Free Market Update
March 4, 2002
Next FMU March 18, 2002
***Next HSL will go to press March 10-11. The next FMUpdates will be available Monday March 18. Subscriber input welcome on FMU service, trading recom's, jokes, or any other ideas/info that may be of interest to FMU family members.
Note: For HSL contact details please scroll to the bottom of the page.
Abbreviations: 1dc = 1 day close. 2dc = 2 day close. SCO = Stop Close Only. ST/MT/LT= short/medium/longterm.
***Uncle Harry here talking like a "Dutch Uncle" --scolding all you nephews & nieces who cant/don't read (well, not all, but some).
Reading Lessons anyone?
I'm pretty sure U all can read. But people are so busy these days, they don't read slowly enuf to absorb much of what they skim.
We have said many times in FMU & HSL: only contact our Customer service Dept if it relates to subscription matters or services. U know, change of address, payments, missing newsletter, subscription inquires, purchase of items we sell, stuff like that.
If
U want to send jokes or interesting news, or ask questions
or make
comments about the CONTENT (ie content, ie content)
of FMU or HSL or Gold Charts R Us, please Do NOT contact
Costa Rica Customer Service---unless U want a 24 hour
delay, because they just send it to us in Europe, in
a different time zone. If U like delay, carry on. And
if U send something re content to CR on a Friday, we
wont get it till Monday nite, late. U like 4 days delay?
Carry on then.
Dutch
Uncles are entitled to scold younger people.
So, here are the numbers yet again (sigh):
For subscription matters or services/things we sell: email:
HSLmentor@racsa.co.cr
or fax Costa Rica: (506) 234 0433
For questions/jokes/info sending/comments on contents: email:
Cameleon1@compuserve.com
or fax Monte Carlo: (377) 9770 3148.
We
prefer faxes to email, but it's your nickel.
See, that didn't hurt at all, did it? :-))
Uncle Harry - your Polish Dutch uncle.
***This article will also appear in the next HSL:
Gold shareholders: My motivation in pushing gold mine chairmen to close out their hedges quickly is to help them realize the danger, as follows: A gold bull mkt (which will ignite on a 2-day close over 305) will later, freakishly & ironically, bust most investors holding shares in gold producers who have hedges of any kind. Gold will, IMO, streak first to $354 (that number produced via derivative extrapolation), where all hedged mines will bankrupt, & central banks will sell gold, sending it back to $270-$300 (?) scaring out the bulls. But derivative damage will have been so great, & mine output slashed, the price will resume its rise (as it did after a 50% fall in 1974-76 from $200 to 100), till it reaches $1,450 or better, drawing in the bulk of the public at prices over $354, 529 & 800. Then when every short has covered, who will buy? Nobody, & the fall thereafter will be so violent as to disqualify gold as a reserve asset, for such volatility. There would go our hopes for a return to the Gold Standard. The result could be gold back to $35 in our lifetime. We must prevent that. Read on.
A mega-derivative squeeze is coming from Hung Fat & Dr. No. (ie, 1-2 trillionaire Chinese), which will shred the present day gold cartel into confetti. With them will go all the hedged mines! And their shareholders! Currently, U must note the concentrated gold buying on reactions, very different from the past 2 decades. Gold's bull move will only help Hung Fat & Dr. No & traders using our new gold chart service (& following it when the stakes are high & unrealized!). Before Central Banks fight the $305 & $354 levels, gold producers have the greatest (& last) opportunity in their corporate lifetimes to 'get the hell out' of every hedge position. They risk class action suits & worse if they don't. There is very little time left to do this.
They'll say they can't get out due to bank contracts to hedge their new production during the lifetime of the loan. That's true. Solution: during rallies, pay off their development loans by issuing convertible bonds as Agnico Eagle just did, thus financing their development debt in this traditional way. As a bull market will cause a convertible bond to rise, they'll have the debt exhausted without ever having to pay it by the conversion of the bonds into common shares. As the bonds were issued to pay off their development loans there'll be no dilution to present shareholders. It's win/win & nobody goes broke. Gold producers are saved. Investors in gold producer shares are saved. Gold itself is saved.
Even if mine hedge position is taken to a real hedge posture without possible gain or loss (balance) the contract can fail selectively (ie, 1 leg at a time, among many legs), which would cause the position to become totally dangerous. Gold producers must expunge from their books every single gold hedge transaction & leased gold commitment before it is too late. Re gold hedges for the carry trade or for non-gold related financing, who cares? If producers need any help on how to convert production debt out of the need for a hedge position, & pay off non-recourse loans before the gold freight train hits, get in touch with HSL. I'm taking back the lead cape I took off in 1981. We have to save the producers from themselves (& the banks), save gold shareholders who will be tricked by wild whipsaws unseen to date, & save hope of a Gold Standard. It's time to stand up & be counted & get smart.
