13 June 2005
THE BAR ON INDEPENDENT RESEARCH...
The Goldenbar Report offers
a fundamental, economic, and technical analysis of the international
equity, commodity, bond, and currency futures markets for investors
seeking investment and trading opportunities across a wider
spectrum of assets than just equities - with a focus on gold
and the USd (the current international reserve currency
and the sole monetary competition for gold).
The report includes charts, tables, earnings
updates for the key intermediate and senior gold producers (as
well as for the S&P 500 aggregrate), COT updates, a
subjective outlook matrix for the various markets that are followed,
and an ideal asset allocation for the hypothetical investor.
Our clients typically include stockbrokers, money managers and
sophisticated individual investors; clients are assumed
to have an intermediate (plus) understanding of economics, markets,
and chart analysis... novice traders and investors are welcome
but may find the content of analysis challenging and counterintuitive,
since the letter rebuffs most of what is said by mainstream
writers & analysts and the author refuses to "dumb
down." That said the author ensures that his arguments
are well supported and the support well articulated. Hence novice
investors are able to learn quickly.
The author is Ed Bugos, a former stockbroker
specializing in venture capital & futures trading for private
clients. See below for more
on his background, and a picture. His investment
philosophy is to seek out and invest in undervalued
sectors for the primary move (i.e.
the trends typically lasting from 3-5 years), to diversify
(not overly) by asset class; but also
to highlight special situations, insights, as well as provide
a short and intermediate review/outlook on current positions
and other key markets, sectors, currencies, and commodities.
The term undervalued implies a growth component
(at least in profits even if cyclical - since the outlook
is 3-5 years and not 10 plus years for instance) and the
targeted trend implies one with scope; fundamental & economic
analysis is applied to ascertain growth, value, and/or scope.
The usual approach is both top-down and bottom up; philosophically
Mr. Bugos prefers a bottom up approach to analysis but in practice
realizes it is too time consuming to rely on solely.
His investment strategy inolves entering and
exiting positions slowly – by
wading in and wading out – buying some too early, some
to late, selling some too early, and some too late. He depends
on technical analysis to help determine timing of entry/exit
points, and trading/investment strategy, and tends to wrap his
strategy around the 3 to 5 year fundamental outlook for the
economy, profits, and rates.
Unfortunately, politics are also routinely
discussed - as they are in fact connected to money today. Indeed,
an analysis of markets absent an analysis of the political interventions
in money is incomplete. The investor is lucky to be right without
What most investors don't understand
is that money is always the market's choice, and politicians
are always trying to alter that circumstance, if you will, through
currency policy, legal tender laws, and other monetary regulations.
This they must do because the policies they
favor today - inflation for instance - would otherwise immediately
and more uniformly devalue their currencies thus prevent them
from taxing and otherwise confiscating the wealth of the productive
members of society. Ergo, Mr. Bugos believes that his job in
part is to help you figure out the goals of central bankers
and policymakers in order to sift out the opportunities that
make themselves apparent in their always
The case for gold is not merely the case for a monetary
devaluation; it is the case against the state's largest interventions
in commerce - be it too much money or too much regulation -
both of which affect prices, productivity, and real returns.
Make no mistake: investing in gold is both
a vote against the state's encroachments and a defense against
the consequences of its interventions.
Money is the market's business; and
the market is your business!
Who is Ed Bugos?
OF CHART READING
analysts assume that the market is always right. We don't believe
that's true, at least not in direct implication. What the statement
means to us, and most pros, is that the market always has more
of the information than any single individual or group. We know
that markets are dynamic and subjective. Thus, when we say the
market is always right, we mean the market is the final determinant
of value... that neither individuals nor government nor formulae
could replace the market in this capacity... that the market exists
solely to determine value - allowing entrepreneurs and
capitalists to rationally forecast profits and calculate costs.
The assumption that markets are always
right thus means simply that the value of a good or financial
claim at any given moment is what the market says it is, no more,
no less - the endeavor of investing tries to anticipate changes
in value for a given future timeframe.
Needless to say, we believe that
markets are neither completely efficient in this capacity, nor
random. They can be both at times. In terms of capital markets
they may forecast events correctly, or incorrectly - though usually
correctly as anyone that seeks to invest based on the fundamentals
can attest to the difficulty in trying to stay ahead of the market.
But even if incorrect forecasts are made in the valuation of capital,
they still factor more information than most individuals are capable
of taking into account; at best, analysts like ourselves can merely
move the market 'toward' an ideal efficiency. If attempts at analysis
were to stop across the board then the market's efficiencies would
disintegrate and opportunities would be widely perceptible. Still,
the more efficient a market is, the more value technical analysis
has to me.
What's more, the random walk hypothesis
in our view is valid only to the extent it denies a dependence
between the prior day's move and the next. However, beyond the
day to day relationships, the existence of trends if not experience
refutes it almost entirely.
