unlikely.

The Dow’s inflated value, relative to the value of gold, was brought about by this debt-based monetary system. It follows naturally that in the event of the debt-based monetary system collapsing (it will eventually); the Dow gold ratio could go back to levels prior to the introduction of this system. This level could be anywhere between 0.2 and 1, in my opinion. Therefore, it is possible to have a gold price of $5000, with the Dow at 1000. I do not say that we will have these levels, but it is certainly possible. All I am saying is that we have to be prepared for extremes never before seen in our lifetime.

In addition, I have written before of how similar today’s conditions are to that of the Great Depression. Based on that analysis, today’s economic fundamentals certainly support the theory of a massive drop in the Dow, relative to gold and even the US dollar.

Now, if you think that gold cannot rise when the Dow has a massive drop as suggested above, then you should look at the following chart and think again:

I have compared the gold chart (top) from 1970 to 1975 to the Dow chart (bottom) for the same period. From the beginning of 1973, the Dow started a massive drop, while gold started a huge rally. Furthermore, the beginning of 1973 happens to be the same point as point 5 in the first chart.

From a short-term perspective, the Dow gold ratio is “overbought”, and could drop significant lower over the coming months. Below is a 3 year chart of the Dow gold ratio:

On the chart, I have drawn a possible blue support line, which now could be resistance. It appears that the ratio broke down from that support in July this year, and is now in the process of retesting that break-down point. The RSI seems to be at a three-year extreme, and suggests that upside potential from here, could be limited. If the ratio turns around now or closer to that blue line, it could fall very fast.

Gold appears to be at a very critical point of the bull market. See the chart below:

The gold price is currently holding just above the upward sloping line. Based on my long-term fractal analysis, this line is a critical area, and should price rebound form this line; it could rally like it did in late 1979.

For more detailed gold and silver analysis subscribe to my premium service. I have also recently completed a detailed fractal analysis report for gold and silver. You can also subscribe to my free newsletter on the sidebar.

Warm regards and God bless,

Hubert

http://hubertmoolman.wordpress.com/ (gold and silver newsletter)

hubert@hgmandassociates.co.za

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Silver vs Nasdaq (Silver Price Forecast 2012): A response to Mr Erik Swarts

Silver Price Forecast 2012:

I recently read an article by Mr Erik Swarts, which I found very interesting. I enjoy reading his articles, since he often identifies fractals on financial charts, in order to forecast, what may or may not happen. This is exactly what I specialize in.

In this particular article, he compares silver with the NASDAQ, and states:

“To further color what I perceived to be the unbridled risk appetite within the silver market, I contrasted silver with the parabolic rise and break of the Nasdaq market in 2000. Interestingly, both markets have traded very similar, both through the parabolic rise and breakdown, when contrasted with the relative strength of their closest cousins – the SPX for the NDX and GLD with SLV”

Specifically in that article (and the related articles), he compares the April 2011 peak in silver, with that of the Nasdaq in 2000. The correlation between the two patterns has been quite accurate thus far. However, I am of the view that this correlation will not continue; it is about to diverge significantly. This is why:

On financial charts, a particular pattern can often repeat itself, on the same chart, as well as on the chart of another good. Often, two patterns correlate for some time, but then it can suddenly diverge. Whether two patterns will continue their correlation or diverge, depends on many things.

One of the important things that I look at is the context in which the two patterns exist. If the context in which they exist are similar, then it is very likely that the correlation between the two patterns will continue, and vice versa.

When considering the context, one also has to look at the relevant time frame. If the relevant conditions surrounding both patterns, exist in similar time frames, or span over similar time frames, it increases the likelihood of the two patterns continuing the correlation.

The top in the Nasdaq in 2000, came at a time when the stocks were significantly overvalued compared to real assets. In fact, it was at all-time highs. This is because the Dow/gold ratio peaked in 1999, at about 44, and was still close to 40 when the NASDAQ peaked.

I do not believe silver was overvalued on a historical basis (on a short-term basis it might have been). It was only at its 1980 all-time nominal high, and still below the inflation adjusted high. The gold/silver ratio might have been at a recent low (it was at 32), but that is not an all-time low. In fact, the long-term mean (200 years and more) is lower. So, in terms of gold, silver was not at an extreme level, it was in fact undervalued.

The top in the Nasdaq was an all-time high, with no other peak coming close to it. As said before, the peak in silver was only at the 1980 all-time nominal high. So, the structures of the two charts are very different from a long-term perspective; therefore, the two peaks are very different from a long- term perspective. The macro view takes precedence over the short-term view, and in this case, the macro view, suggests that the pattern of silver should diverge from the Nasdaq pattern.

To illustrate that the macro view suggests that the path for silver is likely up, and not down from here, I have prepared the following chart that compares silver to the Dow:

The top is silver, and the bottom is the Dow. In order to put the two charts in similar context, I have looked for certain markers, and matched the charts accordingly. In 1980, the Dow made a bottom, as measured in gold and silver. For silver, a similar bottom would be when the Dow/silver ratio peaked. For both charts, these points, respectively, were at significant lows for each.

Using the Dow/gold and Dow/silver ratio as a marker is important, since it gives us a proper context. It gives us what a Dow/dollar ratio is not able to give us, since it is an unreliable measure, due to the nature of fiat money.