Gold shareholders should send the letter below to the chairman of every mine that hedges its gold production forward, in which U own stock. A chairman is legally responsible to shareholders for managing his management. After receiving this letter the board chairman can never claim to not have known that derivatives carried extreme legal & structural risks. This letter may end derivative hedge book trading in the manner used today. U can print this out from email or ask us to send U a fax copy or photocopy this letter & clip & recopy. Add your name.
We seek to protect the hedging mines against themselves, thereby protecting their shareholders, which are our collective selves. We also recognize an obligation to certain developing nations, giving them the opportunity to mine gold, thus protecting them. The ultimate Murphy's Law is to have a gold bull market break the producers (via derivatives) & thereby break gold bulls. World monetary stability is also involved, about which more another day. Here's the letter:
Dear Mr. Chairman:
In light of the recent accounting & Enron scandals, I require answers to certain questions concerning the condition of your hedge book as a whole & the specifics of each individual hedge transaction. Your present reporting does not detail these key items that are critical to an investor's ability to calculate the risk factors of investments in your/our company.
1. What percentage of the funds that you have taken into earnings or deferred earnings originating from your hedge transactions in the past five years are free from the necessity of maintaining your present hedge contracts?
2. In derivative contracts with derivative dealers does the right of offset exist? That means should the dealer enter insolvency while owing money to us, can we charge that indebtedness against what we may owe the dealer?
3. Have we dealt with a well-known substantive investment or commercial bank, or with a subsidiary of that entity? If answer is a subsidiary of the investment or commercial banker, in what nation is subsidiary domiciled? What are legal/capital/bankruptcy laws of that domicile? This information is necessary to assess real credit risk.
4. Is the subsidiary of the investment or commercial bank entitled to an automatic fund forwarding from the parent to cover the "Trade Debt" of the subsidiary, if the subsidiary fails? If not, then we would have to cover the failed commitments, as margin calls do not wait for litigation outcome.
5. If we have dealt with a subsidiary of the investment or commercial bank, have you seen the balance sheet of that subsidiary & the audited amount of total nominal value of derivatives granted by that entity to others? Without this, no reasonable calculation can be made of our credit risk involved with this dealer.
6. If we have dealt with a substantive investment or commercial bank in hedge derivatives, has the board been apprised of the condition of an audited statement of the nominal value of all derivative granted by that institution to others? If we have not, then regardless of the hundreds of millions or billions in capital, no meaningful quantification of the risk factor has been made.
7. Can we trade entire option hedge book in totality with any dealer we wish or are we obligated to one granting dealer when changes or closure are required or desired? If we can't take our position in totality, or leg by leg, to any dealer we have severely restricted our liquidity & tied ourselves to the financial condition of our counterparty.
8. Assuming we used a leased gold contract as part of the hedging program, do either ourselves or the dealer have the obligation of returning the gold, re-leasing the gold or replacing the gold at the end of the standard term of lease (which is 1-year) required by all central banks. Does the Board realize: no matter what our contract says with the gold bank, the leased gold needs to be re-leased, replaced or covered at the end of each year regardless of the fact that our hedge position goes out to 10 years forward? Is our dealer capitalized to guarantee this performance, not only to us, but also to every other producer they deal with?
9.
Regarding the specific hedge instrument:
a. Was the trade transacted over the counter or on a
listed exchange? b. Is there any regulatory body presiding
over the transaction? c. Are prices of these instruments
in public record anywhere? d. Was price of the instrument
determined by computer modeling? e. Is there any open
market for each leg of the hedge transaction?
10.
Regarding legal considerations:
a. Are you familiar with legal precedent set in the
early 1990s in Southern District of Manhattan Federal
Court whereby validity of a transaction is determined
by capitalization of a transaction versus nominal value
of the transaction? b. Are you familiar with legal precedent
concerning validity of a commodity transaction being
determined by the timely & industry standard execution
of a margin call?
I require prompt answers to these questions, as without this knowledge no reasonable conclusions can be gained concerning the actual risk our company has, regardless of our company's position in the industry or the size of your treasury. If you have not reviewed all these criteria of the individual hedge contracts, dealer's stability by documentation, & freedom to deal for closure by individual leg or by total spread position with any dealer of your choice, I would feel you are not fulfilling your duty to us.
