Tuesday, December 23, 2014

Jaguar Inflation -A Layman's Explanation of Government Intervention


Jaguar Inflation - A Layman's Explanation of Government Intervention

By Elliott Wave International

I am tired of hearing people insist that the Fed can expand credit all it wants. Sometimes an analogy clarifies a subject, so let's try one.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing Jaguar automobiles and providing them to as many people as possible. To facilitate that goal, it begins operating Jaguar plants all over the country, subsidizing production with tax money. To everyone's delight, it offers these luxury cars for sale at 50 percent off the old price. People flock to the showrooms and buy. Later, sales slow down, so the government cuts the price in half again. More people rush in and buy.

Sales again slow, so it lowers the price to $900 each. People return to the stores to buy two or three, or half a dozen. Why not? Look how cheap they are! Buyers give Jaguars to their kids and park an extra one on the lawn.

Finally, the country is awash in Jaguars. Alas, sales slow again, and the government panics. It must move more Jaguars, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay their taxes so the government can keep producing more Jaguars. If Jaguars stop moving, the economy will stop. So the government begins giving Jaguars away. A few more cars move out of the showrooms, but then it ends. Nobody wants any more Jaguars. They don't care if they're free. They can't find a use for them. Production of Jaguars ceases. It takes years to work through the overhanging supply of Jaguars. Tax collections collapse, the factories close, and unemployment soars. The economy is wrecked. People can't afford to buy gasoline, so many of the Jaguars rust away to worthlessness. The number of Jaguars -- at best -- returns to the level it was before the program began.

The same thing can happen with credit.

It may sound crazy, but suppose the government were to decide that the health of the nation depends upon producing credit and providing it to as many people as possible. To facilitate that goal, it begins operating credit-production plants all over the country, called Federal Reserve Banks. To everyone's delight, these banks offer the credit for sale at below market rates. People flock to the banks and buy. Later, sales slow down, so the banks cut the price again. More people rush in and buy. Sales again slow, so they lower the price to one percent. People return to the banks to buy even more credit. Why not? Look how cheap it is! Borrowers use credit to buy houses, boats and an extra Jaguar to park out on the lawn. Finally, the country is awash in credit.

Alas, sales slow again, and the banks panic. They must move more credit, or, according to its theory -- ironically now made fact -- the economy will recede. People are working three days a week just to pay the interest on their debt to the banks so the banks can keep offering more credit. If credit stops moving, the economy will stop. So the banks begin giving credit away, at zero percent interest. A few more loans move through the tellers' windows, but then it ends. Nobody wants any more credit. They don't care if it's free. They can't find a use for it. Production of credit ceases. It takes years to work through the overhanging supply of credit. Interest payments collapse, banks close, and unemployment soars. The economy is wrecked. People can't afford to pay interest on their debts, so many bonds deteriorate to worthlessness. The value of credit -- at best -- returns to the level it was before the program began.

See how it works?

Is the analogy perfect? No. The idea of pushing credit on people is far more dangerous than the idea of pushing Jaguars on them. In the credit scenario, debtors and even most creditors lose everything in the end. In the Jaguar scenario, at least everyone ends up with a garage full of cars. Of course, the Jaguar scenario is impossible, because the government can't produce value. It can, however, reduce values. A government that imposes a central bank monopoly, for example, can reduce the incremental value of credit. A monopoly credit system also allows for fraud and theft on a far bigger scale. Instead of government appropriating citizens' labor openly by having them produce cars, a monopoly banking system does so clandestinely by stealing stored labor from citizens' bank accounts by inflating the supply of credit, thereby reducing the value of their savings.

I hate to challenge mainstream 20th century macroeconomic theory, but the idea that a growing economy needs easy credit is a false theory. Credit should be supplied by the free market, in which case it will almost always be offered intelligently, primarily to producers, not consumers. Would lower levels of credit availability mean that fewer people would own a house or a car? Quite the opposite. Only the timeline would be different.

Initially it would take a few years longer for the same number of people to own houses and cars -- actually own them, not rent them from banks. Because banks would not be appropriating so much of everyone's labor and wealth, the economy would grow much faster. Eventually, the extent of home and car ownership -- actual ownership -- would eclipse that in an easy-credit society. Moreover, people would keep their homes and cars because banks would not be foreclosing on them. As a bonus, there would be no devastating across-the-board collapse of the banking system, which, as history has repeatedly demonstrated, is inevitable under a central bank's fiat-credit monopoly.

