THE LIBERTARIAN ENTERPRISE
Number 591, October 11, 2010
"Privacy is ultimately about liberty while
surveillance is always about control"
Special to The Libertarian Enterprise
A musical theme for this essay is found here: www.mtv.com/videos/squirrel-nut-zippers/10096/hell.jhtml
Well, the futures markets showed stocks broadly lower this morning. Japan's market is lower. Some of the red ink has washed into Europe, which has many markets lower. The FTSE MIB seems to be getting slaughtered, and the DAX, CAC and several others are down substantially.
Currency markets are showing some interesting wrinkles. It looks to me like there's been an attempt at "easing" (deliberate depreciation's new euphemism) of the EU euro, the British pound, and the Japanese yen. Evidently, Japan's central bank is meeting this week to decide if they want to "go again."
I've previously noted that the market in September saw depreciation of the yen followed by depreciation of the dollar. Guess who won that round? The weaker dollar. I think that's what we're going to see with the euro and pound, too.
If I'm not mistaken (and I frequently am) it looks like the major central banks are trying to print their way out of the global depression. That's certainly indicated by the political season in the USA where congress critters are wanting to get re-elected. But, of course, if everyone depreciates, things are going to go badly for everyone.
There has been some pull back in oil, gasoline, gold, and silver. These appear to me to be minor and profit-taking action so far, today. Gold blasted lower well after the usual London "fix" which suggests profit taking, rather than the usual price rigging. Of course, it is always hard to know what is going on, and even sometimes difficult to know what has been going on. However, if you see 12 days in a row of new record high prices in gold, and 12 or more days in a row of 30 year highs in silver, you ought to expect some profit taking, which we are seeing this morning. Buy on these dips if you have dollars to invest in gold or silver, or in mining stocks. (See CaseyResearch.com for a bunch of fine mining stock recommendationsLouis James is a very sharp guy.)
What should you expect, this month? October is a month with a good bit of low in it. Some record crashes have happened in October. I was expecting a much lower market in September, and I was wrong. The market went higher in September 2010 than it has in any September since 1939, they said on CNBC last week.
And we all have such fond memories of 1939, huh? Gee, what was it that happened in September 1939? Something about Germany and Poland? You could look it up.
But, yeah, I was wrong about September. The blush came off that rose a bit in the last two trading days of the month, which are also the last two trading days of the quarter. I think the currency game in Japan and the USA played a role in the stock market rally, pushing the crash that I think has been imminent from September into October. Can they play these games and push things into November? I don't know.
Obviously, really, I can't know. No one can predict interest rates or monetary policy because they aren't based on rational expectations or external forces (like spotless days in the Sunspot cycle, for example) but on the whimsy of the Feral Reserveless Scheme. We know that the Fed likes the establishment and wants to keep Reid and Pelosi in office, so we have to suspect they'll keep the printing presses rolling.
But we also cannot predict how the markets are going to react. Part of that is because the whole world is trying to play "printing press madness" with their currencies. So the Swiss and Swedish and Australian and Canadian currencies seem to be doing somewhat well, while the yen, dollar, euro, and pound circle the drain.
How about oil and gasoline? These prices were lower this morning, too. Again, I think that's expected value. And the pull back is probably going to be minor and brief. I think that's probably true of gold and silver, as well.
Are we going to see the stock markets go "limit down" this month? It isn't ever very likely, but there are a lot of bad things "out there" which could send the markets into a selling frenzy. Ireland has nationalised its two largest banks, I seem to have read recently. The sovereign debt crisis isn't over, nor is it getting better. Rioters are opposing the 'austerity' plans in several European countries, and Ecuador. Nor is there much good news, really.
Zero Hedge ran an article recently on fraud at the Bureau of Labour Statistics: [link]
Housing starts are in the toilet. Maybe they aren't circling the drain quite the way they were, but they aren't pulling the economy either. [link]
So, I'm not sure what sector of the economy is going to "grow our way out" of one of the worst economic bubble collapses in the last 300 years. I think, rather, we're going to see things slide along for two or three years, and collapse further in 2012 or 2013. I would put the bottom somewhere in 2017 to 2018.
Now, bottoming out, as the author of "Fight Club" was at some pains to point out, isn't that bad a thing. Once you've given up all the fantasies of hope and gotten some real clarity, you can decide what it is you really want to do.
Bottoming out would be very good for the economy, in fact, because it would liquidate all kinds of bad investments that were only working because of the monetary bubble. There would be a strong reaction against further monetary inflation, possibly leading to a period of stability like Byzantium's solidus and the Caliphate's dinar. Similar reactions followed the 1722 South Sea Bubble bursting, and the 1785 Continental currency, as well as the disastrous inflation in France during the national assembly and directorate period.