I have marked the points that I perceive to be similar (1 to 4). It is interesting to note that point 1, on both charts, came about 7 years after the Dow/silver ratio bottomed/peaked. Based on this comparison, we are at a point just above point 4, on the silver chart, relative to the Dow chart. If the silver pattern continues to follow the Dow pattern, we could test the $50 level soon, and could make new all-time highs over the coming years.

Also, it does not mean that I do not expect the markets to be in for a rough ride over the coming months. In fact, I expect a significantly rough ride for the stock markets; it is just that I expect silver to move up, counter to the direction of the general markets.

For more silver analysis, visit my video channel. Also, you can subscribe to my premium service here.

Respectfully,

Hubert Moolman

http://hubertmoolman.wordpress.com/

Gold Stocks Forecast – Why Gold Stocks And Why Now – Must Read!

Gold Stocks look set to rise significantly over the coming months. The current economic conditions are ideal for a gold stocks rally. This video deals with the similarity between current economic conditions and that during the Great Depression, and why these conditions should fuel a gold miner rally. It also covers technical analysis of the HUI and JSE Gold Index. See my Gold Mining Special Report for more detailed and usable information. The video follows below:

Similarities Between Current Crisis And Great Depression

My latest video update: Great Depression vs Now

 

For more of this kind of analysis to help you navigate the financial markets, subscribe to my premium service .

Warm regards and God bless,

Hubert

Gold Signals The End…By Hubert Moolman

Gold remains our best means of economic measurement. It is not a perfect or 100% consistent measure of wealth, but it is our best. Due to its monetary properties, gold can be used to measure wealth across generations. Just like we have the sun and moon to discern the times and seasons, I believe, we have gold to discern changes in wealth. It is interesting that the sun is often compared to gold, and the moon to silver. Just like a day in the Middle Ages is comparable to a day in this century, an ounce of gold in the Middle Ages is comparable to one today.

Currently we use fiat currency, like the dollar, for economic measurement. However, this creates a huge distortion due to the fiat currency being highly unstable. Can you imagine what would be the effect on our planet if we did not use the normal cycles that the sun and moon provides us with? Our ability to produce food for example, could be severely disrupted, leading to famine or possible extinction of mankind.

By using a highly unreliable measure like the US dollar, our ability to make proper economic decisions is severely impaired, since we (the common man) are not easily able to distinguish between a real increase or decrease in wealth , for example. This causes a great misallocation of wealth and will lead to a severe economic depression.

When you look at a chart of the average day’s wages in dollars compared to the average day’s wages in gold ounces, with some analysis, you will understand why the dollar cannot be used as an economic measure. These charts show that the average daily wage for Americans, have gone from about $20 in 1964 to about $152 in 2010, whereas in gold it has fallen from just short of 60% of an ounce  of gold in 1964 to just 12,67% of an ounce of gold in 2010.

Gold is telling us that people are now earning less money than they did in 1964, whereas the dollar is telling us the opposite. Which measure is telling the truth?  This bizarre situation is evident in our “economic” and “accounting” language, when we talk about a real and nominal increase in prices. An example would be when an economist tells you that house prices have increased in nominal terms, but decreased in real terms. What? How can something go up and down at the very same time? Using a proper measure, there would be no need to have a “nominal” as well as a “real” analysis.

These bizarre and illogical concepts in our economic language are as a result of the bizarre measure of value called fiat money. We have to look at the right signs to discern the times. I prefer to look at the “behaviour” of gold to discern the economic times.

What is gold’s “behaviour” telling me?

Gold Rallies and Debt

Since 1900, we have had three major rallies in the gold price. The first started during the Great Depression, the second since about 1968, and the current since about 2001. Note, the gold price went up during the Great Depression, since most things as measured in currency (gold) depreciated. Further to that, in 1933, due to increased demand, the gold price was increased from $20.67 to $35. During the first two rallies, there were major economic declines. The economic decline during the Great Depression was much worse than that of the 70s. This is mostly due to the difference in debt levels during the two periods. The debt level during the Great Depression was far greater than that of the 70s. The greater number of defaults, due to the bigger debt, took a bigger chunk of value out of the economy.

The current gold rally is still in progress. Debt levels now are greater than during both the previous major gold rallies. It is believed that in 2008, total debt as a percentage of GDP in the US stood at more than 340% compared to 265% during the Great Depression. At some point during the Great Depression, debt levels collapsed, causing a major economic decline. The rally in gold is a way reflection of how debt levels collapse. The current major rally in gold is thus telling me that we are likely to have an economic decline far greater than that of the Great Depression, in the US and most parts of the world. This economic decline has already started, and is about to intensify.

New Monetary Order

In 1933, Franklin D. Roosevelt changed the monetary order in the US, with Executive Order 6102. Fundamentally the dollar changed its nature due to this order, and was therefore no longer backed by gold – for US citizens.  As mentioned earlier, this and the revaluation of gold was done, due to the increased demand for gold. The principle is: people became aware that there were far more claims on gold (read dollars) issued than the gold available, and therefore demanded their gold. This was mainly the result of the increase in credit during the 20s. As explained above, this run to real money (gold) is basically the flip side of the contraction of credit or debt.

So, the revaluation of gold was done to halt or slow the debt contraction, with those who handed their gold to the government, paying the bill for this decrease in debt contraction. Also, it prevented the banking system from leaking more gold, due this increased demand for gold. The system was recharged, and ready to go, as we know, for another 38 years.

The late 60s to early 70’s (start of the second gold rally) brought the same problem, however, this time it was sovereign nations that became aware that there were far more claims on gold (or dollars) circulating than the gold that the US had available. Some nations requested their gold because of this fact, and the US banking system was once again leaking gold like it did during the Great Depression.

