I Don't Know

Interesting how difficult it is for some people to utter the words "I don't know" - as if it's somehow a slight on their abilities.

In the past few weeks this analyst has been reading a variety of articles on the future direction of the markets, and the common thread seems to be more related to rationalisation than to reality. The overwhelming feeling I get is that we are sailing through uncharted waters.

By way of example, the chart above (courtesy decisionpoint.com) seems to be showing a runaway gap at the $755 level. The breakaway gap occurred at around $675. This implies a shortish term price destination of $755 + ($755-$675) = $835/oz (provided the gap is still there at the end of this trading week).

On the other hand, the Dow Jones seems to be wanting to top out around here , and whether this is "for the time being" or whether it is "the top" is an open question. I don't know the answer.

The technical indicators are as follows:

• The PMO is showing falling tops against the price chart showing rising tops. This is a bearish non-confirmation
• The PMO seems to have peaked out at a level below its April 2004 level
• The price chart is bumping up against resistance of the upper channel line and should bounce down

Based on these indicators, it is well within the realm of possibility that the Dow could pull back from here, and keep heading south.

Now, how is it possible to rationalise a rising gold price and a falling Dow?

The monthly chart of the dollar below may offer a clue:

Note the downward pointing PMO, and the fact that the dollar is currently at its lowest level since 1992.

Note also how - when the Y2K hysteria was brewing (unlike the CO2/Global Warming hysteria of today) - the US Dollar was viewed as the safe haven. From 1996 to 2000, the dollar index rose from 80 to 100. Then, when the Nasdaq collapsed, it rose further to peak out at 120.

The reason the dollar is falling nowadays is readily attributed by many to the sovereign debt levels of the USA, but there may be an even more sinister explanation: Peak Oil. The US Economy is hostage to the oil price. 60% of its internal transport is oil dependent. If the US Dollar Index has fallen from 120 to less than 80 since 2000, what has the oil price done over that time? Has it risen 50% to compensate for the dollar's fall?

No, it's risen far more than was needed to compensate for a falling dollar - from around $30 a barrel to over $80 a barrel, or by 166%.

There are those who would argue that the US has become a "service" economy. Well, we can play with words all we want. The fact is that a rising oil price (if it rises faster than the dollar falls) has the capacity to cripple the US economy. Further, if the US Dollar does keep falling, inflation will run amuck inside the US. The cripple may never walk again - which is why the dollar should be supported by the world's Central Banks. After all, the US accounts for 27.5% of the total world's GDP. China and India together do not have the capacity to be the "white knights" who save the world economy. Together they contribute a mere 7% of the total.

So what will save the world economy? Frankly, I don't know. But I do know that a shrinking US economy will not help matters should it occur.

There are some who are arguing that "inflation" by the Fed will cause the Dow to rise exponentially; and that there will be "third leg" of hysterical buying by the public. I don't know. Of course, this is possible, but certainly not if the US economy is held hostage by a rising oil price.

The Point and Figure Chart below (courtesy stockcharts.com) is showing that oil has been in a strongly rising trend and may be poised to rise to $87 a barrel.

More importantly, it is starting to look like oil may even want to rise relative to gold, as can be seen from the chart below.

What does all this mean?

The short answer, to be honest, is that I don't know and neither, I believe, does any living person. The world has never run out of oil before.

That's ultimately why the charts are giving off all these conflicting signals. "Buy" one day "Sell" the next. In this analyst's view, anyone who shows certainty in this environment is either arrogant, delusional, or too wet behind the ears to understand the problems.

When we drill down to the core of all our problems, we find that at the bedrock lies dwindling oil energy reserves. When you cut through all the noise and all the rah rah rah, the practical alternatives that are being considered appear to be coal (which poisons our air with particulate matter and gives off CO2) or Nuclear Fission - the waste material of which is infinitely more dangerous than the CO2 which our plants desperately need in order to survive.

It should be remembered that our atmosphere consists of around 18% oxygen. That oxygen is manufactured by the plants, which consume CO2 as a raw material. In turn, the sun's rays, beating down on the oxygen in the atmosphere, convert some of that oxygen to ozone - which, in turn, protects us from being burned like flies attracted to an electrified UV black-light box.

And without plants, we would have no insects or birds or animals, or mammals or, for that matter, topsoil.

And now the scientists want to reduce CO2 emissions to zero, which will almost certainly impact negatively on the planet's plant life.

And Al Gore was awarded a Nobel Prize, by a world that seems to have taken leave of its senses - a world which seems to have swallowed his story, hook, line a sinker.

And against such a background, we have "experts" who are telling us, with certainty, exactly which way the stock market is going to jump tomorrow.

Are there solutions?

Absolutely, there are solutions! But not unless we break the strangle-hold over the political decision making which the commercial banks, the oil distribution industry, and Big Business have engineered over the years. (Now the three top US Banks are taking matters into their own hands. The Fed, it seems, does not have their full faith any longer. Yes, I know that the "spin" is that the Treasury called in the banks, but the fact is that the short term credit market has dried up. The banks didn't need any prompting from Treasury. )

Frankly, I don't know.

But I do know that the political circus that is currently capturing the attention of the media and the US voting public is turning out to be massively counterproductive. And we're about to have the same ridiculous circus in Australia.

Brian Bloom
October 17th 2007
www.beyondneanderthal.com

Since 1987, when Brian Bloom became involved in the Venture Capital Industry, he has been constantly on the lookout for alternative energy technologies to replace fossil fuels. He has recently completed the manuscript of a novel entitled Beyond Neanderthal which he is targeting to publish within six to nine months.

The novel has been drafted on three levels: As a vehicle for communication it tells the light hearted, romantic story of four heroes in search of alternative energy technologies which can fully replace Neanderthal Fire. On that level, its storyline and language have been crafted to be understood and enjoyed by everyone with a high school education. The second level of the novel explores the intricacies of the processes involved and stimulates thinking about their development. None of the three new energy technologies which it introduces is yet on commercial radar. Gold, the element, (Au) will power one of them. On the third level, it examines why these technologies have not yet been commercialised. The answer: We've got our priorities wrong.

Beyond Neanderthal also provides a roughly quantified strategic plan to commercialise at least two of these technologies within a decade - across the planet. In context of our incorrect priorities, this cannot be achieved by Private Enterprise. Tragically, Governments will not act unless there is pressure from voters. It is therefore necessary to generate a juggernaut tidal wave of that pressure. The cost will be 'peppercorn' relative to what is being currently considered by some Governments. Together, these three technologies have the power to lift humanity to a new level of evolution. Within a decade, Carbon emissions will plummet but, as you will discover, they are an irrelevancy. Please register your interest to acquire a copy of this novel at www.beyondneanderthal.com . Please also inform all your friends and associates. The more people who read the novel, the greater will be the pressure for Governments to act.