Oldtent Archives 2007 - 2008

.LOL

…..but maybe he means the Exchange Stabilisation Fund….They have unlimited dollars to just print and then buy whatever…..manipulate whatever…..we are in the Age of Completely Controlled Markets…..with perhaps the occasional panic which overwhelms the Cretins….as we just had…….But like the Automatons they are…or.like Zombies…they just keep coming back and mutating and finding more and more ways to liquify everything………I guess thats what Von Mises and the Austrian Guys called yer hyperinflation eh ?

after hours markets seem to be extremely nervous. can’t put my finger on it. mc cain upset? no confidence in obama? markets usually move months and weeks before elections and are usually incredibly accurate. might be some huge moves overnight.

rno

some red sates are going demo Ohio New Mexico and another missed it. Thanks to Bush

He had a gread article - then said “We can be certain that if further bouts of forced liquidation and panic occur, governments will come in to support their currencies and to buy stocks.”

Someone please explain to me how our government can support our currency by creating more dollar to buy our stocks? There is no place for more money to come from than creating it out of thin air - is there? It takes dollars to buy stocks = doesn’t it? Doesn’t make sense to me. But Monty Guild is a smart guy, so it must be an angle I can not see?? Deadeye

Maybe he means we support our dollar by raising interest rates? Boy the government would need to be buying stocks with both hands! Buy stocks with what?

Delusional Behavior

By Adrian Douglas

One of the most unfortunate flaws in the human psyche is the ability to believe a concept to be true only because many other people believe the same thing. Quite often enough people can come to their senses that the concept can be debunked relatively quickly and no real damage is done. On occasions, however, the masses can remain delusional for a very long time. I am going to explain the current delusional state of the masses with respect to fiat currency. The people who can shake themselves out of this delusional state can profit.

Imagine you own a house free and clear and you are in possession of the Title Deeds. The Deeds are printed on paper. What is this paper document worth? The paper is worth nothing but it certifies that you own a valuable real asset; the house. You want to buy a Mercedes so you go to your local dealer and choose a car you like. You tell the salesman that you will give him your house in exchange for the car. He agrees and you hand over the deeds to your house. The salesman doesn’t know if your house actually exists because he hasn’t seen it but he can trust the authenticity of the Deed document. Later on that day the salesman decides he wants to buy a yacht from a friend. He hands over the deeds to the house as payment for the yacht. The government realizes that this is an excellent monetary system so it is officially adopted. Trade flourishes and business people conduct business with confidence knowing their products are being exchanged for assets of intrinsic value. The government then announces that the Title Deeds no longer will be issued against a house but the government will issue “Deeds” that are identical to the real Deed documents which can be used in trade as payment but a house will not be allocated to you. The reason for doing this, the government says, is to provide “liquidity” because there are not enough houses and that is restricting those that don’t have houses from participating in the economy!

What would you think of this new money? Would you treasure it and hoard it? It is valueless BUT it is still exchangeable for real goods while the crowd remains delusional. Clearly the people who will benefit will be those that come to their senses first and exchange these worthless pieces of paper for something of value before the public collectively comes to its senses and no one will accept them.

You are probably laughing at what a stupid system this would be. Well don’t laugh too loud because this is the story of the US dollar and all other fiat currencies. The dollar started out under a gold standard as a deposit slip for gold in the bank. When the Federal Reserve was created in 1913 $20.67 dollars bills were the “Title Deeds” to one ounce of gold. With these title deeds you could reclaim your gold from the bank or you could pay for goods and services because tradesmen trusted the dollar bills as being authentic certification that you owned a certain amount of gold. In 1971 Nixon “closed the gold window” and declared that dollars were no longer redeemable for gold!!! So the dollar became the “Title Deeds” to nothing. What is strange is that the delusional public didn’t wake up to what had happened. They have continued to trade these defaulted instruments in exchange for good and services!

In the panic that has consumed the public in 2008 major companies have gone bankrupt, others have been bailed out by the government, stock markets have fallen, and so too have commodities. Governments around the world have stepped up to save us by “increasing liquidity”. That is to say they generated more “title deeds to nothing” to help us out of the crisis. There are even analysts (deflationists) who are proclaiming that in this crisis we should accumulate these defaulted instruments because “Cash is King”! Cash used to be King when these notes were the titles deeds to something of intrinsic value such as gold.

