Saw this on another forum and it is all too real...

If you are still in the markets...well, it's your decision...

"Something unusual is that we now have a massive paper short position in Gold. I call it a "bearish bubble", but it is worse since on the short side you must produce the commodity.

What happens if there is some trouble in the world. A nuclear bomb explodes, North Korea invades, Israel is attacked, one of the Soviet disunion's nations invades a neighbor... a major and serious Y2K failure warning of serious problems ahead...

Gold goes up a modest 10-20% on the news. What else happens? Short answer: the world economy blows up. A sudden move up in the gold price will percipitate a bunch of margin calls in a lot of hedge funds. Even if they wouldn't be required to produce the physical gold, they would be required to put up extra capital.

What do they have to sell? Stocks perhaps? Will they have enough to have the banks who made the loans not go bust? The problem with a tonnage sized short position is that a sharp move in the wrong direction can destroy a trillion dollars in capital in a moment. Or at least create a debt of that size.

So the news flashes on CNN and everyone calls in a "Sell" order. S&P futures are lock limit down before CNN broadcasts.

There are other scenarios - China devalues, or something else pulls the Yen under 100 faster than a response can be made. A "safe" money market fund or two defaults (as Susan mentioned).

Also realize the converse is true. If something pops our bubble and what follows starts playing out, Gold will be back over $300 in a flight to quality shortly after stocks break some point, which will precipitate the above collapse. Or 9/9/99 or Y2K might create enough of a hiccup.

It isn't merely a set of isolated bubbles, it is a critical mass where when any of the bubbles pop, the rest do to. But back when the set of bubbles were in the kiloton range Easy Al prevented LTCM from setting off the chain reaction.

Don't breathe too heavily or talk above a whisper, or the avalanche might start. Meanwhile more snow is piling up from the moral hazard created. My point in all this is that the crash won't telegraph itself before it happens. Everything will be fine, but at 1:48 PM the NDX futures will be down 300 points in just over a minute. Bonds will tank. Or worse, it will start when you are sleeping.

With everything interconnected, when anything goes wrong like the Russian default last year. Why should a few billion dollar default in a known dodgy country cause any havoc? Because LTCM was leveraged to $100B on $5B of assets and was betting spreads would narrow, but instead they widened a small amount - and the same leverage slammed them. And their banks. We are more tightly wound than back then, so a more trivial hiccup could bring the entire structure down.

[From here on is a common scenario which applies regardless of what the original cause is].

Phone lines and web trading systems begin to jam from the excess load. And this is at 4am. Europe tanks at the open. People who don't wake up to bubblevision are greeted when they first turn on the radio to news of a financial crisis. Even on the morning joke and music stations. Many of those call their broker.

There are many times the number of sell orders (most at market) than buy orders. The market gaps 1000 points down before all Dow 30 stocks are open. Things restart an hour later and we have another 1000 point gap down, albeit slowly as some token opposition is made as specialists slowly match a bid or two. as bids have been withdrawn and people now at work who haven't phoned in sell orders have been jamming the lines, internet, and fax machines. One final open, another 1000 point drop, and things are closed for that day. (Perhaps except for american style options being exercised, and of course the margin calls).

Interestingly enough, gold stabilizes as it is sold to meet margin calls. However since the US markets have been hit hard, the Yen is now at 80/$1 wreaking more havoc. (or the yen stabilizes, but gold goes up and creates the massive short squeeze).

That evening more sell orders flow in. Bubblevision does a special and covers the rolling crash, and Bloomberg is the most watched network. All eyes stare as trillions in wealth evaporate.

They open again the next day and the same thing happens only slower - 1000 points is much more than 10%, but the NYSE closes early with the Dow Jones Industrials at around 4700. More exercised options & margin calls. SPY's bid is 10, last sale might be 25. QQQ's is 5.

The next day the market opens. Although there are sell orders, there is enough liquidity now to buy. So we have a drop to 4300 at the open, but things start back up from there. The SPYs and DIAs have a normal bid before they open (at 9:45). Several firms and mutual funds are bankrupt, but many funds suspended redemptions and that money will be locked up for a long time. The financial system starts to function again, and the Dow closes well above 5000 (similar deep retracements happened in '87 and '29).

I don't have an upside target for gold. The $200 level for gold is based on an Elliottwave GUIDELINE, not a rule. Nor is there anything preventing a "correction" from bringing gold back over $1k before it drops below $200. Or the shorts can simply declare bankruptcy, so the banks holding the leases simply are out of luck, as are the counterparty longs who don't have the physical metal.

-- Andy (2000EOD@prodigy.net), September 06, 1999

Answers

The article Andy found said:

******I don't have an upside target for gold. The $200 level for gold is based on an Elliottwave GUIDELINE, not a rule. Nor is there anything preventing a "correction" from bringing gold back over $1k before it drops below $200. Or the shorts can simply declare bankruptcy, so the banks holding the leases simply are out of luck, as are the counterparty longs who don't have the physical metal.*****

Maybe you understand this last paragraph but I don't. Where did gold dropping to $200 come from? Is this deflation in action? Was this supported in a previous article?

