Steve Puetz: Thanks, I understand that, but how does selling the call affect a fall in price of the underlying future commodity as implied in the commentary, that is where I have the hang up.

Clinton recommended at the G8 that all other countries adopt US economic policies. Does this mean the best buys in the rest of the G8 are suburban property, moving vans, and guns?

Steve Peutz: Upon rereading the article, I believe I misinterpreted it. I now believe the article merely states that there were more buys in the spot market than selling of futures with a reason given for the purchase.
But thanks again for your response.

Comment on interest: to debate, and understand, the issue of GOLD:

The 50 year record of interest rates on high grade bonds is surprising.
World War I ushered in a substantial rise in the interest rate, which
was considered the *normal* concomitant of large scale government
financing. However, after several irregular movements associated with
the business cycle, the bond rate in the late 1930's declined to a record
low despite the fact that the Treasury was going heavily into debt
through New Deal deficit spending.

Then came World War II with its incredible expansion of Federal debt from
$40 billion to $240 billion. Nevertheless, instead of rising, the bond
interest rate fell further during this period.

These unorthodox results are generally attributed to *modern artificial
controls* of the money market, by governmental agencies.
( Graham and Dodd 1934 )

Steve Puetz - Hi Steve! Have been reading your postings with interest. Actually, I have posted here on and off for about 18 months. Haven't had much time lately but I still browse regularly.

Re your remark about the Brit stock market. The Bank of England have actually raised rates twice over the past couple of months. Not like the good old Fed.

I think that Mr Greenspan is getting plenty nervous. Rate rise on July 1-2 would certainly throw a Bengal Tiger amongst the pigeons, but I don't think the rest of the FOMC will go for it even if he wants to.

Comment on deflation:

Write-ups and Write-downs of the Plant Account.
The country's experience with *inflation* has not been confined to WW II.
The rise in the price level after WW I was of the same general magnitude.
USofA also went through a *deflation* of record proportions in 1931-33.
The effect of these major developments on depreciation practice was
shown in the first instance by changes entered upon the *balance sheet*

In numerous cases in the 1920's, managements wrote up the plant account
to figures reflecting their replacement value in the light of the higher
price level, which at that time appeared fairly well stabilized at about
50 % above the pre-1914 figure. The collapse of the price level after
1929 was followed by a wave of devaluation in the plant account.

In many cases this was accomplished merely by reversing or canceling the
previous write up; but numerous corporations went to more drastic lengths
and marked down their entire plant to depression levels of value.

In 1933 American Locomotive Company reduced the stated value of its stock
from $50 to $5 a share and utilized most of the capital surplus thus created to write down fixed properties by nearly $26,000,000 and its
investment in General Steel Castings Corporation by about $6,200,000.
The net effect on the income account was to reduce depreciation charges
to about 40% of their former level.

The mark ups and mark downs in the plant account in the 1920's and the
1930's had no effect upon the companies' tax payments. They continued to calculate their tax depreciation on the basis of original cost.

For RL and Anybody else interested in the Blyvoor
conversion to Durban Deep that I am getting really
tired of talking about ( and also losing money on )

1 . At the time of the conversion, Holders of old DD
shares will get half an option per share of DD good
through mid 2002 ( or so ) striking 60 ( I recall ) . thus after
conversion, DD will trade "EX" and fall by about the
value of half an option.
2 Blyvy holders will trade their stock for DD shares
on an "ex" basis - ie no option at a rate of 5 Blyvoor
to 1 DD.
3. Buffels holders will trade their stock at a rate
of about 1.3 buffles per DD - as in 2 ( above )
4. One blyvoor ADR = 3 blyvoor stock
5. Exchange rate = 4.5 Rand per US $.
6. I would value option at say 4 rand ( although only
Mr Market knows )
7. DD is about 19 rand thus ex would be 17 rand ( NOW -
if there were an "ex" market ) .

Thus to value blyvoor at conversion time I would
do the following calculation in living mathematics.
BLYVOOR break even price = 17R/5 = 3.4 R
The corresponding $ Blyvoor price is 3.4/4.5 = $.755
The corresponding $ ADR price is 3 times .755 = $2.26

Blyvoor ADR closed at $1.75 thus it is cheaper than
its conversion price ( seems to me )
This is not in any way a suggestion that you buy
Blyvoor. Also my fingertips are sore from typing
this to so many people. Looks like easy money -
I quess so but DD looks like free falling - Also there are
rumblings deal may not go through but I doubt that.

Buy it - dont buy it - Im taking the rest of the
week off. Try the calculations yourself - you might
like it. I hope the above is clear.

*****Note Another check on my option value is that old
Blyvoor options ( to be traded for new DD options also
at 5:1 ) are trading at 0.85 R - and 5*.85 = 4.25 close
enough ) - Please dont ask questions on Blyvoor options

For George Cole or Joe 6pak or anybody
Gold loans confuse me - Take the arms deal to RSA
from the UK.
I assume it works like this - stop me if Im wrong.

1. London export bank buys gold from Bank of England.
2. It then sells the gold to MR Market ( see BOB )
3. money from 2 gets arms from manufacturer.
4. arms go to RSA and RSA owes export bank same
amount of gold it sold to Mr Market.
5. Interest rate 2.4 %. on this deal
6. When loan due ( lets say 4 years ) , RSA must acquire
same amount of gold to return to export bank ( presumably from
MR Market )

Question if everyone assumes gold will go down
in price, why is rate only 2.4 %. Since RSA can
buy from MR MARKET at say $200, return the gold
to UK and let bank of england and export bank
pick up the small pieces. They lose lots of money.

On the other hand, If this new demand four years out
for gold from Mr Market is superimposed upon the
normal demand, will Mr Market really give it back
for 200$, or will he want some higher number.

thank-you for that comment on waiting until a move
becomes obvious and the 10-15% ego thing, getting in too
early is destructive to the point survival becomes an issue
i have found. Then not catching the peak one is looking to
see it crest again, but it has gone. Well, your comment
has given me a useful insight.

To No One in particular

Some one probably said this kind of thing before
but I believe that the demand for gold is quite
different from the demand for gasoline or wheat in
that for the most part, it is not consumed. It hangs
around.
Thus if I had a marketing strategy for gold, my
objective would be to have it as widely dispersed
as possible - bank vaults of course, but also in
museums, peoples drawers, displays, deposit boxes,
wrapped in bands around the arms of Turkish and Indian
women, and as Bogart put it, "on the fingers and necks
of swell dames"
Coins seem to me to be a possible indicator of
future demand - I dont really like extrapolating past
data to forecast future trends. The Belgian bank sale
of coins seems bullish to me - but it has been taken
as bearish. It seem to me to be a new place for gold
to be more widely dispersed. Will a soft Euro lead to
a big European coin demand ??
I dont know enough about coins. What about the trend
in premiums on coins like the Krand.
If you recall = Prior to the big run up in the
PGM prices, there was a statement to the effect that
Rubin ( god bless him ) was going to have the mint issue
a platinum coin. Did somebody out there know something??
Do these things happen in response to public demand or
insistance, or does it happen by Rubin's semi-divine
decree ( I imagine I know how he would like to think,
having seen the look on his face in the NEWSWEEK cover
photo ) .

Simple Simon -- That fall you had previously mentioned to the mid 330's seems to be happening. Just a few more bucks to go. Think they got that plane cleaned up yet?

Bonnie: After reading all these posts at Gold Eagle, I
believe that the governments worst than we are.
Clyde: I agree, but how we gonna get rid of all these new
fifties?
Bonnie: On our trip across the country, we can stop at
all the coin dealers and gun shows and buy some gold.
Clyde: Good idea Bonnie.
Bonnie: Nite Clyde
Clyde: Nite Bonnie

Boo Boo, I feel like layin a spread on us while the Ranger is out of
town. Bear spread that is. See those lovely lookin holiday makers over
there? Well watch me snatch that picnic basket from right under their
noses. Boo Boo stop lookin at me with those melancoly eyes and go find
Cindy Bear. A bears gotta do what a bears gotta do. HEY HEY

OH Yogi you know I hate getting into trouble.

JOHN DISNEY.

A big thanks for the great info on the Blyvoors ( Durban ) deal. I promise not to ask any more BLYDY questions for the rest of the week!

Here's my attempt to explain the current state of the metals market:

Market prices are determined by the ATTITUDE of investors to the current economic environment rather than by the true environment itself.

