Alt A's and Option Arms. The world will soon know these names, like we recently learnt about sub-prime. There are no green shoots, only an artificial rally sweetened by freshly printed Government money. Gold is already at USD 990/oz today...ITS COMING.
Thursday, September 3, 2009
Wednesday, August 5, 2009
ITS COMING
The Greenback is broken. The key will be whether or not the U.S. dollar can hold above CRITICAL DOWNSIDE support near 78.40 on the U.S. Dollar Index Future - Spot Price /quotes/comstock/11j!i:dxy0 (DXY 77.73, -0.03, -0.04%) . Failure there, and 76 is a shoe-in for the greenback."
On Friday the Dollar Index contract closed at 78.45.
As for gold, JSMineset's Dan Norcini suggests: "If 76 on the USDX fails, gold will be at $1,000 before you can say, 'oligopoly.'"
Tuesday, July 28, 2009
THE DARK YEARS ARE HERE
The only reason why there has been an air of optimism in the world economy in the last couple of months is that the bearers of these false rumours of recovery all have a vested interest. These include the bankers and Government officials..
The Dark Years are here
by Egon von Greyerz – Matterhorn Asset Management
In this newsletter we will outline what is likely to be the devastating effect of the credit bubbles, government money printing and of the disastrous actions that governments are taking. Starting in the next 6 months and culminating in 2011-12 the world will experience a series of tumultuous events which will be life changing for most people in the world. But 2011-12 will not be the beginning of an upturn in the world economy but instead the start of a long period of economic, political and social upheaval that could last for a couple of decades.
We will discuss the three areas that we for some time have argued will determine the fate of the world for the foreseeable future, namely the coming unemployment explosion, the next and much more serious phase in the credit markets and finally the likely hyperinflationary or just inflationary effect this will have on the world economy and investments.
EMPIRES ARE BUILT ON THEFT PILLAGE, SLAVE LABOUR AND FINALLY MONEY PRINTING
Let us first go back in history and analyse what creates an empire and the prosperity that comes with it.
The British Empire started in the 17th century and reached its peak in the 19th century during Queen Victoria’s reign. By the end of the 19th century The British Empire included nearly 20% of the land surface of the world and 25% of the world’s population. So Britain which is less than 0.5% of the world’s land surface area controlled an empire which was more than 50 times greater. So by using slave labour and by stealing the resources of 20% of the world, it is no wonder that Britain was the wealthiest nation for several centuries. But like all empires, Britain carried the seeds of its own destruction. All empires – e.g. Mongolian, Roman, Ottoman or British etc. – eventually overstretch their resources both militarily and financially. This combined with decadence and illusions of grandeur eventually leads to the collapse of an empire. MORE HERE
The Dark Years are here
by Egon von Greyerz – Matterhorn Asset Management
In this newsletter we will outline what is likely to be the devastating effect of the credit bubbles, government money printing and of the disastrous actions that governments are taking. Starting in the next 6 months and culminating in 2011-12 the world will experience a series of tumultuous events which will be life changing for most people in the world. But 2011-12 will not be the beginning of an upturn in the world economy but instead the start of a long period of economic, political and social upheaval that could last for a couple of decades.
We will discuss the three areas that we for some time have argued will determine the fate of the world for the foreseeable future, namely the coming unemployment explosion, the next and much more serious phase in the credit markets and finally the likely hyperinflationary or just inflationary effect this will have on the world economy and investments.
EMPIRES ARE BUILT ON THEFT PILLAGE, SLAVE LABOUR AND FINALLY MONEY PRINTING
Let us first go back in history and analyse what creates an empire and the prosperity that comes with it.
The British Empire started in the 17th century and reached its peak in the 19th century during Queen Victoria’s reign. By the end of the 19th century The British Empire included nearly 20% of the land surface of the world and 25% of the world’s population. So Britain which is less than 0.5% of the world’s land surface area controlled an empire which was more than 50 times greater. So by using slave labour and by stealing the resources of 20% of the world, it is no wonder that Britain was the wealthiest nation for several centuries. But like all empires, Britain carried the seeds of its own destruction. All empires – e.g. Mongolian, Roman, Ottoman or British etc. – eventually overstretch their resources both militarily and financially. This combined with decadence and illusions of grandeur eventually leads to the collapse of an empire. MORE HERE
Thursday, July 9, 2009
What if the US Had to Pay its Debt in Gold?
By Bill Bonner
In the old days, before the monetary reforms of the 20th century... notably, Richard Nixon’s unilateral decision to renege on America’s promise to pay its bills in gold... countries had to settle up with each other in the yellow metal. The system worked well; it was reliable; it prevented bubbles. Edward Chancellor explains:
“A country had to pay for its imports or foreign investments with money gained from a surplus on trade. If more money was sent abroad than had been earned through exports, then gold would be packed onto ships to discharge foreign creditors. A declining stock of bullion would induce the central bank to raise interest rates in order to attract gold from abroad. Rising rates would produce a credit contraction, unemployment and general economic misery. The typical nineteenth century was severe, but short-lived.”
Then came the improvements. And the Great Depression. And now we are faced with another one.
Governments are fighting this one... just as they did the last one... but with much more money. The cost is in the trillions – most of it in the form of public debt. How will these debts be paid? We all expect that they will ultimately be eased by inflation – in full or in part. But suppose the feds had to pay up in real money?
Colleague Simone Wapler compared government debt to government gold. The US has gold worth about $241 billion, she reports. Its official national debt is $11.5 trillion. That gives it a debt/gold ratio of 48 – meaning, the feds have 48 times as much debt as gold.
Britain is even worse. Prime Minister, then Chancellor, Gordon Brown sold much of England’s gold at the worse possible moment – about 10 years ago. This leaves the island with only $9 billion worth of gold compared to $1,274 billion of government debt – a ratio of 1 to 139. But Japan is the worst of all. It has $23 billion worth of gold and $7.3 trillion of government debt, for a ratio of 1 to 323. (Of course, Japan has vast holdings of dollars too!)
What nation has the best gold/debt ratio? Switzerland. It has only twice as much in government debt as it has in gold.
In the old days, before the monetary reforms of the 20th century... notably, Richard Nixon’s unilateral decision to renege on America’s promise to pay its bills in gold... countries had to settle up with each other in the yellow metal. The system worked well; it was reliable; it prevented bubbles. Edward Chancellor explains:
“A country had to pay for its imports or foreign investments with money gained from a surplus on trade. If more money was sent abroad than had been earned through exports, then gold would be packed onto ships to discharge foreign creditors. A declining stock of bullion would induce the central bank to raise interest rates in order to attract gold from abroad. Rising rates would produce a credit contraction, unemployment and general economic misery. The typical nineteenth century was severe, but short-lived.”
Then came the improvements. And the Great Depression. And now we are faced with another one.
Governments are fighting this one... just as they did the last one... but with much more money. The cost is in the trillions – most of it in the form of public debt. How will these debts be paid? We all expect that they will ultimately be eased by inflation – in full or in part. But suppose the feds had to pay up in real money?
Colleague Simone Wapler compared government debt to government gold. The US has gold worth about $241 billion, she reports. Its official national debt is $11.5 trillion. That gives it a debt/gold ratio of 48 – meaning, the feds have 48 times as much debt as gold.
Britain is even worse. Prime Minister, then Chancellor, Gordon Brown sold much of England’s gold at the worse possible moment – about 10 years ago. This leaves the island with only $9 billion worth of gold compared to $1,274 billion of government debt – a ratio of 1 to 139. But Japan is the worst of all. It has $23 billion worth of gold and $7.3 trillion of government debt, for a ratio of 1 to 323. (Of course, Japan has vast holdings of dollars too!)
What nation has the best gold/debt ratio? Switzerland. It has only twice as much in government debt as it has in gold.
Monday, June 22, 2009
Economist puts dent in optimism: bigger crash is coming
An international economic forecaster says another big crash lies ahead for global share and property markets within the next two years.
Harry Dent predicted the Japanese recession in the 1990s and also forecast the current global financial crisis.
He has told ABC News Breakfast that the Australian share market will continue to make gains during the next few months, before bottoming in about 2011.
"I'd say maybe the Australian All Ordinaries will get back up near 4,500, the Dow maybe close to 10,000," he said.
"And then you'll see another crash late this year and into next year, as banking systems melt down again. I think the next one's going to start in Europe and Eastern Europe, housing prices would lag.
"I think stocks are going to end up down 60 or 70 per cent before it's all over, and I think housing prices in Australia will probably be down 40, maybe 50, per cent, maybe more than that in the United States and Europe."
Ageing population
Mr Dent says the driving force behind the renewed slowdown will be the reduced spending of an ageing population: a similar malaise to the one that has affected Japan since the early 1990s.
"Peak spending is age 46, so we've been saying for decades, we're gonna have this great, great boom and then around the end of this decade baby boomers are going to peak in spending, prepare for retirement, kids are going to leave the nest and the economy's going to slow just like Japan did in the 1990s," he said.
