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Black Box
Forecasts: "Six hours ahead of its time" Tax Bill No Threat to GoldTRADING NOTES: Has Congress joined the global effort to prop up the dollar? At first glance, it would appear so. Two subscribers sent me a news item concerning pending legislation that would give multinationals a one-year opportunity to repatriate earnings at a drastically reduced tax rate. The current rate is 35%, but the new law would temporarily reduce the levy to just 5.5%. Here's how it would help the greenback, according to Financial Sense's Tactical Investor: First, by allowing US multinationals to repatriate their earrings back to the US at a rate of 5.25% is tantamount to a 29% across the board cut in taxes, which will more than push them to come to the US. This 29% break more than makes up for the current devaluation in the dollar. Who would not take such an offer? It's basically free money. Now here is where the situation gets sticky. In order to repatriate that money, the multinationals have to change from whatever currency they are currently holding to the US dollar. Effectively, they will be buying the US dollar and dumping their local currency. This will have the effect of suddenly propping up and giving the US dollar strength, and as the dollars starts to gain, Gold will definitely be its victim. So it's highly likely that gold's upward trajectory will be momentarily halted and that the day of reckoning will be postponed till after 2004. Measly Billions Gold a victim? I don't think so. If you've followed the thread of my essays on gold over the last few months, you'll already know I'm convinced that nothing can beat the price of gold down much, or for long. One reason is that gold assets are being quietly accumulated by China as a hedge against their huge dollar exposure. Other countries that have large trade surpluses with the U.S., such as Japan and India, are doubtless doing the same. The steady and presumably growing accumulation of bullion by such big players makes it increasingly unlikely that gold's occasional sell-offs will last much longer than a few days. But what about Tactical Investor's theory that tax changes benefiting U.S.-based multinationals will help prop the dollar? In the first place, I don't buy the premise that the legislators know what they are doing (Rep. Ron Paul aside), or that they have even the slightest understanding of why currency values fluctuate. But to control those fluctuations? A turnip would have a better shot at controlling the weather. And even if this tax scheme might work in theory, in practice it bears the same relationship to the problem (i.e., dollars in promiscuous oversupply) as an anthill does to Mt. Everest. After all, there are $1.5Tr worth of dollar-denominated credit instruments in play each day, amounting to more than ten times global GDP. The world's leveraged currency flows manifestly dwarf its real economic output, so it stands to reason that even a nearly 90% tax reduction on business profits would barely affect the big picture. My colleague Jim Sinclair estimates that the amount of funds that could be affected by the tax legislation is between $150B and $300B. Compared with the trillion-dollar shell game that is played each day with dollars, what's a measly $300B in tax breaks spread out over a year? *** [The + symbol means we have an open position, while $ means there is actionable advice.] $ DEC DJIA (9719): The futures bottomed within three points of a 9702 target, but the subsequent bounce didn't amount to much. Accordingly, the 9643 target still to be achieved remains my minimum downside projection for today. You can bottom-fish there in the first hour at your discretion, but I'd risk no more than 3-4 points on the initial stop-loss. $ DEC E-MINI S&Ps (1045.25): No change. My minimum downside projection is 1037.25. Accordingly, in the first hour only, I'll recommend bidding there for a single contract, stop 1036.75. Switch to a 2.50-point trailing stop once above 1047.00, using 1055.00 for your minimum target. DEC BONDS (106.31): No change. If and when 106.09 is touched, it will signal a likely fall to at least 103.01, as well as a probable end to the bear rally begun in mid-August. Alternatively, a close above a hidden pivot at 109.27 would give the bull a new lease on life for the intermediate term. OEX (518.66): My minimum downside projection is still 516.99, a hidden-pivot support that is too close to the whole number to bottom-fish with the usual tiny stop. Nonetheless, if it's breached by more than 0.03 points, look for the decline to continue at least to the next pivot, 515.36. QQQ (35.06): Look for the cubes to grope for traction at or near 34.49, a Fibo level that is still my minimum downside projection for the minor trend. It's not worth bottom-fishing. DEC GOLD (388.20): Just a smidgen more: It'll take a close above 389.80 (a hidden pivot), or a print intraday of 391 or higher, to jump-start the rally we've been expecting to at least $403. DEC NASDAQ E-MINI (1411.50): Yesterday's turgid action did not change my immediate outlook, which calls for a decline to at least 1389.50. That's a Fibonacci level, but I wouldn't count on it for much of a bounce. *** INTC (33.41): My minimum downside target is still 31.91, the closest Fibonacci level of importance to the minor trend. FNM (69.40): No change. Fannie's headed down to around 68, where it built a shelf of support in September. Today it would take a close above 70.20 to turn stochastic indicators for the daily chart bullish. C (47.39): Citi is dropping down into a comfortable cruising range between 46.00 and 47.50. No new action is advised. + GG (15.28): We hold 400 shares with an average cost of 8.04 per share. Nothing new to recommend. + HL (5.89): We hold ten December 7.50 calls for 0.30. Hecla has been ambling sideways for three weeks, showing no eagerness of late to leave its comfort zone. $ + RANGY (12.83): We hold 400 shares for an average 10.12. Continue to bid 11.94 for 200 more shares. $ + RGLD (18.75): We hold 300 shares with a cost basis of $8.84 per. You can re-enter the 17.92 bid for 200 more shares if Royal falls below 18.50, but otherwise do nothing. Stochastic influences on the daily chart have just turned moderately buoyant. IBM (89.36): IBM suffered a mild relapse as expected. The stock will continue to bump-and-grind until such time as it breaches a hidden-pivot support at 87.33. Thereafter it would likely fall to the next pivot, 83.83. Alternatively, it would take a two-day close above 91.60 to turn my short-term outlook positive. EBAY (54.13): eBay's decline yesterday breached a 54.42 pivot I'd flagged, implying it will continue to fall to at least 50.27, another hidden pivot.. Rick Ackerman ***
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