I sure hope they change their attitudes soon! :- )

Greenspan is sleeping in what feels like a warm sweat. He wants to awake but cannot. He rubs a hand over his wet chest. Red. A scream gathers in Alans throat, the vains of his neck engorge, but no sound emerges. His vision weakens, his mind numbs, finally blackness.

Alan awakens prostate on a windy snow covered tarn. He draws his arms across his body for warmth. His vision returns focused on his stomach where snow is melting. He watches as tedrils of red blood-water run across his groin and drip into the blindingly white snow. Taken for the colors alone its almost beautiful, he thinks. Not this dream, anything else. Where is the cave its usually to my left, he thinks.

From the mouth of the cave a figure emerges. Dressed in skins the huge creature blinks as the bright light forces an adjustment in his vision. He spots Alan and a wide grin spreads over his visage. From his belt he draws a small stone knife. As his brother warriors have done from the mists of lost times, the beast will have first the blood of the coming battle. He bares his chest and cuts the four crisp letters in his left breast. Alan knows the word well but how strange to see it in red. Alan closes his eyes and attempts to cover his ears but it is too late, his hands are blasted to the ground. The beast has released a bellow that seems to last minutes or is it hours, it will end Alan thinks. Alans eyeballs are vibrating and pain suffuses every part of his naked body.

"Alan so nice of you to come. Danks du." The beast finds these words mirthful and releases peals of laughter that long echo from the surrounding mountains. "Alan come here, first we will eat and drink then we go to work." Greenspan walks the fifty feet to the cave, his bare feet cold against the snow. The beast throws Alan a skin garment. "Cover your self man, there are young girls abouts." These words are also mirthful, more laughter. The beast is sitting on the snow and gazing down on Alan.
"Sit down Alan. I suppose you require another skin." It is provided and Alan sits. "What will you eat Alan?" Mutton and your good brew, Alan responds. Food and drink appear. A lyre is heard from within the cave. Three girls emerge from the cave. Two comb the beasts head hair while the third applies a clear jelly to his wound. The beast ceases eating and stares intently at Alan. Greenspan wants to keep looking at his food but this is impossible. Alans head is forced to tilt upward until his gaze meets the beasts. Alan tries to close his eyes but he cannot. Now come the words Alan thinks. Please no! "So Alan, you will tell me now. Why have you betrayed us?"

Sometime back an unhandled lurker asked me to comment on Big Trader and the veracity of his posts. To that lurker, I reply, I only know what I know, and this is what I know:

The information must indeed be private since no one else knows it,
...and if true, would certainly be valuable to any market pundit;

Thus, to disclose it gratuitously to this group is truly a remarkable gesture,
...particularly since he is known to us, and we to him, only as a BT Poster;

No doubt, he, she, they or it is a very clever or genuine author,
...for some believe what is said is true, and that BT is not an imposter;

The change in syntax in the prose is probably attributable to that of another,
...while the cryptic thoughts must surely be code for only a few to discover;

There must indeed be a reason for E-mails to GFD because BT posts without them,
...and when he tells us it's his last post, he cannot resist another addendum;

That not so Simple Man must forever lurk, because he posts immediately after,
...as an alter ego to make sure we do not miss a meaning thereafter;

Although the market has not responded to any of BT's many warnings,
...it is only because of market conditions in the following morning;

But I have no doubt that if for any reason gold should eventually rise,
...there will surely be those who will credit BT for what they surmise.

Russia did not begin shipping platinum and palladium to Japan as expected yesterday. Exports may resume in July. Anyone have further info on this?

Thursday's NEW YORK TIMES ran a relatively objective article on recent developments in the gold market, "Central Bankers and Option Traders Weigh Down Gold's Price." The article concludes by speculating on the impact of current EMU problems on the noble metal. Oppenheimer's Michael Metz -- perhaps the only well known gold bull left on Wall Street -- argues that if gold does not respond to current EMU difficulties "I don't know what it responds to."

With Wall Street's last gold bull ready to throw in the towel, can a new bull be far away?

According to Big Trader's last post bullion will start a big upside move by the end of next week. We will soon find out if he knows what he is talking about. An even money bet in my judgement.

At this Forum Barrick Gold announced 7.5 moz. of forward selling of gold ( 2-1/2 years of production ) . This can only imply a negative view of the gold market as far as Barrick is concerned.
The general mood at the Rorum was one overwhelming bearishness.
Could this be the final proof of gold bottoming?
Nobody, absolutely nobody wants this stuff anymore!

Tiny Trader is curious - someone please help!! Apparently on Friday the price of gold dropped because of speculation that Belgium is going to sell some of its gold reserves. If they sell some reserves, someone else must be buying it. So why would the price of gold drop if some gold reserves are just changing hands???

Our mania to win at any cost is a Ponzi-like game. And our burgeoning US debt is a cancerous malady infecting John Q. Public. The Cure? Monetizing the debt:
http://www.gold-eagle.com/gold_digest.html

GOLD LOAN COURSE 101: Here's how a gold loan works. A central bank, let's say the Bank of England, is willing to loan its gold out for a small profit. Let's say XYZ Hedge Fund is bearish on the price of gold and wants to sell it short. Here is what happens.

On June 21, 1997, the Bank of England loans 1,000 ounces of gold to XYZ Hedge Fund at a 2% interest rate. Under the terms of the loan, a 2% interest rate is charged for the loan. But, instead of paying the interest in currency, the 2% must be repaid in gold. Thus, on June 21, 1998, XYZ Hedge Fund must repay the Bank of England 1,020 ounces of gold to complete the transaction.

There are several important points about gold loans. They are short-term bearish because they add to existing supply, because the borrowers immediately sell the gold on the market as soon as it is loaned to them by the central bank.

The gold loan interest rate is the amount of gold that must be repaid ( on an annual rate ) to pay off the loan. When the gold loan rate soars, it indicates an extreme shortage of physical gold in the marketplace. This can be caused by central banks unwilling to may additional gold-loans, or by potential gold-borrowers ( such as hedge funds ) in desperate need of either gold or credit.

Finally, long-term, the gold loans are more bullish than they are bearish in the short-term. Gold loans are a way for central banks to add to their gold bullion stocks. Remember, central banks get back more gold than they loaned out. At, some point, during the coming financial crisis, I image the central banks will want their gold back. Then, and I repeat, then, watch the price of gold soar as hedge funds, gold mines, and others that have used gold loans maddly scramble to secure gold in the physical markets to repay their loans!!!!

INFLATION vs. DEFLATION DEBATE: Before settling whether we are headed for inflation or deflation, we must all establish agreeable definitions of what it is that we mean when we say inflation or deflation. To do this, I am going to ask a series of questions. I hope these questions prompt wide participation at Kitco. I hope everyone can settle on what these definitions should be. I will give you my answer sometime next week -- Maybe about Tuesday, provided there is enough interest and debate on this topic. With that background, here are the questions:

1 ) What is inflation? Is it monetary? Is it credit expansion? Is it the change in consumer prices? Is it the change in producer prices? Is it the change in calculated-wealth of a nation? Does it pertain only to the market price of new goods and services produced? Or does it count for changes in prices for cars, houses, and other forms of wealth produced many years ago?

2 ) What is deflation? I repeat all of the questions above.

3 ) What are the symptoms of inflation? I repeat all of the questions above.

4 ) What are the symptoms of deflation? I repeat all of the questions above.

Kitco-posters: Have a good debate!!!!

Tiny Trader -- "For every seller there must be a buyer. For every buyer, there must be a seller." The games going on, vis-a-vis the press releases, are done mostly to hurt the leveraged paper traders. If you bought gold at $400 and it goes to $300, you lose %25, not an inconsequential amount. On the other hand, mining stocks have lost between 40 to 60% of their price. Options, well... let's not discuss that. Futures ( long positions ) OUCH! Even with stops, you bled slowly though not as badly.

If things went truly 'non-linear', then physical holders win. They are the 'lender/suppliers' of the last resort. In the mean time, buy some coins, save some cash, and when the INITIAL move happens, be very nimble in paper trading. You will likely not get much notice!

Bye-Bye: Off to read this morning's Barron's. Will check back in at Kitco later today.

For those of you who are linguistically challenged like me you might find the following poem of comfort in your dark dismay and when you can't seem to spell anything right.

I have a spelling checker
It came with my PC.
It plane lee marks four my revue
Miss steaks aye can knot see.

