Curried Wealth Building
Finding an Edge

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July 24, 2010
Issue 106  -  You Wanna Get Nuts?
Let's Get Nuts!
 
You might remember the line above from Seinfeld where George lies to his in-laws about going to his (make believe) house in the Hamptons.  They call his bluff:
 
 
 
People who know me well, know that I always like a good conspiracy and that I'm willing to look at ANYTHING and judge it accordingly.  I just believe that you have to be willing to look outside the box in life and investing.  Remember, being flexible to changing conditions is crucial to being a good trader.  Keeping an open mind is also important.  Just because you think something can't work, doesn't mean it won't.  I wanted to talk a little bit about something that is way out of the mainstream as far as investing goes:  astrology.  Now you might just laugh and brush this off as crazy talk (and you might be right) but I say to just hear me out.
 
There is a famous quote regarding investors and astrology:
 
“Millionaires don’t have astrologers, billionaires do.”
~J.P. Morgan
 
J.P. Morgan, one of the richest men to ever live, did, in fact have an astrologer.  Whether or not it helped is impossible to determine, but his net worth shows that at the very least, it didn't hurt much.  One of the more popular models using these types of techniques is the Bradley Model.  This predicts changes, but not the direction, in the movement of the stock market.  The predictions are made before the year starts.  Here is a chart from contraryinvestor showing the year so far with Bradley turn point dates shown:
 
 
 
Not too bad really, especially considering its done so early.  There are some minor turn dates and one major turn date remaining in 2010.  The major turn date is August 10th.  Will the stock market go higher or lower?  Neither?  I am personally not taking a chance and will be sidestepping out of the market prior to August 10th.  If nothing happens for a few days I will reenter.  Believe me, I'm not that far out there using these "indicators" as many web sites mention these cycles from time to time.  Some hedge fund also subscribe to these services and integrate the data into their decisions.
 
One of the most famous market timers using astrological patterns is Arch Crawford.  In fact he was rated the number one best market timer over the last couple years.  What does he see ahead?
 

"The most exacting and powerful alignment of planets in ALL of Human History takes place from July 26- Aug. 3

Astrologers are calling it the Cardinal Climax being ALL near Zero degrees of ‘Cardinal’ signs.

Of course, that means it’s as important as anything that has ever happened - WWI, WWII, Great Depression, Black Plague, Fall of Rome (and everyone else).

More specifically July 30-Aug 1. Represents a Maximum of a Strange Attractor in all kinds of phenomena.

 
This aligns fairly close to the August 10th date.  Does that mean I/we should jump on board and start following astrologers full board.  Of course not.  This is just another tool in the bag when making large macro decisions.  If the market does take a big fall in early August, I will be waiting in the wings to get back in at lower prices.  Remember if you can avoid the largest market declines, you are WAY ahead of the game.  I think I'll sit out the next couple weeks, just in case.
 
Considering the weak nature of the economy, the market shouldn't rise too quickly, even if it does rally.  I will just lose a percent or two.  If we crash, it would be a disaster to your portfolio.  Make up your own mind, but the turn window starts this weekend. 
 
Back to our regularly scheduled program.......
 
Here's a story that may have caught your attention:
 

Gold coins face IRS scrutiny

 

    This could get ugly.  An amendment that did not get much notice in the health care legislation will bring government scrutiny to gold and silver coin dealers and all those who sell coins and bullion.  From this report from ABC News, we find out the recent health care legislation had a rather sneaky provision hidden in it [emphasis added]:

Those already outraged by the president’s health care legislation now have a new bone of contention — a scarcely noticed tack-on provision to the law that puts gold coin buyers and sellers under closer government scrutiny.

…Section 9006 of the Patient Protection and Affordable Care Act will amend the Internal Revenue Code to expand the scope of Form 1099. Currently, 1099 forms are used to track and report the miscellaneous income associated with services rendered by independent contractors or self-employed individuals.

Starting Jan. 1, 2012, Form 1099s will become a means of reporting to the Internal Revenue Service the purchases of all goods and services by small businesses and self-employed people that exceed $600 during a calendar year. Precious metals such as coins and bullion fall into this category and coin dealers have been among those most rankled by the change.

