The picture here resembles UNCO: the stock has seen better times, has been in a steady decline, then comes this sudden jump in price. Unlike UNCO, there is no news and judging by the 5min chart, the rise in price is somewhat more gradual. After hitting the resistance at 0.04, the stock pulls back -- this is seen very frequently in such cases. The 5min chart looks somewhat similar to BPMA with similar volume and similar lack of news. As we now know, BPMA went nowhere after the event.
The Serial Supernova status of this stock is confirmed by the five year history chart, top panel. The news announcement (approval for construction of new tailings pond at the Deer Trail Mine) hit the wire at 10:42 am. What followed and how significant it was can be seen from the day and 5-minute charts. Does the 5-minute chart look familiar? It certainly does if you looked at the similar PLMO and MYNG events.
The stock takes off at 0.0030, hits resistance at 0.0060 and then settles down at 0.0045 -- the factors of 2 work their magic. I wish it were so easy in other markets.
The first announcement was made Oct 20 at 4:10pm and the second, Oct 21 at 4:10pm (see Yahoo! PLMO headlines for more details). For the purpose of these technical analysis posts, it does not matter what exactly the positive news was. Apparently the stock rally on Oct 21 which began with a gap opening for the stock, was triggered entirely by the first announcement. Here as in other similar cases, you have a very clean environment to study market response to an isolated stimulus which is a perfectly localized excitation. The intraday chart looks somewhat similar to MING.
Yesterday BPMA had a moderate size rally with no news to explain it. The event is seen as a sharp spike in both price and volume.
I keep archiving penny-stock explosive events with the vision that such a gallery will prove helpful in creating an automated trigger for such events. I am interested to know how such easily detectable events change the odds in the subsequent history of the stock. Do they make it more likely for the stock to go up next day? To go down? So far there is no conclusive answer but the good news is that such events happen at the rate of the order of once a day which means that in a few months one will be able to speak about some probability estimates with a few percent accuracy.
Here is another penny-stock that fits my Supernova-candidate profile: NEOM rallied on the news of a settlement and license agreement with Scanbury Inc. The price had a 60% spike as the volume exceeded 200M shares. As the day chart above shows, NEOM may be a turnaround story. The news appeared on Business Wire at 2:09pm EDT -- as the intraday chart shows, a very robust rally was fully underway at that time. So these stocks need to be traded on technical indicators which in this case would have been fairly unambiguous.
The trade is listed on Tim's site with the "buy" at $16.79 and "sell" at $18.65. Stock's day's Range on Oct 16 according to Yahoo! was 17.30 - 19.29; so the entry point must have been Oct 15. Apparently the stock's opening with a gap on Oct 15 served as a buy signal. Volume on the contrary seems not particularly informative.
You need logarithmic scale to see the levels from which the stock rose in a matter of a few weeks:
Sure enough on Sept 11 I would call this stock a Supernova candidate, but its dynamics so far is very robust -- looks more robust and sustainable than most Supernova candidates. So far this is the first Supernova-like stock discussed in this blog where after the day of the initial explosion, the stock gapped up on the next trading day. Typically they pull back next day.
The long-range chart shows that even at the present $0.0045 level, MDFI is only a shade of its former $0.035 glory. (Like in astrophysics, you operate with orders of magnitude in this Supernova business). The day chart shows that it's quite possible to set up an automated trigger on the basis of combined volume and price gains which would put you on the bandwagon in the later stage of the intra-day rally while having a very high signal to noise ratio -- in other words, the percentage of false starts following such a trigger would be low. The long-range chart confirms the impression -- the vacuum of action in 2009 lasted for months.
Supernovae are penny-stocks which sustain a several-day-long rally in which the price can increase orders of magnitude. This is the phenomenon Tim Sykes discusses a lot in his educational materials; he may be the one who coined the term. And the very concept of something changing by orders of magnitude does smell of astrophysics.
While the likelihood that a particular penny stock turns into a supernova on a given day is vanishingly small, the likelihood that any one of them does so is sizeable, since there are thousands of them.
How should a hunt for a supernova begin? You screen the stocks for the biggest volume and price gainers. But we need to know how likely it is that we are late for the train, given a particular set of selection criteria. No matter what selection criterion you use, there will be the percentage of junk you pick (stocks that do not form a sustainable rally after a spike you detect) and the percentage of valid candidates which do sustain a rally. This is what an astrophysicist would likely call a signal to noise ratio. The signal to noise ratio will depend on the selection criteria you use.
So far I am playing with these concepts in my mind and trying to form an intuitive feel as to the basic parameters and relationships involved. For that, I monitor the penny-stock market daily. This blog is very new and here I intend to collect a gallery of candidate events with intra-day charts which will be very useful in the future for any kind of signal to noise study. In a sense I act like an entomologist rather than astrophysicist at this stage, catching butterflies.
So far, neither MYNG nor IMDS, the butterflies I caught earlier, became supernovae on a more than an intra-day scale. But they did show very strong intra-day rallies. So if you set an intra-day trigger on these stocks, it seems intuitively clear that one can obtain a very good signal to noise ratio. Unfortunately intra-day historical data to tune such a trigger are a lot more expensive.
Here is my trade on ZIOP and let's see how this is different from Tim Sykes (I pick him as a target for comparison since his trades are published on his website, so it's possible to study and emulate. And his track record is not bad either.).
First, the time scale is very different: I stayed in this trade for 5 days. Second, the entry is not very clean: the $2.60 level has some technical significance to it but it isn't a major break-out. The $2.60 is a resistance level; this was the high level of two earlier days.
Second, a professional trader would have probably exited the trade by stop-loss on Oct 2nd; I didn't since I had very little money at risk.
The not-so-clean entry and a draw-down make this trade look amateurish and "lucky". It often happens with amateurs that speculative trades turn into long term investments... Knowing that, I chose a company which would not be bad in the long term. As you see, ZIOP did deliver a nice surprise with a positive press release yesterday. Nevertheless I believe my exit was fine as waiting for a specific press release wasn't part of the strategy.