Eye ran this poem threw it.
Your sure real glad two no.
Its very polished in its weigh,
My checker tolled me sew.

A checker is a blessing.
It freeze yew lodes of thyme.
It helps me right awl stiles two reed,
And aides me when aye rime.

Each frays comes posed up on my screen
Eye trussed too bee a joule.
The checker pours o'er every word
To cheque sum spelling rule.

Bee fore a veiling checkers
Hour spelling mite decline,
And if we're laks oar have a laps,
We wood bee maid too wine.

Butt now bee cause my spelling
Is checked with such grate flare,
There are know faults with in my cite,
Of nun eye am a wear.

Now spelling does not phase me,
It does knot bring a tier.
My pay purrs awl due glad den
With wrapped words fare as hear.

To rite with care is quite a feet
Of witch won should be proud,
And wee mussed dew the best wee can,
Sew flaws are knot aloud.

Sow ewe can sea why aye dew prays
Such soft wear four pea seas,
And why eye brake in two averse
Buy righting want too please.

Hi Mac Yes B.B.W. certainly is on the right time frame.I think anyone can be long or short any market and be successful if greed is washed from their emotional makeup .

Isn't it curious how the 'leaders' keep worrying about a currency crises?

http://biz.yahoo.com/finance/97/06/21/z0009_278.html

BBML

Veteran Market Analyst provides sound common-sense advise of whether it is smarter to buy low-priced stocks or high priced stocks. Dines Letter in Editorials:
http://www.gold-eagle.com/editorials.html

John Disney,
Thanks for your explanation.
I will ask no more blydy questions.
I am on my way today to Richmond, Va. which I seem to remember is a former residence of yours.

Regards,
RL

Thoughts on the almighty dollar The high Unemployment in Germany and France as well as Canada fundamentally should keep these currency's down for the sake of exports to create jobs jobs jobs.I see a breakout on the American dollar soon or a co-ordinated effort to keep it flat.The American Economy is pulling the rest of the World up with a strong currency.If and when Gold begins it's next bull move I think we all could be looking at Vronsky and blue skies.

Vieserre,

I've read that Bankers Trust comment you posted a number of times, and I still find it confusing. Leaving the options selling angle aside, the real question is the guy's assertion that there is a lot of selling capacity left by the funds. I don't think so. The latest COT report shows commercials net long 36K ( funds net short that amount, with the small trader net flat ) . As the report reflects positions as of the close Tues 6/17, you have to factor in the big additional fund selling and rise in open interest for the past few days as we broke contract lows regularly. My guess is the funds added to their short position by 15-20K additional contracts, leaving them net short 50-55K. If my guess is correct, you can count on a couple of fingers the times they have been net short this amount in the past 4-5 years ( see Gold-Eagle anaylsis page COT and large specs ) . Since this has been close to the largest net short position the funds have held historically, I question how much additional selling capacity they have left. I am also very impressed that such big additional selling was accomplished on a relatively small move down $3.5 to 4 for the week - it smells like an engineered move. With sentiment at an extreme, it sure feels like a bottom. We'll see.

WW - your posts have been great ( even the old ones ) . You asked a while ago about what the effect a rising price of gold would have on a hedged mining co, and no one responded. I think about that all the time and keep coming up with the answer that it will be real bad. The recent post that Barrick is forward sold for 2+ years or 7.5 million oz or 75K futures equivalent contracts ( I assume it's true, but it's not my statement ) makes me want to ask, if at this time next year gold is 500 or 600 or something, what does that mean for Barrick or any mining co. in that position?

APH - hope I don't jinx you, but you've been deadly.

Thanks for the tip on buying gold coins Panda! Now, could someone puullease answer my question. Thanks in advance!

Ted Butler: Are CB gold loans generally made for a given time period, or can they be called any time at the discretion of the CB? If the CBs cannot call these loans at will, speculation about a physical shortgage if/when they demand repayment would seem to be greatly exaggerated.

TED BUTLER: Thanks for the view point. I follow the COT and have observed the build-up; and I agree it has reached proportions inducive of a technical rally. I also notice that NEM is not leading the downside, as it often does in its unhedged capacity, with a down-turn in the market. Rather, it is outperforming the group suggesting accumulation for an expected rally. In addition, at least a few days ago, most of the gold equities on the NYSE and AMX had good accumulation/distribution ratings despite the negativisim in the market. But except for this, the gold market sure looks grim. As to ABX, at the end of 96 it had hedged 6.7 million ounces, about 13% of its reserves, and the company expected to realize $420/oz in 97. If one is in ABX, and the market does move and gold is expected to exceed this price, the play obviously is to move into a stock such as NEM when ABX begins to stall. But at about 500 million per year cash flow, ABX's hedged position provides a lot of cash for favorable acquisitions at these prices and thus something to consider. As to Banker's comments, I agree with your viewpoint, and as to the options, I believe it is just confusingly stated.

TED BUTLER: Further to on the subject of producer's hedged postion, I am not as knowledgible as I should be on the subject, but my belief is that the hedger-producer can unwind his hedged positions to the extent desired in the event of an anticipated rally, although it may be costly to do so. Then the choice is cost vis a vie risk of expected gain. I would appreciate any knowledge you may have on how this is done.

Sitting here patiently waiting for the Bull to move back in BULL-ion. *poof*

STEVE PEUTZ, VRONSKY, OR ANYONE: In comparing the present gold market with the stock market, do you know of any other time when the such extreme divergences have taken place. That is where a very large percentage of investors have acquired stock arising from extreme postive investor sentiment; and conversely, where a large percentage of gold investors have sold gold and gold equities arising from extreme negative sentiment. Or vice versa. And if so, what has been the historical outcome and when.

Or in any other case where two opposing types of assets have diverged to substantial extremes, and if so, the outcome and when.

One of the lead articles in the local paper: BOASTING BY U.S. IRKS SOME ALLIES....Who could have ever predicted this????....Hi Vieserre! Tort: got yer rocket ship and will be gettin a reply off.."U.S. chest-thumping"
haha....and Rubin seemed like such a humble guy.....ditto Bubba...and Hillary can't nail a piece os siding on a house...hahaha

George,

With the caveat that getting hard information on these metal loans is akin to uncovering documented info on the mafia, it is my understanding that the bulk of these loans are done on a 30 day basis and rolled constantly. Since there's such a short time fuse, I would imagine further call provisions would be a moot point. It is interesting that the mining co hedges are long term in nature ( promising material that won't be produced for years ) While the mismatch in maturities is eerily reminisent of the savings and loan debacle, that potential problem palls in comparison to the fact that the "currency" that the loans are denominated in, is effectively shrinking in total supply. This means that as loan volumes grow ( there's never been a period of net repayment ) , the borrowers lack the ability to repay collectively with metal. Of course, the loans will be settled in some form ( probably in the form related to me in a conversation with a guy at the Fed - who said the loaning central banks might be given some type of monetary settlement in lieu of metal that can not/will not be returned. This is definitely not official Fed thinking as far as I know, just a what if conversation, but how else can it end? )

You can get a real time sense of call provisions by looking at what's happening in platinum/palladium weeks after the crisis. Rates are many,many times higher than what was considered normal after the unilaterial reneging on cash/loan transactions.
As you know, I don't mince words on the metal loans - they are all stupid, fraudulent and will not be repaid collectively as called for.

Vieserre - the only way a mining company can undo a hedge, as far as I know, is to reverse the process by buying whatever they originally sold or its equivalent. I would imagine it would be pretty simple, depending on existing market conditions, of course.

ALL: I just finished reading Barron's Stat-section. There was some amazing new information regarding the stock market. I've gotta' share it with you. 20 items follow.

Spectacular day on the North Atlantic with the headphones strapped on listenin to "The Boss"...Bruce........Springsteen ya know!...Another commodity that is rising in price and will get higher is Lobster...Our postmistress's husband has been fishin fer over 50 years and this is his WORST lobster season ever...We can see it from the house as all the traps they are pullin up in front of us are EMPTY...This is a major East Coast lobster area....or was!

This is the second week in a row of near-record volume. The 2-week volume is a record for consecutive weeks. It has been a 2-week melt-up, reverse-crash, buying-panic -- whatever you want to call it.

This is from Asia Times this week,

http://www.asiatimes.com/97/06/20/20069721.html

Oliver

London has often been a leading indicator for New York stocks. The nearly 200 point break in London last week ( equal to about 350 Dow Points ) portends trouble for the DJIA.