Jaguars, anyone?

Editor's note: This article is part of The 2015 Survive and Prosper Series, a sample of resources provided by Elliott Wave International to prepare investors for 2015 and beyond. For a limited time, you can get in on this free series with a 30-day risk-free trial of the Financial Forecast Service, EWI's most popular package for U.S. investors. Learn more and get the rest of The 2015 Survive and Prosper Series here.


USDCAD: Will you miss Its Next Destination?


I have the deep gladness of following this currency pair since July 2014 almost flawlessly; involved in almost the major and minor moves up and down using intraday and long term Elliot wave analysis; while still maintained the bullish bias.

In the last comprehensive analysis ,I forecast a move to 1.1850 and price has not stopped moving up since. A good trader must be as dynamic as price itself. 

I had to take on a new idea. I present to you another analysis that could turn to be a compass for Usdcad movement in the first half of 2015.

Starting with the long term chart, it is very clear how a bearish impulsive move that started in January 2002 ended with a “truncation (this happens when the fifth wave doesn’t go beyond the starting swing of wave 3)” in August 2011 ( a period of nine and half years). Price has since that time been correcting as expected.

The ending of the first leg ( a clear impulsive move) of this corrective move is what I discussed in the November 20 forecast. We have seen price rally well. The rally could end soon. How soon?

 

 

Let’s take a look at the lower time frame for a closer look.

Price has formed three successful waves as part of the impulsive move to terminate the first leg of the bullish correction mentioned in the long term analysis above. 

The fourth is presently forming- a likely flat (flag) corrective formation, which when broken should complete the impulsive move.

If this flag is broken upside, 1.1750-1.1800 resistive region could contain the rally and send price down in a probable move to 1.06xx region and below. 

 

 

If price refuse to break the channel and dips below the channel line, it could mean that the fourth wave is going to be a complex correction which should stay above 1.1460 to make this wave analysis valid, otherwise, we might be forced to come up with something different to explain what price is doing.

I will update you as it goes.

Tuesday, December 9, 2014

Eurusd Nearing The Bearish End?

On 21st November, I saw a need for more bearish move of the Eurusd. The basis of this analysis is the continuation of the terminating fifth wave of the last swing-leg of the bearish corrective triangle which started in 2008. 

According to my various projection tools, I saw a possibility for 1.2150 and 1.8850 support zones . I went out of my trades with 180 pips at 1.2280


There is a strong possibility for further bearish push before the long awaited rally could start.
Presently on the 4 hour chart, price seems to complete the 4th wave of an ending diagonal to terminate the 5th wave on a grand style. 

With bullish divergence on the daily chart, I can only think of a bullish move. If the 5th wave of the diagonal dips further with a three-wave intra day drive, there could be an opportunity to take a nice trade with a very good risk reward ratio.





I will post updates as market unfolds.

At the moment let me enjoy the bullish move on Gold after cashing out good profits on Eurusd and Usdcad



Tuesday, December 2, 2014

GOLD!



Gold peaked towards the end of 2011 after several years of increased bullish momentum. The peak (wave 1) completed and the bearish correction started in an impulsive mood for the next 3 years and that’s where we are now.

I posted more than one times how I expected Gold to close at 1000 before the end of this year, but that idea appears to be melting as Gold is looking increasingly more bullish than bearish. 

 



 

 

With a bullish divergence on the weekly chart, wave 5 that I expected to continue might have ended anyway at just 61.8% extension of wave 1; I usually look for 100% - 127% projection ( 1000 is the 100% projection).  

 

With the price of Oil dipping, one will expect Federal reserves, Oil producers and large oil investors to leverage/protect their funds and investment by buying more Gold in their reserves which will eventually make it rally for at least a year.

 

Also as compiled by the CFTC in their weekly Commitment of traders reports which shows the position of gold traders who use futures and options. Small Traders (traders who hold positions under the minimum reporting requirements to the CFTC) are holding their biggest net short position for 15years while the Commercials are holding their biggest long position for the same period. This is a bullish indication.

 

On the 4 hour chart, there is a clear 5-wave impulsive move which looks ended and price is reacting upside. Price should continue moving upside from here.





 

Getting the picture clearer on the intraday chart, the first move of the expected bullish journey was a clear leading diagonal which gave me 500pips before price picked up to continue the move. 

 

Presently, price is getting ready for the third wave of the A (impulsive move) leg of the bullish retracement.

 

I will wait till price get to 1170-1180 (intraday support zone) before taking a decision to buy.








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