Sincerely yours,
***From lemetropolecafe.com (Feb 25): If you leave a party early because signs of trouble are brewing, it usually results in sneers. But, it seems as if Deutsche Bank are prepared to run the gauntlet to avoid being bottlenecked at the golden fire exit. Sensible lads!
'After Bundesbank Gold Story, DEUTSCHE BANK TURNS BIG BUYER (smell a rat?)!
"As
reported recently and often, The Gold Cartel has thrust
gold back every time that level has been breached to
the upside for 3 1/2 years now.
"Of special interest this time is that the specs
are mostly long below $290. If the cabal wins again
(taking gold below $290 on a close basis), many of these
black box tech specs will turn sellers and prolong the
inevitable gold market bull move.
"Gunning for the specs, the Gold Cartel forces were loaded for bear last week and were close to winning the day when Deutsche Bank showed up as a big buyer right above $290. Word to me was they could not buy enough at their price levels in the futures pits so they called upstairs and began buying in the physical market.
"This may be MOST significant. Deutsche Bank is named in Reg Howe's Complaint and I used to hear about them all the time on the sell side along with Goldman Sachs and Chase. See this reading from Reg Howe's lawsuit:
"On May 7, 1999, just as gold threatened to surge over $300/ounce in response to new doubts whether the proposed IMF gold sales would go forward, the British announced that the Bank of England, on behalf of the Exchange Equalisation Account in the British Treasury, would sell 415 tonnes of gold in a series of public auctions. Although this announcement came with no warning and was completely unexpected by most, the previous evening Bill Murphy of GATA reported in his Midas column at Le Metropole Cafe: "Deutsche Bank's bullion desk is calling their clients saying that the gold market is stopping at $290."
"On May 10, 2000 GATA presented its "Gold Derivative Banking Crisis" document to the Speaker of the House, Dennis Hastert. Several of the GATA army made sure copies were sent to the Bundesbank, etc. Twenty thousand copies were downloaded from the www.GATA.org web site.
"Then, on August 25 Germany's premier financial business newspaper, Frankfurter Algemeigne Zeitung, surprisingly published two articles in its paper about the GATA document. They were very blunt, got to the heart of GATA's concerns and complimented the authors. Both articles were most unusual in that there were no contrasting rebuttals.
"It was clear to some very savvy people that some higher ups in the Bundesbank planted the articles to warn Deutsche Bank about their short gold positions. We had heard for some time about a rift at the Bundesbank about gold between the young turks (anti-gold) and the old guard (pro-gold).
"Following the articles in FAZ, I cannot recall hearing anything about Deutsche Bank on the Comex, until TODAY. Not that they have not been there, just that their name was never brought to my attention again, unlike Goldman Sachs, which has been a cabal gold seller at all critical times. In addition, Deutsche Bank has reduced their gold derivative positions since the FAZ stories were published.
"Then out of the blue last week, the gold world is presented with the strange, Bloomberg Bundesbank gold story - reminiscent of the Russian gold selling rumor circulated by J. P. Morgan Chase in May 2001. Both stories were planted to generate gold selling by frightening gold longs that the central banks were going to sell their gold. Both planted stories worked.
"The Bundesbank story, however, only worked to a very modest degree as gold only dropped $6-$7. Why? I suspect it is because the gold fraud is about to end. Perhaps, the Germans want out while the getting out is good and figured the best way to cover massive gold short positions was to generate a bogus central bank selling story and then start buying.
"The German bankers cannot be THAT dumb. They must want to cover as many gold shorts as possible before disaster rules the gold day, a day that is now inevitable. If the Germans have lent out as much gold as we think they have, they need to get it back or declare the scam to their citizens. To buy any kind of size at decent prices the Germans need to buy into a falling market. If this anecdotal hypothesis is right, we will see them on the buy side some more. My guess is they have a huge amount of buying to do.
"If that is the case, the only question may be whether they will be buying at $285- $292, or perhaps $302 to $307.
"It
would appear we are witnessing the first visible signs
of a disintegrating Gold Cartel. One of their rats could
be leaving their sinking ship. We shall see, but today's
development may be a gold milestone. It bears close
scrutiny."
End.
***Time
to shift focus to more feasible returns in Europe?
From Bob Chapman of 'The International Forecaster' (Feb
16):
"A very strong case can be made for lower US share prices when they are compared with European stock prices. That's based on the premise that European shares are only somewhat overvalued. US stocks trade at 33 times trailing earnings. The historic norm is 14.5 times, while Euro stocks trade at 19 times. American stocks trade at 3.3 times book value and offer an average 1.4% dividend yield, while in Europe stocks trade at 2.3 times book and yield 2.5%. The enormous differential is because US stocks are very overpriced and European stocks are somewhat overpriced. The multiples that both trade at and projected 2002 earnings is, the US 31 times and Europe 18 times. The level is closer but both won't be anywhere near these estimates. They'll be substantially lower."