Corporations are heavily dumping securities onto the public. For the week ending June 13th, $20.0 billion of bonds were sold ( 3rd highest on record ) and $4.2 billion of stocks were sold ( 14th highest ever ) . The week just ended on June 20th, $32.1 billion of bonds were sold ( a new record ) and $8.0 billion of stocks were sold ( a new record ) . The $40 billion of stocks and bonds sold last week was about a half-years supply back in 1980-81!!!!

Bubba: Thanks fer bein the "ugly American" this weekend....knew ya had in in ya....

Very interesting observation by Steven Kaplan in his daily commentary yesterday afternoon. It's in the early part of his report as follows: "Typically at a major bottom in precious metals, the XAU refuses to make a new annual low while gold, silver, and the Johannesburg Gold Index make new annual lows, which precisely describes the current situation."... I agree. Am expecting the London Gold Fix to take out the Feb, l997 lows on Monday.

The most recent AAII sentiment poll shows 59% of their members are bullish. That's one of the highest readings on record. Other high numbers include 66% bullish the week the DJIA peaked in August 1987 before the crash, and 63% bullish 2 weeks before the March-April break earlier this year.

The most recent Market Vane poll of stock market bulls shows 80% bullish -- the highest number of bulls since I started tracking it in 1994.

Big Trader is doing what we all do "expressing ideas"
Problem is that there may be several using his handle.
To accurately predict, within a time frame, with all the
major manipulations it is difficult and BT, as many here
is doing so.
My quesses for what they are worth; is that BT's time
frame corresponds almost exactly with Hong Kong's return
to China.
What would happen if a major or a series of terrorist
events occur on the former crown colony, terrorist
organizations primarily cause confusion and confusion
creates unknown reactions.
Most Central Banks are not selling gold, but using lip
service to keep their large US $ currency reserves
viable. Perhaps; the approximate $10 billion, they lose
every time gold drops $10 is starting to get to some of
them; and that means of defending the dollar is losing
support.
I hope that only the real Big Trader posts, as I
appreciate his "thoughts".

I keep a composite sentiment-poll for the financial markets. The poll consists of 4 stock market surveys, 2 bond market surveys, and 2 euro-dollar surveys. I started recording this composite index in 1994. This past week, the index rose to its highest level ever -- at 537.

Other high points were 499 on June 23, 1995 -- a 2-month consolidation period followed for the DJIA. 495 on February 16, 1996 -- a 5-month consolidation followed for stocks. 532 on November 29, 1996 -- right before the "irrational exuberance" break. 493 on February 28, 1997 -- 2 weeks before the March-April break began this year.

Caution is certainly in order with the index now at 537 !!!!

The 10-day ARMS INDEX ( which measures the volume going into advancing and decling issues on the NYSE ) gave a sell signal this past week.

Vieserre- re your 9:01. please stop it! I'm dying laughing! got to run..

The DJIA last-hour indicator gave a sell signal on Friday. This indicator takes only the change in the DJIA for the last hour of trading, and keeps a cummulative total. The index peak on 5-5-97 at 6180. Fell to 6035 on 5-9-97. It then recovered to 6145 on 5-30-97. Then, on Friday 6-20-97, it dropped to 6003 -- below the 5-9-97 low, thus giving a sell signal. Last-hour trading usually forewarns of trend-changes in the DJIA.

The Dow Utilities have failed to make a new high with the DJIA. Such a divergence is normally bearish for the DJIA.

Ted Butler: Thanks for your rapid and detailed reply!

Vieserre: Gold is cheaper today relative to the Dow today than at any time since the early 1970s. The Dow now buys about 23 ounces of gold. This is approximately the same as the relationship that prevailed in the early 1970s when gold was still trading at the controlled price of $35 per ounce. We all know what gold did during the subsequent 7 years.

The Dow/gold ratio hit an all time high of about 28 in 1966 when the Dow briefly hit 1000 and gold was still being kept at $35 per ounce by the infamous London Gold Pool.

Of course, extremely cheap valuations do not in themselves trigger bull markets. But they do give us some idea of risk/reward potentials. These have rarely been better in gold, and have never been worse for stocks.

OEX Put/Call open-interest stands at 68.4% puts. Above 65% gives a sell signal.

Speculation is running rampant. Junk bond issuance is running at record levels, Brady Bonds are popular. Whatever is risky, speculators are buying like there's no tomorrow.

Peutz: Agree the stock market is going to start a pull back by the middle of next week. But I don't think it will be too serious. Still a little too early via my time cycle analysis. Also small caps still have not done much on the upside. And gold has been smashed.

Still think the big one will begin later this summer, probably in August. By then gold should be doing considerably better. Small caps probably will have had a good run. And by mid-August this bull market leg will have lasted half as long as the previous leg.

Speculators in S&P 500 futures have just accumulated one of their largest long positions ever. This has a good track record of being an excellent contrary indicator. For example, instead of being long at the bottom on 4-18-97, they were short 18,800 contracts then.

The present situation comes closest to matching what happened during August 1987. Back then, speculators were short 23,500 contracts at the end of July 1987. During August, they first went on a massive short-covering spree. Then, they went long 4,300 contract at the top of the market -- right before stocks crashed.

Due to incessant growing demand from Germany, we have translated into German Greenspans candid thoughts on the Gold Standard. For your German reading friends, see Analysis section bottom gold bar entitled: Gold und wirtschaftliche Freiheit. Hello, HELLO Bundesbanks Herr Presidente Hans Tietmeyer - located at:
http://www.gold-eagle.com/analysis.html

Speculation is just as rampant in Treasury Bond futures. Specs went from 30,000 contract short on 4-25-97 to 32,300 contracts long on 6-20-97. That is a near-record long position. And it's another contrary indicator saying to sell now.

Bearishness is building for the ANTI-DOW -- gold. The latest CFTC report shows speculators are short 36,000 contracts of Comex gold futures. As a contrary indicator, that's bullish for gold. Gold usually moves opposite to the DJIA. With the technical situation for gold improving, a sudden gold-rally would be bearish for the DJIA.

Bearishness is building for the ANTI-DOW -- gold. The latest CFTC report shows speculators are short 36,000 contracts of Comex gold futures. As a contrary indicator, that's bullish for gold. Gold usually moves opposite to the DJIA. With the technical situation for gold improving, a sudden gold-rally would be bearish for the DJIA.

The CBOE call/put ratio of daily trading volume has been unusually high for the past month. That's very bearish. This indicator is giving a clear-cut sell signal for stocks.

The CRB commodity index has declined sharply during June. This signals that deflationary pressures are mounting -- which means that corporate profits are likely to turn lower rather soon.

The S&P 500 Price/Earnings ratio now stands at 22.3-to-1, one of the highest levels ever, and a clear sign that stock prices are too high.

The S&P Industrial dividend yield is now down to 1.57%. That is, S&P stocks are at least 3 times higher than they should be.

George Cole: Thanks for the comment. I believe relative value between stocks and gold should play a role in portfolio diversification on any market sell-off, on which I am presently contemplating as a possible reason for investor demand. The CPM Group attrbuted portfolio reallocation for the rise in gold in early 1996. Its reasoning follows:

"Simply put, many investors returned from the holidays convinced that the U.S. bond and equity markets would not continue to provide 33% returns to investors, as they had in 1995. Even if investors believed the U.S. stock market was not going to collapse 10% or more, the prospect for a reduced rate of return was sufficient to encourage asset reallocation moves. Some of these funds moved into gold, silver, and platinum. Confirmation of this is obvious in the appreciation of other assets in the first two weeks of 1996. Once gold prices began to demonstrate what could be called "real strength," based on physical demand from longer term investors, proprietary traders and shorter term market participants began establishing long positions in the gold futures and options markets, pushing gold prices sharply higher. "

There are differences today obviously, but similar reasoning may apply.
I expect the market to correct soon which may coincide with a bottom in gold. But no guarantees.

Retail sales have declined for 3 consecutive months. This is usually a sign that a recession has started. The last time the economy peaked ahead of the stock market was in the year 1929.

Historically the broad pattern of war is that of *inflation* followed
by *deflation*. The *inflation* may be "contained" by rigid controls
during the period of hostilities. But at the war's end *controls* are
relaxed, and then the pressure generated by deficit financing are likely
to vent themselves in an explosive rise of general prices.