So every time a member of the public sells more than $600 worth of gold to a dealer, Piret said, the transaction will have to be reported to the government by the buyer…

Help may be on the way.  If this does not get fixed, it really could be a mess, not just for coin dealers, but for any small business. ABC continues:

…Rep. Daniel Lungren, R-Calif., has introduced legislation to repeal the section of the health care bill that would trigger the new tax reporting requirement because he says it’s a burden on small businesses.

Even the IRS thinks this could be a mess:

The office of the National Taxpayer Advocate, a citizen’s ombudsman within the IRS, issued a report June 30 that said the new rule “may present significant administrative challenges to taxpayers and the IRS.”

 
So some genius in congress thought it was a good idea to generate a piece of paper anytime someone sells $600 in gold?  What drugs were involved?  Imagine the paper work.  The large majority of all gold coins are an ounce, so any sale of these will generate paperwork.  Does congress understand that this will HURT small businesses? Maybe this is a back door effort to locate the gold for future confiscation.  Hard to say but they have until January 2012 to undue this mess.
 
Gold is still remarkably undervalued in terms of history.  Here is another chart from the Economist showing just that:
 
 
 
As you can clearly see, gold is only 20% of its inflation adjusted price.  This WILL be corrected at some point.  I believe we are in store for the next big upleg in prices for the metals.  Here is a chart with a very good relationship:
 
 
This chart shows the put/call ratio in gold.  Remember, a put is a bet that the asset will go down and calls are bets they will go up.  (put down and call up)  When this ratio is high, more are betting that gold will fall.  As you can see when this ratio spikes up, gold rises.  Pretty simple, the crowd is usually wrong.
 
The anecdotal evidence that the end is near for the gold and silver manipulation.  Here is a very interesting story that I urge you to read:
 
 

From Saturday's Globe and Mail Published on Friday, Jul. 16, 2010 11:37PM EDT Last updated on Friday, Jul. 16, 2010 11:39PM EDT

In the end, nothing else would do for Scotiabank but that Amar Patel – 73 years old, bald from chemotherapy, in the throes of metastatic breast cancer – should drag her aching bones down to the bank’s head office in downtown Toronto.

The trip from her airy apartment above the Indian Rice Factory, the landmark restaurant she founded in 1970 and has run ever since, was an agony of no fewer than five transfers – from the hospital bed in her living room to a commode, from commode to the chair lift for the first set of stairs, from that chair to the next chair lift for the second set, from that chair to a walker, from walker to the car.

This exercise took 59 minutes and the best efforts of her son Aman, daughter-in-law Deepa and restaurant employee Chandan Sindhwal.

I should note that despite her illness and pain, Mrs. Patel, who hadn’t been out of the apartment for almost two months, was gracious, beautiful in a red-striped caftan and, but for occasional moans when the car hit a rough patch of road, remarkably uncomplaining.

All she wanted was to do was take delivery of the silver the bank was holding for her in the form of the certificates she’d bought decades earlier.

It was, or ought to have been, an uncomplicated transaction.

Another major financial institution, TD Bank, managed to handle the same transaction within a couple of days, and delivered the bullion to Mrs. Patel’s local branch for pickup.

By this Thursday, Mrs. Patel had done the following to obtain Scotiabank’s agreement to give her what is rightfully hers:

In early March, Aman, a Toronto criminal lawyer, had attended the downtown headquarters to explain his mom’s situation. He suggested that either a bank official go to her apartment to witness her signature (he even offered to pick up and drive back the official) or consider meeting his mother in the car outside the bank to save her a bit of the journey: Both requests were rejected.

On March 17, Aman faxed the silver certificates to his mom’s local Scotiabank branch and then drove his mother there; they were advised she would have to attend the King/Bay office downtown.

For a time, Mrs. Patel gave up; she was hoping she could tackle it in a few weeks or months, when she was better and had her strength back.

When that didn’t happen, she hired a Bay Street lawyer and, through him, signed a power of attorney appointing Aman as her attorney.

In early July, Scotiabank asked first to “pre-inspect” the POA, then demanded the original; then pronounced it unacceptable because it wasn’t sealed; then insisted that a notarized copy, with covering letter from the lawyer, be produced; finally, the notarized POA had to be submitted to the home branch, then the bank’s legal department.