YONG is not exactly a penny stock any longer, after the explosive August and September growth. This looks like a momentum trade based on the break-out from a side-wise range in which the stock spent the previous week. The buy level is at about the level when the break-out looks certain. As reported on Tim's site, the stock was bought at $11.05, sold at $11.66. Looking at the day levels, the stock must have been bought the previous day.
Here is another amazing short trade. On Tim's site, the trade is entered under October 13 with the "buy" price of $0.59 and "sell" price of $0.71. Looking at the chart, he must have entered the trade on October 12 and kept it overnight. Not sure how he timed the entry. Clearly the stock had a string of bad days in late September--early October while the volume was in decline; there was a new two-week low on a volume spike on October 2, but that's all I can say from the chart alone.
On TimothySykes.com, this is entered as a winning trade with buy level $0.60, sell level $0.70. On the chart, this looks like a very well timed short-sell trade. The trade was placed on a second down day after a series of daily gains for the stock.
The mining company received a buy offer for a piece of property from another company. On the intra-day chart, you can see exactly when this happened and how long it took for the price to adjust to the new level. Magically, this new level (0.003), just as the one that served as a resistance (0.004), are round figures. The whole adjustment process took about 2 hours. So here is market efficiency in action, with an estimate for the characteristic time scale. It is not instantaneous.
I am curious what will happen today: some people do not digest information on an hourly basis, but do it on a daily basis. For them, MYNG is still "in the news".
After seeing the IMDS action on the day before, Oct 12, I said in a private communication that I expected the stock to consolidate between 0.02 and 0.03 and then to perhaps make another jump a few days later. So far I am right, here is the IMDS chart up to and including Oct 13:
This type of pattern puts IMDS into the "stair-stepper" class. The intra-day (5 min) chart below shows what happened yesterday:
The first few minutes after the opening bell were fun to watch, with traders running in droves to sell the stock. I don't know how many people were taking profit and how many were trying to short the stock, but the price action was quite predictable. When the stock hit the 0.02 level (losing 1/3 off the previous day's close) my brain told me I should buy it -- but I did not trust this voice and did nothing on that day. About 10% of day's trading volume was made in the first five minutes. You can see volume dying off in the intra-day chart.
There are thousands of companies with very low capitalization. Their stocks are worth order of a dollar and they can change tens per cent a day. In other words, they are extremely risky. Large players ignore this market because it can't digest their capitals -- the liquidity is limited. Each penny stock lives its own life which is fairly separate from the life of the stock market or even the economy in general. It's understandable because for a tiny company, its local news are much more important than global news. A good management decision, acquisition of a strategic partner or a client can easily double the earnings. The penny stock prices are moved by news real or imaginary and can be manipulated by various means, including sales campaigns targeting naive investors.
For the same reasons why poor people outnumber the rich, tiny companies outnumber the big ones. Because they are so numerous and move quite independently from each other, there is a chance that at any point in time, you can find one or two of them which are at a certain point of some familiar pattern -- within a certain degree of approximation, of course. The pattern or a group of them can be inferred from historical data, aggregated for this class of stocks. An automated system might scan the real-time market data for these thousands of stocks (thousands of time series) and search for those "archetype" patterns which do repeat themselves. The system might then generate a buy or sell signal. Since there are thousands of opportunities, the system may have a very high selectivity threshold and still generate a few signals a week.
Tim Sykes (TimothySykes.com) trades these stocks in a way informed by long experience and sells alerts and educational materials. In the past couple of days, I went over Tim's trades for the past month, posted on his site, to see the patterns and in hope of learning from his trades. The patterns do exist and are very clear in this market, unlike the market of the larger companies which attract the media attention and big traders. There are two problems however: one is lack of liquidity. Tim says he limits his trades to 1% of liquidity. Which means that as his personal fortune must be at about $2M, it unfortunately can not grow exponentially. It can only grow linearly since he must be trading only a small fraction of his account, more or less fixed in the nominal dollar amount. If a stock has daily volume of 100,000-1,000,000 shares and trades at $1, a trader with such a rule can trade 1,000-10,000 shares, and if his capital is order of $1M, he is limited to 1% of his account. No wonder he needs no leverage. He also is not diversified -- there is little need to since a much better way of managing the risk is to apply extreme selectivity when adopting a trade idea. It is doable in this market because of a huge selection of companies and therefore, a huge selection of potential ideas to consider.
That leads me to the second challenge: who is going to consider all those ideas. The best way is to use an automated, programmed pattern recognition system. If I decide to do that, there should be very little competition as institutional players who are able to hire someone capable of researching and implementing that (they would need a quantitative research department) are not interested in the market which is too small even for a guy with a couple millions. This may be a real chance to make the amount of money big enough to lose interest in this market before moving into something else.
On Oct 9, an up-tick in ZAGG price and volume took place and Tim took advantage of it with this trade. It is interesting that the event was not quite sudden: increases in volume had been seen for the previous three trading days. Tim entered the trade after the break-out from the range-bound channel became a fact. The trade was closed with a nice profit next day, Oct 10.
SEC suspended trading in GBVP on Sept 23, 2009 till 11:59 pm Oct 6, 2009, see their press release. On the TimothySykes.com web site, this profitable trade is assigned to Oct 7, thus the short position was covered the first business day on which the trading was resumed. It is amazing that the stock jumped up on that day. The stock is said to be sold at $0.27 which most likely occured on Oct 21. At that point, the technical trend was well established. Again a red candle coupled with a spike in the volume on Oct 16 signalled a trend break down.
On TimothySykes.com, this trade is dated by Oct 1 with the buy level at $0.70, sell level at $0.85. Apparently the stock was shorted on the previous day. It is not clear what served as an immediate trigger to enter this profitable trade, although Tim was very sceptical on the company, see this post.
Here a bullish trade was placed exactly as RODM broke out of the range's upper boundary at $5.65. Profit was taken at $6.09. These data are from TimothySykes.com web site. Note the the volume peaked on that day. Even though RODM is frequently in the news as not only the company itself but their clients mention them in their press releases, there were no news on the company that day.
This looks like a perfect intra-day short trade. According to info on the TimothySykes.com web site, Tim sold EMGE at $3.13, covered at $2.16. This was a little risk trade, unlike the previous day's, since one could rely on an established bearish trend.