Like in the 30s, the US knew that it would not be able to deliver the demand for gold, due to this “gold run”, and it therefore decided to close the “gold window”. Just like the US citizens, nations could no longer exchange their dollars for gold. This stopped more gold from leaking out of the US reserves, and the system was yet again recharged. The bankruptcy of the US was now well hidden, and it seemed like the perfect con. No more demand for gold from neither citizens nor sovereign nations that might expose the bankruptcy (too many dollars), too few ounces of gold.

Dollar could now be printed without any accountability to those users of dollars (basically the whole world). They have done it: the perfect con.  Or have they?

No, there might be no one that will be able to bring the bankruptcy to light, due to the seemingly faultless plan; however, it is the natural laws that will bring this con to an end.

How? Debt levels are once again at historically high levels. The level of debt that this system can carry is limited. The level that it is limited to might not be known, however, one can look at natural laws in order to estimate a possible limit. It is my believe that the natural cycle (limits) for these type of systems (man-made systems) are linked to the human cycles of 40 years , 70 years and 80 years, as per the Holy Scripture.

The period of 40 years is associated with middle age, judgment, as well as a generation. The period of 70 years is associated with a life-time and judgment. The period of 80 years is associated with an extended life-time, two 40 year periods and also judgment.

The history of this dollar monetary system appears to follow these natural cycles with an almost scary accuracy. From the period of the Great Depression (gold revaluation) to Nixon closing the gold window is more or less 40 years. That is the period of 1929 to 1933 to 1971.

The period from 1929 peak in the Dow – when the stock market crashed, as well as the peak in the Dow/Gold ratio – to 1999 when the stock market made a peak (1^st of 2 peaks), and the Dow/Gold ratio peaked, is 70 years. Remember, the Dow/Gold ratio is a significant indicator of the extent to which claims on real assets exceed the actual real assets; therefore, it is an extremely important signal when determining turning points in the current fiat money system.

The year 2014 will be 70 years since the Bretton Woods agreement that brought about the current monetary system, with the dollar as reserve currency. This is how the relationship with the US and the gold of other nation states in the US came about.

We are already in the period that marks 80 years since the Great Depression. The year 2013 will mark 80 years since the 1933 gold revaluation. It is currently 40 years since the closing of the gold window.

The point here is that the natural cycles appears to be very relevant to this man-made monetary system, and that it is very likely that we are extremely close to the end.

The end of the monetary system is likely to come before a peak in gold, if by decree (creation of a new monetary system), but still forced by natural law. If the system is ended by natural law, then it is likely to come at the peak in gold or after. The peak in gold I refer to is gold as measured against other real assets (not paper money).

Another possibility to keep in mind is the fact that gold could also be outlawed by most governments. I am not saying that this will happen, however it is a possibility, and should be watched for. If this comes to being, I believe we have entered the period when this might happen.

Again, the nature of gold allows us to keep track of the times and seasons of this corrupt system, by studying the behaviour of gold.

Gold Fractal Analysis

Based on the above analysis and long-term fractal analysis, it appears that we are close to a top in gold (in terms of fiat currency and real assets). However, let this not confuse you to think that we are close to a top in the price of gold in terms of the dollar or other currency amount.

We are close in terms of time (as early as the end of 2012 to the beginning of 2013), but $ 1920 is not close to $10 000, should $10 000 be the peak in the gold price, for example. It is also likely that gold will not have a peak in fiat currency as such, but instead, just discontinue trading in fiat currency. That means we might come to a point where gold will only be exchanged for real assets.

Below is a 38yr gold chart (thanks to goldprice.org):

I have done some fractal analysis on this chart. I published this analysis the first time when gold was well under $ 1200 dollars. The fractals indicated have astonishingly continued to keep its similarity as we have progressed during this gold bull market.

On the chart I have indicated two patterns marked by the numbers 1 to 3. The first pattern (fractal) forms a small cup between 1974 and 1978, compared to the second pattern which forms a big cup between 1980 and 2008. If the bigger pattern continues it similarity to the smaller pattern, then the parabolic (based on a long-term scale) move in gold should continue, taking gold to multiples of the current price. I have indicated the point in the 70s that is similar to point where we are at now.

What I wanted to highlight here is the fact that according to my fractal analysis, it appears that gold has reached a critical point where it is expected to rise really fast. Also, this analysis suggests that we could peak as early as the end of 2012 to 2013, and we should as a minimum reach $ 4000 by then. This is consistent with the above analysis regarding gold and the monetary system.

Please note, the above fractal analysis is just a very big picture analysis, as well as a simplistic analysis prepared for this article. One has to also look at the context in which both patterns exist as well as look at confirmation standards.

My premium subscription service and long-term fractal analysis report provides more usable information regarding the price of gold and silver. Please contact me for details as well as a free current edition of my premium service.

Other Important Points

I believe there are enough signs that indicate that we have entered a period where we should expect the worst. We should thus prepare for the worst, with the hope that we would be able to cope with whatever comes our way.

Due to the great probability that the fiat money system might come to an end soon, it is not desirable to exchange physical gold and silver for fiat money. Where possible it is better to exchange them for real goods and services and productive assets.

An economic depression is virtually assured due to the bankrupt monetary system as well as the extreme debt levels.

For more analysis, subscribe to my blog or premium service.