"Japan has already gone through a housing bubble, and a peak in generation spending, and you know what? Their stock market declined for years, housing declined 60 per cent, and all the government stimulus could not put Humpty Dumpty together again - that's what we're looking at."
Mr Dent says home owners and prospective buyers should look at the Japanese property bubble and bust to get an idea about where prices might head.
"Bubbles usually go back to where they start... in Australia, I'd look at my real estate and say 'what was it worth in the year 2000?' that's when the housing bubble started," he said.
"They have to go back down to where young families can afford a house again, so that's a good thing."
Australia the place to be
Mr Dent says the news is not all bad: he says the greatest boom in human prosperity followed the Great Depression and World War II and the world can expect a similar period of growth once all the bad debts and devaluations work their way through the financial system and economy.
He also says Australia is the best placed Western nation to weather the worst of the recession.
"If I had to sit out the depression in one place in the Western world, it would be Australia," he said.
"Your demographic slide is less, your immigration's been stronger and you're on the edge of China and India - they're not turning down due to baby boomer demographics, they've got much growth ahead."
Harry Dent predicted the Japanese recession in the 1990s and also forecast the current global financial crisis.
He has told ABC News Breakfast that the Australian share market will continue to make gains during the next few months, before bottoming in about 2011.
"I'd say maybe the Australian All Ordinaries will get back up near 4,500, the Dow maybe close to 10,000," he said.
"And then you'll see another crash late this year and into next year, as banking systems melt down again. I think the next one's going to start in Europe and Eastern Europe, housing prices would lag.
"I think stocks are going to end up down 60 or 70 per cent before it's all over, and I think housing prices in Australia will probably be down 40, maybe 50, per cent, maybe more than that in the United States and Europe."
Ageing population
Mr Dent says the driving force behind the renewed slowdown will be the reduced spending of an ageing population: a similar malaise to the one that has affected Japan since the early 1990s.
"Peak spending is age 46, so we've been saying for decades, we're gonna have this great, great boom and then around the end of this decade baby boomers are going to peak in spending, prepare for retirement, kids are going to leave the nest and the economy's going to slow just like Japan did in the 1990s," he said.
"Japan has already gone through a housing bubble, and a peak in generation spending, and you know what? Their stock market declined for years, housing declined 60 per cent, and all the government stimulus could not put Humpty Dumpty together again - that's what we're looking at."
Mr Dent says home owners and prospective buyers should look at the Japanese property bubble and bust to get an idea about where prices might head.
"Bubbles usually go back to where they start... in Australia, I'd look at my real estate and say 'what was it worth in the year 2000?' that's when the housing bubble started," he said.
"They have to go back down to where young families can afford a house again, so that's a good thing."
Australia the place to be
Mr Dent says the news is not all bad: he says the greatest boom in human prosperity followed the Great Depression and World War II and the world can expect a similar period of growth once all the bad debts and devaluations work their way through the financial system and economy.
He also says Australia is the best placed Western nation to weather the worst of the recession.
"If I had to sit out the depression in one place in the Western world, it would be Australia," he said.
"Your demographic slide is less, your immigration's been stronger and you're on the edge of China and India - they're not turning down due to baby boomer demographics, they've got much growth ahead."
Monday, June 1, 2009
Today's musings..
Just putting some thoughts in perspective.
Bond prices get hit, yields shoot up
Commodities ( oil, steel, gas, food etc ) goes up and interest rates on any kind of loans also move in the same direction.
Just how can rising interest rates in an environment in which so many are either unemployed or underemployed be beneficial to any recovery? It just doesn't make sense, hence my continued under participation in the current "rally" on the KLSE.
Yet global stock indices continue to ignore the fundamentals and buy into the "green shoots" idea. The carpet will be soon pulled from under them and the selling will then be horrendous. I can sense the Big Bad Bear sharpening his claws already for the final kill.
On the Gold front, the price cappers seem intent on pushing gold back away from the $990 level. They are just spitting into the eye of a hurricane with the relentless rise in the entire commodity complex and the implosion in the bond market.
Bond prices get hit, yields shoot up
Commodities ( oil, steel, gas, food etc ) goes up and interest rates on any kind of loans also move in the same direction.
Just how can rising interest rates in an environment in which so many are either unemployed or underemployed be beneficial to any recovery? It just doesn't make sense, hence my continued under participation in the current "rally" on the KLSE.
Yet global stock indices continue to ignore the fundamentals and buy into the "green shoots" idea. The carpet will be soon pulled from under them and the selling will then be horrendous. I can sense the Big Bad Bear sharpening his claws already for the final kill.
On the Gold front, the price cappers seem intent on pushing gold back away from the $990 level. They are just spitting into the eye of a hurricane with the relentless rise in the entire commodity complex and the implosion in the bond market.
Why is China buying Gold?
Today we have Tim Geithner rushing over to Beijing to placate his new economic masters.
Last Friday , the US Dollar index fell through critical supports.
In a week to two, pending Congressional approval the IMF will sell roughly 400 tonnes of Gold. What better way to placate the Chinese than to let them have the IMF gold as collateral for their holdings of essentially worthless bonds.
These are not mere coincidences.
MORE
Last Friday , the US Dollar index fell through critical supports.
In a week to two, pending Congressional approval the IMF will sell roughly 400 tonnes of Gold. What better way to placate the Chinese than to let them have the IMF gold as collateral for their holdings of essentially worthless bonds.
These are not mere coincidences.
MORE
Wednesday, May 27, 2009
If You Think Worst Is Over, Take Benjamin Graham's Advice
There are no green shoots.
The illusionists are out in force, concocting lies to save their sorry behinds.
It will unravel. Slowly but surely. I have no doubts.
"It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional.
Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events." MORE HERE
The illusionists are out in force, concocting lies to save their sorry behinds.
It will unravel. Slowly but surely. I have no doubts.
"It is sometimes said that to be an intelligent investor, you must be unemotional. That isn't true; instead, you should be inversely emotional.
Even after recent turbulence, the Dow Jones Industrial Average is up roughly 30% since its low in March. It is natural for you to feel happy or relieved about that. But Benjamin Graham believed, instead, that you should train yourself to feel worried about such events." MORE HERE
Tuesday, May 19, 2009
When fools rush in...
The current stock-market rally is the fourth significant rally in the past six months. As you can see in the chart below, the current rally has not had any more power (a steeper slope) or duration than previous rallies, each of which failed to be sustainable and each of which ended in steep decline. In fact, it was at the end of an even longer, eight-week rally (red circle at top left of chart) on October 9, 2007 that the current downtrend began, reaching a low of -58% thus far. The best-fit channel of the highs and lows of all four rallies is consistent with our expectation of a resumption of the decline to lower lows in the coming weeks.
MORE HERE.
MORE HERE.
Tuesday, May 12, 2009
Dollar Index already starting to trade below key support levels
Under USDX .8200 the wheels of hyperinflation start turning.
Under USDX .7200 the impact of hyperinflation is visible to anyone who can see.
Under USDX .6200 the Quantitative Easing madness hits the fan
Under USDX .5200 Zimbabwe economics now being practiced become a US dollar condition moniker.
Under USDX .7200 the impact of hyperinflation is visible to anyone who can see.
Under USDX .6200 the Quantitative Easing madness hits the fan
Under USDX .5200 Zimbabwe economics now being practiced become a US dollar condition moniker.
Thursday, May 7, 2009
Stocks Going to Moon?
Jeremy Grantham was one of the few forecasters to call the crash, He was also one of the few to call the bottom two months ago--publishing "Reinvesting While Terrified" on the exact day the market bottomed... MORE
Monday, May 4, 2009
Friday, May 1, 2009
The Big Picture
From The Business Insider, May 1, 2009:
Now that stocks have rallied nearly 30% off their low, pundits agree: It's a new bull market. So be very afraid.
Market punditry is a lagging indicator, not a leading one. Pundits are excellent at describing what has happened, not what is going to happen.
But doesn't the 30% rally off the bottom obviously mean that the bears are fools, that it's finally safe to get back in the water? No. It doesn't obviously mean anything.
First, the "mega-bear quartet"--an overlay chart of the bears that began with the DOW in 1929, the NIKKEI in 1989, the NASDAQ in 2000, and the S&P in 2007. The last one, the current bear, is the blue line. The horizontal axis is time from the peak, measured in years.
If you're feeling confident that the 30% rally means that happy days are here again, take a look at the humongous rallies in the NIKKEI (red) and NASDAQ (green) that happened at this point in the process. Then look at what happened afterward:
Take a look at the charts, from Doug Short. (Check out the interactive version here >)
Now that stocks have rallied nearly 30% off their low, pundits agree: It's a new bull market. So be very afraid.
Market punditry is a lagging indicator, not a leading one. Pundits are excellent at describing what has happened, not what is going to happen.