Monetary stability is very good, economically, socially, technologically, and culturally, I believe. People can save money and rely on their savings. They can plan for the future. They can invest sensibly. I believe the Italian Renaissance owes part of its grandeur to the monetary stability leading up to it. And the period of monetary stability from 1792 to 1933 led to dramatic economic expansion and industrialisation in the USA. The period from 1722 to 1914 in Europe was similar in fostering economic growth and new industries.
So when should you sell all your gold and buy stocks? Well, roughly, 2017 or so, maybe. You'll have seen a mania phase in gold and silver. This mania phase will be ending when major publications show a gold bull tearing apart the major stock exchanges. Stocks will have been wiped out and many "blue chips" will be trading at or below dividend yield.
Between now and then? Things are going to be very, very bad. People are going to suffer.
Remember that the collapse of currencies also leads to dictatorships. Weimar Germany fed the rage of the Nazis. The collapse of the mandat led to Napoleon. The collapse of the Continental led to Hamilton's constitutional convention, which was a near thing as far as tyrannyand the anti-federalists thought it was tyranny. After the 1722 collapse, there were two world wars. And these days world wars can be very nasty.
Thus: prepare. Prepare for hard times. Prepare for things to get actually worse than they are. Do your best to stay diversified so your money is not all in dollars, your stocks are not all in one sector. Do your best to have means of survival, like seeds, a place to grow food, guns, ammo, a water well, and equipment to filter water and air in case of urgent conditions.
In the long run, I'm very optimistic. I think the human race is a marvellous thing, the potential for our technologies are amazing, the universe is available for our expansion. But getting to the long run isn't always easy. And the next seven or eight years are likely to be very, very hard.
After I finished composing this essay on Monday, it became evident that we were having quite a ride. Here are a few further thoughts as the week progressed:
October 4 at 9:27am
My expectations for oil, gasoline, and silver have now been met. Gasoline is flirting with $2.11 on the commodities market. That's compared to $1.89 two weeks ago. (You pay much more owing to state and federal taxes, plus whatever the wholesaler wants for profit; retailers make no profit on gasoline.) This price in particular has surged by 11.6% in two weeks. If that were to continue for a full year (and demand probably wouldn't sustain such a long rally) it would mean 302% rise in the price of gasoline.
Gasoline flirted with $2.12 before moderating. Stocks had a rally and fell back. Oil seems to be heading higher. I'm not sure how there is much basis for an economy. About the only thing that anyone is producing is printing press dollars, it seems.
October 4 at 10:41am
Well, it looks like the red ink that spread from Japan to Germany to the UK has crossed the Atlantic with the morning Sun. Stocks are getting socked.
I thought it was hilarious to hear from Ford's CEO that sales in the USA are going to rise... 3 to 5% a year for the next three years. Oh yeah? Is that a reliable prediction based on consumer demand you can't possibly predict, or is it simply that you sold next to no cars at all in 2009, so 5% of nearly zero is a pretty tiny number? lol
Tuesday 5 October at 3:15am
Good morning Bank of Japan! I see you've decided to "go again" for October. More "easing" and a promise to keep interest rates at zero. The yen has improved slightly against the dollar, but gold is way up, again, new record high. Guess who thinks the Feral Reserveless Scheme is going to respond to "easing" in Japan with more "easing" of the dollar? Yep, gold bugs. We're such a heartless and cruel bunch of filthy rich cynics.
Tuesday 5 October at 5:52am
If there's going to be a global stock market rally, it is going to be artificial. And it is going to need an explainable intervention rationale. So BoJ appears, to me, to be giving an excuse for "quantitative easing" which is supposed to stimulate a stock market rally. When the market runs up through 11,000 later this month (before crashing, hard) I would not be surprised to see Democrat politicians like Reid and Pelosi taking credit for it, claiming that the stock market is a leading indicator, etc.
My own expectations, announced many months ago ("Anticipating Market Behaviour" in my notes and on The Libertarian Enterprise) include a much higher gold price this year and a stock market that cycles between around 9,000 and around 11,500 to complete a right hand shoulder in a huge head and shoulders formation. The left shoulder ran from 1998 to 2003. The head formed from 2003 to 2008. The right shoulder started forming in 2008 and should complete in 2013. Possibly sooner.
Financial default is very likely, among many big companies and many governments. We are seeing a low volume rally on the equities markets right now. Low volume strongly suggests that this is a banking and finance company rally, built on t...he weak dollar of quantitative easing episode "two." If volume gets high, that would mean many ordinary investors are joining.