This is a winning trade on EMGE, most likely a short trade-- the stock was down on the day. According to info on TimothySykes.com, Tim sold at $3.88 and covered at $3.20. Looking at the chart, a red candle in combination with an increase in volume provides a very strong bearish indicator, but when the trade was placed, it was not clear what the final volume for the day would be. The trade was entered and exited on the very day the previously bullish trend broke down and the decision to sell short must have been based on intra-day indicators and/or fundamental data.
Here is a long play on CHIP which turned to be a loss. With the benefit of hindsight, it's hard to see the rationale for this as a short-range speculative trade. According to the chart, the speculative train is already gone by the time the trade is placed. Tim's site reports no trades in this stock during its strongest advance the week before. Technically, this looks like as a beginning of a flag formation.
This trade is entered on the TimothySykes.com site as a profitable trade, with September 23 as the date, $1.97 as the "buy" level and $2.11 as the "sell" level. Both levels are outside the day's range in RTK. So I am not sure what to make of it.
A successful short trade. The trade info on TimothySykes.com assigns the trade to September 21 with "buy" at $0.29, "sell" at $0.49. But he couldn't have sold at $0.49 on September 21 -- that's outside the day's range. Apparently he sold short on the previous day and covered at $0.29.
The watershed between bullish and bearish sentiment on GVBP is clearly seen in the chart: that's September 16th, the first day when a downward (red) candle is combined with a rise in the volume. After that, the bearish trend continues while volume goes down. This pattern is already well formed by the time Tim enters his short trade.
Like in OPXA, here we see a stair-case pattern. This trade is a loss, Tim bought at $7.34, sold at $7.10. Apparently he was counting on a continuation of September 17th's upward step, despite tfact that both previous steps played out within a day, each time the euphoric upward step being followed by several days of "hang-over".
Another OPXA trade, for some reason entered as a loss on Tim's site at TimothySykes.com. He bought at $4.08, sold at $4.17. The stock was up for the day.
A loss on what could have been a momentum trade. According to the info on TimothySykes.com, Tim bought at $0.615, sold at $0.42. This is Tim's only trade in this stock since Sept 9, so one is left to wonder why not enter earlier. The B and S levels in the drawing are not precise.
Another loss on OPXA. According to the info on TimothySykes.com, Tim bought at $4.29, sold at $4.03. I don't know whether this is a short or long trade.
This is a so-called stair-case pattern, typical for penny stocks. Again, the trade is researched based on free information on TimothySykes.com. Apparently a short trade, but based on the info on the site, it's hard to tell. He must have been shorting the stock after a break-out.
This is a recent Tim Sykes trade, researched on the basis of freely available info at TimothySykes.com. The entry decision is apparently based on an undeniable break-out with rising volume, the chart looks strongly bullish at this point. Advances in the volume seem to lead and advances in price -- to lag.
Here is a very well articulated opinion on gold I found on the Russian site Zvezda.ru. I've translated it with a few minor omissions. The Russian original can be found here: Выход из кризиса: кризис, кредит и золотой сценарий. An executive summary: the author views the present financial crisis as a crisis of the fiat money system. He sees no alternative to gold standard in the long run and estimates the resistance level of gold price at $10,000 per ounce in today's money. A broad brush picture of the post-fiat-money world is painted with a few zesty details.
Exiting the crisis: crisis, credit and the Gold Scenario
In order to understand what the present crisis is, one has to see it both on a real time scale and on a real scale of values.
Speaking of Time. The global economic history, the history of world trade -- that's many thousand years of goods exchange, a significant part of which, also measured in thousands of years, is the monetary phase. And all that time is the era of real values in circulation. The goods had real value and so did money -- gold, silver and the like. Up to very recent time, international credits used to be given and taken mainly in gold. A recently discovered gold-laden WWII ship, which was sunk on the way to the US, with several billion dollars worth of the yellow metal in today's money -- including our Russian gold to pay for military shipments -- is a good proof of the point. Gold was the main accounting tool and the main security of international exchange during both WWI and WWII. It is only for the past 60 years, following Bretton Woods, that we have a system of debt exchange in place of real value exchange in the international trade. That's a radical, qualitative change.
Circulation of debt instead of circulation of values and the consequences of the change of an economic model
Clearly, any bank note is debt, of either a bank or a state, in paper form, and a replacement of gold circulation by bank note circulation changes the essential grounds of the economy, and then, of the world order itself. The world center of power always moves toward the emission center, a change in the character of emission has changed the world economically, politically and in the military sense. In fact, after the war we got a debt circulation instead of real money circulation. Even before that, this happened inside the national economies, in the finances of the developed countries -- which was among the important reasons of the world crisis of 1930-s: both the Great Depression in the States and of an economic crisis in Europe.
Notice that the crisis of the '30s struck the groups of countries with the most developed financial and banking systems, where the real money circulation had been replaced by the debt circulation even earlier and on a deeper level -- and the crisis was to a large degree caused by the problems in the debt market. One has to understand that after several thousand years of real money circulation, only for a few decades have we had the pleasure of witnessing the beauties of the credit money circulation on a large scale. That's only about one percent of our time scale, while 99% of it is taken by the real money circulation. To conclude on such shaky and very short-term grounds that the world economy will continue to be a debt economy would be very imprudent. But that's not all. Notice the following. These sixty years consist roughly of two cycles, each one about 30 year long.
The first three decades after Bretton Woods -- that's the circulation of, for the time being, gold-backed debts, which suffered a crash by 1972, when the gold standard was abolished (that was a gradual, step-by-step process, but we will omit the details for now.) The second thirty years that finished in front of our eyes -- that's the crash of the fiat debt system as the basis of the international trade and money exchange. It is evident now, that this experiment -- the building of a global trade and exchange system on the basis of fiat debt -- has failed. We are witnessing this crash, the crash of fiat money economy. That is the essence of the present crisis. [...]
From the formula: "money is gold and gold is money" we went over to the formula "money is backed by gold" and later, in Bretton Woods, to the formula "US dollar is backed by gold while other currencies are backed by dollar" (initially, pound sterling was part of that formula as well, but it faded away later), and after 1972 we made a transition to the formula "money is backed by US dollar, and the dollar isn't backed by anything". Only a very, very naive person can be surprised that such a set-up ended in a crisis.