Let’s take a look at the sorry history of the dollar.

FIGURE 1

In a pure gold standard the amount of paper currency should exactly match the gold held by the banks. Figure 1 shows the gold price from 1913 to 1980 as the blue line. The US government couldn’t resist the temptation to deficit spend. That is to say to create more dollar bills than could be redeemed for gold. The red line shows the Federal debt divided by the number of ounces held by the Treasury. This represents the amount by which the official gold price should have been revalued to have 100% gold backing of all issued dollar bills.

In Figure 2 the ratio of the Federal Debt per gold ounce to the actual gold price is shown. Although the Treasury no longer redeems dollars for gold this can still be done on the futures exchanges or with bullion/coin dealers. The chart shows by what multiplying factor the market price for gold would need to be adjusted for the Federal Debt to be 100% gold backed. When Nixon closed the gold window the official gold price needed to be multiplied by 30 for 100% gold backing (point “1” on the chart). By 1980 the gold price peaked at $850/oz which was still only 20% of the price required for the Federal Debt to be 100% gold backed.

FIGURE 2

The ratio peaked again in 2001 as our current bull market commenced (point “2” on the chart). At that time the gold price was a factor of 80 undervalued for 100% gold backing of the Federal Debt. If the bull market ends at the same x5 level that it did in 1980 and the current debt level remains static (highly unlikely!) then the gold price will peak at $8,000/oz. For 100% gold backing of the Federal Debt gold would need to be priced at $40,000/oz. However, this also assumes that the US still has gold reserves of 8,300 tonnes. Traders have recently observed “coin melt” gold bars coming to market which is likely to have come from US official reserves and would also indicate that no good delivery bars are readily available. This along with other evidence GATA has amassed suggests the US may have significantly less gold than the officially claimed amount, but more importantly, they may be close to depletion.

It should be noted that the Federal debt is not equal to the money supply, but it is a good proxy for this discussion and the actual amount of dollars issued is higher.

It should not be forgotten that the US dollar was a deposit slip for gold which has been defaulted upon. However, the futures exchanges and bullion dealers will still exchange dollars for gold and they will give you 80X more gold than US government would give if they were to reinstate convertibility! Do you still think cash is King?!

In my initial example would you rather own bogus “Title Deeds” to houses that don’t exist or would you rather own a house? With respect to the dollar would you rather own defaulted deposit slips for gold or the gold?

Central banks have defaulted on the redeemability of currency; however, they still keep gold. Why? Because one day the public and foreigners will awaken from their delusional state and no longer accept “title deeds” to nothing as payment. One day payment with real assets will be required and gold is the only real asset the Government has.

You can profit by shaking yourself out of the delusion that amassing dollars is better than amassing gold or silver. Many people have already come to their senses and have cleaned out almost every retail supply outlet in the entire world. Now that has all gone they will move to clean out the COMEX where the Gold Cartel manipulates the price to maintain the delusional state that dollars are the safe haven.

When defaulted instruments are being circulated as money you never know when suddenly the madness of the crowd will evaporate and suddenly the bills are viewed for what they really are…worthless. This has already happened to Iceland. One day foreigners accepted their Krona as payment the next day they didn’t. This will happen to the dollar. It is not that its value will change it is that everyone will suddenly recognize its true value. When that happens the “Cash is King” proponents and all the deflationists will have a tough time changing their paper for gold or silver.

In 1971 the government’s gold window was closed. In 2008 we will see the closing of the “private sector gold window” where lack of silver and gold supply will make it impossible to exchange fiat currency for precious metals, as is already happening now. Make sure you you get some in time. The repricing of gold and silver will be phenomenal. When metals become scarce the mining stocks will become the recipients of investments flows as the next best thing to owning metals on surface will be owning metals in the ground.

Adrian Douglas

www.marketforceanalysis.com

info@marketforceanalysis.com

Sorry I could make the get together due to bad back (disc hernia) .

I have now discovered beer is a pretty good pain killer with less side effects well not really but you have more fun while taking your medicine!