I have prepared a report: Gold Mining Special Report, which highlights the ideal conditions for gold stocks to rally. The report also covers Fractal Analysis of the HUI, XAU and GDX with usable targets for these indices. This is an extremely useful report that should help the reader to benefit from the coming gold stocks rally. For more information on the report see this article.  The report is $50 ($30 for subscribers of my premium service), and I believe it will prove to be worth every dollar.

Warm regards

Hubert

hubert@hgmandassociates.co.za

http://hubertmoolman.wordpress.com/

Visit my Youtube Channel for my video updates on gold and silver

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Turning Point By Hubert Moolman

I received an email from a good friend of mine, today. His comment, per the email, is in response to a prediction by Gann Global Financial, that 12 May 2011, was the 60-year anniversary of the commodity top, and that we might be at a turning point of what will be a 1 ½ year decline in overall commodities.

Below, is his email comment:

Hubert,

I don’t see how a failing dollar can allow for this prediction,

but it sure as hell seems like the markets are expecting it.

Initials.

I think his comment aptly summarises the peculiarity of the situation we find ourselves in, in today’s markets.

My reply (with additional comments added for this publication) is below:

Very, interesting. I agree we are at a big long-term turning point. I also agree that commodities have put in a long term high, but a high measured in what? Measured in dollar fiat or gold real money. My view is that commodities will decline significantly as measured in gold. Silver is more difficult, since it is part money and part classic commodity. However, the time we are going in now, should make its commodity role insignificant, and it will behave just like money, and follow gold. So, I would say that silver might have peaked in pure commodity terms, but as a currency it will peak when gold does.

So, commodities might have peaked (in real terms), but that means real money, is only just beginning its parabolic move. Fundamentally, gold and silver are real money and not pure commodities. We are in a time, where things will be exposed for what they really are. Fiat money and its related debt instruments will be exposed as worthless pieces of paper, whereas gold and silver will be exposed as the best value preservers.

Paper assets and other debt driven assets including stocks, have also peaked, as far back as 1999, and might soon start its panic drop, taking it to its lows. I think the K-wave analysts are right , when saying that we are in the Winter part of the K-wave. I believe this decline will last until at least 2020. I think so, due to a fractal calculation I did for gold.

The problem with establishing targets for the lows in commodities and stocks, is the fact that we are dealing with fiat money, which is an inconsistent measure. The 1965 dollar is, for example, is a completely different dollar to the current one. So the Dow, for example, should technically drop to $1000, but one is inclined to think that it might be impossible in terms of the current worthless dollar. I expect a huge drop in the Dow over the next couple of years, but whether it will be to $6000 or to $1000 remains to be seen. I believe both are possibilities. Remember, I think, the Dollar is closer to a long-term bottom, than a top, when measured against other currencies. Below is a chart (compliments of Yahoo Finance) I did for the Dow. I have indicated how two patterns (fractals) could be similar. The Dow might be searching for that point 5, before it could make a huge decline over the next 18 months or so. That point 5 might still be at 13100 or even at the all time high or higher, but we just have to wait and see. I have also indicated another possibility for the Dow, which suggest we might have a smaller correction (to about 9 -10 K), before we get to point 5 and the big correction.

Gold

In my opinion, gold and silver is looking extremely bullish at this point. Below is a gold chart which indicates a glimpse of my fractal work:

Gold should soon attack the upper boundary of the channel indicated. That means it should pass      $1600 very soon.  Based on the fractal work, it should eventually (after much volatility) go through the upper channel, and then really take-off from there.

Silver has just recently signaled and confirmed its intention to go to $100 and beyond over the next couple of years. By just about reaching the $50 dollar area, it completed a giant cup in similar manner to gold, when it touched its 1980 high. It is very normal to have a retraction after the cup is formed. It is normal for these retractions to retract about a third of the cup’s depth. For silver this can be anywhere close to that $30 to $34 dollar area, which means that should the cup be valid, the bottom for silver could be in. If not, it should not be much lower.

Warm regards and God bless–

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog and website for more of my work, as well as my free and premium service.

http://hgmandassociates.com/

You can email any comments to hubert@hgmandassociates.co.za

Gold/Platinum Ratio And Economic Weakness… by Hubert Moolman

Most people are mainly concerned with what is going on right now and are less concerned with what happened yesterday, last week or last year. The further in the past an event or development, the less are we concerned about (or aware of) it, and the less is our understanding of it. This appears to be our nature, and it causes many to miss important “big picture” developments.

Here, I would like to discuss one such development and at the same time highlight the outlook for economic conditions over the next few years.

Platinum has been a star performer since the beginning of this century. From about the year 2000 to 2008 it went from just under $400 to a high of $2200. That is an incredible rally, and possibly unrivaled during that period by any other metal or investment class. What is discussed here for platinum holds true for many other assets, even fiat money, but in different aspects, and to various degrees.

Since about the turn of the century, platinum has become the prestige metal. Even credit card companies got into the act by replacing gold cards with platinum cards as their premier credit cards. This, together with platinum’s subsequent rise, ensured that the world became almost platinum crazy.

Even here in South Africa, where we have such an exciting gold history, it became evident that platinum was considered the “new” gold. It appeared that gold took the backseat and platinum enjoyed a new elevated status.

A lot of this fascination with platinum was due to it again becoming more valuable than gold. This platinum mania was indeed justified due to its stellar price performance, especially versus gold. However, it is this very fascination and mania that prevents many from seeing what has been developing over the last 40 years or more, and is now about to conclude (over the remainder of gold’s bull market). Many will be surprised at the impressive gold miner rallies, straight ahead, which will come despite weak general markets.