But doesn't the 30% rally off the bottom obviously mean that the bears are fools, that it's finally safe to get back in the water? No. It doesn't obviously mean anything.
First, the "mega-bear quartet"--an overlay chart of the bears that began with the DOW in 1929, the NIKKEI in 1989, the NASDAQ in 2000, and the S&P in 2007. The last one, the current bear, is the blue line. The horizontal axis is time from the peak, measured in years.
If you're feeling confident that the 30% rally means that happy days are here again, take a look at the humongous rallies in the NIKKEI (red) and NASDAQ (green) that happened at this point in the process. Then look at what happened afterward:
Take a look at the charts, from Doug Short. (Check out the interactive version here >)
Tuesday, April 28, 2009
The path to TRUTH is a long and lonely one....
Double dipping in 2010
Andy Xie
April 11, 2009
At the beginning of 2009, I wrote that the global economy would stabilize in the second half and a bear market rally could start in the second quarter of 2009. I thought that stagflation would be the dominant characteristic for the next few years. I am still sticking to the story.
The bear market rally began earlier than I expected. The reason was that major governments have been introducing subsidies for speculation. They believe that the main problems are liquidity and confidence.
Hence, if investors or speculators are brought back in the game, the world economy could be back to a virtuous cycle again. I think that this type of approach would lead to a second dip in 2010.
Subsidizing risk taking does inflate asset prices, mainly stocks for now. However, the hope that rising stock prices will lead to economic revival will not be fulfilled. We are in the middle of a debt bubble bursting.
Rising asset prices lift economy through boosting borrowing for investment and consumption. As the current levels of indebtedness are already too high, we won't see rising debt demand for consumption or investment. When the dream of a quick economic recovery is dashed, stock prices will slump again, which could expose more problems in the financial system and trigger a second dip in the global economy.
The world is amidst a burst after a speculative boom. Boom-burst cycle is quite frequent in history (see 'Manias, Panics, and Crashes: A History of Financial Crises' by Charles Kindleburger). A synchronized global one is rare. The last one comparable to the current one was the boom-burst of 1920s and 30s. A synchronized global cycle requires trade and cross-border capital flow to be large. A synchronized global burst is difficult to overcome, because devaluation and export promotion no longer work. If one country has a burst, it can devalue, boost exports, and make money from foreigners to reflate its financial system. East Asia came back this way from its banking crisis ten years ago. Policymakers are frustrated that their stimuli are not working so far.
The US government and the Federal Reserve have spent or committed $12 trillion to bail out its financial system. Its budgeted fiscal deficit for 2009 is $1.75 trillion (12% 0f GDP) but will probably surpass $2 trillion. ECB, Bank of England, and Bank of Japan have all cut interest rates to historical lows. Their governments are already running high fiscal deficits. But, employment, business confidence, and consumer confidence continue to deteriorate around the world. Major economies probably suffered similar contraction in the first quarter of 2009 as in the last quarter of 2008. For the whole year of 2009, euro zone, the UK , and the US may contract by 4-5%. Germany and Japan could contract by 7-8%.
This sort of global economic collapse is unprecedented. Moreover, it is difficult to see how the world would grow again when the collapse is over.
If history is guidance, political crisis tends to follow such an economic collapse. When an economic crisis triggers a political one, it makes a quick economic recovery virtually impossible. Out of desperation, governments are trying to support asset prices either directly or incentivizing reluctant speculators to play. Without understanding what governments are doing, most people think that things are either getting better or well soon. After all, shouldn't stock prices tell us about the future, according to theory (Unfortunately not true in practice when you really need it)? The positive thinking is leading many to chase this market. This is a bear rally that will swallow many smart investors.
This phase of government policy-targeting asset prices began with the Fed's announcement for buying up to $1.15 trillion of treasuries, commercial and mortgage papers. It was targeting mortgage interest rate in order to stabilize property price. However, this sort of policy meant that the Fed knew what property price should be. The US property price was 100% overvalued relative to income. After the bubble burst, it should go back.
What the Fed is doing is to slow the adjustment and shift a big chunk of the adjustment through general inflation rather than property price decline. What the Fed is doing will impact the dollar for years to come.
The second part came with the Geithner plan for stripping toxic assets from the US 's troubled banks. Hank Paulson, Tim Geithner's predecessor, wanted to focus on stripping the bad assets off the banks too. His plan didn't fly because the market prices for the bad assets were too low for the banks to survive. Most banks have questionable assets more than twice their equity capital. As these assets are trading at 30 cents on the dollar, if the toxic assets are sold at market price, most banks are bankrupt. This is why Hank Paulson shifted to injecting money directly into the banks first. The hope was that it would stabilize the financial system and the toxic asset prices would rise sufficiently for the banks to survive. This hasn't happened.
The Geithner Plan tries to boost the prices of toxic assets by subsidizing speculation. The centerpiece of the plan was offering government-guaranteed 6-1 leverage. If an investor risks one dollar, the plan caps his loss at one 1 but offers the reward equivalent to risking 7.
The current toxic asset price is 30 cents on the dollar. The price reflects the expected return on the bad asset. It is equivalent to 70% chance of bankruptcy and total wipeout for creditors and 30% chance of survival for the borrowers that support the assets. Under the Geithner Plan, an investor that puts down one dollar can buy $7 worth of toxic assets. At the current price of 30 cents on the dollar, he could buy $23.3 of toxic assets. There is 30% chance that the investor gets $23.3 and, after paying off $6 of debt, and has $ 16.3 in income. There is 70% that he loses everything. Hence, his expected income for his $1 investment is $16.3*0.3=$4.9. This plan should have boosted demand for toxic assets tremendously. Indeed, based on the simple example above, investors should be willing to pay more than twice the current price. This would save the banks.
For the investors in toxic assets, they reap rewards from the 30% of the performing asset bundles that they have bought and leave the 70% non performing ones to the taxpayers. This 'beautiful plan' works by robbing taxpayers. But, the prices for toxic assets have not risen that much. Why? I think that the market doesn't think that the plan could work. The public opinions may torpedo it before it goes into implementation. If it goes ahead, the US Congress may pass retroactive laws to confiscate the profits from the investors who participate in this scheme. Essentially, the Geithner Plan is giving speculators free money. But they are not taking it because they are terrified of the consequences.
The third piece is changing the mark-to-market rule. The Financial Accounting Standards Board of the US has changed its rule for accounting asset value. It now allows financial institutions to value their assets according to their 'judgment' rather than market price if they think that the market isn't working. Market may not value asset prices perfectly.
But, who could do better? This rule change is to allow the banks in trouble to stop reporting losses from asset quality deterioration.
When this change happened, the share prices of the troubled banks rose sharply. The market was not just reacting to a superficial change. The change is meaningful for the share prices. If the banks can name their prices for the assets on their books, they don't have to raise capital to stay in business. This means that they might make enough money over time to recapitalize. Hence, the risk of their bankruptcy has declined. The increased survival chance has boosted their share prices.
Shouldn't this be a good thing that banks don't go burst? Not necessarily so. Look at what happened in Japan . Its banks essentially didn't report their losses and tried to make money to recapitalize. It kept the economy down for ten years without succeeding in their getting out of capital shortfall. The reality won't change with a change in the accounting rule.
These banks know they don't have enough capital. Hence, they won't increase lending and will try to milk their existing assets for profits to recapitalize. They will be a drag on the economy for years to come. The US seems to be copying from Japan .
In addition to the US 's policies for targeting asset prices, most other major economies are encouraging their banks to lend. What does 'encouraging' mean? Banks normally lend to maximize profits by balancing between risk and reward. When governments encourage them to lend, it really means pressuring banks to lower standards, i.e., taking on more risk for the same or less reward. This sort of policy is really to exchange non-performing loans in future for boosting demand today.
The argument in favor such an approach is that, if every bank lends, the economy improves, which would decrease non-performing assets. This sort of 'free lunch'
thinking works temporarily by inflating another bubble. Of course, it will create a bigger mess in future.
Reflating an asset bubble to support the economy is widely hoped for by distressed investors around the world. Policymakers, in addition to their concerns for economic weakness and political stability, are responding to investors' cry for help. This is why we are seeing so many policies that are pumping air into a deflating bubble. It seems the air-pumping is working now. But, it won't last. As governments throw everything at it, more air is going in than coming out. But, government actions can't put in air on a sustainable basis. The air leakage will last with rising unemployment, falling corporate profits, and collapsing trade.
I think that the air leakage will overwhelm government air pumping in 2010.
Another major dip in asset prices is likely. Further, I think that inflation will become a problem, which would cause treasuries and other government bonds to drop. Government bonds are the last bubble to burst.
Other asset prices will bottom when this bubble deflates. This force will reverse all the air that governments are putting in now. The global economy would have a second dip then.