War weakens and cheapens the dollar - especially if it is paper dollar.
Stock prices as a whole may be expected to rise, sooner or later, to
reflect this cheapening of the dollar. The course of the stock market from 1900 to 1951, shows a fairly close over-all correspondence between
the rise in stocks and in general prices, although there have been
significant divergences for fairly long periods.

During WW II the earning power of our leading companies was held down by
price controls, renegotiation and the excess-profits tax. Nevertheless
the Dow Jones industrial unit averaged earnings about 20 % higher than in
the pre-war period. Secondary or smaller companies showed, in the main, a
much larger expansion of net profits. The post-war earnings of business as a whole proved unexpectedly large and well-maintained.

The emphasis by government on maintaining full employment makes the
encouragement of new investment a primary element of state policy. Here
we may have in part the explanation of the paradox that while American
business was complaining about the hostile attitude of Washington, it was
registering the largest recorded rate of earnings on invested capital,
computed at original cost.

It is interesting to conjecture why investors and speculators are acting
logically in the present crisis, whereas under similar conditions in the
past they have been dominated by the more obvious psychology of fear.
Let us venture the suggestion that what we are witnessing is the maturing
of *inflation* consciousness, which-by an awkward but not too surprising
coincidence - is about contemporaneous with the maturity of the first
Series E Savings Bonds. There can be such a thing as a panic to buy as
well as a panic to sell.

The stock market in 1951 is far from resembling a buyers panic; but the
definite signs all around us of uneasiness concerning the value of the
paper dollar, and of investments tied to the dollar, suggest that a
definitely new guiding force is entering into the psychology of the
investing public.

The spectacular and ill-fated New Era stock market of the 1920's began
about 1924 with an analogous and quite soundly documented realization
of the long-term superiority of stocks over bonds. Other conditions,
however, were as different from today's as one could imagine.

Perhaps that is a good reason for repeating the French maxim that was
made to order for Wall Street:
" THE MORE IT CHANGES, THE MORE IT'S THE SAME THING. "

Quarterly window dressing is usually complete 1 week before the end of the quarter ( for cash settlement purposes ) . Hence, stock purchases made to get rid of cash holdings ( these days, most investors think cash is trash ) have probably already been completed. As a result, a buying vacuum is likely to appear during the next few weeks.

SELL, SELL, SELL, SELL, SELL, SELL. Sell stocks on the opening on Monday morning, June 23rd. SELL, SELL, SELL, SELL, SELL, SELL, SELL.

And, buy GOLD and SILVER coins.

Puetz: Are you a stock market bear???? Tort: The tooth fairy just arrived
.....

Steve Peutz: Thanks for posting the alerts. I am in accord with at least a short term market top. Leaders IBM, CPQ, CSCO, MU, TXN, ADM, MTC all have double or more tops in place. IBM and MSFT struggled all day as well as other market leaders I follow on Friday. I have already prepared my short list.

TED: I you have not read it, take a look at my 9.01

I like your ode on ET....um...Mean BT....BBL as gotta few things to do...

dow:gold is better than 23 to 1, no sign of dry land.

Ridgid controls during the period of hostilities. GOLD, protected against
change [ MODERN ARTIFICIAL CONTROLS ]. Past record [ TA ], affords, at
least a rough guide, to the future.

Ted, I'm glad the tooth fair left you a dime there on your pillow--I would sue for a Krugerrand in lieu of the dime if I were you--at least it wasn't paper. The state of things makes one wonder about tomorrow; however tomorrow will come and we must deal with the events which greet the new day as best we are able. We can and must gird up our collective loins and prepare for the worst--perhaps a bar of silver here, a Maple Leaf there, here a little, there a little, then we can sleep the sleep of the just; we can dream when there are economic hurricanes and tornadoes which would take our houses and thresh them as chaff in the wind. But we who listen to the wisdom of the etchings which form at this sight ought to be wiser than the orginary investor; we should be a subtle as snakes, yet harmless as doves.

TED: Reason I asked is that I thought as a remote possibility you may have been that anonomous lurker.

Vieserre, my experience is that Ted is anything but anonomous; maybe he lurks, maybe not. His wife says he is a good lurking guy I understand.

found this in kitco clasified
William Cook ( GoldenMan@WebTV.net ) :

for sale, 100 one ounce gold bullion bars, .9995 fine; $300 each

Lurker, them be cheap bars my laddie--further evidence that gold has bottomed out.

A very interesting article by Ted Butler over in gold eagle about the manipulation of platinum and palladium. Does anyone know if this is the same practice they have been using to suppress gold and silver, even though the consumption of silver has been greater than the production for the last several years? Any thoughts?

Fidelity Select American Gold & Precious metals Charts
5 Years, 30 day comparison and hourly charts at:
http://www.geocities.com/WallStreet/5969

These sound like none standards bars. The standard is .9999, and should be from a recognized assayer.
I suspect that these bars would have to be refined, and hence the discount.

Zealots- Bless the fools for torment is painful

Guest market monitor on Friday's NBR predicted a "minimum"
for the dow 20 years from now of 40000. He stressed this was his minimum, and that it was probably going to 60000.
Irational exuberance?

6pak: Thanks for your insight. I understand that after wars a period of deflation usually occurs. But unlike other wars, since world war II prices have steadly risen even though on a year to year basis at a continung lesser degree. Do you see any material significance to this.

MoreGold - Ralph! A-camp-aura, or ore, uh, or...

Vieserre ( 17:22 ) Who ME???????...Hi Tort!....BBL...more last minute projects.....

As of fridays close there are 25 % bulls in gold and 75 % bulls in stocks
( ex-goldshares ) .

These seemed to be two rubber bands; one streched up and the other down

Tortfeasor: No doubt your right, I have never known TED to surpress a thought. : )

Tort: Aye rally, rally licked you're poem these mourning. Aye jist left end left as aye red it. Your quit a good righter.

Ted: I will not deny it. I'm bearish stocks. In fact, a lot so.

YOUR: ...Or in any other case where two opposing types of assets have diverged to substantial extremes, and if so, the outcome and when.

Another review of 1922-1929s IRRATIONAL EXHUBERANCE and aftermath,... in addition to the pervasive finacial euphoria just prior to the 1973-74 market debacle would provide some enlightenment, insights and possible lines of probabiliy. The title of the study is:Gold Stocks & the Great Crash of 1929 - REVISITED, seen at:
http://www.gold-eagle.com/editorials/great_crash.html
Of course there were differences. In 1929 we were on the Gold Standard - but FDR by a stroke of his mighty quill increased the vaule of the noble metal from $20.67 to $35 in 1934. And in the 1973-74 period we were off the Gold Standard - due to Richard Milhouse Nixon closing the Feds Gold window in 1971. However, the common thread in all three cases ( 1929, 1973, and 1997 ) was the IRRATIONAL DISPARITY BETWEEN THE ILLUSORY and UNREALISTIC VALUE OF PAPER ASSETS VIS-A-VIS the INTRINSIC VALUE of REAL ASSETS ( i.e. gold related ) .

Ted: It was the corporate offerings that had me shaking my head this morning as I read Barron's. $40 billion is an unbeilvable amount of securites to dump onto the market in 1 week. Especially after a big week of offerings last week. And especially considering the degree of junk issues in that volume.

"So Mr. Puetz, tell us how you really feel about the stock market?" ( grin )

My word, owning gold & silver has been THE LOOSERS CORNER for the last fifteen years. What makes you think that the Fed & Crew can't control this stock market runup forever? At the least, until the Baby-boomers begin to retire in 2010 ( 65 years from 1945 ) , I can't see the Dow doing anythnig but just going up & up & up. Of course, it is insane, but since when, in these enlightened times, has reason & sanity prevailed against the opinion behemouth of television? I could see some Asian wars screwing things up for Greenspan, Rubin & Bill - but - man, we've just been loosing like crazy on gold. Prove to me it will change - please! Hey, and what about the gazillion ounces of gold and platinum that those International Platinum boys in Arizona claim they've got ( trying to keep a straight face ) - won't that make gold cheap enough to line the Oval Office, just like Lenin said?

Spud

Spud Master Right on!!! When you can put a missile down a chimney and lead the world in capitalism the market can only go up 12600 by 2001 yes bullish all the way.