To understand this development, it is important to understand what the outlook is for the world economy over the next decade. I refer you to my view of the world economy for the next several years.

It is even more important to understand the underlying fundamental cause of this development, since most other factors, like the state of the world economy, are merely symptoms of the “wrong.” This and other articles on my website should help you understand the underlying cause of most of our economic problems.

For most of the last century we have had a corrupt monetary system. This corrupt debt-based monetary system has been suppressing the price of gold for at least the last 80 years. Fiat money and fractional reserve banking are main features of this system, which is the chief underlying cause of most of our economic problems.

This system is now in its 11^th hour, and so are all those trends that have come about due to its existence. One such trend is: platinum consistently getting more valuable than gold. There are many more, such as gold and gold mining shares as a percentage of global assets decreasing significantly since at least 1981, having plummeted from 26% of global (investment) assets in 1981 to just 0.8% in 2009, according to Sprott Asset Management.

It is important to note that there will always be such trends, such as increase or decrease between gold and other asset classes; however, under a proper monetary system they will not be as out of balance to the extreme that they are under a debt-based monetary system.

Below is a long-term gold/platinum ratio chart.

 

chart comes from sharelynx.com

During the gold bull market of the 1970s, it is clear that this ratio was in a significant uptrend. It went from about 0.2 to 1.4 over a 12 year period. That is a seven-fold increase. I have said it before, the same conditions that propelled gold and other commodities higher during the 70s are present now.

These factors are pushing gold higher now and will continue to do so for many years to come. I certainly expect the gold/platinum ratio to trend higher, just as it did in the 70s. As you can see on the chart, the trend for this ratio has begun moving higher in 2008, and like it did in the 70s, it will accelerate as we move along in this bull market.

The great debt bubble of the last century peaked in 1999, when the Dow/gold ratio peaked. This was the tipping point, which signaled the end of the prosperity that was built by this debt. This was soon confirmed, when gold bottomed, and started an uptrend that continues to accelerate. Likewise, in the middle of the 60s, the Dow/gold ratio peaked, whereafter the link of the dollar to gold was removed and gold started its upward march in the 70s.

We are on a downward economic activity trend, and this should accelerate and continue until debt levels are acceptable for a new economic boom. I believe this will take at least 10 years.

Despite the fact that commodities, like platinum, will outperform most asset classes over the next years, I believe that they will still depreciate significantly as compared to gold (and silver). This is basically what happened during the 70s and is also what happened during the great depression. I have written about  the similarities of the great depression, the 70s and today.

Below is a chart that shows the cyclical downturn(s) of industrial production in the US over the last 50 years.

 

You will notice that during the two parts (70 to 75 and then 76 to 80) of the gold bull market, industrial production turned  down significantly. Also, note that the downturn occurred towards the end of those gold rallies and, in the case of the second one, continued until after the end of the gold rally.

Back to the long-term gold/platinum ratio chart

On the chart, you will see a 25-year down-trend resistance line, which was broken in 2008. In textbook fashion, the ratio has moved up quickly since then, whereafter it has returned to test the breakout area. A quick move to 1 is expected very soon, and it would go a long way in confirming that the trend in this ratio is unfolding very much like the one of the 70s and is likely to continue throughout this decade. 

I believe that the ratio will reach the 1.4 level faster than many would believe (if they believe at all) and that it will go on to reach levels unimaginable for many, because they are unable to comprehend the long-term developments. I just wonder whether banks will revert back to gold credit cards as their premier card. Actually, I wonder if banks will still be around.

Warm regards and God bless–

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog and website for more of my work, as well as my free and premium service.

http://hgmandassociates.com/

You can email any comments to hubert@hgmandassociates.co.za

Dollar Gold, Rand Gold, DOW, JSE Gold and HUI – by Hubert Moolman

Let’s start with a big picture view. Below is a long term Dow/gold ratio chart. As you can see on the chart, it has just been one-way traffic the last ten years, with the ratio moving down from almost 45 to about 8.16. It seems that the next temporary stop might be between the 4 and 6 level. I have previously written how the 10 Dow/gold ratio level has been a pivot point back all the way to 1930.

This number has acted like a “golden ratio” in that things really start to happen before or after the Dow/gold ratio breaches 10, in either direction. In the past it was the level from where either the gold price or the Dow increased spectacularly while the other went nowhere to down.

 Chart generated on the stockcharts.com website

As you can see on the chart, in 2009 the ratio went through the 10 level (going down), touching 7, from where it went back to test the 10 level. Since April 2010, it has resumed the downward move and appears ready to accelerate its fall.

So, in my opinion conditions will continue to favour gold, relative to the Dow.

What will be the effect of conditions on gold, going forward?

Higher—much higher—prices. That will be the major effect on the gold price, going forward. From a shorter term perspective, things are much like they were in 2007. This can be seen from the following chart:

 chart generated on the fxstreet.com website

More information and analysis of this chart is available to subscribers to my premium service.

From a longer term perspective (see my Long Term Gold Fractal Analysis), conditions are much more like the 70s, when gold was continuously making all time highs. The similarities to the 70s are likely to continue throughout this decade, with conditions propelling gold higher on a parabolic path, whereas the world economy and the Dow in particular will be going nowhere. The world’s great debt bubble will continue deflating, and until it has appropriately deflated there can be no recovery. Along with gold and silver, much higher prices should eventually be expected for commodities, whereas paper and all things inflated by the great debt bubble of the last century should lose significant value relative to gold, silver and commodities.