The debate over inflation or deflation has been raging on. The low bond yield suggests that the consensus is for deflation. In September 2006 at the IMF-World Bank annual meeting in Singapore I predicted a financial crisis in 2007, economic crisis in 2008, and stagflation beyond. The last prediction has not happened yet. What governments and central banks are doing have strengthened my conviction that stagflation will haunt the global economy for years to come.
Historically, the burst following a speculative boom is deflationary for two reasons. First, a speculative boom is investment biased. Hence, there is overcapacity during the burst, as the demand during the boom was exaggerated. Second, bankruptcies of banks and production businesses drive up unemployment, which decreases demand and pushes more businesses into bankruptcies. This vicious cycle prolongs price decline.
The current burst won't lead to sustained deflation for two reasons. First, the speculation was centered on unproductive assets like property and financial product. Automobile and electronics are two global industries with considerable overcapacity. The automobile industry has had overcapacity for a long time. The problem was covered up by the credit bubble that exaggerated demand, as buyers were incentivized to change cars more frequently with zero down-and-zero interest rate financing. The deflationary pressure would end with the bankruptcy of one or two major producers. The deflation would last if governments prop up their auto companies with taxpayers' money. At least the Obama government has shown unwillingness to do so.
The electronics industry is used to deflation. It is usually good deflation-rising productivity supporting declining price from that industry. What's going on now is not good deflation. The drastic cuts of capital expenditure by global companies have caused a demand collapse for IT products. The pressure is causing the industry to cut back quickly. This industry is shrinking without government prodding. The bad deflation in this industry will end quickly with capacity reduction.
China's manufacturing expansion is also a source of overcapacity. When the Asian Financial Crisis depressed demand one decade ago, I thought China 's overcapacity was deflationary, because manufacturers in other countries would have match Chinese prices. Now is different.
Manufacturing prices are Chinese. Manufacturing value added has shrunk dramatically relative to the costs of raw materials. The manufacturing capacity in China is unlikely to sustain deflation. For example, three quarters of the cost for steel production are raw materials like iron ore and coking coal. The overcapacity in steel production can't sustain price decline of steel product.
Second, the vicious cycle between bankruptcy, especially banks, and demand contraction is unlikely now. Governments and central banks are propping up virtually every bank in the world. They are lending to industries to keep them afloat. The current dynamic suggests that a bottom for the global economy would be reached soon. As mentioned above, I thought it would be the first half of 2009. Now, with a second a second dip forecast, it would be likely in 2010. Despite demand weakness, inflation could emerge through commodity inflation and labor unions pushing wage increase, the same factors in the 1970s.
Commodity inflation is already visible as investors who are frightened of monetary expansion seek safe haven. Oil is back above $50/barrel despite demand collapse because so much money has flowed into exchange traded funds that buy oil. As central banks keep printing money, more and more money will flow into commodities.
I always believe that labor union is mostly demand driven. During prosperity labor unions are weak as a rising tide lifts everyone's living standard. When hard time hits, more people support union activism. During economic stagnation, especially stagflation, without union power, average workers will see declining living standard. The national strikes in France and other European countries are a harbinger for what could come.
I have argued above for a second dip in 2010 and stagflation beyond. I want to add some comments on the nature of bear market rallies. In a structural bear market that lasts for years stock markets can have big bounces from time to time. These bounces can be as big as 40% from bottom to top. Obviously, rallies of such size are mouthwatering. It is difficult for investors to stay on the side line. I am not against playing such bear rallies. But, one must remember that bear rallies are at best zero-sum games and often negative-sum games, i.e., making new lows after each bounce. One's profit is someone else's loss. Timing is everything in playing bear bounces. Getting in and out early are the basic principles.
The most harmful behavior is chasing. After a rally of 30% has happened, it is very bad for your financial health to chase.
The last structural bear market happened in the 1970s and lasted for ten years. It is obviously difficult for investors to stay on the sideline for a decade. After all, how long does one live? This is why a structural bear market swallows more and more people through such rallies. The ones that jump in later tend to be more patient and probably smarter. The last ones that perish in a structural bear market may have IQ over 200. I am afraid that the current bear market won't end until it brings down Warren Buffett.
Andy Xie
April 11, 2009
At the beginning of 2009, I wrote that the global economy would stabilize in the second half and a bear market rally could start in the second quarter of 2009. I thought that stagflation would be the dominant characteristic for the next few years. I am still sticking to the story.
The bear market rally began earlier than I expected. The reason was that major governments have been introducing subsidies for speculation. They believe that the main problems are liquidity and confidence.
Hence, if investors or speculators are brought back in the game, the world economy could be back to a virtuous cycle again. I think that this type of approach would lead to a second dip in 2010.
Subsidizing risk taking does inflate asset prices, mainly stocks for now. However, the hope that rising stock prices will lead to economic revival will not be fulfilled. We are in the middle of a debt bubble bursting.
Rising asset prices lift economy through boosting borrowing for investment and consumption. As the current levels of indebtedness are already too high, we won't see rising debt demand for consumption or investment. When the dream of a quick economic recovery is dashed, stock prices will slump again, which could expose more problems in the financial system and trigger a second dip in the global economy.
The world is amidst a burst after a speculative boom. Boom-burst cycle is quite frequent in history (see 'Manias, Panics, and Crashes: A History of Financial Crises' by Charles Kindleburger). A synchronized global one is rare. The last one comparable to the current one was the boom-burst of 1920s and 30s. A synchronized global cycle requires trade and cross-border capital flow to be large. A synchronized global burst is difficult to overcome, because devaluation and export promotion no longer work. If one country has a burst, it can devalue, boost exports, and make money from foreigners to reflate its financial system. East Asia came back this way from its banking crisis ten years ago. Policymakers are frustrated that their stimuli are not working so far.
The US government and the Federal Reserve have spent or committed $12 trillion to bail out its financial system. Its budgeted fiscal deficit for 2009 is $1.75 trillion (12% 0f GDP) but will probably surpass $2 trillion. ECB, Bank of England, and Bank of Japan have all cut interest rates to historical lows. Their governments are already running high fiscal deficits. But, employment, business confidence, and consumer confidence continue to deteriorate around the world. Major economies probably suffered similar contraction in the first quarter of 2009 as in the last quarter of 2008. For the whole year of 2009, euro zone, the UK , and the US may contract by 4-5%. Germany and Japan could contract by 7-8%.
This sort of global economic collapse is unprecedented. Moreover, it is difficult to see how the world would grow again when the collapse is over.
If history is guidance, political crisis tends to follow such an economic collapse. When an economic crisis triggers a political one, it makes a quick economic recovery virtually impossible. Out of desperation, governments are trying to support asset prices either directly or incentivizing reluctant speculators to play. Without understanding what governments are doing, most people think that things are either getting better or well soon. After all, shouldn't stock prices tell us about the future, according to theory (Unfortunately not true in practice when you really need it)? The positive thinking is leading many to chase this market. This is a bear rally that will swallow many smart investors.
This phase of government policy-targeting asset prices began with the Fed's announcement for buying up to $1.15 trillion of treasuries, commercial and mortgage papers. It was targeting mortgage interest rate in order to stabilize property price. However, this sort of policy meant that the Fed knew what property price should be. The US property price was 100% overvalued relative to income. After the bubble burst, it should go back.
What the Fed is doing is to slow the adjustment and shift a big chunk of the adjustment through general inflation rather than property price decline. What the Fed is doing will impact the dollar for years to come.
The second part came with the Geithner plan for stripping toxic assets from the US 's troubled banks. Hank Paulson, Tim Geithner's predecessor, wanted to focus on stripping the bad assets off the banks too. His plan didn't fly because the market prices for the bad assets were too low for the banks to survive. Most banks have questionable assets more than twice their equity capital. As these assets are trading at 30 cents on the dollar, if the toxic assets are sold at market price, most banks are bankrupt. This is why Hank Paulson shifted to injecting money directly into the banks first. The hope was that it would stabilize the financial system and the toxic asset prices would rise sufficiently for the banks to survive. This hasn't happened.
The Geithner Plan tries to boost the prices of toxic assets by subsidizing speculation. The centerpiece of the plan was offering government-guaranteed 6-1 leverage. If an investor risks one dollar, the plan caps his loss at one 1 but offers the reward equivalent to risking 7.
The current toxic asset price is 30 cents on the dollar. The price reflects the expected return on the bad asset. It is equivalent to 70% chance of bankruptcy and total wipeout for creditors and 30% chance of survival for the borrowers that support the assets. Under the Geithner Plan, an investor that puts down one dollar can buy $7 worth of toxic assets. At the current price of 30 cents on the dollar, he could buy $23.3 of toxic assets. There is 30% chance that the investor gets $23.3 and, after paying off $6 of debt, and has $ 16.3 in income. There is 70% that he loses everything. Hence, his expected income for his $1 investment is $16.3*0.3=$4.9. This plan should have boosted demand for toxic assets tremendously. Indeed, based on the simple example above, investors should be willing to pay more than twice the current price. This would save the banks.