Speaking of how the situation might develop. The forecast of Mikhail Khazin and Andrei Kobyakov, as far as I understand, is that the dollar economy will crash and the world will unavoidably fall apart into several independent currency zones. This forecast was formulated almost ten years ago and the wave of current events confirms its main points. They believe that the present "anti-crisis measures" resemble attempts to "extinguish fire with kerosene".
Being solidary with their stance in general, I would like to note that generally speaking, one can extinguish a fire with kerosene. It depends on the amount of kerosene. If one pours a hundred liters of kerosene on just one liter that's burning, it's quite likely that the flame will be beaten off. My point, a remark on their stance is that I don't rule out a possibility that the USA will overcome this stage of the crisis as well, and will create another one -- a third one, in which not only will we see a circulation of fiat debt, but an exponentially growing circulation of fiat debt, and watching the charts of the rising US state debt, we clearly see that we are already in this third stage.
Elements of such an approach, such a solution to the financial difficulties have been seen in the policies of the world emission center for at least the past ten years. For reasons of pure mathematics, this can't last too long. Of course, for that one needs to pour on the presently burning fire of the economy not a mere trillion, but 10-30 trillions of dollars. As a result, the crash will be delayed and we will come back to it in a number of years, but with the sovereign debt of the US not of 10 as it is now, but perhaps 20, 30, 50 or 100 trillions -- that is, more than the world's GDP, which is variously estimated to stand now at 70 to 80 trillions by purchasing power parity. That's not a necessary, but a possible scenario. And only later will the predicted tearing apart of the world economy blanket take place, with the zones of influence of great powers and regional currencies. In other words, I state that the USA still have a chance to delay the end. They've even got some opportunities for counter-play here and there.
Gold as the basis of the new economic reality
In this scenario, a very important question is how these regional conglomerates of economies, the various currency zones will balance each other's accounts. My view is that in such a situation, gold will unavoidably return as the main tender of the global, inter-regional payments. One can't see even a slightest alternative to that.
The main argument of the critics of such a thesis is that "there won't be enough gold". In that, they price gold at its present level, not understanding that the change in the role gold plays, its return to the function of international tender, will unavoidably lead to a rise in its price to the level where its grand total price will dynamically match the price of the flow of goods and capital flows, which it will have to service. It is striking that the arguments in the spirit of "there won't be enough gold" are heard even from authoritative sources. This can't be explained in any way other than by their affiliation with the structures which in one way or another have their share in the profits of the dollar emission.
Recently we've seen the growth in the price of a barrel of oil from $15 (a year average for 1994) to $148 (2008), that is a factor of ten. Can gold appreciate ten-fold? Yes it can. Can it appreciate hundred-fold? Yes it can, provided there are economic grounds. One has to understand, that "there is no spoon" -- there is no upper limit to the gold appreciation. The price of mining does not limit such an appreciation in any way: we have seen the oil price near $150 while there are production sites where the cost of production is, say, $5 per barrel and that had no effect on the final price.
I would like to remind you that after abolishment of the gold backing of the dollar, gold quickly enough appreciated ten-fold (1970 -- $36 per ounce, 1979 -- $307 per ounce, year-averaged prices. In 1980, it got even to $613, but then it rolled back to the level $300-$400), and after the credit pumping of the US economy began in the early `00s, it appreciated three-fold in the decade.
There is no upper limit altogether. But significant economic consequences there are: we may soon see a group of "nuveau riche", rich gold-producing countries, which will take the place of today's Arab sheikhs. In the last two decades, only six countries produced more than 100 tons of gold per year regularly. These are South Africa (300-400 tons), USA (300 tons), Australia (300 tons), Canada (160 tons), China (150 tons), Russia (150 tons). South Africa will become world's richest country. Australia and Canada will strengthen their standing on the world arena significantly. A global change in the world-economy weight of countries -- and even continents -- is very much expected and unavoidable. Among the "nuveau riche", we will see Peru, Ghana, Papua New Guinea and some other ones which today are perceived as, pardon me, world's ass... Some countries neighboring South Africa, such as Angola, have considerable gold deposits, but their rise will depend on external security sponsors ready to install there "constitutional order".
In that sense, by the way, the answer to the question of "why Russia needs to build aircraft carriers" becomes a lot more evident, since only by maintaining a friendly regime in such countries by military force, can one expect to gain broad access to their resources. Right now, it costs a few dozen tons of gold to build an aircraft carrier, but in a new Golden Reality it will cost just a few tons. A military-political Gold Game abroad will be worth the candle and the cruise missiles.
Let me remind you that in the recent past, Angola hosted our strategic aviation base, which kept the southern Atlantic and the Indian ocean in check, while our interests there were guarded by units of Cuba army, ethnically more close to the local populace and without a "white colonizer" stigma. That's to the question of why Russia needs Cuba, and how our immediate future can be arranged. In our near abroad, counting on the Gold Scenario, a lot more attention needs to be payed to Uzbekistan which now produces almost 100 tons of gold per year, which is comparable to Russia and Central Asia in general.
Note that when I say gold, I mean all noble metals and even precious stones, including silver, platinum, other metals, diamonds and other precious stones. The appreciation will touch them all, although not evenly. Therefore for Russia it's likely fortunate despite the tiny size of our bank reserve of gold, since Russia has considerable reserves of gold in poor mineral deposits, and even in the XVIII-XX century dumps (tailings), which are uneconomical to develop at the current level of gold price just yet.
It is clear that within the framework of such a forecast, the approaches toward international politics undergo substantial changes. The African direction becomes one of the key ones in the world politics, rather than an honorable demotion for diplomats. In such a vision of the world, Africa is the future field of confrontation of the great powers, and one needs to begin establishing beach-heads there already now, until it is too late. By the way, we will have to lock horns there not with the US, but with France, which continues to consider Africa to itself something like what we consider Central Asia to ourselves.