What will be the effect of conditions on the Dow, going forward?

As I have said, I expect the world economy to go nowhere over the next decade. It can only recover when we are at the end of this huge debt crisis, which could take another 10 years or more. A peak in the gold price will likely be a good signal that the end of the world debt crisis is only a few years away. I believe we are still far from a peak in the gold price, however, which means we’re even further from having conditions suitable for a growing world economy and a Dow worth investing in.

I wrote previously: “Debt levels have become a huge burden and will strangle the world economy for at least the next 10 years. The debt will have to be settled eventually, either voluntarily (unlikely) or by force (death of all fiat denominated debt).  All future production will be severely reduced by the debt obligation and the effects will be a world economy in chaos and possibly with life threatening phenomena like starvation being the order of the day.

That is just how it works when you have huge debt – you will have less of your future income/production available due to the debt obligation that has to be met every month.”

From a shorter term perspective, the 11000 level could prove to be a barrier to the Dow, and it could fall to the 9000 level or below.

The Rand Gold Price

Below is a chart of the South African rand gold price.

 chart generated on the goldprice.org website

I have indicated a possible symmetrical triangle. In textbook fashion, the price broke out of the triangle, advanced for a few weeks, and has returned to a support at nearly the same level where it broke out. It is now at a point where it could spike significantly higher. This is a great signal for the SA gold miners, as well as possible evidence that the HUI breakout will have “legs”. For more analysis on JSE gold miners and the HUI index, please visit my website (premium service).

Conclusion

I believe gold and silver are the assets to own throughout the next several years. They might be the most functional assets with which to protect one’s wealth during the coming storm. I encourage you to look after yourself and your loved ones, and please obtain the most functional assets to protect your wealth.

Warm regards and God bless

Hubert

“And it shall come to pass, that whosoever shall call on the name of the Lord shall be saved”

Please visit my blog (http://blogs.fin24.com/hubertmooolman) for older but informative articles.

My premium service is $10 per article.It covers various topics like the dollar gold price, silver price, rand gold price, HUI, JSE gold miners and Dow individually Please email me for more information.

You can email any comments to hubert@hgmandassociates.co.za

Gold’s Rise And The Dow’s Fate by Hubert Moolman

24 June 2010

In a previous article called “Gold, Dow And The South African Rand” (dated 24 May 2010), I stated: “we will probably have more of these scary drops in the gold price as we continue into this volatile phase of the gold bull market. The good news for gold bugs is that we will also have some huge up days, and the general trend will be very much up.”  If you look at the gold chart, you will notice that despite the volatility in the gold price since then, the trend is definitely up. When these scary drops happen, many people start panicking and eventually get “shaken off” this great bull market.

It is important to keep the big picture in mind. When one only focuses on the day to day movements of the gold price, one will be one of those who will lose out. At this point, where gold is going parabolic, you could sell all, and a week later the gold price could be $150 higher (or even more). At this stage of the gold bull, a sharp drop in price is an ideal opportunity to add to long-term positions; it is not a time to panic and sell one’s core holdings. Believe me, while gold is going higher in this bull market, there will be many sharp (daily or weekly) drops.

What is the big picture for gold?

The chart above is a long-term gold chart (thanks to goldprice.org). This chart is the big picture for gold, as far as I am concerned. If you look at the chart, like I do, then it should tell you that the gold price is going to explode upwards very soon. It should also tell you why looking at the big picture is so important, and why focussing on gold’s day to day movement might cost you a fortune. For more information about this gold chart and its analysis, you can purchase my Long Term Gold Fractal Analysis Report (email me for details).

What is the short-term gold picture?

I have marked the two patterns that I feel are similar. I have marked the patterns by highlighting 5 points on each. If the second pattern resolves in a similar manner to the first, then the gold price should hit point 5 on the upper resistance (trend) line indicated on the chart. For these fractals (patterns) to really be similar, there should be a measurable relationship between the two patterns, measurable in terms of time as well as price movement. So, for the second pattern to resolve like the first and still be a valid fractal of the first, it has a certain amount of time to do it, and a certain price movement to cover.

I can tell you that time has been moving, whereas price has not been moving as fast as should be expected (based on the time movement). What does this mean? If these two patterns are actually fractals, then price has to catch up with time, and that should mean strong rallies (shorter time periods) could be coming up. As I am writing this, gold is up $20 the last couple of hours. It is going to be interesting.

Is the big picture in gold, as shown above, consistent with what is going on in the world economy today and with what is expected going forward? Consider the following:

• Debt levels world-wide are at historically high levels
• These debts are holding back the world’s economy, and will continue to do so for a significant number of years. (see here for more on this)
• These debt levels are probably going to bring down the current world monetary system.
• All fiat currencies are depreciating, as measured against gold, and this will increase as more countries struggle to meet their debt obligations
• Tangible assets like gold and silver are under-valued as compared to intangible assets like equities and bonds. This is illustrated by the Dow/gold ratio. (see here for more on this)

When one takes into account the points above, then it is hard not to agree that the big picture in gold, illustrated above, is probably accurate.

If the world’s debt levels are at all-time high levels and are likely to hold back the world’s economy, then this should affect the economics of listed companies and the real values of companies listed on the great stock exchanges of the world.