For the investors in toxic assets, they reap rewards from the 30% of the performing asset bundles that they have bought and leave the 70% non performing ones to the taxpayers. This 'beautiful plan' works by robbing taxpayers. But, the prices for toxic assets have not risen that much. Why? I think that the market doesn't think that the plan could work. The public opinions may torpedo it before it goes into implementation. If it goes ahead, the US Congress may pass retroactive laws to confiscate the profits from the investors who participate in this scheme. Essentially, the Geithner Plan is giving speculators free money. But they are not taking it because they are terrified of the consequences.
The third piece is changing the mark-to-market rule. The Financial Accounting Standards Board of the US has changed its rule for accounting asset value. It now allows financial institutions to value their assets according to their 'judgment' rather than market price if they think that the market isn't working. Market may not value asset prices perfectly.
But, who could do better? This rule change is to allow the banks in trouble to stop reporting losses from asset quality deterioration.
When this change happened, the share prices of the troubled banks rose sharply. The market was not just reacting to a superficial change. The change is meaningful for the share prices. If the banks can name their prices for the assets on their books, they don't have to raise capital to stay in business. This means that they might make enough money over time to recapitalize. Hence, the risk of their bankruptcy has declined. The increased survival chance has boosted their share prices.
Shouldn't this be a good thing that banks don't go burst? Not necessarily so. Look at what happened in Japan . Its banks essentially didn't report their losses and tried to make money to recapitalize. It kept the economy down for ten years without succeeding in their getting out of capital shortfall. The reality won't change with a change in the accounting rule.
These banks know they don't have enough capital. Hence, they won't increase lending and will try to milk their existing assets for profits to recapitalize. They will be a drag on the economy for years to come. The US seems to be copying from Japan .
In addition to the US 's policies for targeting asset prices, most other major economies are encouraging their banks to lend. What does 'encouraging' mean? Banks normally lend to maximize profits by balancing between risk and reward. When governments encourage them to lend, it really means pressuring banks to lower standards, i.e., taking on more risk for the same or less reward. This sort of policy is really to exchange non-performing loans in future for boosting demand today.
The argument in favor such an approach is that, if every bank lends, the economy improves, which would decrease non-performing assets. This sort of 'free lunch'
thinking works temporarily by inflating another bubble. Of course, it will create a bigger mess in future.
Reflating an asset bubble to support the economy is widely hoped for by distressed investors around the world. Policymakers, in addition to their concerns for economic weakness and political stability, are responding to investors' cry for help. This is why we are seeing so many policies that are pumping air into a deflating bubble. It seems the air-pumping is working now. But, it won't last. As governments throw everything at it, more air is going in than coming out. But, government actions can't put in air on a sustainable basis. The air leakage will last with rising unemployment, falling corporate profits, and collapsing trade.
I think that the air leakage will overwhelm government air pumping in 2010.
Another major dip in asset prices is likely. Further, I think that inflation will become a problem, which would cause treasuries and other government bonds to drop. Government bonds are the last bubble to burst.
Other asset prices will bottom when this bubble deflates. This force will reverse all the air that governments are putting in now. The global economy would have a second dip then.
The debate over inflation or deflation has been raging on. The low bond yield suggests that the consensus is for deflation. In September 2006 at the IMF-World Bank annual meeting in Singapore I predicted a financial crisis in 2007, economic crisis in 2008, and stagflation beyond. The last prediction has not happened yet. What governments and central banks are doing have strengthened my conviction that stagflation will haunt the global economy for years to come.
Historically, the burst following a speculative boom is deflationary for two reasons. First, a speculative boom is investment biased. Hence, there is overcapacity during the burst, as the demand during the boom was exaggerated. Second, bankruptcies of banks and production businesses drive up unemployment, which decreases demand and pushes more businesses into bankruptcies. This vicious cycle prolongs price decline.
The current burst won't lead to sustained deflation for two reasons. First, the speculation was centered on unproductive assets like property and financial product. Automobile and electronics are two global industries with considerable overcapacity. The automobile industry has had overcapacity for a long time. The problem was covered up by the credit bubble that exaggerated demand, as buyers were incentivized to change cars more frequently with zero down-and-zero interest rate financing. The deflationary pressure would end with the bankruptcy of one or two major producers. The deflation would last if governments prop up their auto companies with taxpayers' money. At least the Obama government has shown unwillingness to do so.
The electronics industry is used to deflation. It is usually good deflation-rising productivity supporting declining price from that industry. What's going on now is not good deflation. The drastic cuts of capital expenditure by global companies have caused a demand collapse for IT products. The pressure is causing the industry to cut back quickly. This industry is shrinking without government prodding. The bad deflation in this industry will end quickly with capacity reduction.
China's manufacturing expansion is also a source of overcapacity. When the Asian Financial Crisis depressed demand one decade ago, I thought China 's overcapacity was deflationary, because manufacturers in other countries would have match Chinese prices. Now is different.
Manufacturing prices are Chinese. Manufacturing value added has shrunk dramatically relative to the costs of raw materials. The manufacturing capacity in China is unlikely to sustain deflation. For example, three quarters of the cost for steel production are raw materials like iron ore and coking coal. The overcapacity in steel production can't sustain price decline of steel product.
Second, the vicious cycle between bankruptcy, especially banks, and demand contraction is unlikely now. Governments and central banks are propping up virtually every bank in the world. They are lending to industries to keep them afloat. The current dynamic suggests that a bottom for the global economy would be reached soon. As mentioned above, I thought it would be the first half of 2009. Now, with a second a second dip forecast, it would be likely in 2010. Despite demand weakness, inflation could emerge through commodity inflation and labor unions pushing wage increase, the same factors in the 1970s.
Commodity inflation is already visible as investors who are frightened of monetary expansion seek safe haven. Oil is back above $50/barrel despite demand collapse because so much money has flowed into exchange traded funds that buy oil. As central banks keep printing money, more and more money will flow into commodities.
I always believe that labor union is mostly demand driven. During prosperity labor unions are weak as a rising tide lifts everyone's living standard. When hard time hits, more people support union activism. During economic stagnation, especially stagflation, without union power, average workers will see declining living standard. The national strikes in France and other European countries are a harbinger for what could come.
I have argued above for a second dip in 2010 and stagflation beyond. I want to add some comments on the nature of bear market rallies. In a structural bear market that lasts for years stock markets can have big bounces from time to time. These bounces can be as big as 40% from bottom to top. Obviously, rallies of such size are mouthwatering. It is difficult for investors to stay on the side line. I am not against playing such bear rallies. But, one must remember that bear rallies are at best zero-sum games and often negative-sum games, i.e., making new lows after each bounce. One's profit is someone else's loss. Timing is everything in playing bear bounces. Getting in and out early are the basic principles.
The most harmful behavior is chasing. After a rally of 30% has happened, it is very bad for your financial health to chase.
The last structural bear market happened in the 1970s and lasted for ten years. It is obviously difficult for investors to stay on the sideline for a decade. After all, how long does one live? This is why a structural bear market swallows more and more people through such rallies. The ones that jump in later tend to be more patient and probably smarter. The last ones that perish in a structural bear market may have IQ over 200. I am afraid that the current bear market won't end until it brings down Warren Buffett.
Sounds good to me
There are different ways to go about conceptualizing the magnitude of the challenge. As the table above indicates, the US has more gold than Germany, France, and Switzerland combined. Given that foreign investors own about $2.5 trillion more of US assets than Americans own of foreign assets, what price of gold is necessary for the US to no longer be a debtor? Answer: More than $8,500 an ounce.
Another approach, suggested by a Swiss investment bank, is to relate the price of gold needed to cover some measure of money supply. By its reckoning, the US would need gold to be worth about $6,000 an ounce to reintroduce a gold standard. However, it may not be sufficient to simply have the US adopt a gold standard. For the US, China, and Japan, the three largest economies as measured by purchasing power parity, to back their money with gold would require a price closer to $9,000 an ounce.
MORE HERE
Another approach, suggested by a Swiss investment bank, is to relate the price of gold needed to cover some measure of money supply. By its reckoning, the US would need gold to be worth about $6,000 an ounce to reintroduce a gold standard. However, it may not be sufficient to simply have the US adopt a gold standard. For the US, China, and Japan, the three largest economies as measured by purchasing power parity, to back their money with gold would require a price closer to $9,000 an ounce.
MORE HERE
Quote of the day
All truth passes through three stages:
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being self-evident.
– ARTHUR SCHOPENHAUER (1788-1860)
First, it is ridiculed.
Second, it is violently opposed.
Third, it is accepted as being self-evident.
– ARTHUR SCHOPENHAUER (1788-1860)
Monday, April 27, 2009
Monday, April 20, 2009
Dont count your recoveries before they are hatched
People get over optimistic too soon. History is a great teacher. I truly believe that to be true. Check out the following 1927-1933 Chart of Pompous Prognosticators. We are currently in the eye of the storm. The party is by NO MEANS over.