***Specific Stock and futures recommendations now appear only in the FULL (paid) FMU, not the Free FMU.
If you would like to read our FULL market update, today, which contains recommendations in stocks & gold, etc, with lots of charts & indicator updates in several areas, you can subscribe on-line today, via our:
It's only $125 a year (ie, less than 35-cents a day!), hardly a big deal if it gives you just one good investment a year. In our opinion, you'll get dozens.
Click here to sample a previous Full Mkt Update
S&P500 Index
The S&P 500 Cash Index closed Friday Mar. 01 at 1131.78 ie, 20.64 points below its 200-day moving average.
S&P 500 Index weekly chart - line on close:
Bias to downside as price remains within the MT downtrend channel. Pullback now facing multiple overhead resistance levels, coming from the 40-week MA, top boundary of MT downtrend channel & key historical resistance.
S&P 500 Index daily cash chart:
Upside
resistance: 1140, 1175, 1200.
Downside support: 1120, 1100, 1077-1059, 975.
NYSE advance/decline line
NYSE advance/decline line - weekly line on close:
NYSE A/D line remains overextended with the both weekly & daily Stochastics at extreme levels in their overbought zone (increasing likelihood for consolidation action). Price has almost reached its upside target (6168), calculated by from the point height of the mini trading range. Pullback to 5864 support possible before renewed upside action seen.
Note: NYSE AD line has limited value due to distortion from large number of Preferred & interest sensitive stks, which rise in recessions.
HSLP-NYSE - daily line on close (HSLP = our in-house mkt predictor):
Strong downside divergence coming from our leading in-house indicator HSLP-NYSE, which has already tested & fallen below its Sept lows. As HSLP-NYSE has repeatedly lead action on its benchmark index (sometimes by several months), bias remains heavily to downside.
Nasdaq
The Nasdaq Composite Index closed Friday Mar. 01 at 1802.74 ie, 109.04 points below its 200-day moving average.
Nasdaq Composite weekly - line on close:
Nasdaq weekly testing support from April low. Weekly Stochastics in solid downside mode, but slowing momentum indicated by tentative upside turn in faster %D line. Next clear indication of direction will come on break above 2000, or below April low. Breakout above the top boundary of the MT downtrend channel & 40-week MA will give mini green light for bulls.
HSLP-Nasdaq (HSLP = our in-house mkt predictor):
Downside divergence coming from our in-house indicator HSLP-Nasdaq, which has failed to make a higher high while the its benchmark index shows a tentative breakout from its ST down trend channel. HSLP-Nasdaq action reducing probabilities for a sustainable rally in the Nasdaq Comp.
Nasdaq Composite March futures Cx - line on close:
Upside
resistance: 1500, 1564, 1731.
Downside support: 1347-1415, 1261.
Stock Markets -- the bottom line
On basis of 200-day moving average, US stock markets are neutral to bearish. The Value Line & the DJIA closed above their respective 200-day moving averages (MA's), while the Russell 2000 & NYSE Comp close on their respective 200-day MA's, & the Nasdaq Comp, Nasdaq 100, S&P 500, & Wilshire 5000 Index closed below their respective 200-day MA's.
Globally, as of Mar. 01 the following indexes are neutral to bullish, having closed above their respective 200-day moving averages:
Australia's
All Ords
Brazil Bovespa
Canada's Toronto 300
Malaysia's KLSE Composite
New Zealand's Cap 40
Singapore's Straits Times
Thailand's SET
The following indexes are neutral/bearish (as in MT downtrend), having closed on their respective 200-day moving averages:
Belgium's
BEL 20
Finland's Helsinki General
Norway's Total Share
Sweden's Stockholm General
Spain's Madrid General
And, the following indexes are bearish, having closed below their respective 200-day moving averages:
France's
CAC 40
Germany's DAX
Greece's General Share
Hong Kong's Hang Seng
Italy's MIBtel
Japan's Nikkei 225
London's FTSE 100
Netherlands's AEX
Switzerland's SMI
Of the 22 stock markets above, 6 are neutral to bullish (but remain against major bear trend), 6 are neutral to bearish, & 9 are bearish, using their 200-day moving averages as key criteria.
World Index weekly line on close:
Dow Jones World Index at critical testing point within its MT downtrend channel. Breakout from downtrend channel, or below ST uptrend line to give next signal of ST direction. Closing action over prior high of 179 & key resistance needed to confirm sustainability of upside action. Weekly Stochastics confirming loss of downside momentum, but still have plenty of downside scope before reaching extreme oversold levels.