Even with these various approvals finally in place, Aman was told (being a lawyer, he has notes of all these conversations and e-mails) that the bank could still deny the transaction if it was deemed not to be in Mrs. Patel’s “best interest.”

So she hired another lawyer, this time to help her get what was hers.

Then the bank said it had to decide if the transaction was to be for the benefit of the attorney, from a business point of view. In other words, Scotiabank would decide if the transaction made business sense – not Mrs. Patel, or her lawyer, or Aman, who had her POA.

This Thursday, having heard nothing from the bank about whether it would honour the now-approved and vetted POA, Aman called and got Judy McBride, the head of customer service at King and Bay Streets. She told him the bank would not honour the POA, and that Mrs. Patel had to come down in person.

Aman again explained how weak his mother was, to no avail.

That afternoon, Aman, his wife and Chandan managed to carry out the five transfers and get Mrs. Patel in the car.

Once they arrived downtown, Aman went in to ask, one last time, if Scotiabank would at least dispatch people outside to do the signing in the car; absolutely not, came the answer.

They got Mrs. Patel into the commode chair and into the lovely, high-ceilinged headquarters with its polished marble floors they went.

Ms. McBride asked a number of questions, in my presence. Among them, “Do you understand what this transaction is that is taking place? We’re taking your certificates and giving you the actual bullion? Why would you want to do that? It’s more difficult for you to cart around.”

At this point, Aman’s seemingly endless store of patience was exhausted and he said, mildly I thought in the circumstances, “That’s none of your business.”

Ms. McBride said that it was, that “simply putting a POA in place doesn’t give carte blanche,” that the bank had a responsibility too, and asked Mrs. Patel, “Why would you need the physical metal?”

Ms. McBride said the bank “reserves a right to ask questions” because, she said, “We need a comfort level.”

Bank spokesman Joe Konecny denied the bank ever insisted Mrs. Patel had to come in person, said they were “willing to act” on the POA, but that “a heightened level of due diligence was required for a number of reasons,” among them, bizarrely, that the transaction wasn’t initiated at her home branch, although that branch had directed her downtown.

In any case, after about an hour, Mrs. Patel finally got her silver.

But it must have been a mortifying experience for this very dignified woman to make such a trip in her bedclothes, and the whole thing struck me as a profoundly condescending and arbitrary intrusion of bank functionaries into Mrs. Patel’s and her family’s business. And what if her son wasn’t a lawyer who knew how to fight back? What if she’d had a stroke and wasn’t able to sign the documents?

If she wanted to buy crack cocaine with that silver, or sleep with it at her side, that’s her call, because it belongs to her, not the bank. The bully-boy functionaries might want to find a comfort level around that notion.


Now, why would a bullion bank insist on a 73 year old come down to the bank to pick up her silver?  Her lawyer wasn't good enough?  No, they wanted to make sure she UNDERSTOOD what she was doing and WHAT she was going to do with the silver.  You have to agree with the author that that is none of the banks business.  If she wanted to hurl coins into the ocean for fun, who cares?  It's HER silver.  This is a continuing story of delaying things, and putting all types of road blocks to getting your silver back.  If this isn't like a billowing smoke plume coming up from the metals manipulators, I don't know what is. 
 
In the debacle that was the financial reform bill, there was ray of light.  Bart Chilton, commissioner of the commodities commission had this to say:  You can skip to 2:35 if you want to get to the "good" part:
 
 
The key thing here is that the Commissioner says that there will be position limits in the metals.  This is brand new.  This is huge news!  This means that the manipulation will be much harder to conduct.  The limits aren't in place yet, but they are coming.  This will hopefully eliminate the huge concentrated positions, which are inherently manipulative, and free the prices of gold and silver.  Make sure you have your life raft, and buy some silver and gold. 
 
I'll close this week with a video of the Dubai fountains.  You may have seen/heard of the Bellagio fountains in Las Vegas.  The Dubai version, as with everything in Dubai, is bigger.  This throws water over 900 feet into the air.  Pretty impressive, and choreographed to music.  Have a great week!