Meanwhile, the role of oil will be gradually, slowly but steadily decline -- but that's a special long discussion. In essence, we are now living in the years of peak oil or close to that -- in the years of both maximum physical oil production and of maximum impact of the oil factor on the world politics and economics. And while today's physical oil output may be exceeded, its relative share in the world economy will begin to decline gradually in the XXI century -- just like it happened to coal in the XX century, even as the physical output of coal was growing, and growing quite fast.
While the role of, say, uranium will grow, which to a large degree is an African (and Central-Asian) theme. The Russian president recently expressed something along the lines that sooner or later the crisis would be over, and one needs to get out of it having gained in strength. First of all, I want to say, of course: "Gentlemen! You want to get strengthened, not weakened? Very good. Increase the fraction of gold in the gold and foreign currency reserves, to begin with, at least ten times. You will gain in strength all right." That's another theme, not the main one, of course -- the main ones are within our own economy -- but quite a working one -- to go to Africa. Having come to Africa in all seriousness and for a long time (that's gold, uranium and diamonds) we will exit the crisis in a completely different weight category. Yes, it doesn't hurt to make a dozen or so coups d'état there. There are huge discounts on them and a broad selection of offers. It's a buyer's market, if you will. And the buyer, as we know, is always right.
Gold as the world money
What will happen if the gold becomes world currency? If will begin gaining in price. How much? We can do quick math. Russia's gold reserves were about 500 tons in 2008. That's about 3% of our gold and hard currency reserves, which is very, very, very little. And this is while we are producing 1,500 tons every ten years, and can produce more. Speaking of the period before 2006, when gold went from the level $300 per ounce to $500 and continued to grow up to the present price of about $1000. The average gold price for the first half of `00s was $400 per ounce, $13.4M per ton to be exact. Russia's gold and hard currency reserves at the end of 2005 were $180B, out of which gold was a tiny fraction. Had the money been invested not in the American paper of various sorts, but into gold-group metals, Russia would have had by now extra $250B or gold and hard currency reserves, plus about $150B which could have been raised in the second half of `00s. Russia could have had a positive balance of gross national debt (sovereign and private) of about $500B (alas, today the debts and the hard currency reserves are about equal) and could have been watching the global crisis like an entertaining movie from a VIP lounge, having grabbed a cup of pop-corn. [...]
World's top three gold reserves:
USA: 8,135 ton Germany: 3,428 ton IMF: 3.217 ton
In reality almost all this gold is physically in the US, including the German gold. On balance, there are about 15 thousand tons of gold in the US, not counting that belonging to banks and private parties. Counting private gold, the total may be close to 20 thousand tons, which is about half of the global gold assets (and the global reserves count about 30 thousand tons in state reserves and about 10 thousand tons of private gold). About 80 thousand tons of gold globally is immobilized in jewelry, according to GFMS, it's on fingers and ears and we don't have to count it -- without hunger, war and plague it will not enter circulation. All that gold -- all the global gold not counting jewelry -- now, at the current price of $30M per ton -- is only about $1.2 trillions. [...] Of that gold, about half is in the US and a quarter is a property of the US government. Note that Germany which does not mine gold, having a GDP similar to ours, has seven times more gold reserves.
Based on these numbers, we can estimate the growth potential of gold in the scenario when it turns into international tender. Of course, this is a very approximate calculation, based on the balance between dollars and gold. The dollar banknotes, the little green pieces of paper, are not too numerous in the world. In January 2009, according to the Federal Reserve Statistical Release, the M1 aggregate was at 1575.0 (roughly, $1.5 trillion, year-on-year rise was 15%, out of which $800B was cash), the M2 aggregate was at 8244.0 (roughly $8 trillion), the M3 aggregate is no longer published.
By the way, quite recently, in 2006, data were published, according to which 2/3 of US dollar cash was circulating outside the US. The global economy demand for international tender along with gold and hard currency reserves can be estimated to be of the order of $10 trillion(currently these transactions are settled in US dollar, Euro, barter and partly in gold), which indicates that in the gold-based model of the world economy, gold can appreciate about an order of magnitude compared to today's price. That's a very rough estimate, but it's on target. More accurate estimates are practically impossible. In this case the USA will make a few trillions only on the dollar appreciation, which is about half the present federal foreign debt. One can not ignore this when evaluating the prospects of the USA in the Golden Economy. Let me emphasize once again that the USA has a good counter-play no matter what course the events take. Whether they will play their cards right is another question.
Gold production and emission
To check the gold forecast, let's compare the investment potential or fiat money with that of gold. Emission of fiat money (in reality, the predominant part of monetary emission is bank accounting records, not cash, therefore a more accurate term would be credit emission) fluctuates strongly year by year. The numbers for the US have been quoted above. On gold: 2.7 thousand ton was mined globally in 2007, which in today's prices (of around $1000 per Troy ounce or $30M per ton) is about $70B. Metals of gold-group have to be added to this amount, of course -- in total, we obtain about $100B of yearly emission in gold. Out of that, industry consumes about 1000 ton.
If the global GDP will, as in the past years, grow at the rate of 2-3 trillions a year, and the regular demand of new money emission globally will be about a trillion dollars (in today's purchasing power), then the potential, the upper limit for the gold's appreciation in case of a transition to gold-based transactions is up to ten times compared to today's price. Of course, the new price ceiling will pull into active use those gold deposits which are at the present level of price uneconomical to develop. (Today's global average production cost of gold is about $10 per gram, which is about $300 per Troy ounce, with large spread country to country). This will change the accumulated reserves little, but will affect new gold entering circulation which possibly will not let gold reach the upper limit of $10,000 per ounce. But under any scenario, we confidently forecast the gold price to increase by a factor of several times in the coming decade.
If you've got other assumptions, other input to apply when determining the "fair price" of gold, I will be glad to hear them. Of course, a change in the world economic order may decelerate the global economic growth very much (and during the recession phase, gold may not appreciate at all), but in general, our preliminary estimate that in the gold standard framework the appreciation of gold will be bounded in a broad corridor from today's price gradually upward to the resistance line at around $10,000 per Troy ounce -- that forecast is confirmed by the emission-based calculation as well.