 Thanks for the photos ..it looks like another marathon event!!!

Of interest to all is the attached link on silver…the word is spreading …

http://www.fourwinds10.com/siterun_data/business/currency/news.php?q=1225849108 

U.S. ECONOMIC NUMBERS SHOW DECLINE OF 0.3% GDP IN Q3 2008

The facts probably indicate that the recession/depression actually began in the fourth quarter of 2007 or early in 2008. Since that time, we expect that real GDP has shrunk by about 4% from its peak. Before the current economic correction is over, we expect to see peak to trough economic growth shrink by at least 10%…and the economic shrinkage will last from late 2007 through 2009.

The facts as we see them:

1. Those who work in government like to please their bosses. Statistics gatherers who work in government, like to show data which make the politicians look good.

2. The Bush administration has tried to make the economy look stronger using selective and ad hoc economic adjustments. We have long thought that after the election, the economic statistics would become decidedly less positive, as they adjust for the over statements in growth in the period from December 2007 through June 2008.

3. Most observers agree that the Democrats will be the big winners in this week’s U.S. election. As soon as they are able, we expect government statisticians to emphasize the negative statistics so that the new administration will be able to say, “Look what we inherited…and how well we have done improving the situation”, once the data begins to look better.

4. We expect that the fourth quarter 2008 and first quarter of 2009 data will look bad when it comes out.

OUR ECONOMIC VIEWPOINT

We believe that the depression of U.S. business activity will amount to 1 1/2 to 2 1/2 years (6 to 10 quarters) of low or negative economic growth, and a peak to trough decline in GDP of about 10%. Unemployment could exceed 10%. We expect world business activity to shrink to very low or negative growth for about the same period of time.

There are three events which could deepen and prolong the mild depression and turn it into a much more serious and long lasting problem:

1. Over the counter derivatives could continue to collapse. For example more Lehman and AIG credit default swaps, or other bad derivatives. How many more land mines like this exist out there?

2. Banking liquidity, which is slowly starting to return to the banking system, could fail to be absorbed and banks could continue to refuse to lend.

3. A trade war could break out, debilitating global trade and destroying growth.

Assuming that none of these occur, we expect to have global growth return within a year or two. After some rude shocks, the markets will once again rise.

INFLATION VERSUS DEFLATION

Everyone agrees that money supply and the monetary base are growing in almost all countries. Deflation proponents say that this does not matter, because until the velocity of money accelerates again, inflation will not rise much. They argue that the money may be going into the banking system, but it is not moving into the economy, so it is unable to create inflation. Some in this group state that until employment rises, the velocity of money will not rise, and inflation will not be a problem.

A second group, lets call them disinflationists, not deflationists, say that the governments of the world will eventually mop up the excess money supply, with monetary actions meant to reduce the danger of inflation. This excuse has been used repeatedly, prior to the advent of past inflationary episodes. It is an interesting theory, but it never seems to happen in practice. Somehow, the politicians never feel that mopping up excess monetary creation is so important…and by the way, it is not trivial to accomplish.

Although the first argument has some good points, it fails to note that the U.S. is not the only country in the world with rapid monetary growth. Many other countries have a much stronger velocity of money than the U.S. Further, the analysis is complicated by the need for countries to sterilize foreign purchases of their currency (by printing money), and by many other variables.

Inflation caused by fiscal policy is another problem that few seem to be mentioning. Fiscal policy which expands deficits, and creates liquidity through various types of handouts, also creates growth in the money supply. It can even circumvent the banking system, adding money through non bank transfers. In our opinion, we will be seeing much more inflation caused by fiscal policy created in many countries around the globe.

OUR CONCLUSION

After weighing numerous variables, we continue to believe that after a period of moderating inflation, that new inflationary problems will arise before employment begins to rise.

GLOBAL MARKETS ARE RALLYING

In spite of negativity from many quarters, stocks, currencies and commodities are rallying globally. Governments are buying stocks, sometimes secretly, sometimes openly (several countries, including Russia have announced that they are buying stocks). Other countries are supporting their currencies and buying stocks more discreetly. Many experienced observers think that the current market rally may last for several weeks.