Just Confused (happens all the time)

-- LM (latemarch@usa.net), September 06, 1999.

A picture tells a thousand words... :)

http://home.earthlink.net/~amn/charts.html

-- Andy (2000EOD@prodigy.net), September 06, 1999.

LM,

I'm confused too but tring to learn,

you can find the discussion over at www.prudentbear.com under bears chat and the poster's name is tz - I've read his stuff before and he seems very astute...

-- Andy (2000EOD@prodigy.net), September 06, 1999.

Here's another angle:

From Nyquist's column today at worldnetdaily.com

======================================================================

Sabotage was another strategically significant part of the infiltration operation. Through organized crime you could get into the back door of many legitimate companies. And you could cause mayhem in these companies. In fact, according to two of the Soviet bloc's leading defectors -- Jan Sejna and Anatoliy Golitsyn -- an ultimate goal of Moscow's strategy was to crash the West's economy at an opportune moment.

In this context, we ought to wonder about the laundering of $15 billion through the Bank of New York and other Western banks (especially in Switzerland and England). Where is this money ultimately going? Could the astronomical rise in the Stock Market have anything to do with it? According to a source formerly employed in U.S. banking, the Russians and Chinese have been laundering huge sums of money, and much of this money has been invested in our stock market. This source speculates that these funds have been used to purposely push the market to the record levels we have witnessed since the fall of the Soviet Union.

Imagine the game that may be unfolding. Has Russian money been strategically employed in our stock market? Consider the way things work: to invest heavily in stocks is to buy influence in leading American companies. And what if the aforesaid funds were suddenly withdrawn? Would the market deflate? Would there be a financial crisis -- a depression as happened after the stock market crash of 1929? Today the headlines are full of sinister financial news. The Bank of New York is being investigated for laundering over $200 million from Russia. Russian mobsters have been discovered worming their way into the banks in Switzerland and England. The news wires are full of speculation about Russian moles in Western banks. Has anyone considered what is actually going on?

Cutting through all that has been said about the unfolding financial scandals, there is a definite threat to our nation's security. It must be admitted that Russia's penetration of our banks and markets is not an innocent development. It must not be viewed as an isolated case that stands alone. It is part of an overall pattern. Under the circumstances, our government should be reacting as if it were under attack -- because, in fact, it is under attack. But our government does almost nothing. In fact, our financial and political leaders want to go ahead and send an additional $4.5 billion to Russia, so the Russians can service the interest on their huge debt to the West.

----------------------------------------------------------------------

The market will crash when they want it to crash. And by the way Russia is not selling its gold but rather hoarding it. Why?

-- BB (peace2u@bellatlantic.net), September 06, 1999.

Great catch BB - it all fits doesn't it???

-- Andy (2000EOD@prodigy.net), September 06, 1999.

Andy, tz answered the question a little later on the forum....cut and paste below.

tz said:

In elliottwave and deflationary terms it should break $200 before a final hyperinflation decades from now (assuming we don't return to a gold standard before that).

What throws a variable (Green)spanner into the prediction is the huge paper "bearish bubble". Were this not there, I would be waiting for the last person to abandon gold. But this huge short position looks like an anti-blowoff 5th wave - THE MIRROR IMAGE OF THE EQUITIES BUBBLE.

And I am caught between saying the Gold anti-bubble should continue until gold is under $200, OR that the bearish-bubble will pop early potentially sending gold up into the stratosphere.

Just like people overleveraging assuming a 20% per year return on stocks, others are assuming a 20% per year decline on Gold.

Bonds and Yen/dollar and Euro/dollar didn't become bubbles - they stopped short of that point (though the Yen may have come closer than I realize), at least so far, but the current Yen action should be disturbing. I point these out only because I don't see several times the paper over the underlying value here. It does exist in the Gold market.

Gold can be moved by political or economic instability, so the shorts are playing a much more dangerous game here. But as Prechter points out, at large degree 5th wave peaks everyone thinks peace and love and togetherness so a war (real, not remote control) would be unimaginable.

IF the equity bubble pops first (and not in the form of a crash, but instead a massacre - say 3-8% per day over a month), and people sell precious metals assets, gold might break $200 first, then start moving up to the point where the shorts could bail out in more orderly fashion.

But the reverse is not true - Any large upward move, even if not sudden, in the gold price would precipitate a liquidity crisis that would pop the other bubbles.

So according to one guideline (previous 4th wave levels), gold should drop to between $112 and $200. But according to the other guideline (this is a 5th wave anti-blowoff/bubble), gold can shoot back above the 1980 high, though it would be hard to predict - a 330 or 380 level could equally contain the bounce particularly if deflation starts setting in quickly.

