Transcription of Audio Interview, October 2, 2004
Editor's Note: This interview was transcribed by a Financial Sense visitor and has not been reviewed. The original real audio interview may be heard on our Ask The Expert page.
JIM PUPLAVA: Joining me at this time is Michael Bolser. He is a board member of GATA and is also a gold analyst. Our topic is called Interventional Analysis and with that intro, Mike why don’t you tell us about what is Interventional Analysis?
Michael Bolser: Thanks for having me on the air, Jim. Interventional Analysis is the study of government interaction with strategic commodities, principally gold but more recently, petroleum. And what I have been doing really for the past four to five years has been a detailed scientific study, looking carefully at areas of markets and particularly commodity markets where the government’s presence is hidden from view and I have spent my time attempting to get a look at what they’re doing. What I do is significantly different from what your listeners know as technical analysis. Mr. Prechter and Mr. Elliott utilize a fundamental assumption, which I don’t agree with, in markets in which governments have a vested interest. Their assumption is that there are only two entities, those seeking profits and those fearing losses and that the balance between those two entities can be charted, that you can draw lines on the price of gold, for example, draw lines on the chart of the oil price, look at patterns, call them breakouts or double tops or triple bottoms. These analytical tools are very useful, these technical analysis tools are very effective in those markets in which there are only two players. But my work has shown that there are not two players in the strategic commodities area. There are three. There are speculators expecting a gain, some fearing a loss, and the third player, a massive third player, the United States Government and its Federal Reserve primary dealers, thirty-two trading houses in the Wall St. area, J.P Morgan Chase, Merrill Lynch, UBS Payne Webber. That third party changes the calculus of making predictions and analysis for the technical analysis crowd and renders most of their work useless. I use a good example in this area, just talking about the gold standard. It’s about ninety-three years from 1877 to 1971. Where was the double top and triple bottoms, the flag breakouts during those ninety-three years? Well, they didn’t exist because the government dictated what the price of gold would be. It had a vested interest and it exercised that vested interest by fixing the price of gold. The government is doing the same thing today only they’re making money at it by controlling the gold market, the silver market, and attempting to control the oil market with what we see today as not very effective results.
JIM PUPLAVA: Mike, I want to bring up a question here because there are key moments in the market and I agree with you that we no longer have free trading of markets. The fact that we have a central bank today, a central bank by its very nature is an interventionist�type organization. Its purpose is to intervene in the markets and intervene in the economy so in terms of free trading, markets which would validate technical analysis, that makes that technical analysis less effective. But also, one thing that I have noticed is that whenever you would have, for example, a Federal Reserve Open Market Committee meeting, you will see the bond markets, stock markets rally, you see gold get hit. And this weekend we have the G-7 meeting in Washington, there’s talk about a dollar devaluation, you have also the Washington Accord being renegotiated on how many ounces of gold or tonnes of gold they are going to sell, even though we know from a lot of the research that’s been done, they go beyond that limit. So you have what I call a conclave of interventionism that is taking place this weekend. What is possibly the outcome?
Michael Bolser: Well, before I focus on the October 4th and 5th inflection point, let’s go back to June 29th. There was another FOMC meeting. Six weeks before that date I predicted at Le Metropole Caf�.com, which is Bill Murphy’s excellent gold site, I predicted that there would be, as I called it then, a gold hammer dropped on the gold market on June 29th. I later modified that prediction to include July 6th and low and behold on those two dates the gold market was hit by an ambush. The tools that I use to pick those dates are proprietary tools, based upon years of work in looking at, why don’t we just say, things like the dollar index value of gold which is the major currency dollar index combined with the P.M. fix. By looking at that date, it allowed me to accurately predict to the day when the gold market would be assaulted. Now moving forward in time to next Monday and Tuesday, as you mentioned, Jim, we have an FOMC situation, we have the Washington Agreement, and we have a great deal of what Federal Reserve Board Governor Bernanke called in his September 9th article, “Communications Policy�. This is Fed Speak for propaganda. In a less generous term it would be just flat out fabrication, designed to move markets. But the Federal Reserve is right out on the table with it. They have just assigned this nice little term so they can use it in academic articles. The Washington Agreement’s communications policy has been to set the stage, the expectation that the participants in the Washington Agreement are somehow five hundred tonnes short of their planned tonnage for the coming year. Other people have suggested that Italy has released information that says they are no longer able to participate or participate at the same level they were once planning to do. In my view these press releases that were made selectively in the past few weeks constitute the Gold Cartel’s effort to deliver an unwarranted optimism in the gold market, to trick gold investors and gold bugs into thinking somehow that the Washington Agreement is going to be a big breakthrough. I hope it is and let me preface my future comments. I hope my prediction is wrong and that there really is a breakthrough because my portfolio will look a lot better if there is. But we have the FOMC meeting planned, we have the Washington Agreement meeting, we have the stage set by the various communications policy statements that have come out, making it appear as if there is going to be a gold breakthrough but I can tell you and your listeners that in my opinion, based upon some work I have done and some things we will talk about in the future, like multiphasic regression that I think Monday or Tuesday will be an ambush on the gold community and as such one should, if they haven’t already, take profits in their liquid gold equity positions. Newmont would be one of these positions and wait until the ambush is finished and move in. Perhaps this will be seven days or perhaps ten days of depressed gold prices. Perhaps even back as far as $390 or $385 and at that point reenter the gold market with your speculative portfolio portion. In doing that if one simultaneously goes long on the dollar, you will probably gain between 8% and 10% and that includes the standard transaction costs of around 2% or 3%. If these ambushes occur three or four times a year, even in a heavily interventional market, you can still gain between 30% and 40%. But the clue is to know when to step back. Anyone in your audience can recognize a depressed commodity price when they see one. You don’t need me or anyone else in the T.A. community to tell you when a bottom has happened. But you do need people like me and others who are very close to the gold market or commodities market to tell you when an ambush is going to happen and when to step aside and let the ambushers have their way for a few days or perhaps a week. That’s the value I think I’m adding to the gold community.
