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.

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

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)

Another doomsday merchant?

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.

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

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.

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.

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

Hmm....

Are my convictions in Gold misplaced?

Think not. Read here

Hope not. Read here

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.

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

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