Sunday, May 31, 2009

assorted observations sunday afternoon...


some points to consider for all those following the gold-buggery right now happening in the blogsphere..


1. there has been talk about a default on the COMEX contract for over a year now, with each new wave of rumor centering around 1 central figure who has amassed what is called an "unusually large" position. Each time the month rolled over and passed with little or no fanfare.

for those expecting something to happen in June remember, dont count on black swan events, simply have a plan in case at all times if they appear. Every gold bug is harping on something big happening in june, and by big they tend to mean bullish. the contrarian in me is starting to get worried. remember my maxim: if someone is allegedly building a massive long position because they know something, then someone else with enough gold is selling it to them because they know something.

these kinds of stories are what make great headlines and suck people in. while anything can happen, and im prepared to a sudden gap up or parabolic move in part, im also prepared for the opposite as we have seen the later come to fruition more often than the former.

2. for the many Sinclair fans on the board, who i count myself as one of them, recall Jim's calls last summer/fall about a major massive gap up in gold, a settling of oil at $100 a barrel and gold shares not collapsing... the man is right in a macro sense, but trying to time gold has proven difficult at the best of times.

3. june is a tricky month because of the nature of the COMEX volume and activity coupled with the Armstrong turn date mid-month, E-wavers building "C wave up" postulates, and the flatlining nature of so many overbought TA signals in the broad market.

4. with respect to the gold miners, i posted on friday that i sold a bit, in preparation to reload should things slide from here. its hard to time so i wouldnt be surprised to see $1000 before we see $900, but if we do fall from here, i suspect it will be nasty and fast to scare the pants off of people. too many are either bullish or expecting a nice orderly pull back to reload. when does it ever work like that?

5. GATA does some great work but they have zero credibility when it comes to inside information. there is no objective evidence that any of their sources have brought to the table something we either didnt already know, or was proven true after the fact. Jim Willie and the rest of the "black swan alert" gang have only been right in that gold has risen over the past few years. if you followed their advice and bought jr's and miners you'd probably still be underwater. theres no money in telling people to simply buy gold bars and sit on them. even though thats proven the best strategy the past few years from a passive investment perspective.

6. gold bugs still fall into the religious category, not investor type because far too much of their ideas on gold stem from biblical black swan events in which the second coming of their lord will appear in the next COMEX contract to send the gold price skyward to heaven.

the beauty of their system is that they have said the same thing for years, and neglect to discuss how often they were wrong, simply rehashing the same old arguments until one day they may just get it right, and they can do a victory lap while saying they told us so. too bad far too many gold bugs having been massively underwater holding miners the past few years will celebrate simply breaking even.

when gold and gold shares collapsed in 2008, few truly saw it and articulated it clearly enough, simply because its difficult to do. you cant blame anyone for getting it wrong. but you can blame those who got it wrong, but obfuscated the past by declaring why it went down and why it wont happen again on any further downdrafts. does anyone really think if the market crashes gold mining shares wont go down again? unless gold skyrockets up they will fall. even a gradual gold price rise will not hold the miners from falling w/ a big correction. dont let people claim it was "margin calls" from hedge funds.

hedge funds have been used to blame for anything and everything under the sun. gold bugs love blaming them for short positions, then crediting them for being savy when they suspect they are long... its religion, not analysis.

7. long and strong. half all in. thats my game. if we moonshoot to $1200, awesome, ill be happy. my standing offer remains: if the HGU hits $30 this year, ill go 2 rounds of Brazilian ju-jitsu with anyone willing to come up to toronto. its an open invitation/open weight class offer. and my ju-jitsu sucks, so im counting on the euphoria of gold miners that high keeping me from noticing the pain of getting choked out!!

8. USD came down fast, china like most nations dont want a currency crisis anywhere. they are not stupid war-mongers either, no one likes what north korea just did. China if anything will emerge as a more diplomatic force with everything that is happening as a collapse of the US would threaten the ruling regime in bejing, remember they have 1.6 billion people, the focus of chinese domestic politics has historically been of greater concern because of the sheer size of its populace. failure to contain domestic problems has led to regime change over the past 3000 years in china, not foreign invasions.

be careful about view china's actions through the "foreign policy" lens of western geo-strategic traditions. still valid in their own right, but not entirely applicable to china. remember, looks matter in totalitarian regimes, hence why dissent is so aggressively quelled in such regimes and the press/internet is restricted more than in the west. currency swaps with brazil and argentina may mark a turn from a US-dollar centric FOREX but are tears in the bucket, and dont negate china's ongoing purchases of US debt instruments. It just sounds good for domestic patriotism to imply they are turning away from american reliance when in fact they still are the biggest holder of US debt. Its all about looks.

9. same with Iran. they have no reason or desire to actually bomb anyone. Its a media game and a bunch of hot heads on either side trying to provoke someone. if they want nuclear weapon they could purchase one, or make one. this notion that we must intervene to stop them is ineffectual. no state has ever been able to do that. sanctions dont and wont work. all they do is bring the populace on the extremist side. regimes will as we have seen allow their people to starve before giving in. sanctions in iran or elsewhere are pointless and only give them more attention.

iran has enough fire power to do damage, they know using a nuclear weapon against anyone would mean their nation would be wiped from the map immediately. the rest is simply conjecture. think about how viable this is as a policy approach? its not, and most people know its hot air, unless of course you are only listening to right wing american media.

