Indicators June 05 - emailed to subscribers - Thu, 18 Aug 2005

*Rule of 20 comment, see attached*

Due to the fact the our rule of 20 measures only the industrial sector of our market, we will have to look at some other valuation models, given that the current market price is being driven by the resources sector for the first time perhaps since the Poseidon episode of the late 1960's, which one would expect to continue for a while yet. Further charts to follow soon

*Yield curve comment, June 05: see attached*

The yield curve has inverted; this is about to occur in the US as well.

The yield curve has inverted because the yield on the ten-year bond has dropped, (which monetary authorities have no control over), not because the yield on the 90-day bills, (which the Reserve Bank can control), rose. Conventional economists are going to have a hard time explaining this one, and you may hear them say, "this has never happened before".

But it has, it is just that we weren't around last time to see it. In our lifetime, the yield inversions have only ever happened at interest rate levels that were much higher than today, in a trend that we can remember that was only ever in one direction - up.

History repeats. But have you ever noticed how it manages to do so in a way that effectively disguises the fact to practically everyone. This is because no one watches land value. What I mean by this is that the real estate cycle has always run at least 18 years. It has to - read Fred's new book if you want to know why. So, economic events will occur to allow it to take place. Economists will tell you this is nonsense, since they are taught that history does not repeat. (Thanks to Karl Popper and his tomb /The Poverty of Historicism/.)

The next interest rate manipulation by the Reserve Bank in Australia cannot be up, since they do not want the curve to invert anymore than it has already, driven by factors presently that are beyond its control. (If the Reserve Banks lifted interest rates higher, it would invert the curve even more) This is confusing to them, since they would have argued that the very high oil prices - and going higher into 2009 but with the usual retracements along the way - should really be creating inflation, and hence a rising ten year bond yield as the market players progressively price the inflation into the long bond. And a rising inflation would require the authorities to lift rates a bit to 'manage' the problem. Standard text book stuff and a great reason for their existence.

See the problem this gives the moneyed men ?

I believe that this conundrum of the long bond having declined in yield in the US will also put an end to Greenspan lifting rates much further.

So I believe the next move in rates in Australia will be a slight downward revision, or nothing at all. (A position I was repeating in all classes this year.) Which of course will allow land price to go higher, as is required into the final year or two of the 18-year land price cycle.

(Higher oil prices will (must) drive real estate prices all around the world to higher levels, since the windfall gains to the Arabs and the Texans will ultimately accrue to land price, (what else can they do with it) especially in the world's capital cities like London, and the President's ranch.)

The real estate cycle (i.e. land price) must run its course. Things will happen to cause this to be so. And at the land price peak, something will occur to give us all reason to blame the downturn upon it - upon anything but the real culprit, land price simply having risen too high in the first place.

speaking of which, tax cuts, infrastructure spending...
all adds to land price at the top end of a boom. The pollies do everything to keep that boom going...

If you need further proof that markets are telling you there is plenty of life left in the boom yet, have a look at the stocks making new highs this month - all the advertising stocks and the employment and office service stocks, eg srv, sgn, cnd, gcn to name a few. Now what's that telling us ? (Conventional economists have no idea how to interpret stock markets, and what an indicator like the 'new highs' means for example. Yet another reason why you should only ever keep your own council about stock markets, or the council of another only if you are pretty damn sure he/she knows more than you do.)

Even SPT got into the new highs list this month - things have to be going well.

note the raging movers at present - gold and oil stocks, amongst others. This is where the long term analysis using Gann techiniques, 30 60 90 years etc, really will help you work out which years will prove interesting for which sectors, something you can do in advance if you have the history of the relevant commodity over that time span. (Then all you do is trade the breaks into new highs, as that tells you which stocks are the strongest in the sector: let the market tell you, instead of being opinionated eh...) Gann gives you the history you need - or at least how to do the work - in his commodities books. Have you read them ??? This method clearly indicates gold and oil most emotional year coming up is 2009, for coffee, 2007. (As shown in classes for some years now) Most probably highs, though we trade the trend as always. (btw, coffee often lows in August.)

rel, one to look at, a nice gann accumulation break there. Though you do your own work on it as taught in class - including a look at the fundamentals - to help you decide if the break can be carried through to much higher highs amidst a lot of selling that took place in earlier years, (I call that overhead resistance) . But a move to at least 26 (the prior low) before heavy selling is encountered looks likely

Finally, a leaked UK report and video footage shows that that poor Brazilian shot in the head by the State wasn't wearing a flak jacket after all, as described by the police report, was dressed merely like you and i would have, and was showing no agitated moves as the police report also listed. Lies to protect vested interests see. (State sanctioned murders are by far the biggest killer anywhere in the world.) Pay attention to the lies. When the real estate cycle turns, bank presidents will come out and say their lending book is sound, their earnings solid, their mortgages well secured. Will they be lying ? The Reserve Bank will reassure us that it will be a 'soft' landing. The pollies will tell you the economy is sound. Lies or not ? Only the chart will tell you, so make sure you refer to it if one is available. If the trend is down, you can then know it's a lie, since the insiders will know and it will be them selling the bank stock, or whichever. This is exactly as Gann pointed out. A chart never lies.

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