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Saturday, January 31, 2015

Geopolitics, Supply & Demand for Oil, naïve character projection,

Grand Supercycle Degree & Bear Market Opportunity The goose that lays your golden egg

Just as the dollar’s 17% rise since last June has squeezed export margins for US

multinationals to result in earnings plunges, so too, the nosedive in oil prices has

resulted in many scraped drilling and exploration projects. At $50/barrel, much shale oil

is no longer profitable, soon to result in rising prices. Meanwhile, Americans are back to

buying gas-guzzling SUVs, as if the price of oil were to remain low forever. By

increasing the Demand for gasoline, just as the Supply has plunged, the overhang will

soon be exhausted to send the price of gas kiting, if not spiking back up. In the interim,

if the current supply from the Middle East is threatened in any way, that price spike will

be dramatic.

OPEC’s secretary general was quoted on Monday “How long will it last? I don’t

know…but I am sure the price will rebound”.

Oil’s Supply & Demand Dynamics Dollar’s rise will be sequenced by a plunge of even higher magnitude

Since mid-June, Crude has dropped nearly 60% from a combination of increased supply

from US fracking, constant supply from the Middle East and weakening global demand.

Like all pendulum swings, the reversal into an upside contra-swing of the same

magnitude is not only inevitable, but already well in process. Similarly, the rise of the US

Dollar will be sequenced by a plunge of even higher magnitude. Why? Because the

greenback has been gearing-up magnitude by climbing the high-diving platform in

preparation to DIVE.

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Rather than prop-up the price of oil by slashing production, at November’s OPEC

meeting, under the Saudi Arabia leadership decided to demonstrate it’s political strength

to humble the American President for treachery – Obama reneged on long-standing

bilateral diplomatic agreements to protect the Saudi Kingdom against Muslims radicals,

in return for pricing oil in dollars. In the same way that Saddam Hussein invaded

Kuwait intent on appropriating the oil revenue, Jihadists covet Saudi Arabia oil wealth.

Democracy does not fit the Barbarian mindset

Just as Communism is inconsistent with human nature, neither does democracy fit the

barbarian mindset. Saudi Arabia pumps 1/3 of the world’s oil. During the now deceased

King Abdullah’s reign, our noble fool of a President shifted the center of US security to

Iraq, posing a direct threat to the Saudi Kingdom’s security. This explains President

Obama’s rush to cement ties with the new Saudi King, by attending the burial of his

predecessor. Only after being squeezed, Barak Obama realizes after the fact, how

highly unrealistic it was call for US-style democracy in Iraq. Obviously to the Saudis

conservatively managed bounty from oil, a 50% plunge in the price is secondary to

national security. Only after the plunge in oil did President Obama heel to the wisdom

of allying with the Saudi autocratic regime, to fight against the common Jihadi threat.

Counter-terrorism is something Obama & the Saudis have in common; the recent

terrorist strikes in Paris, and atrocities committed in Syria and Iraq by Isis have brought

the threat of Jihad, reminiscent to the 9-11 attack on the of the World Trade Center to

the forefront. Obviously, radical Muslims terrorizing the western world in the name of

Allah, are not fit for democracy. Democracy requires a level of social consciousness that

is highly inconsistent with Jihad.

It’s sheer stupidity to envision democratic values coexisting with radical, megalomania

regardless of geography: Russia or Iran

There can be no appeasement of megalomania, just as Hitler was appeased when he

invaded Poland, naïve leaders then, as now, thought they could avoid bloodshed

through appeasement. Nowhere is it more evident than Putin’s annexing of the Crimea.

When no one lifted a finger to stop him, he went for more. The blunder of many, if not

most, western leaders is to project their own consciousness on an enemy, totally void of

scruples. Just as the Obama administration naively attempted negotiate nuclear détente

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with Iran, the domino effects of Arab Spring, which toppled several autocratic regimes,

was sufficiently menacing to the Saudis for King Abdullah to gift every Saudi family

$150,000 just to keep the peace.

The Saudis could not have missed the way the US turned its back on Hosni Mubarak in

Egypt. Saudi Arabia provided political asylum to ousted Tunisian President Ben-Ali.