To be sure, there is no real mystery
to technical analysis.
Imagine yourself a NYSE floor trader
acting only on instinct - reacting to what the crowd is doing,
rather than fundamental/valuation developments. Now, many traders
read their analyst's research so they are vaguely aware of the
fundamentals. However, some traders boast skills in guaging the
crowd's behaviors and some even have a reputation for usually
leading the crowd.
Their sole data is price and volume
behavior, from the point of view of the front lines.
Similarly, a chart is but a compilation
of raw data - a history of the action on the floor absent the
emotion of actually being there. I think it's possible to claim
that you will never find data as raw as that which is on a chart.
It's unfiltered, unmanipulated, unaltered. Indeed, any analysis
of markets that ignores the information in a chart is utterly
useless. Even the most rudimentary analysis of fundamentals is
made with reference to the information in a chart. The concepts
of bull and bear markets would never exist if it weren't for the
existence of trends in the first place.
The main difference between the chart
and the data on the floor is a matter of time - a chart divulges
the same thing in days and weeks on paper that the floor divulges
in minutes, or hours.
Nonetheless, as with any skill, or
art, there are those who can and those who can't. The fundamental
sin of technical analysis is made in the interpretation - specifically
the lack of discipline in regards to the limitations of reading
a chart and the rules designed to keep the personal bias out of
the analysis. More often than not, the chart reader will see in
the chart what they've already determined in their outlook. In
other words, the main sin is in using technical analysis to validate
a predetermined view. Even the professional is susceptible to
So the secret to reading charts lies
in knowing its limitations; in knowing what
not to do, and in knowing what your own preconceptions are. This
is true whether you interpret charts using Elliott Wave, Edwards
& Magee, Dow Theory, Astrology, Gann, or Geometry.
For example, a common error made
by technicians is in drawing trendlines.
The theoretical structure of a trend
implies higher highs and higher lows (or lower highs and lower
lows), and even empirically, such sequences being observable enough,
constitute a trend.
However, the sequences aren't
always amenable to a straight line, even on a log chart.
Often, when drawing trend lines,
analysts tend to conveniently forget that fact... convenient because
the straight line may happen to confirm their views better. It
is very important to make sure that a given trend connects the
most recent lows (or highs) with the
last highest low (or last lowest high), which is
the one occurring 'just before' the last higher high (or
However, trends are commonly drawn
either where they appear to conform to a straight line, regardless
of the time period covered by the chart, and/or where the author's
bias is. In reality, trends and most technical frameworks are
ground in some theory about crowd behavior. They are not nearly
as mysterious as one would be correct to think by the average
As for chart formations which technicians
claim to spot and whose meaning they claim to know, and which
draw greater disagreement than trend analysis, they do exist in
my experience and they as often do tell me something about the
behavior of the crowd as they don't. The fact that they don't
always reveal some truth about a market does not rule out their
significance - every edge counts in the market after all. What
technicians look for is evidence of market (price and volume)
behavior that has occurred in the past and which may tip the market's
What they often find is evidence
that they themselves have planted to confirm their views.
Patterns can usually indicate either
accumulation, distribution, or consolidation, and can even be
used to determine the extent of a potential break out. If chart
theory is understood, adhered to with discipline, and is ground
in experience technical analysis can be a useful tool.
Our use of technical analysis is
basic. We rely only on patterns / trends that can be explained
by the actual course of events (fundamentals) and which I have
confidence in myself through experience. Otherwise, we leave the
interpretation open-ended. I don't believe a chart can tell the
future, but I do believe it can tell us what's happening in the
present, and help us determine the most likely future course of
events on that basis. The biggest value any analysis of the chart
has to me is in determining what the real story is - today. For,
the tape never lies.
Only its readers do - and mostly
If you're interesting in hearing
from someone who's willing to tell it like it is, subscribe
|A SHORT HISTORY
I remember riding down the
elevator with our chief (all-star) trader, an upper middle aged
short and pudgy Jewish gentleman. I was reading an article in the
Journal about a Silicon Valley experiment using Gold as a conductor
for their chips. Elijah popped his head up at me and asked, "why
ya' readin' that?" Naive as I was, I said that "I
thought that knowledge was power," to which he smugly replied,
"no sir, cash is king!" I was stunned. Here
I was trying to figure out how to get an edge, and the city's biggest
trader told me I had it all wrong. Anyhow, the story didn't end
well for him, which provoked the thought that was determined to
impress upon my mind... that a fool and his money are lucky enough
to get together in the first place - actual anecdote by Ed
Bugos, editor of the goldenbar report.
The Goldenbar report came about as a consequence
of two factors. By accident, and by reaction to the opportunities that
arose from the economy of the nineties.