Obviously when I say "an ounce of gold may enter the level of $10,000" I mean its purchasing power in the global commodity markets -- energy, metals, food -- in other words, an ounce of gold will be able to buy the same basket of commodities which now sells for $10,000. How much the dollar itself will be worth, and whether it will survive as a legal tender in the international transactions, can not, in my humble opinion, be subject to any forecast at all, since the gold volume is physically limited while the dollar emission is not. To economists of the 1960s, today's dollar emission numbers would read like letters from the madhouse.
Canis Ferreus' Note: The original article by Alexander Dugin was published in a Russian conservative newspaper Zavtra in September 2000. I still find the context in which this piece puts any financial forecasting research quite stimulating. Being no professional translator, I've taken time to translate this piece from the Russian in hope that English-reading public worldwide will find it interesting as well. My opinions may differ from the author's.
1. The paradoxes of postmodernity
Despite the fact that the postmodernist approach has established itself as something irreversible and total in the modern culture, the content of the term "post-modernity" is still subject to lively arguments. Post-modernity as a move, as a pose, as a style, as a method, as the specifics of our attitude towards the objects of art and technological strategies has gradually entered the very flesh of our society to such a degree that it's hardly possible now to discuss what is and what isn't post-modernistic. The permeation of postmodernity into the elements of our being is so deep that it's no longer possible to disentangle it as something independent. Therefore all interpretational and gnoseological models, built on the principles and presumptions different from the vague and evasive maxims of post-modernity, have to be addressed not to the general public but to a very narrow community of experts.
Post-modernity differs from modernity just like modernity itself differs from pre-modernity. On a number of counts, post-modernity managed to establish itself in all seriousness and for a long time, having seduced and hypnotized with its extravagant elements all those who are able to catch the universal aggressiveness of its methodology.
Modernity, having come to replace pre-modernity, in its turn, pushed to the periphery, if not into non-existence, everything linked to the traditional paradigms. Pre-modernity retired into the sphere of disjoint fragments that saturate the periphery of consciousness and the broad fields of the unconscious. Research and de-mythologization of the traces of pre-modernity would constitute the most entertaining pass-time of the twentieth century modernists. The interest in the "irrational" was in reality an aspiration of the victorious "modernistic rationality", which became a universal language, to explore those gnoseological layers whose overcoming was the basis for the spirit of modernity.
From the very beginning modernity dealt with pre-modernity very harshly. The Enlightenment rationalism simply ridiculed the traditional society and its structures, discredited them, brutally drove them into the underground, got them decapitated like the last French king. To non-modernity, the very right to existence was denied. It was demonized as "reaction", labeled "backwardness", "lack of civility", "primitivness", "archaism", "obscurantism" etc. In fact, pre-modernity was tabooed. Not until the XXth century has an interest toward this "exceeded level" re-emerged, and it turned out that modernity rushed things a bit proclaiming pre-modernity to be defeated, non-existent, eliminated. The modern man turned out to be a lot less rationalistic and a lot more archaic than positivists triumphantly stated. The more brutally did modernity treat pre-modernity, the more aggressively did the rudiments of the latter behaved later on. The European fascism was a bright flash of such a reaction. Bolshevism, ostensibly operating with rational models, was recognized to be an archaic reaction somewhat later. Tragically and gradually, in the XXth century the spirit of modernity was discovering the limits of its victory and realizing all its shakiness. The factual man turned out to be too much booby-trapped with the archetypes of the past ages...
Post-modernity replaced modernity as a sum total of pessimistic reflexions, as a result of the exhaustedness of modernity's triumphant aspect, as a result of a crisis in the aggressive aspect of positivist critique and belligerent rationalism. Post-modernity explicitly incorporated the failure of the strategy of modernity. But does it signify a new, alternative direction? To what extent is the analogy between pre-modernity and modernity, on the one hand, and modernity and post-modernity, on the other, justified?
That's not an easy question. Habermas holds an extreme stance on the issue. Some "new right" thinkers (in particular, German philosopher Armin Mohler) who welcomed in postmodernity the crash of rationalism and positivism, hold the same view -- but with the opposite sign, re-interpreting in their own favour the newly found unlimited plurality of interpretations that came to replace the one-dimensional modernistic totalitarianism.
As an alternative, there is an opinion that postmodernity is not an antithesis of modernity, that their apparent paradigmatic difference hides the deeper unity of their vectors. Such (or similar) is the view of Jean Baudrillard, the post-history theorist. In such vision, postmodernity is disclosed as a new move in the strategy of modernity, who realized the ineffectiveness of fighting the pre-modernity via direct negation. In that case a subtler position -- readiness to reveal the archetypes, already gone into the unconscious -- is occupied by modernity, but only in order to "cure" these archetypes, rather than to release them.
In the course of its totalitarian and unshared dominance, modernity went down into the depths of the unconscious assumptions, became a "natural" language, shaped the unconscious.
Meanwhile, the pre-modernity, having stayed in a "cultural ghetto", lost vitality, got weak, isolated itself. Pre-modernity rose from the human underground -- blind, worn down, tired and inviable, vampire-like, phantom-like (hence, the incredible popularity of the vampires and "revenants" in the modern mass-culture). Moreover, pre-modernity turned out to be considerably contaminated with the elements of modernity -- at least, those of them, that managed to get assimilated by the depths of the unconscious.
Thus, postmodernity emerges not as an overcoming of modernity, but as a continuation of the latter, its final stage, called up to crown its original strategy. Hence the notion of the "end of history" (Francis Fukuyama) and similar concepts of the optimistic liberals who have identified post-modernity with the ultimate victory of their ideals.
Beyond doubts, both views on the essence of postmodernity are grounded. But it's hard to prefer either of them. The content and the meaning of postmodernity can not be grasped in their final volume, since we are talking about an unfinished process, in which we all participate and whose outcome will be largely determined by its future trajectory. If Habermas and Mohler are right, the elements of pre-modernity, disperse as of now, will be able to self-organize into a conservative-revolutionary pole, to form a historical subject, which will chart a new, alternative course of civilization, where the traditional will be rehabilitated, modernity will be recognized as a subversive perversion, and a new paradigm will be formed. If those who consider postmodernity a new tactics of the modernity are right, then today's chaos will lead to the final de-ontologization of the archetypes, who will lose their viability. The man will be able to subject himself to cloning peacefully, as a purified bio-mechanism, eventually liberated from the "ontological fog". And the history will indeed end, since its subject -- the human being -- will disappear.