From the American perspective, 15 of the 19 terrorists involved in the 9-11 attacks

were Saudi. From a practical standpoint however, this is no time to obsess or attempt

to stupidly impose US-style democratic values on barbarians. Extreme conservatism is

the far lesser of two evils, by at least an order of magnitude. While flogging a Blogger,

forcing women to wear hookahs prohibiting them from driving do not begin to compare

with the threat to stability and the lives of the entire populations in the entire Middle

East. Obviously President Obama overreached, in a well-meaning attempt to enforce

democracy in Iraq. Saudi customs are best left to the Saudi leadership, all the wiser for

his naiveté, Obama’s now patching things up with the new King, to relate such

sequence of events to the likely cutbacks Saudi barrels/day production is common

sense. Saudi strategy is for long-term profit optimization, if the price is too high,

alternative sources of energy become profit-motivated. Now they have enlisted the

American president’s cooperation there’s little motive not to revert to profit

maximization. Evidently it’s just smart to prioritize, “first things first”. Of utmost

importance are not the cultural differences, but the common threat of radical Jihadists

with the Saudi Kingdom.

Penny-wise and Pound Foolish

Just as President Obama came to intelligently prioritize his initiatives, the analogy

applies to the two Nervous Nellies who cancelled their subscriptions last week.

Obsessing over what amounts to less than one-tenth of one percent in short-term

profit, while ignoring the huge gains that dwarf them because of Bear Market volatility,

coupled with my expertise & hard work is penny wise and pound foolish, plainly bad

business! Obviously when I am sending out allocation updates far more often than

usual, I am working as if I were earning 20% of the profit. You can consider yourself

both lucky & smart to have found me at time when I am reestablishing my track record,

otherwise most of you would not have access to my expertise. The guy who is almost

as smart is a billionaire.

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For those with negligible investment experience, it is especially critical to realize the

magnitude of your windfall profits at a time when less than 20% of all investment

professionals managed to duplicate the S&P’s mediocre 13% return, including

dividends. Just as my #1 Timer Digest ranking and the return of double the S&P implies

by catching every turn speaks volumes about exceptional Bear Market Expertise.

Beta & 80/20 Thinking

A return of twice the S&P in Timer Digest’s ranking is pure alpha, a very scarce skill

above & beyond beta the return attributed to the market’s appreciation. Bear Markets

demand a much higher degree of skill to constantly lock-in profits and reverse

positions. According to Robert Prechter, less than one in a million can pull this off well.

In my experience, that statistic is less than one in ten million.

From a perspective of 80/20 Thinking, we first identify the 20% of the top 20%, the top

4% of all asset classes with the highest appreciation potential, and then swing trade

them to compound profits even faster.

After 14 years of Bear Market, all you need to do is observe the overwhelming majority

of investment professionals who are still Bullish, Even the Fed has attempted to turn this

Bear into a Bull, through Open Market Operations, Flooding the Money Supply and

artificially-low interest rates. While it may all appear to be Financial Alchemy, from the

larger perspective, history will not be kind to either reenspan or Obama, not likely Yellen

either.

Fed Alchemy is pure delusion

As most of us know, Alchemy, (the delusion of turning iron into gold) is pure fiction, all

that glitters, like the Fed’s Market manipulation since 2009, is in neither golden nor

real. In the current example it’s “fools gold”, and nearly every Central Bank has been

duped into the Fed’s example. Like the previous claim of “green shoots”, this inevitably

turned brown, shriveled and died. Green Shoots represent economic expansion - like

the ability to generate a “not too hot, not too cold, Goldilocks economy” was no more

than a “quick, Band-Aid fix” - the illusion of GDP expansion. As you may already know

the impression of invincibility portrayed by the German Army as it swept through

Belgium and the Netherlands in the Battle of the Bulge, was artificially fueled by

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Methamphetamine. The same delusion that at first made them appear invincible, going

for days without sleep, eventually resulted in a tired army - fatigue makes cowards of us

all. The same Meth was the German army’s undoing.

Market Timing is both an art & a science. With the highest aptitude in pattern

recognition, it has still required half my lifetime to fine tune, unlike Robert Prechter’s

corrupted & stagnant version of the Wave Principle, New-Wave Elliott™ remains a

work in process.

How to calculate annualized your rate of return

It’s critical that you learn to calculate annualized rate of return, especially for those who

have little experience with reality, in order to be able to compare your returns with those

of others. New-Wave Elliott™ derived via exceptional skill and hard work over 33 years,

with a standard of excellence & discipline beyond most others. For those with one less

than year tenure, assuming there were no contributions or withdrawals to your account.