MoreGold, 2BR02B, Puetz, Spud Master -- The line given by Granville ( ? ) is that the boomers know they're not getting Social Security. Therefore, in to the market they go! Op cit ( Granville ) , the market can't fall because the boomers keep buying every dip! Sooooo, Dow one bazillion here we come! This from a former bear?

Nightly Business Report had a stock sear from Isreal who predicted Dow 8000, and I believe he is now forecasting Dow 12,000 by the end of 1998.

Steve Peutz: Let me get this straight. Are you
saying we should sell? Seriously, thanks for the
info. Definitely food for thought.

Dying Breeds and endanger of extinction: A gold bull and a DOW bear.

S & P 500 INDEX ( .SPXIT ) 113 + 3 3/ 4 [Closing quote from CBOE]

For those unfamiliar with options, the above is the price for one S&P500 index option strike price $900 Sept expiration. The index closed at 898.70. Your cost for one contract is $11,300 + comm. These guys are figuring a S&P500 at 1,000 by September! A mere ELEVEN percent rise in two and a half months. With returns like this, who needs, banks; To work; To do anything but party!

Puetz -- Remember, the Bulls have been eating Bear lately! This means that the buyers of last resort may not be there when needed. As for this short interest business, could this be hedge related and not necessarily outright bear positions?

I have an older friend who has kids in their twenties who are college educated and polite and presentable. One has computer experience. GUESS WHAT? None of them can get jobs except in sales ( no benefits )
or hourly type low paying jobs as telemarketers and such. Jobs ARE plentiful as people want people to work for next to nothing. When the Stk mkt crashes the LIE about the economy will come to the fore. This is something both the Political and WAll St. Class dread.

There you have it the sad and regretable truth. Even the Europeans refer to the US as a Hamburger flipper economy. Our press has gone propaganda crazy over the econmy ( helping the stk mkt bubble ) because it helps BC. If a Republican ( I am liberal on somethings but definitely recognize the obvious press bias in favor of Clinton and generally anti-conservative attitude of the same ) were in the WH they would be harping about the job problems and the financial bubble.

BBL......................

Steve Peutz: There are at least some on the street who apparently do not share a very bullish outlook.

June 18 ( Reuter ) - U.S. stock market analysts and money managers feel Wall Street may have seen its peaks already this year, and forecast only a moderate rise for 1998, according to a Reuter survey. An informal poll of nine market watchers found a mean forecast of just over 7500 for the Dow Jones Industrial Average, some 200 points below current levels. The median forecast was 7800. The mean forecast for 1998 is about 8315, an 11 percent rise over the 1997 prediction. The median at 8625.

My attitude about gold has been "show me". I am not interested in gold unless it decisively takes out the 1987 high of $410 or so. If it does that the next major resistance is around $500. Thats when everyone jumps on the wagon and really gets it moving. The boomers will do the same thing to gold at some point as they are doing to stocks, albeit a much shorter duation move in gold. Fishing for the bottom here is a waste. Im waiting until a significant move is underway

VRONSKY: Excellent article though the Dow hit its high of 385 around Labor Day of 1929. If you look at things back then it is hard to believe the crash happened.

1 ) America was the leading Capitalist nation after WWI.
2 ) America was a creditor nation/ no federal debt.
3 ) Capitalism ruled the world and there werent even quasi socialist countries in Europe like there are today let alone Red China. Even the USSR through adoption of its "New Economic Policy" which allowed private enterprise was becoming capitalist. In fact the auto ( Fiat/Ford ) and oil ( oxy ) were taking advantage of the situation and opening up shop in the newly liberalized Russia.
4 ) There was the development of new technologies radio and auto etcet which were coming in reach of everyman thus allowing for a staggering growth potential in earnings. This is not to mention the potential growth from export mkts and opening of overseas plants to take advantage of cheap labor like in Russia.
5 ) Labor Unions a non factor.
6 ) A Pro business President and a conservative Congress.
7 ) The stk mkt was creating a wealth effect which heralded America's dominance and the victory of commercial ties for American Cos. and future earnings.
8 ) The economy was growing at a moderate noninflationary pace with good job creation.

The foregoing should surely overcome any problems with consumers being over extended in credit. This 1929 is a new era and credit expansion is the modern way of doing business which reflects consumers new sophistication about what is going on. It is also a way for him to meet his needs as income growth is stagnant on a broad base because of competition between labor both here and overseas.

Oracle of Alberta - Ode to Joy -
@ http://www.gold-eagle.com/gold_digest/alberta620.html

Great post--very impressed by " Some say that the division between
earthly existence and a Spiritual existence may be very thin "

In addition your reference to "WHITHER NATURE'S CAPITAL ? "

I was reminded ( Twigged ) to reference Chief Tecumseh ( I am Shawnee ! I
am a warrior ! ) " Sell a country ! Why not sell the air, the clouds, and
the Great Sea, as well as the earth ? Do not the Great Good Spirit make
them all the use of his children ? "

Your post refernces " World do you know your Creator....above the stars
must He dwell "

Chief Tecumseh " How can we have confidence in the white people ?
When Jesus Christ came upon the earth, you killed Him, the son of your
God, you nailed him up ! You thought He was dead, but you were mistaken.
And only after you thought you killed Him did you worship Him, and start
killing those who would not worship Him. What kind of a people is this
for us to trust ? "

http://www.ilhawaii.net/~stony/shawnee.html

Hi TED, Thor chased me inside.
Correct me if I'm wrong, but didn't BIG TRADER
say that the XAU would be at 130 by now?
Guess we're gonna have one HELL-of-a spirt on monday...hahaha

SPUD: The stockmarket bubble has an exponentially growing appetite for supporting funds. The end comes swiftly: it is like the story of the lake that is being covered with waterplants doubling in area each day. It starts out with one plant, the next day two... It might take 10 years until half the lake is covered. How long will it take until it is all covered? ONE MORE DAY.

An exponentially growing bubble is like a disease. It spreads quickly and then it burns itself out. The faster it moves up, the sooner the end will come. This would even be true if there was not the psychological problem ( perception of risk and fear of loss ) or the demographic problem ( fewer are coming after the baby boomers ) .

If the growth of stock market capitalization outpaces the GDP growth for some period, the reverse must be true in subsequent periods. Now theoretically it could be that stock prices simply languish and wait for the GDP to catch up without ever having a bear market. But this is not really very likely. Investors, disappointed year after year, will at some point decide to pull out in force. When that point is reached we have a self reinforcing trend down, even more impressive than the upmove.

Personally I believe any capital gains tax reduction will lower the threashold to pull the trigger. Thus I don't see this as bullish.
DON'T GET DRAWN IN NOW. The paper wealth in the stock market now is an illusion. The illusion could grow bigger in which case it would be a bigger illusion.

Ted Butler et al: Maybe there's a relationship between uncollectible gold loans of CB's and various trial balloons about selling CB gold. One way to deal with uncollectible loans would be to just let the borrowers buy title to the gold they have borrowed. This could be done "off-market" with no effect on gold price ( I think. )

MIKE: GOOD POINT. The real question is when does this fizzle. Is it so much more powerful than 29 that it will continue for years. I believe that mkt psychology has reached such a level that sideways action for even six months would be unacceptable and thus slow inflows and therefore trigger a decline. Given the expectations of the money in the mkt a decline is unacceptable. The question is whether the authorities have the power to arrest and reverse the decline. As the bubble grows bigger and more euphoric their ability to do this is decreased. When Greenspan spoke of irrational exuberance maybe he was thinking we rescued it in 7/96 but if this continue at some point it wont be possible. Obviously they did in April '97 but now the bubble grows bigger and this latest parabolic rise has created a high degree of certainty in investors. Our rise from 4/14 has now eclipsed the 22.4% rise from the end of May,1987 to 8/25/87. The final four months of the rally in 29 gave us 29.9% which would take us to 8200. Yet compared to the end in 87 and more notably 29 ( because of the similar economic situation ) we are rising at a more parabolic rate. What do you think this means? Comments please.

WW -- Your postings of late continue to amze me. How in the H__l can a liberal/socialist even have this type of mentality? Perhaps you be neither? In any case, my congrats?

Steve Puetz -- I notice that nobody has taken up your 'challenge' to put forth their views on what exactly inflation and deflation is. Perhaps the question of what 'money' is also should be put forth. Perhaps, everyday, , the question of debt repayment should be put forth. Maybe someone will eventually 'get around' to answering it! Havent' seen it yet! How about it BOB?