1987 ended wave 3 of 5, then there was a crash in 4, but then new highs in 5. Reverse that - assume we have been going down in the strongest portion, but will have the reverse of a crash back to the levels of a few years ago. Then we will be deflated below 200.

If I were forced to guess, I think that scenario - an upside down crash that doesn't go above 500, followed by the deflation to new lows is the most likely mid-term picture for gold.

There are too many gold-bears now.

-----------------------------------

I think I get it now, we're in a negative gold bubble and the downside may still be below us.

If so I'll be buying all the way down.

Buy low (gold) Sell high (stocks)

-- LM (latemarch@usa.net), September 06, 1999.

Anyone who doesn't 'know' that the markets and gold prices are being manipulated were born yesterday. I was born at night, but it wasn't last night. Hold on to the hard stuff.

Got liquid?

BTW, after reading Nyquist's article today on the Russian infiltration of organized crime, JFK's assassination has been cleared up for me.

-- BB (peace2u@bellatlanti.net), September 06, 1999.

What do you mean about JFK BB?

-- Andy (2000EOD@prodigy.net), September 06, 1999.

BB said:

*****Got Liquid?*****

Why yes, I have several gallons of Jim Beam....but what's your point?

-- LM (latemarch@usa.net), September 06, 1999.

LM: If you don't know what I mean you're goin to need that Beam! g

Andy,

This could send this off thread.

After watching the History Channels nine part series on JFK, it is clear to me that someone was in the sewer and made a clean eh getaway.

The whole series showed Oswald's connection to russia, the mafia, and cuba. Kennedy was against all three. So they blew him away and then did the same to Bobby to keep him from getting revenge.

Russia was ultimately behind cuba and inside the mob. I hold them responsible for JFK's assasination. Stone's CIA charge is russian influenced to get us to look the other way. The Kennedy's know.

Russia was behind the attempted assasination of the pope. And who knows what time may reveal about jfk jr.

-- BB (peace2u@bellatlantic.net), September 06, 1999.

Interesting BB,

Someone sent me a link the other day to a site that went into great detail on the jfk assassination - jfk was allegedly hit by a dart fired from a guy carrying an open umbrella, this paralysed jfk within two seconds, he was the easy meat from three angles, one of which was from, as you said, a storm drain - it's all on the film, a guy carrying an open umbrella in searing heat just 12 feet from the passing motorcade - when another guy in the car was hit by a bullit he was rolling around screaming in agony - in contrast jfk sat bolt upright and didn't seem to react "normally" to the bullets...

I'll try and dig the site out for you...

-- Andy (2000EOD@prodigy.net), September 06, 1999.

Bingo!

BB here is the link about TUM - The Umbrella Man

http://www.ratical.org/ratville/JFK/TUM.html

-- Andy (2000EOD@prodigy.net), September 06, 1999.

X-Files on the internet. All we need now is cancerman. Umbrellaman...is news to me. Will read the link.

-- BB (peace2u@bellatlantic.net), September 06, 1999.

An open umbrella?

Aparently none of you have stood around in the Texas sun for an hour waiting for something to happen. There are days that I would have given $100 to have an umbrella just to shade myself. It's not an uncommon sight even today to see umbrellas at public events.

Their not just for rain anymore.

-- LM (latemarch@usa.net), September 06, 1999.

Who cares who killed the Kennedys? They are one of the most corrupt families, other than the Clintons, to have been in power in this country. Personally I'm sick of hearing about them. They have no lasting importance.

-- cody varian (cody@y2ksurvive.com), September 06, 1999.

Is it true that JFK Jr was recently seen in a K Mart in Detroit?

-- di (x@y.enquirer), September 06, 1999.

Just for the DGI's: Liquid = Liquidity I'm dry LM

-- BB (peace2u@bellatlantic.net), September 06, 1999.

WOW! Reading crash scenarios are intense!

BB, do you personally remember JFK's assassination?

-- Randolph (dinosaur@williams-net.com), September 06, 1999.

Yeah Randolph. I was in the sixth grade in Atlanta at the time, out on the playground. One of my classmates heard two ladies mention the president was shot. He told the teacher who immediately marched us into the classroom and turned on the t.v. A few minutes later Cronkite announced that the president was dead. A girl started crying. The teacher sent us home. On the way home heard some kids shouting yay, nigger lover's dead. It was an eerie weekend. Oswald got shot and this country has never been the same since.

-- BB (peace2u@bellatlantic.net), September 06, 1999.

BB:

I didn't think you were allowed to post the *n* word on this forum.

I was about four years old, and all I remember was being totally bummed out that I could not watch Mighty Mouse cartoons on the television because there was coverage of a big funeral procession. My parents were upset.

That's all I remember.

-- Randolph (dinosaur@williams-net.com), September 06, 1999.