Gold meanwhile has leapt up by about $20 an ounce today. Yes, the Feral Reserveless Scheme has announced plans for more easing to match Japan's easing, and there's no reason to imagine that gold won't get to its "inflation adjusted" high of roughly $3,000 sometime in the next twelve months. My guess would be that 2011 might be a continuous rally much as 1979 was. Hard to be sure.
Silver has also been doing nicely. Should be $30 an ounce before the end of the year, I think.
Tuesday at 3:57pm
So, the stock market rallied much higher this afternoon. There was some pick up in volume. An analyst that I sometimes follow pointed out that the rise in mainstream equities is directly mirrored by the rise in the commodities index, meaning that adjusted for inflation people are no better off.
One interesting "wrinkle" in the current rally in gold and silver is that my friend Ed Steer who watches the silver market very closely reported that JP Morgan Chase was folding up their short positions in August. Yeah, they were warned.
6 October at 5:29am
When you are being oppressed by a group of oligarchs, does it really matter who is at the top of their heap? The whole dog pile seems to be dedicated to anally raping all of us, and each other. Among the many difficulties with the "managed society" concept is that those in power cannot be trusted with the power they wield.
This note is now a podcast.
Over 37,000 job cuts in September, but that is "64% fewer" than a year ago, so things are getting ...better? Tens of millions of Americans are still out of work, and more job cuts are being tallied up, and how are things getting better? You know when the jobs market has bottomed out when instead of job cuts you see job growth. And bottoming out isn't a cause for celebration. It is still miserable out there. And will be for many years.
I'm seeing reports of high afternoon volume on, e.g., the NYSE. This seems to me to be late-rally buying, basically where the banks have run the prices up and now want a bunch of suckers to bring it up even higher by buying in late. You know, so the banking gangsters can sell at a high price what they bought low in the morning.
Wednesday 5 October at 11:45am
Equities are mixed today. The Dow has flirted with a rally, but nothing has sustained. The NASDAQ has been lower pretty much all day. The broader markets like the S&P 500 and NYSE are also going nowhere.
Meanwhile gold has rallied and silver is again above $23 per ounce. Gasoline is over $2.16 a gallon. Heating oil, natural gas, and oil are all higher.
Yesterday's rally has not extended to today, so, yeah, I think the high volume in the late afternoon was all about unloading positions on suckers. Sorry folks.
Today's action suggests that people are looking at the price rises and seeing trouble ahead from the monetary inflation policy. Whether this means a big drop sometime this month, as I anticipate, remains to be seen. Remember that I anticipated a big drop last month which didn't materialise.
However, I think it would be fair to say that yesterday's rally is a fart in a hurricane that is going to blow away. Even if further "easing" happens to prompt higher stock prices, even if Friday's unemployment number is pure lies, I think we are going to see the market struggle to get the Dow over 11,000 and I doubt if it will brush 11,500.
Mind you, much more monetary inflation would make my prediction of a right shoulder formation completing a total loss. As we see the many days in a row of rising gold and silver (and copper, which I think is beginning to be seen as another monetary alternative) turn into many weeks in a row of rising prices, the inflation story is becoming more widely understood.
Whatever happens in October, you can be sure that something dramatic is coming for the day after the elections, when the votes are not counted but vote totals are announced. On that day, the Fed has another meeting. Having served its purpose, the current rally would likely be cut short.
Thursday 7 October 2010 at 5:08am
Gee gold was up again this morning in overseas trading. India can't seem to get enough. The high asking price at Kitco.com was 1365.70. Even with some evident profit taking there is still a gap up of about $10 an ounce. New record high in the gold price. Gee that is...17 days in the current rally, many of which have been new record high prices.
If you pay attention to the currency exchange wars you'll probably be able to figure out when the rally ends. After which there should be a Fibonacci re-trace. Whether that is this year, next year, or in two years, I cannot guess. But I'll be watching.
Silver has also gapped higher this morning. Nineteen days of this rally in silver. Not yet the record high but we're closing in on half that value. (Record high in gold was roughly $895 intra-day on the April gold futures contract in January 1980. Also in January 1980 the commodities regulators changed the rules and screwed the Hunt brothers out of their fortune. They had taken a large fortune and made it into a smaller one. Silver peaked at roughly $50 an ounce.)
The Nikkei closed lower signifying an end to their rally. Why? Well, gee, Jillickers, the yen is at a 15 year high against the dollar. Good MORNING Bank of Japan. Your efforts to ease have failed utterly. The Feral Reserveless Scheme has out-eased you. Instead of seeing the yen depreciate on this round, the "go again" was almost lost in the noise. The trend continues down. Hard.
