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Hans, a middle-aged German tourist on his first visit to Las Vegas, finds the red light district and enters a large brothel. The madam asks him to be seated and sends over a young lady to entertain him.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she gasps and runs away! Seeing this, the madam sends over a more experienced lady to entertain the gentleman.

They sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear, and she too screams, “No!” and walks quickly away.

The madam is surprised that this ordinary looking man has asked for something so outrageous that her two girls will have nothing to do with him.

She decides that only her most experienced lady, Lola, will do. Lola has never, never said no, and it’s not likely anything would surprise her. So the madam sends her over to Hans. The sit and talk, frolic a little, giggle a bit, drink a bit, and she sits on his lap. He whispers in her ear and she screams, “NO WAY, BUDDY!” and smacks him as hard as she can and leaves.

Madam is by now absolutely intrigued, having seen nothing like this in all her years of operating a brothel. She hasn’t done the bedroom work herself for a long time, but she’s sure she has said yes to everything a man could possibly ask for. She just has to find out what this man wants that has made her girls so angry. Besides she sees a chance to teach her employees a lesson.

So she goes over to Hans and says that she’s the best in the house and is available. She sits and talks with him. They frolic, giggle, drink and then she sits in his lap. Hans leans forwards and whispers in her ear, “Can I pay in Euros?”


I’ve had an opportunity to spend some time with my honorable father in-law (FIL) over the holidays and of course besides talking about the amazing ability for 18-year Glenfiddich to disappear seemingly before our eyes, the conversation turns to where it always does–gold! Despite my warning and lamenting that he should “think more about his loving daughter’s inheritance in these tough times,” he isn’t budging; not even an ounce has escaped from its walled tomb to be thrown on the market.

I shared the chart below with FIL yesterday, trying to make the case that parabolic charts are usually a bad omen when it comes to traded assets. Whether it be Netflix, crude oil, Swiss francs, silver or gold, when the slope becomes parabolic it should be time to get very nervous and look for places to start lightening up. Hogwash of course is effectively his answer. And he has some good points:

  1. With continuing currency turmoil there must be some asset besides bonds that gets some money flow–and that should be gold.
  2. Given the state of government stimulus, as JR and I have talked about in these pages the last couple of days, there should be a major systemic event flowing from somewhere; thus gold looks quite good.
  3. Technical analysis is a joke (he believes). It explains why he purposely holds the charts upside down if I am around.

I recently read that central banks bought over 200 tons of gold in 2011, more than any year since 1981; I have noted that on the long-term “parabolic” gold chart below:

Some additional comments:

  1. Bearish for Gold: Just as now, the dollar was starting into a strong multi-year bull market in 1981.
  2. Bearish for Gold: Just as now, the economy was deflating thanks to Volcker’s high interest rates
  3. Bullish for Gold: Interest rates are low; there is little yield competition gold has to face.
  4. Bullish for Gold: US fiscal position is a complete mess; extremely weaker than back in the early eighties.
  5. Bullish for Gold: Faith in the world reserve currency was much stronger back in 1981 than it is today, to say the least.

I am sure you can think of many other bull and bear arguments to fit with your view–I know FIL can. But does the chart suggest all of the arguments we can think of to justify our case either way are already embedded in the price? None of us know without the gift of hindsight. But if technical analysis can be useful for anything, it might be as a risk management tool (I think it is worth much more, obviously). In the keep it simple category: A chart reflects something that seems high relative to the past or seems low. That alone should be enough to force a reexamination of premises that suggest otherwise.

It looks parabolic to me! I just wish FIL would use stops. Anyone remember the Hunt Brothers?