Ending balance – beginning balance = simple rate of return for a any time period Beginning balance

Simple return = y = annualized rate of return over x months 12 For example, if you started 7 months ago with $1,000,000 and you now have $1,200,000

0.20 x 7mo = y/12mo

You cross multiply and divide 0.20 x 12 mo/7mo

34% = annualized rate of return

If you made contributions or withdrawals it’s a bit more complicated, in essence you

need to calculate the return to the point of the contribution, and then make another

annualized calculation, for the second period. You now have two rates of return, you

then multiply the fraction of the year pertaining to the first.

So if you had 20% for 3 months and 30% for nine months in the example above, and

then the ratio of the year 3 months is 3/12, plus 9/12 to get the complete year.

All of you, even those that began just 2 month ago, have already exceeded the S&P

return for the previous 12 months, something that the vast most professionals were

incapable of matching. Why? Because the Bull Market-conditioned mindset, buys &

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holds positions for the long-term. It does not take into account volatility or make

provisions for perpetual round trips to a profit and back again, while getting nowhere.

Meanwhile a Bear Market of the current magnitude will likely outlive most of them. If

they withdraw funds at the trough, there’s little possibility of ever recouping the losses.

As the economist John Maynard Keynes was quoted, “in the long run we are all dead.”

Bear Market Dynamics - outsized returns in exchange for Volatility

Volatility represents Opportunity

Bear Market Volatility represents opportunity far beyond the risk/reward ratio of any bull

market. While order execution can always wait for the subsequent day, at times the

maximum profit is available in the interim. When you receive alerts more than three

days a week, not only is it concrete evidence of bountiful opportunity, but also that

working for you as if I were earning 20% of your profit.

As the result of extreme irrationality and poor posturing of traders constantly being

reversed in the marketplace, we are merely locking-in out-sized profits. When a

security appreciates by 17-20% in one day, to quote Elliott, it often, but not always has

gone too far too fast. Step back and recognize that the outsized profits you are earning

are only available because of Volatility, not in spite of it.

When all hell breaks loose you need to keep your cool, and cease the opportunity…just

as the crash ahead is bigger than anything in modern times, Bull Market which follows

will be like the Phoenix rising from the ashes of the Bear, will be every bit as

dramatically profitable. Most investors will be cleaned-out by then. Following the

example of Li Ka Shing, who made his fortune by ceasing the opportunity to buy Hong

Kong Real Estate after the riots in the 1960’s, when the majority sought to emigrate,

volatility represents acomparable opportunity to make your fortune. In simple terms,

from here the trough, $1m under my guidance easily eclipses $10m, but not today’s

$10m, but rather $10m with the purchasing power of a $100m in today’s dollars.

If you are stressed by profit, imagine how much more stressed would you be by

catastrophic losses. Perhaps you should join the ranks of octogenarians, who I counsel

to buy the €uro and forget it, at least they will retain purchasing power, and likely 40%

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appreciation over 2-3 years, concurrent with crashes in the US dollar, Wall Street, & T-

Bond Markets.

However, a 40% percent profit pales in comparison to 400% per year compounded for

3-4 consecutive years. Such compounding turns even small savings into a small

fortune, given augmented purchasing arising from biting deflation, such gains will make

you truly rich, as most others you know will suffer catastrophic losses to become socio-

economically, downwardly mobile. You will have replaced thousands of individuals.

Below is inverse gold on 15-minincremtns to see the guts as you would examine a slide

through the microscope. Gold is beginning a Sucker’s Rally, so the upside so far, must

be entirely retraced, as when a runner jumps the gun. So far we have traded JDST 2x

made high returns each time, the kind others dream about….as you see there’s a gap

on Jan 28 that will likely be filled, that’s probably where we will buy back.

The reward for opportunistically trading volatility is at least a 400% return, each and

every year to the trough. In 2008-2009, we earned over 360% with less leverage and far

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less bear market experience, as I was developing New-Wave Elliott™, now that’s

behind us, I doubt there is anyone who can do it better.

In the worst case scenario, you had to wait until Friday, to sell the inverse gold, JDST, at

9.3, so what? you need to learn to shrug-off the small stuff and keep it in perspective.

The high of the day on Friday was 9.6. On Thursday, from the time I sent the email, to

the close two hours later, the limit sale price of 9.5 was reached every 15 minutes, save

one. Below you see Crude Oil with a sell limit of 3.4 for half. Most of you bought it at

2.99 and added to the position when it dropped to 2.4. That’s a 13.7% gain over the

course of just weeks not a year like the S&P, annualized it’s huge.