Friday, April 17, 2009
Gold at 10,000? Pure lunacy? Maybe not.
Elliott Wave Gold Update 23
By Alf Field
As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices. The first article titled "Elliott Wave and the Gold Price" was published on 25 August, 2003. This article can be reviewed at the following site:…
In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.
I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favour Prechter’s view. If it pushed above $382, then my bullish view would probably be favoured.
This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.
Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or "road map") of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.
The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.
I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300’s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.
In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.
There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.
As this will be the last of these Updates, I will reveal my previously unpublished "back of the envelope" calculations in 2003. They were as follows:
Major ONE up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);
Major TWO down from $750 to $500 (a serious decline of 33%);
Major THREE up from $500 to $2,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $2,500 to $2,000 (another serious decline);
Major FIVE up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)
A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.
I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from "Elliott Wave and the Gold Price" written in 2003 and referenced above:
"I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment."
As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical out look for gold when I made the dramatic change in our investment portfolio in 2002.
The technical analysis included the following:
The 21 year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.
The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.
In the 1970’s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.
The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions.
Privately I referred to this as the "Big Kahuna" crisis.
I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities "throwing money at problems", bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in "Seven D’s of the developing Disaster" in April, 2005, an article that can be found at the following site:…
The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in "Crisis Cogitations" which was published just 2 weeks ago at the following site:…
If you haven’t read "Crisis Cogitations", I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.
Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.
The current situation:
The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.
Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.
I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?
Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original "back of the envelope" template to much higher levels, as follows:
Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.
Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in "Crisis Cogitations" for a five fold increase in money and prices in order to arrive at a "Less Hard" economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.
It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.
In "Crisis Cogitations" it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a "safe haven" investment may be large enough to cause the metal to perform better than cash or Government Bonds.
The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.
Why quit writing these reports? I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.
So it is Good Bye, Good Luck and God Bless.
Alf Field
25 November 2008
Comments to: ajfield@attglobal.net
By Alf Field
As this is going to be the last of these Updates, it is appropriate to review the reasons for writing this series of articles on Elliott Wave and the gold price. This will involve revealing a lot of personal detail and also unveiling an extremely high forecast for future gold prices. The first article titled "Elliott Wave and the Gold Price" was published on 25 August, 2003. This article can be reviewed at the following site:…
In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200. For a number of reasons I was of the opinion that gold was in the very early stages of a major bull market. My views were thus the opposite of Prechter’s and I eventually plucked up the courage to say so.
I count Robert Prechter as a friend, so my purpose was not to disparage his views. I was more interested in setting up some parameters or guidelines that would help determine the likely outcome if the gold price exceeded those levels. I concluded that if the gold price dropped below $309, the odds would favour Prechter’s view. If it pushed above $382, then my bullish view would probably be favoured.
This was more than just an academic exercise because in 2002 I had made a major change to our family investments, moving some 40% of the capital into gold and silver bullion plus a selection of gold and silver mining shares. If Prechter’s view prevailed, our family finances would have taken a serious drubbing.
Another reason for publishing the Updates was to illustrate a major advantage of the EWP, which is the ability to prepare a template forecast (or "road map") of how the market is likely to unfold in both the long and short term, including the possible terminal prices. The original article produced a template based on the rhythms that had been observed in the early stages of the bull market, based naturally on the assumption that my bullish views would prevail.
The early stages of the bull market revealed corrections of 4%, 8% and 16% at increasing orders of wave magnitude. Those numbers were used in the original template published in that 2003 article, a template that forecast that the first major move upwards could reach $630 after which a correction of the order of 25% to 33% would probably follow. In fact, if the sequence had been extended logically, the larger correction should be double 16%, or 32%, but this was shaved to 25-33%.
I thought that the $630 forecast was conservative and that this number would probably have to be adjusted upwards later once the minor waves unfolded. In 2003, with gold in the mid $300’s, a forecast of $630 was both courageous and extremely daring. There was no purpose served in taking the exercise beyond that point until after the $630 target had been achieved.
In addition, the 2003 article concluded that if $382 was surpassed, then the gold price would move rapidly to $424 without a serious correction. That did indeed happen, with gold reaching $425 before the anticipated correction occurred. That success encouraged me to write an article updating the original forecast. I did not anticipate that the consequence of that first update would be the production of this Update 23 some five years later.
There was a further undisclosed reason for writing these articles and that was to eventually highlight the massive potential of the gold bull market. I was reluctant to reveal what I really believed in 2003 as it was so bullish that it would have invited the arrival of the guys with straight jackets and padded cells.
As this will be the last of these Updates, I will reveal my previously unpublished "back of the envelope" calculations in 2003. They were as follows:
Major ONE up from $256 to approximately $750 (a Fibonacci 3 times the $255 low);
Major TWO down from $750 to $500 (a serious decline of 33%);
Major THREE up from $500 to $2,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $2,500 to $2,000 (another serious decline);
Major FIVE up from $2,000 to $6,000 (also a 3 fold increase, same as ONE)
A case can be made for an 8 fold increase in Major FIVE, which would continue the Fibonacci sequence 3, 5, 8. You can do the maths if you like, but the fact is you can pick your own number for the gain in Major FIVE. Three times the low of $2,000 was actually the conservative expectation, producing a bull market peak target of $6,000.
I would not have invested 40% of the family capital into gold, silver and the corresponding mining shares based solely on my bullish EWP expectations. The following is a quote extracted from "Elliott Wave and the Gold Price" written in 2003 and referenced above:
"I am not a gung ho advocate of the EWP. I discovered not only its strengths but also its weaknesses. I prefer to have fundamentals, technicals and the EWP all in place (if possible) before committing myself to an investment."
As mentioned in this quotation, I prefer to have fundamental and technical analyses in line with the EWP before committing to a position. Obviously I was satisfied with the fundamental and technical out look for gold when I made the dramatic change in our investment portfolio in 2002.
The technical analysis included the following:
The 21 year bear market in precious metals had ended with the multi-decade down trend line being broken on the upside.
The precious metal markets were oversold with sentiment and emotional indicators sporting extreme negative readings with bullish connotations.
In the 1970’s bull market, gold increased from a low of $35 to a peak of $850, a massive 24.3 times the low price. If the current bull market was to be of the same order, then one could project an ultimate peak of over $6,221 ($256 x 24.3). This matched the $6,000 target determined under the EWP.
The fundamental analysis was the real clincher. I had become convinced that the world, and especially the USA, was heading for a major financial crisis that would be so powerful that it would overwhelm all other factors. It would become the single most important criteria impacting on investment decisions.
Privately I referred to this as the "Big Kahuna" crisis.
I anticipated that the Big Kahuna would give rise to the risk of a systemic meltdown, which would result in the authorities "throwing money at problems", bailing out all the banks and large corporations that got into trouble. This would lead to the destruction of the currency. I wrote about this in more detail in "Seven D’s of the developing Disaster" in April, 2005, an article that can be found at the following site:…
The consequence of the systemic meltdown would be a vast increase in newly created money which would result in a massive rise in the gold price of the order that I was anticipating. A further consequence would be the introduction of new national and international monetary systems. Several articles followed in the next few years, culminating in "Crisis Cogitations" which was published just 2 weeks ago at the following site:…
If you haven’t read "Crisis Cogitations", I would urge you to do so in order to better understand the current crisis. Obviously the current financial crisis is the Big Kahuna that I had been anticipating, although I didn’t expect it to take five years to emerge.
Reverting back to the situation in 2003, both the technical and fundamental underpinnings for gold seemed to be pretty solid. Consequently I felt confident that the bullish EWP forecasts, both the shorter term and the undisclosed longer term expectation, would work out. There was no purpose served in revealing the potential for the market to reach $6,000. To get there, gold had to get to the $630 target first, which was a sufficiently daring forecast in 2003.
The current situation:
The chart below depicts the Comex Gold price on a weekly basis. In February 2006, in Update IV, the $630 target was increased to $768 as a result of intervening market action. A couple of months later the gold price exceeded $630 and moved to $733 in May 2006. From that point a 23% correction to $563 occurred.
Confusion reigned because a relatively minor correction had been anticipated, to be followed by a rise to $768. Thereafter the long awaited 25% to 33% correction was scheduled to occur. Instead, the decline measured 23% and the obvious conclusion was that this was the long awaited 25% to 33% correction, albeit slightly stunted. Quite possibly I was overly influenced by my previously unpublished rough target of $750 followed by a decline to $500. The actual outcome of a peak of $733 and a correction to $563 was remarkably close to my rough estimate and seemed to adequately fit the requirement for the end of Major ONE and the corrective wave Major TWO. In coming to this conclusion I glossed over the fact that the correction to $563 was an obvious triangle, and triangles are almost always 4th waves, yet I was calling it a 2nd wave, Major TWO. I also glossed over the fact that the correction was below the 25% to 33% magnitude required.