2. Market, the only legitimate heir of modernity
Many economists speak today of serious transformations in the market system, which mean a change of paradigm in this sphere, too. In a sense, the financial sphere is subject to post-modernization, just like the spheres of culture, of social institutions, and of the politics. And naturally, the content of such a post-modernization is just as questionable as the general definition of postmodernity in all other fields. Let's consider this problem in some detail.
Modernity projected itself onto two basic economic models, equally aspiring to succeed to the spirit of Enlightenment, to rationalism, to the orthodox compliance to the basic contemporary norms: liberal-capitalism and socialism. Economic history of the XXth century was a dramatic confrontation of the two systems -- the capitalist one and the socialist one -- for the right of becoming the main heir of the Enlightenment. Both camps contested in the orthodoxy of their views regarding the modernity, rivaled each others loyalty to the trajectory of civilization set at the origin of the New Time. Marxists considered their theory to be more "modern", and therefore, were convinced that the future would belong to socialism, which was destined to overcome the "archaic capitalism", the latter being an economic model contaminated with the rudiments of the past. Liberal economists saw socialism as an economic heterodoxy, the round-about path of the modernity, leading one away from the clear and simple principles of the free market, economic egotism and the social equality of opportunities, which are the basis of the modernist outlook.
It is in this contesting of the legacy of Enlightenment, by the way, that the philosophical basis of the "anti-fascist convergence" lay -- the basis of the Allies' relationship during the WWII. The two camps of the modernity stepped out together against the reborn "pre-modernity".
After 1945, the rivalry of the two economic systems intensified. Development of the techno-sphere, social problems, ecology, geopolitical tensions -- all that required determinateness from the two rival economic systems, each one aspiring to universality. Three different scenarios were possible:
Convergence of the two systems on the basis of the common ancestry, the loyalty to the modernist paradigm
The global victory of socialism (which would mean that the liberal model is less adequate to the spirit of modernity)
The victory of liberalism (which would mean, on the contrary, that socialism is the more archaic and, correspondingly, less modernistic phenomenon).
Up until recently, this was an open question, and only in the 90s, the third scenario became a fact. This practical turn of events -- victory of the liberal, market paradigm over the socialist model -- carries a huge conceptual meaning for the assessment of the actual content of the models of social and economic development of the modern civilization.
The fact of the victory of the liberal West over the socialist East is the signature of the greater modernist orthodoxy of the capitalist model. The Soviet socialism combined the progressist discourse (a modernist component) with the archaic underpinning of the social organization (a pre-modernistic component). Likewise, in the liberalism, modernism was combined with certain social institutions of fairly conservative flavor (monarchy, the inheritance of fortunes and the like).
Events of the early 90s proved, that the socialist model is more archaic and pre-modernistic, whereas the liberalism has confirmed its historic right to the unshared possession of the modernist fortune.
Curiously, the Hegelianist Kozhin, liberals Popper and Hayek, Raymond Aron, the French "new philosophers" Bernard-Anri Levi and Andre Glucksmann have foreseen such a development. The crash of the Soviet camp has ultimately proved this hypothesis.
The market and the modernity coincided. The plan lost, having revealed its pre-modernistic underpinning. The victory took place not just on the level of the economical and technological effectiveness. History herself pronounced her judgment, at least the line of history that identified itself with the New Time.
Therefore the modern economic history is the history of capitalism, and in it, the socialist experiment is a temporary deviation, an aberrational loop. Such an understanding of socialism is taken for granted by the most consistent of the liberal economists, and it explains, by the way, what's behind the media-cratic cliche of identifying the "red" with the "brown".
Socialism, having not proved its right of succession with respect to modernity, can not aspire to the leading role in determining the paradigm of postmodernity. That new which corresponds in the economics to the stage of transition from the modernity to the post-modernity must be found exclusively in the framework of the capitalist model, in the space of market. Therefore for the future, we drop the appeals to socialism, Marxism and so on.
The newest transformations in the market system must be studied, based on the market itself, and its immanent laws.
3. The magic world of finance
In the modern financial system of the capitalism there is a sector, which corresponds the best to the post-modernistic spirit, incorporates the economic equivalent of the basic post-modernistic strategy. We are talking about "technical analysis".
That's the customary name for the theory and practice of playing the market, based exclusively on operating with trends. George Soros, the prodigious figure of this field, who has accomplished in it the most brilliant result, calls this the "alchemy of finance". Indeed, technical analysis, completely isolated from the very basis of capitalism -- from figuring out the balance of supply and demand -- resembles a mystic discipline.
John Murphy, the greatest theorist of this field, distinguishes three basic principles of technical analysis, which he confronts with the traditional market analysis -- the "fundamentalism":
Market discounts everything
Prices move in trends
History repeats itself
The first point means that the emergence of some unit on the stock or commodity market already includes in its price all aspects of reality, related to this thing: not only the pricing mechanism, but also the social context, political mutations and even the possibility of natural disasters. From now on their reality is lifted.
The "fundamentalist" approach, proper to the classical liberalism, would refrain from such an absolutization. It never stated the complete separation of a thing from its environment. The most consistent fundamentalist trader, such as Buffet, would emphasize not what is happening in the market, but the business cycle which precedes this happening.
Even though the principle "market discounts everything" looks like the familiar classic of the liberal theory, it looks as though some typical post-modernistic ironic hint glances through it. The complete absolutization of the market and the market price of goods in separation of the business cycle in reality mystifies the very reality of the market, turns it into a separate instance, which controls existence, based on its own virtual laws. The market is stated to be not the conclusion of the business cycle, but its reason, and therefore, a serious shift happens in the implicit ontology of capitalism.
Classic capitalism defined the being of a thing through a balance of supply and demand in it. That was, of course, an ontological relativisation compared to the pre-capitalist models of ontology, where things were assumed to have more independent basis, related either to the degree of its hierarchy in the Divine scheme of creation (creationism), or in its immediate link with the Deity (manifestationism).