The monetary events that unfolded
during 1999 were not unrelated to the decision motivating the
launch of the report - the year was marked by the Bank of England's
announcement to sell its remaining gold, the Washington Agreement,
the biggest stock bubble known to history, and it was the last
year of the millennium - a once in a lifetime opportunity and/or
story in the gold sector seemed to be materializing.
However, a lack of credible market
analysis, particularly at the monetary level, combined with the
advent of cheap Internet publishing capability was enough to tempt
a career change for Mr. Bugos. Information was now easier to find,
and cheaper to acquire and publish.
Proponents of the dying media monopolies
were trying to sustain them by trying to find new ways to protect
their fading monopolies. In the financial business they seemed
to be panning to their advertisers, and were dumbing down to reach
more and more readers in order to bolster the resultant advertising
revenues. In other words, the advertising and traffic model became
an increasingly viable model (relative to the subscription model),
and with everyone hence chasing more dumb readers Mr. Bugos thought
a niche was opening up for the readers that were being left behind
as a consequence, especially in the financial and economics businesses
- he became convinced that
in this new environment, where the moguls had an identity crisis,
that the demand for independent news, analysis, and research would
flourish again. Only this time, there could be new winners, as
if a whole new market was opening up for the taking.
"I can't help thinking that the
most exciting benefit will go to society, as a more level playing
field (in the information age) promises to devastate the lies
holding it back." - Bugos
In 2000, Mr. Bugos started his letter
by warning investors of the impending bear market in stocks ahead,
and of the political machinations that policymakers would employ
to thwart it, but instead, could only worsen it. Over the course
of the five years since, Mr. Bugos developed a product he felt
investors needed in the current complex economic order to help
them formulate a strategic outlook based on reason, that could
work, was spoken in some manner of English, and that would apply
to many markets, not just stocks. Mr. Bugos has proven an uncanny
forecaster of intermediate & primary market trends, particularly
in the major stock market averages, the dollar, and gold, but
also in many other markets. For example:
During September 2000, he declared
the point of recognition for the bear market in stocks was at
hand, and then forecast that the Dow would reach 7000 by the end
of 2001. He was one year early. All through 2000 as gold prices
fell back from their post Washington Agreement buying spike, and
while the whole world was calling for gold $180, Mr. Bugos declared
that the primary bear market low for gold was in at $255, and
that the next few hundred points (and certainly the next 100 points)
would be up not down. In December of 2001, as the Dow was coming
back - thanks to the Fed's monetary pump in reaction to 9/11 -
Mr. Bugos warned that the Dow was going to turn down again soon,
and this time take the dollar with it. Mr. Bugos called the peak
in the US dollar with uncanny accuracy when he issued a report
entitled "dollar reversal" during July 2001, one day after its
18-year record high, so far. In
April 2002, he forecast the Dow to plunge to 6000, and continues
to hold to that medium term target (although that
lower low has yet to occur at the time of writing this update
(June 2005) - and instead the bulls began a bear market rally
of enormous historic magnitude - Bugos is confident that is the
next fate for the Dow). In 2001, Mr. Bugos showed
why the strong dollar "policy" had the same effect on
commodity markets that price caps would - a reduction in investment.
He was one of the few writers that warned gold's strength forecast
dollar trouble. And even while fellow gold bulls saw a rising
gold price, many did not anticipate the bull market in gold shares
Mr. Bugos wrote about in December of 2000. Since then the AMEX
Gold Bugs index has gained 500%.
What's more, after aggressively ratcheting
up his gold stock weightings from 2001 to 2003, at the end of
2003 he warned his clients of a potential gold stock correction
and scaled back his allocation to emphasize it - he bet that gold
prices would continue to rise, however. Mr. Bugos called for US$50
oil back in 2001 while most analysts were looking for it to stay
or fall below US$20/bbl, he called the US$40 intermediate top
in oil during early 2003, the higher highs in 2004/2005, the break
out in gasoline prices, he called the other metals markets with
similarly uncanny accuracy (i.e. copper and silver), correctly
forecasted that the US dollar index would fall to below its 1995
lows during the move that began in 2001, and although he was bearish
on stocks he argued against those who were calling for a deflation
in money supplies and in real estate to ensue, claiming that exactly
the opposite would occur in reaction to the stock slide.
Over the years since Ed Bugos has
been a financial reporter and analyst, he's attracted a large
following on the Internet. Several well-known money and gold market
websites regularly feature his editorials. Thousands of people
each week seek Mr. Bugos' uniquely candid market perspectives.
Once you've read him, you'll understand why.
Mr. Bugos spends his days studying the tape,
and his evenings studying charts. He filters market-moving news globally
and reports his conclusions to his clients. He has a strong foundation
in the use of technical analysis, as well as in the fields of economics,
financial statement interpretation, statistics, but also, in investment
planning and strategy, which often involves an understanding of the political
motives of governments and other players. He prides himself on delivering
forward-looking analysis and outlooks for the markets he tracks.