This does not bode well for Dow and other listed stocks. They will very likely lose real value (as measured in terms of gold, silver and other commodities) over the next couple of years and beyond.

Nominal value (the value as listed on the exchanges in terms of fiat currency), is an altogether different matter. This matter is often referred to under the inflation vs. deflation debate. It makes things easier when one distinguishes between nominal and real values, when trying to understand this inflation/deflation debate, or where the stock markets are going over the next couple of years. One could still have higher nominal values for general stocks, notwithstanding bad economic conditions. Will we have higher or lower nominal values for general stocks over the next couple of years and beyond?

For more on this and gold commentary, you can subscribe to my free newsletter at http://hgmandassociates.com.

There are also some great signals that I like to use when forecasting where the stock market is likely to go in the future. One such signal or proxy is the value of the South African rand compared to other currencies. The South African rand has been a fairly reliable measure or proxy for risk aversion. When the general markets take a hit and everyone is running for safety, the Rand usually gets hit hard.

Below are two South African rand charts that I have been tracking. I have done some proprietary fractal analysis, which I would like to share with you.

The first is a 5 year US dollar/SA rand chart (generated on fxstreet.com). In a previous article, I have used this chart and more to show why I think the Dow has topped for now. On this chart, I have indicated two black lines as a possible trading range. I have also indicated two possible fractals. I have marked 4 points on each fractal pattern to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top line of the trading range and make its way towards the 9 price level. This will likely mean that the Dow will visit the 9000 level. This appears to be consistent with fractal analysis I have done on the Dow.

The second is a 5 year Canadian dollar/SA rand (generated on fxstreet.com). Again, I have applied my proprietary fractal analysis to his chart. I really like this chart, since it clearly illustrates (in textbook fashion) how effective fractal analysis can be. This chart gives a clear signal when fractal analysis is applied. It is probably due to the fact that both South Africa and Canada are resource based economies (just a guess).

Again, I have indicated two possible fractals. I have marked 6 points on each fractal to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top black line, and make its way towards the 8.5 price level. This will likely mean that the Dow will break down. The similarity of the sections indicated by the circles gives me added confidence that the second pattern will resolve like the first.

My other recent articles you will find at  http://blogs.24.com/hubertmooolman , since I only recently started posting here.

  ***

If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read informative sites such as this one. You can subscribe to my newsletter at http://hgmandassociates.com/. My newsletter is free and I send it out whenever I feel I have relevant information to share. I do gratefully accept donations, though, so that I can continue to research and write. Send me an email for details. 

May God bless you.

Hubert Moolman

You can email any comments to hubert@hgmandassociates.co.za

How to Benefit from the Greatest Transfer of Wealth – Must Read

by Hubert Moolman

 

Originally published on 16 February 2009

 

 During the 7 years of famine in Egypt, in the time of Joseph, one of the greatest transfers of wealth in the history of this world took place. The Pharaoh of Egypt obtained great wealth in the amount of land and people who became his servants. “And Joseph bought all the land of Egypt for Pharaoh: for the Egyptians sold every man his field, because the famine prevailed over them: so the land became Pharaoh’s” –Gen 47:20 

Not only did he buy every man’s field but also every man as a servant. With what did he buy every man and his field? With bread – “buy us and our land for bread, and we and our land will be servants unto Pharaoh” –Gen 47:19 

I believe that we have reached a time where the greatest wealth transfer in our lifetime as well as possibly in the history of this world is about to happen. Some people ask: “why the gloom and doom?” What they do not understand is the fact that this great transfer of wealth or collapse of the world’s monetary system (which they call gloom and doom) is inevitable due to past events. 

Some of these people go on the say: “what about the poor people?” and they want to make you feel that you do not care when you are warning of the coming collapse. What they do not understand – in addition to the fact that these events (which they call gloom and doom) is inevitable due to past events  and not because you want it – is the fact that they do not have to suffer this supposed gloom and doom. 

Anyone who makes a point of seeking the truth, educating himself, obtaining knowledge about the issues that face us, will not suffer, and in many cases will actually benefit from such events. The ones that will suffer are those who refuse to educate themselves by seeking and obtaining the required knowledge. “My people are destroyed for lack of knowledge” – Hosea 4:6 

There are so many people that are economically illiterate and they are not who many might think they are. They can be rich or poor, young or old, doctors or unschooled, financial advisors or whatever. 

Many people want to hang on to a system (world monetary system) that really brings gloom and doom. They get worked up when someone warns of the flaws of the current monetary system and what gloom and doom it already brings as well as the worse to come as result of the flawed system. They will do and say whatever to protect the flawed system, whether they are major benefactors of the flawed system or not. 

They continue to believe the lie, because it is “politically correct” or “socially acceptable” and they want to keep the so called peace – protecting evil in order to do good. 

Many people still follow or believe their leaders despite all the problems they find themselves in which, in most cases, is directly as a result of the actions of those leader. They deny (don’t want see) the truth and rather seek familiarity. 

The Pharaoh in the time of Joseph was definitely not like such. No, this man was very wise. He did seek truth, not familiarity. When Joseph explained to the Pharaoh what his dream meant, the Pharaoh believed him despite the fact that he did not even know him. 