JIM PUPLAVA: Mike, let me ask a question here. The U.S. is running a current account deficit now that’s about 6% of GDP. Our budget deficit is somewhere around 5% and yet that is understated because we rolled some of the deficit into this year’s fiscal year so we rolled those debts into the following year. We are borrowing money from the Social Security Trust Fund, which we don’t fully account for when measuring our deficits, the point being, is we are at a stage now where when you’re talking about budget and trade deficits at 5% and 6% of GDP, you normally get into a currency crisis and we’re talking now about devaluing the dollar, at least that’s one of the things that has been sort of thrown out to the market. Now they may use that to trick people and sabotage them. You never know what they’re going to do. But at some point the dollar is going to have to go down because this is clearly unsustainable. No country, even as big as the United States, can run these kinds of perpetual deficits so at some point when do they lose control? They have been trying to control the oil market by the open mouth committee. It hasn’t worked very well because oil closed Friday at over $50.
Michael Bolser: Let me answer your question two ways. First we’ll focus on a market that has been lost and we’ll focus on the headline, Gross Domestic Product. A lot of the Gross Domestic Product that is reported is, as you well know, inflated by hedonics where a $1000 computer that is sold by American companies is counted as $10,000 and that’s added to the GDP. The examples include software and the further you get into hedonics the more you realize the Gross Domestic Product is pretty much a fiction. Your listeners need only to look around their neighborhoods and when asked the question, “Do any of my neighbors actually go to a factory that makes something?� or are they involved in some other form of service or government related issue? Now the oil community, as you pointed out, is looking at $50 oil. I’d like to remind your listeners that there is a Strategic Petroleum Reserve of about 57 or 58 days worth of above ground storage and we’re also just a few weeks away from a presidential election. We had a popular presidential debate last night. I would ask your listeners to ask themselves the following question with regard to why we have $50 oil, “ If you were President and you had just a few weeks to go before a Presidential election, would you leave oil in the Strategic Petroleum Reserve and let it run to $60 or even higher, just as the election is happening or would you use your Presidential authority to sell every single barrel you could to get the price of oil off the headlines?� Well, of course it would be the latter. Well, $50 oil tells us there is something wrong. There may not be enough oil left in the Strategic Petroleum Reserve, enough salable oil, to get the price down. This is one of my comments in the past month, that it is my opinion that the SPR is already effectively drained. So back to your original question, when is the time where the federal government loses control of its various markets? And that is something that is fairly difficult to predict, the exact day or the exact amount of force that a window pane breaks is something that people are trying to do every day. But I can tell you as a result of some of the things that I publish at my website that there are ways to look at the dollar index that other people haven’t done and when I look at these proprietary metrics I see the dollar in a transition from a mini rally and we’ll talk about this in a minute, to a down phase. Earlier in the year we had a very sustained down phase from January 2nd to April 13th , according to the metric I use. So to answer your question, I see the dollar headed down. We can see gold headed up, although there’s going to be an ambush here, in my opinion, shortly. But that’s the future, in my view. The dollar will be headed down. It will be a month, two months, to perhaps as long as nine months. This is the phase duration I usually see when looking at my metrics. So I can’t tell you when the time will come but there are already signs that the cracks are widening. I’ll mention Argentina’s central bank purchasing gold at the rate of 10 to12 tonnes a month, in defiance of the International Monetary Fund. This may be the first sign of a general revolt among central banks. We don’t know yet.