Below you see SCO inverse Oil peaking in a wave 3, corresponding to wave 3 of the Diag II in

UWTI, long crude OIL. Just as the minimum drop from wave 3 is from 102 to 52.5, so to the

upside in UWTI is a minimum 100% gain.

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One panicking Nervous Nelly could ruin the market for everyone. To sell any ETF at the

Market, when I have give a strict limit, is a “fuck you“, which undermines my business &

potentially ruins the market for everyone who attempts to sell after you.

The goose that lays the Golden Egg

Selling a small stock at the market kills the goose that lays the golden egg. Like the

greedy farmer, who wanted all the eggs at once, and killed the goose only to find no

eggs inside. My favorite quote from Malcolm Forbes “A mediocre person is always at his

best!” In the same way, I am your wealth-creating instrument, if you undermine me, you

will swiftly find an end to your golden eggs. Another way to kill the wealth-creating

machine is to cancel your subscription; in that case you cut off your nose to spite your

face, others remain unaffected.

For your own sake, it is critical that you also not exceed my limit when buying. If you

buy at a higher price, you will find the subsequent sale could be below your cost, if you

need to invest additional funds, buy at the current low, for substantial amounts ask me

first. A dime on $3 stock represents 3%, several of these over the course of the year

amount to more profit than most people will earn in the next 12 months.

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As you see below, the hundred years between 1780 & 1880 was required for the (a)-

(b)-A;(a)-(b)-B to gear-down from the last Grand Supercycle Bear Market, Grand

Supercycle Wave [II]. While it should not have recurred in our lifetimes, this morphing

resulted from the Fed’s manipulation, to force the market up in 2009, rather than

allowing it to complete its course as a Simple, (A)-(B)-(C) Bear Market. Instead during

the longer gestation period, it morphed into a complex Mega-Bear. The second

irregular top in 2014, provided a second opportunity for the market to gear-up

magnitude into a Grand Supercycle Monster. If you carefully examine the long chart you

will see there are no other sequential irregular tops to be found. It is an impose

aberration to inflict biting Depression and accelerate the US & the economies of other

Developed economies into a Deflationary spiral of unimaginable proportions…

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By now you likely know that before this scenario can play-out, an inflationary head-

fake, analogous to climbing the high-diving platform before a DIVE, must precede it.

Likewise, the identical pattern is a fractal of the bounce from the 1929 Crash into 1931,

before the killer plunge to follow of 3x the wealth-destructive capacity as the 1929

Crash, as you see below, 1932 retraced the 1904 low, prior the start of Supercycle

Wave (I).

Since 10x leverage was common in those days, after the first 10% plunge, most

investors were totally wiped-out. That’s why the 1929 Crash is all that registers in the

collective consciousness, yet if you carefully study the chart, you can see how prices

dropped over 90% from the 1929 top to the 1932 trough. The Crash likely beginning in

late-February to mid-March will follow a very similar pattern, however the order of

magnitude will likely be 4x as severe as 1929, to as the consequence of Fed tampering.

What is evident from such collective “magical thinking” is identical to the eye of the

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hurricane, after the first wall of wind and rain has passed, the storm shutters are taken

down the animals let out of the barn only to create massive capital destruction. The

2007 to 2009 episode cost $63 trillion (million x billion), the next must destroy at least 4x

as much capital, to result in an unrelenting deflationary spiral. At the bottom of that

deflationary Spiral, prices of all goods will be selling far cheaper than oil is now, but only

for a short while, similar to the bounce in oil, that is when you buy hard assets with your

trading profits and be able to pay cash, for land, buildings, gold, collectibles, art all at

97% discount from today’s prices. As there will be no financing, & likely few small banks

left standing. These bargains will only be available for those who compounded their

capital during the Crash, all others will be selling whatever they have to raise enough

cash to survive.

Below is Elliott’s Theory manifested, neither he nor Robert Prechter was able to fit the

count into two neat parallel lines, as he had observed at lower magnitude. The parallel

confirms its veracity. In the next phase the channel widens to accommodate Grand

Supercycle degree, so the lower parallel line must be re-drawn to most likely overlap

with Supercycle (I) in 1906, to result in the largest Diag II ever, to imply the beginning of

a long Bull move relative to its dimensions on the chart.

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If you subscribe to Stockcharts, please vote daily your vote is critical, this link will take

you directly to our. There you will find the long, weekly charts of our Bear Market

Allocation. Although the long charts are not regularly updated, they will provide a big

picture sense of where we’re headed, through the roof of these inverse ETF charts.

Eduardo Mirahyes