I mentioned previously that the early corrections were 4%, 8% and 16% at increasing orders of magnitude. If one were to be pedantic, one would say that the next level of correction should be 32%. Looking at the chart below, the correction from $1015 to $699 is 31%! It sticks out like a sore thumb. Surely this is exactly the 32% correction that we should have been anticipating for Major TWO?
Assuming that the $699 low on 23 October 2008 turns out to be the actual low point of the correction, and that remains to be proven, then we can conclude that we have seen the low point for Major TWO. That will allow us to update my original "back of the envelope" template to much higher levels, as follows:
Major ONE up from $256 to $1,015 (actually 4 times the $255 low);
Major TWO down from $1015 to $699, say $700 (a decline of 31%);
Major THREE up from $700 to $3,500 (a Fibonacci 5 times the $500 low);
Major FOUR down from $3,500 to $2,500 (a 29% decline);
Major FIVE up from $2,500 to $10,000 (also a 4 fold increase, same as ONE)
Once again, you can pick your number for the gain in FIVE and multiply it by $2,500. The numbers become astronomical and can really only be possible in a runaway inflationary environment, something which many thinking people are suggesting has become a possibility as a result of the actions taken during the current crisis.
Concentrating on the $3,500 target for Major THREE, which is a five fold increase from the low point of about $700, there is a case advanced in "Crisis Cogitations" for a five fold increase in money and prices in order to arrive at a "Less Hard" economic landing. In the USA, total debt recently exceeded $50 trillion and this is unsustainable given an economy with a GDP of only $14 trillion. The suggestion is that the debt level will reduce through bankruptcies to say $35 trillion while the new money created to save the situation will push up the nominal GDP to $70 trillion. A $35 trillion debt level is manageable with a GDP of $70 trillion.
It requires a five fold increase in prices to achieve the above result. Gold has retained its purchasing power over the centuries and will no doubt continue to do so in the current environment. Consequently gold will almost certainly increase five fold (or more) if the level of prices in the USA increases five fold.
In "Crisis Cogitations" it is acknowledged that the current credit/debt deflation could get out of hand and result in a serious deflationary depression. There is debate as to how gold will react in a deflationary environment, but the fact is that in a serious depression bankruptcies will be rife and price levels will decline. This may result in cash and Government bonds performing better than gold, but this is not certain. Gold cannot go bankrupt and is thus an asset that people can hold with confidence in a deflationary depression. It is possible that demand for a "safe haven" investment may be large enough to cause the metal to perform better than cash or Government Bonds.
The odds, however, strongly favour an inflationary outcome. Given a strong will and the ability to create any amount of new money via the electronic money machine, it seems a foregone conclusion that runaway inflation will be the end result. If Mugabe could do it in Zimbabwe, there seems little doubt that Ben Bernanke and his associates in other countries will have no trouble in doing it too.
Why quit writing these reports? I have noticed from the emails that I receive that many people are using these reports to guide their trading activities in gold. I have had no objection to this in the past, but feel that it would be foolish to trade gold in the circumstances of the Big Kahuna crisis that we are living though at the moment. It has become a question of individual financial survival in an environment where things are happening more rapidly and with increasing violence. I feel very strongly that it is time to quietly hold onto one’s gold insurance and not attempt to trade it. I do not wish to provide interim levels that may cause people to be encouraged to trade their gold to skim a few extra fiat dollars or other currencies, but lose their gold as a result.
So it is Good Bye, Good Luck and God Bless.
Alf Field
25 November 2008
Comments to: ajfield@attglobal.net
Enjoy it while it lasts
It is amazing how a crisis of this magnitude the "Big Kahuna" as Alf Field calls it, can be easily called as over just because of some "glimmer" of hope based on what I perceive to be an co-ordinated and orchestrated moves by the powers that be in restoring "confidence" to the system. Stocks are rallying worldwide driven by the enormous hope from economic data that has outpaced depressed expectations – generally only slightly, but uniformly enough to encourage investors that the “green shoots” of recovery are in place. The level of complacency is just unbelievable, even after all the destruction we've seen.
Is a V shaped recovery in the offing?
Paul Krugman, Nobel Laurette doesn't think so.
Richard Russel of the famed Dow Theory Letters doesn't think so.
This matter is far from resolved. More here.
Is a V shaped recovery in the offing?
Paul Krugman, Nobel Laurette doesn't think so.
Richard Russel of the famed Dow Theory Letters doesn't think so.
This matter is far from resolved. More here.
Monday, April 13, 2009
The return to the Gold Standard
The chatters are getting louder.
".. this four-decade long experiment with fiat currency is not just something of a historical aberration, it argues - but potentially very fragile too. After all, the only thing that ever underpins a fiat currency is a belief that governments are credible. In the past 18 months that belief has been tested to its limits. In coming years it could be shattered, particularly if the current wave of extraordinary policy measures unleashes a wild bout of inflation." MORE HERE
Still..there is no mass mania for GOLD..........yet. But the slow trickle will turn into a full on stampede once the realisation sets it that we've all been had by lies fed to us by the mainstream financial media / press and the Central bankers. Remember, how optimistic can one be that they will be able to find a solution if they missed the entire problem in the first place.
".. this four-decade long experiment with fiat currency is not just something of a historical aberration, it argues - but potentially very fragile too. After all, the only thing that ever underpins a fiat currency is a belief that governments are credible. In the past 18 months that belief has been tested to its limits. In coming years it could be shattered, particularly if the current wave of extraordinary policy measures unleashes a wild bout of inflation." MORE HERE
Still..there is no mass mania for GOLD..........yet. But the slow trickle will turn into a full on stampede once the realisation sets it that we've all been had by lies fed to us by the mainstream financial media / press and the Central bankers. Remember, how optimistic can one be that they will be able to find a solution if they missed the entire problem in the first place.
Sunday, April 12, 2009
Gold: The Once and Future Money
An excellent historical perspective on Gold.
First, gold is money. It always has been. It’s the clear choice of free markets throughout recorded history.
Second, what we call money today is not money at all. It’s just a rash experiment in credit expansion that has spun totally out of control. Like all such experiments before it, this one will end in tears.
Third, following the failure of the current monetary system, gold will once again play its historic role as the anchor of a successor system. The market will demand it, and the authorities will have no choice but to let the market have its way. MORE
First, gold is money. It always has been. It’s the clear choice of free markets throughout recorded history.
Second, what we call money today is not money at all. It’s just a rash experiment in credit expansion that has spun totally out of control. Like all such experiments before it, this one will end in tears.
Third, following the failure of the current monetary system, gold will once again play its historic role as the anchor of a successor system. The market will demand it, and the authorities will have no choice but to let the market have its way. MORE
Thursday, April 9, 2009
Wednesday, April 8, 2009
Listen to Reasons, not Emotions when holding a trading position
Now, one should really listen to someone who has been watching the markets for half a century, and discard most of the rubbish heard over the mainstream financial media. Richard Russell, who has been writing the Dow Theory Letters for 50 years thinks the current market rally will fizzle out and that "This bear market will be deeper and longer than most people think. People got optimistic too quick" and that the ongoing rally is "doomed to fail." Further, "None of the characteristics of a major bottom" are evident, most notably dirt cheap valuations."
Pay attention to this: "Stay on the sidelines," in cash or gold, the multi-year rally in which won't end until there's a "speculative explosion" in the metal, he says. More HERE.
Watching CNBC and Bloomberg all through the day over the past 7-8 years has let me in on one thing: these guys on the cable business news networks and most analyst really know nothing. Talk is cheap, anybody can dispense "analysis". But in the main, there are only a handful out there like Meredith Whitney, Peter Schiff, Jim Rogers who are really really clued in to the truth. And often, the truth is not a populist notion.
Pay attention to this: "Stay on the sidelines," in cash or gold, the multi-year rally in which won't end until there's a "speculative explosion" in the metal, he says. More HERE.
Watching CNBC and Bloomberg all through the day over the past 7-8 years has let me in on one thing: these guys on the cable business news networks and most analyst really know nothing. Talk is cheap, anybody can dispense "analysis". But in the main, there are only a handful out there like Meredith Whitney, Peter Schiff, Jim Rogers who are really really clued in to the truth. And often, the truth is not a populist notion.
Tuesday, April 7, 2009
Is Dubai the world's biggest subprime fiasco waiting to implode?
Dubai is tethering..and could well be on the brink.