How was the Pharaoh able to distinguish truth from error? Simple – he looked at the track record of the man. Joseph has had success interpreting dreams and this was witnessed to Pharaoh – “and I have heard say of thee, that thou canst understand a dream to interpret it” Gen 41:15 

Also, when Joseph explained the meaning of the dream, he also offered some advice as to what to do about it. Again, Pharaoh did not go back to familiarity, he did not follow his own advisors, but he again went to a man with a track record of truth and success with work. Remember Joseph was working for Potiphar, an officer of Pharaoh, and eventually became overseer over Pothiphar’s house due to his success. 

Back to Today 

We have a huge problem today in that debt levels worldwide are extremely high and even worse, it is incalculable. Now, it is imperative to understand that debt cannot be paid with debt. And when I say debt, I mean all debt: government, personal, corporate etc. Instead of reducing the debt it will just increase the amount of debt. Even when payment is made using money (non real paper money) one does not know to what extent the debt is discharged. This is because paper money is a promise to pay (various things from previously gold to future taxes, future production and even nothing) and one does not know to what extent those promises will be met, if at all. This is clearly understood when you understand that paper money is not an honest or consistent measure. You can read my article on “how do you measure wealth” for more on this. 

So actually one is just adding to the debt by creating more paper money to pay debt. It might not be so apparent but the debt will still be somewhere in the system. 

The debt incurred is the past events that will lead (and is already starting to do so) to the events that will translate into this great transfer of wealth. The coming world monetary system collapse is inevitable because the debt is heavy and it is real. 

Debt can only be properly settled with real assets, this is inescapable.  So if you borrow a car from someone, you are indebted to that person. You can settle that debt only by returning the car. The only real alternative to paying with that car is paying with what we call money (real money) which is itself a real asset. Like I explained in previous articles, real money is a capital claim on assets not a debt claim like paper money. To fully appreciate this one has to understand the function of money as well as what properties money should have.  Various commentators as well as I have written about the function and properties of real money. 

So it follows naturally that if debt is huge and it has to be paid by specific real asset or real money which is itself a real asset, real assets acceptable as full payment of debt would be in huge demand when debt is being paid off the proper way. However, I am not seeing the big debtors of this world paying their debt in specific real assets or real money. No, they are rather paying their debt with more debt (newly created money and other credit instruments). When they do this, the paper prices of real assets (more generally) eventually rise. 

To keep things simple, it would be acceptable to say that paying debt with real assets is deflationary whereas paying debts with debt is inflationary. Now you can see why governments are so scared of deflation. They don’t want to pay debts the proper way. 

I hope that it is now also clear why it is high inflation and hyperinflation that one should expect going forward. To expect the contrary is to bet that the US and others will actually start paying their debt with real assets like the kind that you have to dig deep into the bowels of the earth for. 

However it is not to say that certain assets cannot deflate significantly going forward. 

So, having specific real assets that are acceptable as full payment of debt is how you will prepare yourself for this coming great transfer of wealth.  This is because they eventually win both ways. It is really as simple as that. The Pharaoh simply accumulated food because he knew a big famine was coming, and throughout that famine he was not only protected but he gained enormously. Nobody knew how big the famine was going to be and therefore how much food had to be stored.  That is why Joseph collected as much food as possible. 

Savings is what saved Egypt and what will save you and I. A previous article of mine called “The truth about our money” will give you more insights about the importance of a store of wealth and how it is relevant to protect us from the coming events. 

Some real assets will be of course better than others. Food for example is the only thing that will get rid of hunger or water of thirst. It is important that you have the relevant goods or services when it is required. Since it is not possible to store everything that you might need in the future, it is essential that you have an ability to obtain the required goods and services when required, and this is why you have to have the best store of wealth. The best store of wealth is quite simply gold and silver and therefore they are a must have. And of course they are also assets that are acceptable as full payment of debt. 

Which real assets to accumulate, when and how to accumulate them are the big questions. I have given you some tips with regard to this now. However, this is where your quest for truth becomes very important. You have got to educate yourself; you have to get the designation EL (economically literate) behind your name. By reading sites like these (you are probably reading from one of the great informative sites where my work is published), where many knowledgeable writers share their knowledge, you are already making a great start. I hope to cover the importance of knowledge-sharing in a future newsletter. 

You have to be as wise as the Pharaoh. You have to distinguish truth from error. Do not be afraid to separate yourself from familiarity when it is flawed with lies or error. When choosing leaders or seeking advice, look at people’s track record. Where and how have they led people before? Do they have any success? Like I said Joseph had had success and therefore the Pharaoh trusted his advice. 

I would like to close by quoting the President of America, Barack Obama: 

“we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you” 

I would like to use his quote to send a warning to him and all world leaders out there, for if they are lying to us or plan to lie to us about money and the economy: 

“we say to you now that the spirit of truth is stronger than you and any lie and cannot be broken; you and any lies cannot outlast the truth, and the truth will defeat you and any lie; therefore do not lie to us” 

 If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read such informative sites as this one. If you would like to subscribe to my newsletter please send me an email. My newsletter is free and I send it out whenever I have something to “say”.  I do accept donations though, so that I can continue to research and write; email me for how. 

To read more of my work you can read the rest of my blog: http://blogs.24.com/hubertmooolman 

You can also find my articles at www.oreconsulting.co.za 

May God bless you. 

Hubert Moolman EL (Economically Literate) 

You can email any comments to hubert@hgmandassociates.co.za 

Jim’s Formula – published with the permission of Jim Sinclair

Jim’s Formula:
September 1, 2006

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.

2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.

3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.

4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.

5. Lower profits leads to lower Federal Tax revenues.

6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.

7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.

8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).

9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.

10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.

11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.