Gold
The April gold contract closed Friday Mar. 01 at 298.40 ie, up 1.30 on the week.
N.Y. gold weekly chart - line on close:
Gold rally looking overextended having reached the upper limit of its ST uptrend channel, increasing chances for (healthy) consolidation/pullback action.
N.Y gold daily chart (April contract) - line on close:
Upside
resistance: 300, 305.
Downside support: 296, 292.50, 288.
***FYI: GATA have posted a copy of the famous academic essay co-written by Lawrence Summers, "Gibson's Paradox and the Gold Standard," published in the June 1988 issue of The Journal of Political Economy, has been posted in Adobe Acrobat format here:"
http://www.gata.org/gibson.pdf
Attention:
Uncle
Harry says: "If any of U haven't yet joined our
Gold Charts R Us
gold-club, U still can, at the special founder member
rate. I MUST extend that rate until HSL appears next
week so Hslm's have a chance to get in on it. It wouldn't
be fair or ethical to cut them out.
GCRU was born among FMU readers but we can't cut out non-FMU Hslms. We'll all in the same family. And non-email Hslms don't know GCRU exists!
FMU subs tell me U are delighted with GCRU, making gains already, --- & the best mother-lode days are ahead. It's going to be a ball!
Here are the details again: It's a weekly service, mid-week, by email only, of good action, junior & senior, gold mine charts with specific buy & sell & stop levels for each gold share. Some with multiple buy/sell levels. Mostly under but some above the mkt. The cost is a mere $100 a month, but for the next couple of weeks U can get in on the charter member rate of US$50. U can take a 3, 6, 9, or 12 mos subscription, but I suggest the 12 mo to be sure to lock in the discount price. As U know, useful guidelines, like good newsletters, don't cost; they pay. Glow with guided gold charts, a pathway in the wilderness.
Happy Uncle." :-))
Euro vs. US$
The March euro futures contract closed Friday Mar. 01 at .8650 ie, down .0010 for the week.
Euro weekly cash chart:
Ominous bearish, descending triangle continues to form in the weekly euro chart. MACD confirming ST loss of momentum, but offering divergence on MT chart action, via higher lows since early 2000.
Daily March euro futures contract - line on close:
Upside
resistance: .8750, .8860, .9020.
Downside support: .8600,.8500-.8420, .8340.
***Stop Recommendations
Sell at mkt:
Alberto
Culver
Boeing
Vinci SA
Take partial profits:
Agnico
(traders long at 9.975)
Agnico (traders long at 10.25)
Dun & Bradstreet
Durban Roodepoort Deep
Freeport McMoran
Fresenius Medical at 56.00
Givaudan
Glamis Gold
Goldcorp
3i Investment Trust
Isle Capri Casino
Logica
Newmont Mng
Penn Nat'l Gaming
Silver Standard Res.
Raise stop:
NVR
to 210.00
Suncor to 42.00
***It is not the critic who counts; not the man who
points out how the strong man stumbled or where the
doer of deeds could have done them better. The credit
belongs to he man who is actually in the arena; whose
face is marred by dust and sweat and blood; who strives
valiantly; who errs and comes short again and again;
who knows the great enthusiasms, the great devotions,
and spends himself in a worthy cause; who, at the best,
knows the triumph of high achievement; and who, at the
worst, if he fails, at least fails while daring greatly,
so that his place shall never be with those cold and
timid souls who knew neither victory nor defeat.
Theodore Roosevelt
Humor this week comes from our friends at Medquest:
Subject:
M O N E Y
Mar 1, 2002
It
can buy you a House,
But not a Home.
It
can buy you a Bed,
But not Sleep.
It
can buy you a Clock,
But not Time.
It
can buy you a Book,
But not Knowledge.
It
can buy you a Position,
But not Respect.
It
can buy you Medicine,
But not Health.
It
can buy you Blood,
But not Life.
It
can buy you Sex,
But not Love.
So you see money isn't everything, and it often causes pain and suffering.
We tell you all this because we are your friends, and as your friends we want to take away your pain and suffering.
So send us all your money and we will suffer for you.
WE ACCEPT CASH, MONEY ORDERS, PERSONAL CHECKS, CASHIER'S CHECKS, BAGS OF GOLD, BARS OF PLATINUM, GRADE 5 PLUTONIUM, ETC., ETC. (PLEASE NOTE: NO CHILDREN AS PAYMENT --- THEY WILL BE RETURNED!).
The HSL Team