"( In )Dubai feverish attempts are apparently being made by the sheikhs to ward off total economic collapse. Expatriates are deserting the Gulf state almost as quickly as they can find seats on airplanes out. Huge swathes of apartment blocks lie empty and, my source tells me that those wanting to sell out are being pushed into time-controlled sales, supported by the government, not that there are any buyers, as too much coming on the market at once would lead to the equivalent of a run on a bank. And given the trillions of dollars in investment that have gone into the state a run on Dubai would be disastrous for the global economy and the banks that are involved. It is effectively another subprime mortgage fiasco waiting to happen. You might want to question your bank's exposure to Dubai. Undoubtedly the risk is spread globally just like the subprime markets." Lawrence Williams, Mineweb, April 2009
"( In )Dubai feverish attempts are apparently being made by the sheikhs to ward off total economic collapse. Expatriates are deserting the Gulf state almost as quickly as they can find seats on airplanes out. Huge swathes of apartment blocks lie empty and, my source tells me that those wanting to sell out are being pushed into time-controlled sales, supported by the government, not that there are any buyers, as too much coming on the market at once would lead to the equivalent of a run on a bank. And given the trillions of dollars in investment that have gone into the state a run on Dubai would be disastrous for the global economy and the banks that are involved. It is effectively another subprime mortgage fiasco waiting to happen. You might want to question your bank's exposure to Dubai. Undoubtedly the risk is spread globally just like the subprime markets." Lawrence Williams, Mineweb, April 2009
Make hay while the sun shines
And so the markets rally. Globally markets are rallying on misplaced optimism that the worst is over and that the bottom has finally been reached on the Dow and S&P. Punditry generated on the mainstream financial news channels would have you believe,as the politicians would like that they have "saved" the world. These people are nuts! In the meantime,make hay while the sun shines but stick tight to your gold. Happily add some more even as the IMF readies itself to dispose. One wishes they'd dispose more so that gold bugs such as I can buy more to our holdings. There WILL be a currency event and gold will eventually enter a Phase Transition type move that will blast it towards 2500 or even..gasp 5000. Are you ready?
"When one looks behind the G20 spin, there would seem to be little substance for the euphoria which appears to have pushed markets up with the hope that the bottom has been reached and that now the only way is up! This total change in perception by investors has reduced the safe haven appeal of the precious metals and both gold and silver have been marked down over the past few trading days - gold by around 6% or more and the more volatile silver by around 10%....MORE
"When one looks behind the G20 spin, there would seem to be little substance for the euphoria which appears to have pushed markets up with the hope that the bottom has been reached and that now the only way is up! This total change in perception by investors has reduced the safe haven appeal of the precious metals and both gold and silver have been marked down over the past few trading days - gold by around 6% or more and the more volatile silver by around 10%....MORE
Tuesday, March 31, 2009
OMG you have to see this!-Geithner Plan II
The AIG bonus fiasco will seem like peanuts compared to this.
Monday, March 30, 2009
The Gold Carry trade
We all know about the Yen carry trade and the aftermath of its great unwinding last year. And now we have the Gold carry trade, something the mainstream financial press have not picked up on. The bursting of US Treasuries bubble, the last great bubble on the face of this planet, will undoubtedly trigger the unwinding of this Gold carry trade. This is gonna be HUGE!
Two superb must read articles by Eric_deCarbonnel, read more HERE and by Adam Hamilton HERE
Two superb must read articles by Eric_deCarbonnel, read more HERE and by Adam Hamilton HERE
The Golden Pyramid
"The gold derivatives pyramid is a vigorous free market creature. It cannot be put down with a simple declaration that the paper is no longer redeemable in gold, as governments did with currency. It is a short selling scheme that has become a trap from which few short sellers will escape. Paper claims in the form of derivatives far exceed the underlying physical metal on which they are based. The trust, which balances this new pyramid, is based on false assumptions and lack of information. Paper gold claims have proliferated at a pace rivaling any government printing press. A surfeit of paper gold has driven down the price of the physical on which it is based." John Hathaway ,The Golden Pyramid 1999 .
A superb article on Gold and its nemesis, the world's Central Bankers
Full Article here
A superb article on Gold and its nemesis, the world's Central Bankers
Full Article here
Quote of the Day
"If you don't trust gold, do you trust the logic of taking a beautiful pine tree, worth about $4,000 - $5,000, cutting it up, turning it into pulp and then paper, putting some ink on it and then calling it one billion dollars?"
Kenneth J. Gerbino
Kenneth J. Gerbino
Sunday, March 29, 2009
Wednesday, March 25, 2009
China is getting nervous
After Bretton Woods, global currencies were backed by the Dollar which US Govt would have us believe was in return backed by Gold. Now that China has expressed a desire to explore a new global reserve currency backed by a basket of fiat currencies ( yen,euros etc. ) will this be better? Probably not. If other currencies are backed by the Dollar which is now essentially now backed by NOTHING, would they have any REAL value given that fiat currencies on their own have no intrinsic value?? The world should return to the Gold standard as it once was.
Tuesday, March 24, 2009
What does one TRILLION dollars look like?
From http://www.pagetutor.com/trillion/index.html
All this talk about "stimulus packages" and "bailouts"…
A billion dollars…
A hundred billion dollars…
Eight hundred billion dollars…
One TRILLION dollars…wow!
Let's put things in perspective here
Monday, March 23, 2009
Room for some short term upside moves
While I think the markets may print new lows into the 2nd half of 09, it seems the momentum to the downside is stalling somewhat. The problem is everybody seems to be a perma bear of sorts and widespread pessimism right down to the average joe tells me that at least for the immediate short term, maybe a playable counter trend rally is in the offing. Looking to long equities into April and position for Gold and Yen rallies come summer of 09.
Saturday, March 21, 2009
The Fed shows its desperate hand
There is an old adage on Wall Street that no one rings a bell at major market tops or bottoms. That may be true in normal times, but as many have noticed, we are now completely through the looking glass. In this parallel reality, Ben Bernanke has just rung the loudest bell ever heard in the foreign exchange and government debt markets. Investors who ignore the clanging do so at their own peril. The bell's reverberations will be felt by everyday Americans, whose lives are about to change in ways few can imagine. More here...
America.....the enemies within.
"The idea that you have too much debt, too much borrowing and too much consumption and you're going to solve that problem with more debt, more consumption and more borrowing? These people are nuts." -Jim Rogers, March 2009
Friday, March 20, 2009
GOLD
Try to get your hands on some of these...Gold.. you can't print more of it, supply is limited, central banks have stopped selling them and it is indestructable. Gold...will be accepted anytime, anywhere and at any place. Fiat currencies during extremes, never. Gold is the perfect anti-dollar instrument in times of crisis and fear.
Thursday, March 19, 2009
US is already technically bankrupt
There are only 3 ways in which the US can solve its 55trillion dollars worth of debt:
1. Actually pay them back. No way!!
2. Default on those debts. Unlikely.
3. Devalue the Dollar thus making those debts more manageable. This has already started with yesterday's move by the Fed.
1. Actually pay them back. No way!!
2. Default on those debts. Unlikely.
3. Devalue the Dollar thus making those debts more manageable. This has already started with yesterday's move by the Fed.
Dollar Collapse on the way?
The Fed has effectively put up a GIANT signal for holders of Treasuries ( China most significantly ) to hit its bid with last nights 1.3 trillion gamble. Will the trickle become a stampede in the coming months as the world finally realizes the the Dollar is worth as much as toilet paper?
Peter Schiff continues to be right.
Peter Schiff is the President and Chief Global Strategist of Euro Pacific Capital. As a result of his accurate forecasts on the U.S. stock market, economy, real estate, the mortgage meltdown, credit crunch, subprime debacle, commodities, gold and the dollar, he is becoming increasingly more renowned.
He has been quoted in many financial TV channels like CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V.. In Peter Schiff`s blog you can track all his investment and trading ideas for 2009 as well as all his public appearances on TV, video or in the press.
Peter Schiff was the keynote speaker at the annual Austrian Scholars Conference at the Ludwig von Mises Institute in Auburn, Alabama. Do not miss his insights in this video link.
He has been quoted in many financial TV channels like CNBC, CNN, Fox News, Fox Business Network, and Bloomberg T.V.. In Peter Schiff`s blog you can track all his investment and trading ideas for 2009 as well as all his public appearances on TV, video or in the press.
Peter Schiff was the keynote speaker at the annual Austrian Scholars Conference at the Ludwig von Mises Institute in Auburn, Alabama. Do not miss his insights in this video link.
Wednesday, March 18, 2009
Phony currency cracks together with a phony economy
The Fed's overnight moves to buy bonds with freshly printed Uncle Sam Dollars, which by the way was created out of thin air or a keystroke of the mighty supercomputers at the Fed, is just setting the wheels in play forces which the Fed will struggle to contain in the future. By debasing/devaluing the Dollar with more supply, why would one want to hold Bonds which is essentially a promise to pay you in devalued Dollars? I wonder if the Chinese Government is starting to pee in their pants as this is essentially a disaster for holders of Treasuries as inflation or even perhaps hyperinflation kicks into gear. The party is about to start..
Let the Printing presses ROLL!!!
It seems like the Monetary Authorities are hell bent on throwing freshly minted cash at the problem rather than to tackle to root causes of it. With Quantitative Easing in full swing, is Competitive Devaluation of all major fiat currencies on the cards next? Gold surges overnight as Dollar tanks. Read more here..
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