WW: The timing of the decline is the one trillion dollar question. Scenarios for the end:

1. Every possible source of new funds has been exhausted and the ever present sellers are no longer matched by buyers ( the bubble has reached every last victim ) . This could happen without warning. This scenario would lead to the most brutal selloff. This is also the scenario which is the hardest to time.

2. Investors get increasingly nervous. There should be signs for this: increasing volatlity, increase of put premiums relative to call premiums.
I have heard that such a development in options premiums predated the 87 decline. If sufficiently nervous, investors could pull the plug even before all funds are consumed.

What to do? Determine how much money you are willing to lose. In that framework devise the longest lived short position possible. Check out option spreads. I have also thought about laddered short selling of SPY ( 1/10th the SP500 level ) . Say: sell short 100 SPY at spx=900, then 100 more SPY at spx=920, 100 more SPY at spx=940,... as the index level moves against you the position gets under water more and more but the index needs to retrace only 50% of its rise from the level at the beginning of the short sale to bail you out ( excluding commissions which are a very substantial consideration! )

If you want to take more risk, you can increase the stakes at each short sale: short 100 SPY at spx=900, short 200 SPY at spx=920, short 300 SPY at spx=940,... In this case the position gets under water more quickly but the index has to retrace far less for you to get in the black.

There are obviously endlessly many variations on such a strategy ( increments in spx levels at which the short sales are made, number of shares SPY sold short at each step ) . This is easy to implement on a spreadsheet. I did this for fun. Do not neglect commissions. They add up substantially. Keep a column to show you how deep the position is under water at each short sale, and compute your net gain if the index retraces n% in each of three cases:

1. The n% retracement begins immediately after a short sale has been made ( most favourable scenario ) .
2. The n% retracement begins immediately before the level is reached at which the next short sale occurs ( worst case ) .
3. The n% retracement begins in the middle between index levels at which short sales are made.

To be able to program this easily on a spreadsheet I have used short sales at equidistant index levels ( 900+kd, k=0,1,2,.. ) . The number of shares sold short at each step is constrained by the requirement that short sales occur at round lots ( at least with my broker, Schwab ) .

If you like spreadsheets, this is fun to play around with. When the position gets to your maximum tolerable drawdown, take the loss and close out. Minimize commissions. The impact of commissions on rpeated trades is substantial. SPY is a security traded on the AMEX and devised to trace the SP500 at 1/10th its level ( SP500=900, SPY=90 ) . Bid/ask spreads are very small and SPY can be sold short on upticks.

Good luck and have fun.

Steve Puetz -- Perhaps, more aptly, one should ask what 'debt-based' money means to a system, and how it exacerbates both inflation and deflation!

Something to think about.

Governments have been selling ie issuing currency and bonds for a long time and prices of these things is going to all time highs.

Companies have and are issuing stocks and bond and the prices are rising

In some cases, a secondary offering can result in a quick share rise as the secondary has created liquidity that allows an interested large party to get into the shares with more ease.

The reason gold has been dropping is because it is in a bear market; ALL news is bad.

In a gold bull market, I think that a announced sale of gold will cause the price to rise as it will allow large interests to get into the market with a minimum of price disruption.


OBTW, which is easier for corporations and govt to aquire/issue and then sell, gold or derivatives.

Gold

p.s. In my opinion currency is a derivative... of gold.

ELDO: Thanks for the compliment ( i think ) . I am a Liberal with respect to protecting peoples rights from the overreaching arm of capital. I believe the people and workers should benefit from their taxes and not be robbed for the benefit of the Capital Mkts as is happening with SS and Medicare. My question to you is how can you think the way you do and call yourself a conservative. You may think you are conservative yet have progressive tendencies. A progressive is one who wants the govt to represent the interests of all people in an equitable manner and is against overreaching by the monied sectors. I have gone on about this before and I just want to agree to disagree re politics as I will never change you and you will never change my leftist leanings.

I voted for Clinton in '92 and '96 but only because of his opponents/he was the lesser of two evils/politically. However, I have nothing but disdain for him and am amazed at how timid the Conservatives have become vis a vis this person!!

Tarnished ( 20:15 ) Seven hours till lift-off....are you skeptical of BT?? or am I reading something into your comments...your answer would be appreciated...

Oracle of Alberta has orchestrated an interesting concert of Excess Money Supply, Glut of U.S. Debt & the Gold Chaperone in his Ode To Joy. Click RELOAD at Gold Digest:
http://www.gold-eagle.com/gold_digest.html

WW -- I do not think of myself as a conservative. I do not think of myself as a liberal, or socialist. Perhaps, only an individualist who doesn't care about messing his bed; Not a tree hugger per se, but also not wanting undue spoilage needlessly happening. I'm all for new technologies. All of us won't fit into existing caves. The technologies that will be coming to fore will be absolutely amazing! Most of which haven't been particularly publicized. In the mean time, we have a problem! Monetary in nature and very retrogressive in its extreme. That is where my concern is at this time. Irregardless of what the Bob types say about it, this debt based monetary system is inherently flawed. From the day it was born! Now its' day is at hand. I could almost be sure from your postings that we are both mainly on the same track. Perhaps the way we would go about solving a problem differs somewhat.

What to make of all this? It's Saturday, and there are no food fights going on! How can this be! With gold in the tank, the mining stocks in the tank, my options so worthless the Schwabee miscalculated their value and gave me an extra 4 1/2K in my account! I think that I'm being converted to something here. I'm just not sure to what I'm being converted too!

It just goes to prove the point that this is all cyber money now. I wonder how long it will take them to figure out the error? Now that's something that we could all bet on ;- ) )

MILLENIUM BUG growing bigger: http://www.yahoo.com/headlines/970620/tech/stories/claims_1.html

panda : take heart http://www.mgl.ca/~yauger/wrapup.html#wrapup

and to srike sooner: http://www.yahoo.com/headlines/970620/tech/stories/2000_2.html

I think Ted = B.T

Steve Puetz - The term "hyperinflation" refers to a very rapid, very large increase in the price level. Measurement problems will be too minor to notice on this scale. There is no strict formal definition for the term, but cases of hyperinflation tend to be expressed in terms of multiples rather than percentages. "For example, in Germany between January 1922 and November 1923 ( less than two years! ) the average price level increased by a factor of about 20 billion." Some representative examples of hyperinflation include:

1922 Germany 5,000%
1985 Bolivia 10,000%
1989 Argentina 3,100%
1990 Peru 7,500%
1993 Brazil 2,100%
1993 Ukraine 5,000%

These quotations are given mainly as examples of what people have in mind when they talk about hyperinflation, and I cannot say just how accurate the figures are. In any case, figures for the purchasing power lost in hyperinflations can only be rough estimates. Numismatics ( coin and currency collecting ) gives some examples of just how far hyperinflations can go: currency collectors tells us that, in the Hungarian hyperinflation after World War II, bills for one hundred million trillion pengos were issued ( the pengo was the Hungarian currency unit ) and bills for one billion trillion pengos were printed but never issued. ( I'm using American terms here -- the British express big numbers differently ) .

The story behind the German hyperinflation illustrates how all hyperinflations have come about, and is of particular interest in itself. After World War I, Germany had a democratic government, but little stability. A general named Kapp decided to make himself dictator, and marched his troops and militias into Berlin in an attempted coup d'etat known as the "Kapp Putsch." However, the German people resisted this attempt at dictatorship with nonviolent noncooperation. The workers went out in a general strike and the civil servants simply refused to obey the orders of Kapp and his men. Unable to take command of the country, Kapp retreated and ultimately gave up his attempt.

However, the German economy, never very sound, was further disrupted by the conflict surrounding Kapp's putsch and by the strike against it; and production fell and prices rose. The rise in prices destroyed the purchasing power of wages and government revenues, and the government responded to this by printing money to replace the lost revenues. This was the beginning of a vicious circle. Each increase in the quantity of money in circulation brought about a further inflation of prices, reducing the purchasing power of incomes and revenues, and leading to more printing of money. In the extreme, the monetary system simply collapses. In Germany, people would rush out to spend the day's wages as fast as possible, knowing that only a few hours' inflation would deprive today's wages of most of their purchasing power. One source says that people might buy a bottle of wine in the expectation that on the following morning, the empty bottle could be sold for more than it had cost when full. Those with goods to barter resorted to barter to get food; those with nothing to barter suffered.