No national government wants a plummeting currency or a plummeting stock market, and they are trying to stop the chaos, panic, and forced liquidation. We can be certain that if further bouts of forced liquidation and panic occur, governments will come in to support their currencies and to buy stocks.

Such intervention will create only short term positive effects. It may create a currency or stock market rally, but not a new bull market. It is not a long term solution. Projected economic growth must return before there will be a long term rally.

When it occurs, the long term rally will begin four to sixteen months before economic growth returns. Markets are discounting mechanisms. They discount economic growth or shrinkage that has not yet occurred. For example, the recent decline from last October until last week, was discounting the slow and negative economic growth that began months ago, and is just now starting to be recognized by the public. The pattern that has been most frequently seen in the past, after panics and capitulations such as the one we saw in October, is the market will first stage a rally, and then probably experience a retest of the recent correction. The rally and correction will be part of a base building period.

Pessimism is rampant now, and many people are ready to get out and be done with stocks, commodities and currencies for good. This type of psychology is often seen just as rallies begin. We expect the rally in stocks, gold, commodities, and currencies to continue for a while longer.

Thanks for listening

Pages 3, 4 and 6 tells the tale ………………….ouch!

http://research.stlouisfed.org/publications/usfd/20081031/usfd.pdf

  I’m with Soee on this - not too crazy about the lack of volume. Then again there wasn’t alot of volume in the broad market either, so it’s hard to read too much into it.

  What encourages me the most is that we’ve seen a good bounce off a potential bottom without much help from the metals. Leads me to believe that if the metals get going, the miners will do well from here. I think the T/A guys might agree that the HUI looks pretty good on the daily charts as the macd has crossed. Weekly not there yet.

Still trying to figure this TA stuff out, studying hard before I commit , but should we wait for a follow-through before getting all giddy? Bill O’Neal states should wait until rally proves itself. “A follow-through” occurs when one of the indices closes up 1% or more with a jump in volume from the day before. This confirmation will usually happen on the fourth or tenth day of the attempted rally”.

What does the Put-Call ratio indicate now about market direction and the HUI? Should we wait and see what happens when the election distraction is over to see what the market tells us about direction? When everyone gets back on track tomorrow will the 10 am momentum tell us anything about direction? A very successful trader once said he did not care about missing the first 20% of a rally or the last 20%, just so he was in on the other 60%. The buy and hold on fundamentals was a real wake-up call for me, now I prefer to read and study before taking the plunge. Have learned much here (I think) and really appreciate site.

And happy for it. Even more enjoyable I voted against the one person I could, that voted for the bailout. message sent.

With not quite the flare and grace that our dear Farmboy did today but neverless a a vote for the person that should have been one of the choices.

oh, and I only voted once! (if ya don’t count the two I forced my 2 kids to write in my way!)

Three of our mining shares are starting to turn up.  Still a long way in the red though.  You never know….

Hard to say why the markets went up today. Some suggest that they are discounting an Obama win. We could still see a pull back, but I think that is a good time to begin scaling in. You could buy some now, and some next week if this is simply a relief rally.

As debt is now an issue, I am looking at those with cash and no debt. Also, I expect to sell no later than late winter, as I have no interest in holding during another spring selloff. And if you have been reading George Ure’s site, you saw his posts from his market guy Landry, whose view on the market I like. You might also read Cyclist’s thread, which I find very good. Go back a couple of weeks if you have time on this thread and see for yourself how good he is.

www.kitcomm.com/showthread.php?t=85&page=1272

Some without debt, and with cash include orv.to, sst.v, ngx.to. Your post about oil and gas is important too. I do not know if any of the oil/gas trusts are debt-free, but they also could have a good run now that winter is near. Again, sell in a timely fashion.

biz.yahoo.com/ccn/080814/200808140480030001.html?.v=1

Distracted lol..it’s election nite. I never got my absentee balot so had to vote provisional at the poles and will be calling to SEE if my vote counted because some idiot didn’t send me the ballot..since this is the second time I will See if they can be fired.

Why don’t you ask Farmgal to drop in and say hello to us all.  I’ve seen you mention her and it would be nice.