Yesterday's Dow flirted with higher and lower all day, finally succumbing to late afternoon buying, probably by the plunge protection team, to end marginally higher. My guess is that was an end of trend signal, in which case we'll get some sort of downward motion on the Dow today. Broader markets like the S&P 500 were lower, slightly. The NASDAQ closed down slightly.
Asian markets are mixed with Bombay way down, Shanghai up, Nikkei down slightly, the Hang Seng flat. European markets are mixed, mostly flat.
So my guess is that the steam is running out of this inflationary move. Monetary inflation has ...stimulated some higher prices in stocksbecause when the dollar is worth less you want to own a dollar-denominated stock which has the potential for earnings, in case the dollar becomes worth even less next week. Monetary inflation in Japan, the USA, Japan, the USA, Europe, and Britain has stimulated buying in oil, gasoline, natural gas, gold, silver, and copper.
Inflation is here, and it is raging. Investors have to be thinking about that. Which means that if they want money for Christmas presents, they are thinking about selling something. Maybe bonds, maybe stocks. Probably not their gold or ...silver, which look to be making strong gains.
Earnings are being announced starting today. The early number on jobless data was bad, yesterday, and we'll see what sort of lies the Bureau of Labour Statistics wants to emit tomorrow. Meanwhile, if earnings are low, then companies aren't going to be inspired to spend much of the cash they have been hoarding. That is, until they perceive that the value of the $2 trillion in cash companies have on their balance sheets is going to become worth much less. At which point they are most likely going to buy strategic inventories, like commodities.
Meh, the lies about jobless claims are later this morning, not tomorrow.
Friday 8 October
So, what next? Well, gold it another all time record high on Thursday in early morning trading in Hong Kong and London. The rest of the day was profit taking. So the price sailed down from $1365 per ounce to $1326 where it made a dead ca...t bounce back up to $1335. It appears to be filling in gaps left by its long march skyward.
What does this mean? Is the rally in gold over? Very likely not. I think it is just starting to enter the mania phase. Finance.Yahoo is now listing gold on its "US" financials screen. The Dow, NASDAQ, S&P 500, 10 Yr bond, Oil, Gold. In that order.
Monetary inflation is here, and until the debt is paid off (larf) or defaulted upon, monetary inflation in one form another is to be expected. Though you should expect some pretence at "restraint" right after the election.
Meanwhile the stock markets all rolled to a dead halt this week. Wednesday the NASDAQ was down. Today the NYSE, Dow, and S&P 500 were all down. The Nikkei this morning is down further. The FTSE is down.
Silver meanwhile dropped about a dollar an ounce and is headed right back up. I think the price drop was again profit taking. And the drop is minor and brief.
Copper has been going up since the first week of June. I think many investors are seeing it as a money choice, like gold or silver. About 22 cents a pound came off the price today, but it looks to be going right back up.
So, what if they come around to confiscate everything of value? Think about copper tubing. You can put it up next to your existing pipes, and it may escape notice. Or paint it grey.
Well, the governments in the uSA shed 159,000 or so jobs and the economy was net down 95,000 jobs. Which bad news drove the Dow over 11,000 for the first time in months. Heh. Or maybe it was inflation?
Gold and silver are going back up, an...d gasoline was over $2.15 last I looked at the commodities market.
It has been a long time (1979) since gold could sustain a one day drop of $40 an ounce and go right back up the next day. Which is good to know, since we are in uncharted price territory. (What is the inflation adjusted price of gold? The high in 1980 might correspond to around $3,000 but that's while inflation is evidently raging today. So...who knows?)
We've seen mild resistance at $1365 and we see definite support at $1330. But I suspect that this information is only of short term use, and the market is going to go higher next week. Yes, even the Dow.
Silver is also right back up within a few cents of where it was when it peaked yesterday. This is also great news, because the gold to silver ratio is going to ameliorate as monetary inflation takes hold. I would not be surprised to see a low in the ratio of ten ounces of silver to buy one of gold. Near the peak, about three ounces or less of gold should buy the Dow.
The Nikkei was down substantially on the much stronger yen. A strong yen is bad for exporters as it makes Japanese goods comparatively expensive. On the other hand if you think a weak dollar is good for the USA, which imports a huge amount every year, then you'll enjoy paying $4 a gallon for gasoline, again, soon.
Nothing in the balance of the week's trading convinces me that this rally is based on fundamentals. It is based on monetary inflation creating dollars looking for a place to earn income while the system melts down. It seems to be politically motivated, to "help" before the mid-term election in November. From some of the polls, it looks like between 50 and 100 seats may change hands in the house.