This is the way that hyperinflations happen: by a self-reinforcing vicious cycle of printing money, leading to inflation, leading to printing money, and so on. This is one reason why inflation is feared. There is always the concern that even a little inflation this year will lead to more next year, and so on. But some countries have experienced very great inflations -- 50 to 100% per year -- without ever falling into the cycle of hyperinflation, and there has never been a hyperinflation that could not have been avoided by a simple government determination to stop the expansion of the money supply.

If weren't so serious, it would be hilarious! Imagine a derivatives failure due to the coding of the pricing structure. An option, say XXXit, could be a September 100, 200, etc. call. What if, due to a computer glitch, you were holding some $400 options. The market moves against you. The index now sits at two or three strikes out from your options strike price. Then, the big brainiac computer, screws up due to a 'coding' problem. Presto! Magic! Your options are now deep in the money by one strike or more! YES!!!! Talk about irony. I'm sure those folks there at my 'brokerage' read my posts! So this problem should be 'corrected' by Tuesday. Think of the possibilities though, "Global financial markets were thrown in to turmoil today due to a 'programing' problem. You are 'broke'. Don't worry, we will have this fixed by tomorrow. Honest. And you will be worth something again, less commisions of course." LOL :- ) ) :- ) ) :- ) )

Where did I put those coins!

I think Tarnished=BS

omega followed by alpha

I think Ted = B.T & B.S

I think BT=that Hong Kong multibillionare. Can't
think of his name. Maybe a housewarming gift to the
new landlords?

Noticed that Fidelity Investments is laying off 250 people because profit margins have narrowed a bit. Can you imagine the layoffs in the financial industry when the bear hits in earnest?

Food for thought from "The Progressive Review"

"The game plan of America's ruling mandarins absolutely assumes a widening gap between the governed and the governing, between rich and poor, one that will have to be met by force of one kind or another. Those in power are prepared to do business with least favored nations abroad and to suppress least favored citizens at home."

When the s..t hits the fan, things are going to get very very ugly in the good old USA. As I have argued before, when capital starts to run just a little bit scared, there is no telling how high gold will go.

WW: There are indeed many similarities between the economy and financial markets of 1929 and 1997. But the public is MUCH more heavily involved in the stock market today than it was in 1929 or 1973 for that matter. The political ramifications of either a crash or an extended bear market cannot be overemphasized.

I think Tarnished=BT,BS,and NDPer

ELDO: As a Liberal I stated that I am against the overeaching of capital versus the working people who pay taxes. To be more explicit, I am against the influence of Capital on the people who control our hard earned dollars ie Congress to be used for anything other than the benefit of the good citizens who paid the taxes. Foreign aid and bailouts NO payoff SS and Medicare to those who paid the taxes YES!! Its simple please tell me where your principals disagree?

This is it!! Last damn postin fer three weeks...Tarnished: I'd like to continue our intellectual discussion but it is taxin me pea-brain so much Iez gettin a head-ache....and feel like I must lie down....Got 4.5 hours to rise+shine and the express to Swan's Island....TO ALL KITCOITES: HAVE A GOOD THREE WEEKS!....you too Tarnished!.....ROAD TRIP............

I think Ted = BT,BS and Bubba

George S. Cole: How do I get a hold of the "Progressive Review". I think alot of our self proclaimed "conservative compadres" are backing the evil empire ( my kids are watching the Star Wars Trilogy" ) . Maybe they will start to see the real enemy if they start to read such publications to which you so rightly reference.

WW: The 1929 and 1987 parabolic rises ended in crashes. But the ruling financial authorities are much more committed to preventing a meltdown today. So it is not certain that this bull will end with a 1929 or 1987 type crash, although such an outcome is quite possible.

One thing for sure, though. When this bull ends, it will be a LONG WAY DOWN. Rubin and Greenspan might be able to prevent a crash, but they will never be able to head a bear market off at the pass if one is due. In fact an extended 1973-75 bear market could be even more damaging to the mass of investors than a crash. As we gold investors have learned, long bear markets have a nasty way of keeping hope alive via numerous false rallies. This entices people to stay in the market long after they have gotten out.

Steve Puetz - Eldorado

Debt, Deflation, and Hyperinflation

The Coming Economic Collapse

The economies of the U.S. and the world are about to go through a deflationary collapse similar to the deflation precipitated by the the crash of the U.S. stock market in 1929. The upcoming collapse will hit the stock, bond and real estate markets. Ordinary people must protect their investments if they are to survive the disaster that is about to hit them.

The reason for the upcoming disaster is the growth of debt for all sectors. The U.S. Federal Government debt grew at least 500% in just 15 years. This is far greater than the growth in productivity which averaged perhaps 1% per year. Productivity is a measure of growth in the production of goods and services, and one could argue that the growth in debt should match this number if inflation was zero. But the growth in total debt is perhaps 10 times the growth in goods and services which is what people will want to spend their money on.

There can be no doubt that this debt is overvalued. This debt is listed as an asset in pension and mutual funds. There will soon be a recognition by the markets that the value of debt or bonds is too high and there will be more sellers than buyers and the bond market will crash. The stock and real estate markets will soon follow as the value of so many stocks came about because corporations borrowed heavily thanks to favourable tax laws. The same thing is true of real estate. The value of real estate depends on buyers being able to get low interest rates. But when the bond market collapses interest rates must rise and soon after the value of real estate will fall.

For decades there have been more buyers than sellers of paper assets as a young population saved for retirement. But now the aging population is cashing in its paper, so prices must come down as there are more sellers than buyers. Because of the fact that there were more buyers than sellers for so long, the government could have a string of deficits that grew in size much faster than the economy. The excessive amount of debt was not a problem as people were willing buyers of government bonds. If they didn't buy bonds they would use their cash to buy goods and services causing a horrible inflation, for the the growth in the money supply must lead to higher prices. The Government passed favourable tax laws to make it desirable for people to hold their assets as bonds rather than cash, to avoid an inflation.

The coming collapse will happen because of a combination of excessive debt and an aging population which is the demographic disaster. The U.S. will probably have a panic situation as people dump paper assets and buy anything tangible. Prices will rise and the U.S. will be lucky to avoid a hyperinflation.

In my book you can read about the history of the U.S. economy since 1933 when the U.S. went off of the gold standard and went on the paper standard, where money was now backed by paper, and how the banks and the government conspire to create money out of nothing. I also look at the numbers, using government statistics to show that the U.S. is bankrupt. Also, I compare the present situation with the pre-1929 crash situation which are essentially the same. Also, I suggest what will happen, using historical precedents and make some suggestions as to what ordinary people can do to protect themselves.

If you are interested in this topic I will send you a copy of my book ( 30,000 words ) for $10. Send a postal money order to me at the address below :

Lance Owen
PO Box # 19147
4th Ave. Postal Outlet
Vancouver BC Canada
V6K 4R8

Send comments via email to: lowen@istar.ca

WW: Check out their web site: http://emporium.turnpike.net/P/ProRev/

You will find much food for thought.

Georgia, Your analyses have been very consistent and logical. It would
have worked had this been a rational market. I agree with you that the
markets are so high that any new investment in it would be speculative.
But, on the other hand, investing in gold has always been speculative
and it is virtually a zero growth sector. Predicting a cycle bottom is
more difficult than predicting earing disappointment.

I took your advice about two month ago and put 20k into a gold mutual
fund. It has taken a dive ( I was fully responsible for my investment ) .
I want to hold a little while, probably until August.

I'll admit it. I used Big Trader alias once. Someone earlier today said Big Trader had multiple users. They were right. Also, either Vieserre or George Cole has used the Lurker alias. They are the only 2 people who spell my name wrong -- just as the Lurker does. ( Peutz instead of Puetz )

I am not I;
He is not he;
They are not they.

omega followed by alpha

Thanks for your earlier comments!!!!

WW: You said it -- credit-expansion. In spite of all of the positives in 1929, massive credit expansion sealed the fate of the 1929 bubble. The same is true in 1997, except the credit expansion is many times larger than the 1929 case. This time, the expansion is so huge, I believe it will topple the why system -- both monetary and political.

Panda: I'm not sure what you meant about short-interest business. By chance, did you mean open-interest in derivatives????

I have been making a bundle by owning Mutuals and avoiding gold at all costs. I am hoping this sight will help me to know when to change. You boys and girls are getting me close to pulling the trigger. Keep the talk goin' Thanks all. Especially Cherokee.