Deep Thoughts, with GM Jenkins

So another election is over. Voting in these things is of course irrational to the point of insanity. And yet ... there appear to be a hundred million Americans who did indeed vote. Perhaps it's more a question of innumeracy than insanity. But if we compare voters to scratch-off lottery players--those textbook examples of innumeracy--the sad thing is, the scratch-off lottery players are infinitely more rational. Of course, that would be the case even if the outcome of these massive federal circuses mattered -- even if (say) you stood to be tortured to death if your candidate lost. In fact, were it actually the case that I'd be tortured to death if my candidate lost (Jill Stein, by the way, on account of her good looks, even unadjusted for age), I'd probably go ahead and hit the polls just to get in a little mental revenge at the stupidity of it all before they broke me on the wheel--by voting for the other guy, the candidate I hated most. 

No, anyone who votes in these elections thereby forsakes his right to laugh at a grown man who leaves cookies under the chimney for Santa Claus or puts his broken teeth under the pillow after losing a bar fight. In fact, the only thing more disturbing than the mental and physical energy so many otherwise intelligent people waste on voting* is the perfunctory response I get whenever (owing to my kind and generous nature) I attempt to disabuse them of their irrationality. "What if everybody acted that way?" goes the invariable response, not without some misplaced indignation, by which an alarming inability to understand a dynamic system (or, less charitably, reality itself) is betrayed. Obviously, if I felt there was even a tiny chance that a hundred million people, somehow cured of their innumeracy and/or addiction to moral masturbation, would stay home on Election Day, I'd be the first at the voting booth, if only to do my part to ensure we saw more of Jill Stein's comely face and less of Obama's insufferably haughty demeanor, his sickening faux-concern for the middle class, and his grating, pseudo-folksy nasal plosions. 

If the world ever becomes nobler and wiser, the denizens of that better world will surely look upon the irrationality of one hundred million American voters with astonishment, perhaps also with a condescending smile, the way we look at a Yanomami tribe performing a rain dance. 

Except their condescension would be as justified as ours is not, seeing as the Yanomami are having the time of their lives, high off their asses on Ayahuasca, watching sexy girls shake their rainmakers, while we suffocate amongst irritable, self-important fools in long lines which probably smell of farts. 

That said, I do follow the results of elections, if only to pick up on trends that will help me profit. For example, this chart is as valuable as a crystal ball. My friends, you can take this to the bank (ideally, one too big to fail): from here on out, the American population will become more balkanized, atomistic and serf-like, while the State grows bigger, stronger and more tyrannical at an exponential rate. 

Which is why I laugh when I see headlines like this one on Marketwatch today:

Got that? Inflationary worries in Japan and Indian demand are gold positive, but our "fiscal cliff" is gold negative. Who writes this crap, and how much are they getting paid? Of course, everything under the sun is "plagued by uncertainties," but to single out gold in a headline article on account of the structural problem that has necessitated the very debt monetization that has driven its ascent in the first place? No, something tells me that the denizens of my nobler, wiser world (who, come to think of it, will probably never arrive, barring another Ice Age) will look with even greater wonder at the otherwise intelligent investors who, victims of some psychological weakness or hubristic vanity, never bought any gold.

As our friend Victor never fails to point out, in the long term, gold is not a commodity. But go ahead, bet against this chart, in which gold is compared to other tangible assets with intrinsic value, and put your net worth into paper and magic beans.

And while we're looking at the $GOLD:$CRB chart, check out the parallel action between the Fibonacci retracement lines from the 2005 low (yellow) and the 2011 low (purple dotted). I think we're approaching the next big "step" higher.

Indeed, I've started looking more closely at the Fibonacci retracements on ratio charts lately, and they appear to be unexpectedly predictive. For example, look at the perfect 38.2% then 50% retracement from the 2001 low of the $GOLD:$CCI ratio, before it broke through in 2010-11.

The $GOLD:$SILVER shows a similar retracement to the 50% mark. A lot of anti-silver talk on this blog lately, but this chart continues to look good to me.

Also bullish for silver, the Kagi chart from my post two weeks ago. As expected, another bar was added at the end of October, which will only be "retracted" if silver exceeds $35.45 this month. If the corrective pattern on this chart is to repeat (see green dotted lines), and repeat as quickly as possible, then it might be more bullish if silver doesn't exceed $35.45 this month (recall that Kagi charts are measured in reversals, not time -- and for all assets in general, a certain number of reversals seem to be necessary before important consolidations end). Let's imagine that by the end of the year, silver hasn't made a new relative high or low (i.e. it also hasn't fallen below $30.66 at any point), and that it touches at least $31.27 sometime in December. Not too much to ask for. Then, the left side of the sixth (and, if the trend is to continue, final) corrective bar will be formed. Let me therefore make a prediction, which no-one will remember unless it's right and I remind you:  Silver will keep going up, past $35.45 during the first quarter of 2013 (making the sixth bar a bullish black bar) followed by a corrective month (basically, a moderately "down" month in which a new high isn't made) which will initiate the right side of the final corrective black bar, completed over a few months (the bar will remain black because I don't expect silver to drop below $30.66 during that correction). Then, I think silver will attack $50 again, perhaps in two large Kagi steps, which may take most of 2013 to occur.

And here are a couple of standard long-term silver charts, the daily linear and the weekly log. On the daily, I think it is more probable than not that silver stays above the purple line over the next several months, making the horizontal red/green band a potentially good buy zone.

On the weekly, a not unexpected bounce off of the 55-day MA. 

On my 9-year gold chart, the dotted trend line I speculatively added a while back is looking good.

As a general rule, I'm more aggressive (short and long) when price hits "natural" boundaries (e.g. moving averages and upper/lower moving average envelopes) versus more arbitrary trend lines. For example, the space between the 300-day moving averages of daily highs and daily lows (black and red solid lines, respectively) seems like a safe point to go long, having been broken on only two occasions in the past 12 years. Worth noting on this chart is how limited the downside action was last April; many pure chartists were expecting a drop to the $1300's or even the $1000's. (The dotted lines on this chart are upper limits, which I'll explain if we get there, since they're all above $2000.)

The long term trend line on my weekly euro chart broke down two weeks ago (although the breakdown wasn't confirmed). As I mentioned a short while back, I went long $USD on the premise that the euro gold weekly chart would not break down, but that gold wasn't ready to pop either. Well, consider that a good move for a bad reason. (Sometimes I think the only usefulness of all this charting is to keep you from making emotional decisions, i.e. any guiding rule is better than going on tilt.) Anyway, I consider the rather improbable V-shaped reversal somewhat more probable now, especially with the daily euro chart in mind. Recall I pointed out how inexplicable the sudden unprecedented plummeting of the RSI was. Who the hell was selling?! Well, after bouncing off the bottom of the channel, gold is right back there around all-time highs, as might have been expected, since Europe is in deep doo-doo.

*anyone who dies in a car accident on the way to the polling booth should win a Darwin Award.