Technical analysis is an even more radical step away from the traditional models of ontology. With the formula "market discounts everything", a separation from even extremely relativistic model of supply and demand occurs, and the being of a thing is placed into the elements of permanent trading in the virtual spaces of the exchange. In this situations, forms such as "portfolio investments", "circulation of hot money", currency operations and especially debt servicing, assume the central significance. A transition from the market of real goods and stocks to purely financial schemes, to the virtual economy, in which the pure movement of capital is the most important thing.
When we state that "the market discounts everything", we assume the factual autonomy of the financial system with respect to all the other aspects of reality. But since this reality is assumed to be capitalist reality, the new financial order reveals itself as postcapitalism or virtual capitalism. In this postcapitalist model the emphasis falls not on the dynamics of supply and demand, but on the organisation and control of the fund exchange and futures flows, which assume an autonomous meaning, become self-important and central, marginalising the "real economy" sector and the traditional trade. The movement of capital in the market cycles becomes so important and significant, operates with such numbers (often of ephemeral meaning), that traditional sectors of the economy become insignificant in comparison...
"Prices change in trends" -- this can be regarded as the second signature of postcapitalism. The concept of trend (the basic notion of technical analysis) first appears in the theory of Charles Dow. Watching dynamics of market prices, he suggested to consider the stock price movements not as a chaotic process, but as a trajectory with implicit logic of its own. The market fundamentalists tried to discredit the very notion of a trend in the popular Random Walk Theory, stating stochastic nature of the exchange price movements, which are completely determined by the balance of supply and demand. The technical analysis campers, on the contrary, absolutize the concept of a trend, believing that the very presence of a price trend after passing a certain stage is practically unrelated to the processes outside the stock exchange, and the market price is composed by the immanent laws of virtual trading. An important philosophical consequence follows: market price dynamics within the system of trends becomes a process, independent of the actual reality of the commodity or stock. This is an expression of the same process of de-materialisation and transition to manipulations with signs, detached from reality, which Baudrillard considers the characteristic signature of postmodernity. The autonomy of a trend is nothing other than the market expression of the autonomy of a sign. Besides everything else, such an approach can result in price trends existing in reality even when the underlying market object is purely nominal, fictitious. By the way, in the case of portfolio investments, servicing and restructurization of global debts and other similar financial processes we are talking about real operations with fictitious objects...
Finally, the third thesis "history repeats itself" resembles directly the picture of the world which existed in the pre-modern conditions. The irreversibility and single-directedness of history is the basic element of the New Time (modernity). The progress, the translational, one-way development are the inalienable vectors of the modern rational thinking, predetermining all that corresponds to the "conventional wisdom" after Enlightenment. The perception of time as a cycle is, on the contrary, the brightest signature of the traditional society. Applied to the analysis of the stock exchange cycles, the technical analysis states what is clearly a non-modernistic truth. And since it is the market that constitutes today the ontological sum total, the statement of its cyclic nature de facto applies to all other aspects of reality -- for "the market discounts everything"...
The new financial system, charted most clearly in the concepts of technical analysis, is described in terms of pre-modernistic disciplines: the "alchemy of finance", "self-fulfilled prophecy" (a term analysed by Murphy which resembles theurgy of the ancients), "market wizards" (the title of a best-seller by Jack D. Schwager). Here we deal with an embrio of new reality, with postcapitalism, a bright manifestation of post-modernistic spirit in the sphere of economics. If one can dismiss the postmodernist themes in the sphere of culture (as do those who do not realize the seriousness and depth of the fundamental civilisational mutation, denoted by the term "postmodernity"), in the sphere of finances and the economy it is not so easy to dismiss.
4. To read the chart of the future correctly
The magic mazes of the new economics, neo-auguric art of "chart reading", financial hermeticism pose in front of us the same problems as do philosophical manifestations of postmodernity in other areas. Just like we leave the question of the ultimate meaning of postmodernity open, one can not sentence the maturing mutation of the economic model, the transition from capitalism to postcapitalism. Postmodernity does not simply reject modernity, it ironically equates modernity with pre-modernity, but with the pre-modernity taken as a fragment and a void sign. The new financial system in which technical analysis and magic speculations of the traders of the Soros' type will take more and more central positions, does not eliminate the mechanisms of classic capitalism, it assimilates them in a lifted form, equating them with the fragments of extravagant priniciples, borrowed from completely different historico-cultural and economic contexts. And it's very likely that, having overcome socialism and other, even more archaic forms of economy, the new financial order in the future will absorb selected exotic elements borrowed from alternative economic models. One can not exclude a priori, that post-capitalist reality will at one point put Marxism in vogue again, just like clothes of the 50s, 60s and 70s become fashionable in the New Wave teenage stylistics.
We are on the threshold of the brave new world, the world of exchange magic, hermetic spells of the brokers, electronic movement of the autonomous capital. This world has many various features -- grotesque, ironic, extravagant, exotic and sinister.
Postmodernity is the change of the basic paradigms. We ought to try to realize their essence, to decode the content of this most complex loop of the human history. And the key to such realizing -- one of the keys, at least -- is the close analysis of the newest economic trends.
Postcapitalism is irreversible and unavoidable. But who can tell what it is?
SEC suspended trading in GBVP on Sept 23, 2009 till 11:59 pm Oct 6, 2009, see their press release. On the TimothySykes.com web site, this profitable trade is assigned to Oct 7, thus the short position was covered the first business day on which the trading was resumed. It is amazing that the stock jumped up on that day. The stock is said to be sold at $0.27 which most likely occured on Oct 21. At that point, the technical trend was well established. Again a red candle coupled with a spike in the volume on Oct 16 signalled a trend break down.
) who welcomed in postmodernity the crash of rationalism and positivism, hold the same view -- but with the opposite sign, re-interpreting in their own favour the newly found unlimited plurality of interpretations that came to replace the one-dimensional modernistic totalitarianism.
As an alternative, there is an opinion that postmodernity is not an antithesis of modernity, that their apparent paradigmatic difference hides the deeper unity of their vectors. Such (or similar) is the view of Jean Baudrillard