JIM PUPLAVA: Well Mike, given all these circumstances, you talked about trading capital, maybe taking some of that off the table for this possible next ambush and those ambushes do frequently occur around these kind of meetings. They try to affect outcome. What I thought was rather amazing as I read the 113 page, I forget how many pages it was, the Ben Bernanke paper, that’s saying our open mouth committee has been just as effective at getting the bond market and financial markets to do what we want versus actual monetary policy. And as long as people don’t stop and think or ask themselves, wait a minute, the government’s telling me there’s no inflation, but everywhere I go it costs me more for anything I buy. I joke that if you go into a store or shopping mall, find something that’s made here in America and the one thing I always say is well, at Circuit City all the electronics are made outside the country, you know, they are made overseas but at least we have the DVD’s. Well, guess what, I bought two DVD’s this week and on the package it said made in Mexico. We are hollowing out our economy and I think people forget that it’s land, labor and capital that create wealth and by virtue of a central bank printing a whole bunch of money, they can’t whisk and create these things by simply printing a bunch of money. And so there’s got to be some outcome down the road here or some recognition that finally this market can’t hold, in the way it is. I think we are headed for hyperinflation.
Michael Bolser: Well there’s no doubt that hyperinflation is in our future, $100 oil, $80 oil, in the short term. We have an army in the Middle East whose function it is to try and stop that from happening. I see the Federal Reserve and the Administration, both political parties at the mercy of a supply demand commodity market in oil. Now this must strike terror into their hearts. For once they’re going to have to face the reality of supply and demand and change the lifestyle of America, energy consumption lifestyle of America in the process. You mentioned taking some profits. I would do that ahead of this ambush. Long term I would take the opportunity to face yourself in the mirror and ask yourself, do you have confidence in the value of the pieces of colored paper in your pocket or do you have confidence in the Federal Reserve continuing to inflate the currency and in Congress to continue not to face the deficit realities. And if you can honestly say that you think Congress will come up with a solution then you should keep your money in non precious metals, non natural gas, non petroleum stocks. You should not have any bullion in your personal possession. But if you think Congress has made a mess of things, deficit-wise, if the government really isn’t telling you the truth, if Wall Street is engaged in one corruption after another, then you owe it to yourself and your portfolio to pay a little more attention to the long term direction and make some significant philosophical changes. Ultimately that is where it comes, Jim. You know that as a broker and a securities operator. It’s when your clients lose confidence in the general reason for being in a particular investment that the most damage occurs. It’s my position to recommend to clients that they examine their philosophy and look at long-term developments. Is energy good or bad for the United States policy? Are increasing deficits good or bad and if they’re bad, then something has to change in your portfolio in order for you to retain the wealth that you have worked so hard to keep.
JIM PUPLAVA: I couldn’t agree with you more, Mike. I understand that you have a website now. As we close why don’t you give out your website and tell us what our listeners might find there?
Michael Bolser: Well today is actually the inauguration day. I’ve been actually using it and issuing some of the content for quite some time. The website is www.interventionalanalysis.com, all one word. At the site I have a daily commentary, a geopolitical section of that commentary that focuses on the nations, which have enough foreign currency to influence the gold market on a day of their choosing. There’s also a very robust chart site where I publish proprietary metrics including the dollar index value of gold, including just announced today, dollar index (DIVG) components chart where I look at the major currency dollar index. Subscribers will have access to these charts. They’re updated daily. For example, the major currency dollar index chart, using my proprietary metrics shows some moving averages. These are proprietary moving averages that have linear sections to them that are so sharp that they defy anyone to determine that they are a randomly traded market. You look at this moving average and you say to yourself with 1.0 being perfect straightness, a razor straight line, these lines are 0.9978 worth of straight. They’re created by the Federal Reserve. The dollar index that you see, to a slightly lesser extent the ten-year bond, the Treasury note, shows these same patterns. These are Federal Reserve target trend lines and the wild excursions above and below them, which can be seen on my chart, are artificially created by the Fed to give the false impression of random trading. That is how deep the government has moved into intervention. And with respect to the most important entity for the major currency dollar index, which is not the thing you see traded in real time and gold, the MCDI in gold, those two entities are each controlled to the penny every day. The P.M. fix is set by a committee of men, to the penny each day so as to give the impression of randomness, when in fact they are preset numbers. My website gives a pretty good series of freely available articles that I publish that will give the reader and visitors a good background into what I am doing.
JIM PUPLAVA: Mike, why don’t you give out your website one more time.
Michael Bolser: Sure it’s interventionalanalysis.com, all one word. I welcome visitors.
JIM PUPLAVA: Thanks for joining us on short notice and alerting us to a possible sabotage in the markets ahead of the G-7 and Washington Accord. We wish you all the best, sir and I hope you will come back and talk to us.
Michael Bolser: I certainly will and thank you very much for this opportunity.
JIM PUPLAVA: You’re welcome