Current outlook and hypotheses:
- Easy money and inflation policies
were far more involved and responsible for creating the magnificent
stock gains of the nineties than either productivity or real
earnings, but even more so during the post 2002 boom; the ongoing
employment of these same policies continues to distort and prevent
markets from healing on their own. In other words, a denial
of the real causes of the bubble are still working to extend
or deepen the bust.
- Real earnings are likely to continue
to decline, but nominal profits may continue to rise - excepting
the regular pitfalls occuring on occassion as the rising costs
of production thanks to inflation squeeze profit margins. Likewise,
and as a result of the consequences of the various monetary
policies and financial alchemy the state injects, stock market
valuations are likely to continue to contract; nominal stock
prices rarely fall much in an inflationary environment except
when interest rates rise, which we forecast as well.
- The Fed is increasingly caught
in an inflation trap, as the slashing of rates has failed to
boost the dollar's liquidity premium (subjective value). Unlike
Japan, since the United States is dependent on foreign savings
to sustain its inflation economics, as easy money policies no
longer work to boost equity values, dollar devaluation follows.
It's like clockwork in the historical record. Thus, our medium
to long-term outlook is for a seventies style dollar devaluation
and commodity price spiral (stagflation). Deflation is not in
our forecasts at the moment, and won't be until we feel the
dollar is undervalued.
- Gold prices are to outperform
most assets for the remainder of the decade.
- However, at the moment, given
that the "foreign exchange value" of the US dollar
has fallen to our targets while its real (gold) value hasn't,
we are less bearish on the former - in other words, we have
been arguing that gold is going to complete its move to our
target for this primary sequence (US$500-600/oz) without a coincident
decline in the foreign exchange value
of the US dollar which will catalize the increase in bond yields,
the collapse in stock valuations (PE's), and may even end the
real estate boom for now.
- Our outlook for real estate assets
is bullish long term but bearish medium term.
- We anticipate the Dow to fall
below 5000 before it makes it to 36000; but our real target
for the Dow is 6000. Our opinion on Dow 36000 is such that there
are only two ways it is likely to get there: through the process
Greenspan "talks" about - productivity - and through the process
Greenspan "brings" about - inflation and dollar devaluation.
- We have begun to call a medium
term top in most commodities markets except wheat, oil, gold
and silver and have suggested that readers bet on the gold ratios
as a result.
- We expect gold shares (and gold)
to surge during the second half of 2005 but afterwards to culminate
in a primary liquidation - to mark the end of the first of three
waves in the bull market in gold that has already arrived -
that would see the gold share "averages" halved and
which would coincide with a 30% (plus or minus) correction in
the gold price.
two subscription packages at the moment: an annual and quarterly
(US$150 and US$50 respectively). The weekly issue is released
once each week, usually by Monday/Tuesday with one week each month
designated as a monthly review. The author also produces an editorial
monthly for the public. Please visit the SUBSCRIBERS
page for more details about our various package details.
the historical ARCHIVES
pages to browse past issues. For sample products, and more information
about our subscription service please also visit the SUBSCRIBERS
- secure (major) credit card payment options are available
Editor/President of the Goldenbar Report
Ed Bugos is the founder, editor, and
publisher of The Goldenbar Report, an analytical global market tool for
the intermediate and long term investor.
Mr. Bugos launched the Goldenbar
Report during 2000, after retiring from his career in the industry
as a stockbroker and investment advisor. During his 12-year career,
he spent his time in the following aspects of the business:
- consulting with clients on their long
term financial goals, as a financial planner, and developing a strategy
to help them get there
- structuring of (and investing
in) venture capital products
- trading in commodity and financial futures
Mr. Bugos spends most of his time
working on the Report, but also pursues other ventures. He may
or may not trade for his own account, or for others, but discloses
any conflicts. If there is, we are obligated to report them.
and Principal of Goldenbar.com
Bruce Stratton is an entrepreneur and founder of SafeHaven.com,
an Internet financial magazine whose fundamental doctrine is the
Preservation of Capital - a vague notion today indeed, as vague
as the Sound Money principle itself.
The 10 (original and corny!) Guiding
Principles of The GoldenBar Report:
judge 'credibility' by its cover.
can never 'guess' right if you do not have the proper perspective.
hands listen, weak hands speak.
is no magic potion to success in the investment business.
the government screws up, we are not all screwed. There is always something
you can do to protect yourself.
will always be opportunity. In order to survive, your objective is to
seek it out.
hypotheses, speculations, or assertions are always supported.
will never be afraid to say how it is, or to be wrong.
do not tell our employees how it is, they tell us.