10. the taliban are not taking over pakistan, or their arsenal. it never was close to happening, and its even less likely now. most Pakistani's have no interest in the taliban running the show. its more media attention so they can run headlines to say "could taliban take control of the nukes in pakistan? should we send more troops???". its all a great pre-text to increase the stakes in the af-pak war. under the auspices of a nuclear-taliban obama can deploy more men and material there.

please if you dont believe me follow some articles here,

http://www.tomdispatch.com/

one of the most cogent geo-political blogs on the net.

11. its soccer time, need to blow off more steam!!!!

good luck gang.

Saturday, May 16, 2009

right here, right now... gold

"Right Here Right Now", was the smash hit of Jesus Jones. They were among a handful of odd groups in the early 90's; not American enough to be grunge, not electronic enough to be techno. Jesus Jones rode a sort of fading post-new wave tide into the horizon, never to return to the scene.

Right Here Right Now
was the theme song of Hillary Clinton's presidential campaign. While Americans were chanting "Yes We Can", more than a few weary democrats and liberal-thinkers were experiencing a deja vu of sorts. Gold seems to be at the precipice of something that I loosely define as a Right Here Right Now moment. Looking at the chart I cant help but be filled with bullish enthusiasm, all the technicals, moving averages and trend lines appear to be in place for a push forward to and beyond $1000.

I use the Money Flow Index rarely, perhaps only because I so rarely see it featured in discusions of technical analysis, but I think recent developments warrant consideration of what has registered on the Money Flow Index at 2 different time frames (14 and 21).

The OBV indicator is best restricted to breakout's from consolidation patterns (imho), otherwise it gives a host of false flags and divergences that never seem to match subsequent price action. We see in a 1 year chart of the GLD the OBV like the current price action is up against a critical resistance point. The direction has a bullish inclination but has yet to be decisively broken to the upside. The recent recovery of the US Dollar from week's plunge below .82 on the index reminds me that nothing is ever a sure thing, especially in gold and in early 90's one-hit wonders.


Good Luck gang,

J

Don Coxe May, 2009 Conference Call

Don Coxe May, 2009 Conference Call available here.

Thursday, May 14, 2009

A tale of two cities?


Bonds, having fallen through support in such a short period of time has drawn the attention of not just gold-bugs but the powers that be, who couldn't permit a free fall in US debt. No, a nice gradual cooling would be the politically expedient thing to do. A bounce back towards the 100 level in the TLT at the 200 SMA which will soon flatten while the 50 and 100 SMA's look to cross downwards is a classic short set-up. (That is for those confident enough that the Fed will not announce further rounds of QE in an attempt to goose the market)


The inverse or short EFT the TBT is flashing all the tecnical signs of an interm top:

Sto, RSI, MACD turning down on fairly strong volume after a test of the 200 SMA. The 50 and 100 SMA's are curling up nicely and correction down into the 45-47 range is not out of the question. The first shot across the bow is TLT 100, while the war begins at 105 where any advance from there would reassert an intermediate uptrend in bonds. Gold $1000 does not appear in the cards until bonds can fight it out.


good luck,

J

Wednesday, May 6, 2009

Canadian MP accused of mistreating foreign workers


Limousine Liberals, Champagne Socialists and draft dodging Conservatives...


A member of Parliament for the Liberal party of Canada has been accused of illegally hiring and mistreating foreign domestic aid's or "nannies", and as if that weren't bad enough, she is accused of withholding their passports and demanded they sign waivers denying this was ever done once the whistle was blown.

Liberal MP Ruby Dhalla is well know in Canadian political circles for being the first Sikh MP, and being hand picked by Paul Martin to run in her Brampton Riding. From the start I disliked the nature of Ms. Dhalla's tenure as MP, it seemed that issue after issue arose from a tax-payer funded junket to her native India, her attempts to supress a "Bollywood" style video from being released in which she played the main character but claimed her body was digitally altered, to the current scandal. Developments continue to highlight an MP who brazenly advised an employment service that she could use her political clout to secure travel and work permits for her staff, paid domestic workers low wages in cash and assigned them tasks well outside the permitted guidelines for foreign home-care workers. To make matters worse, Dhalla has denied having any involvement in the hiring of these workers despite her personal interview and payment to the main nanny in question.

We can expect the usual boiler-plate denials and obfuscation from the Dhalla camp, but the facts are coming together and its getting ugly...fast. Why an MP would even chance hiring domestic workers and paying them cash before they are properly documented to work in Canada is beyond me.

Why the Dhalla family would think it appropriate to make domestic workers wash cars and clean offices is even more contemptible. Ignatief is riding a wave of popularity at the moment, this will no doubt make his reconsider the "rising star" status of Dhalla, this can only end badly for her and she has no one to blame but herself.


J

Storm erupts over Ruby Dhalla and the nannies

ADRIAN WYLD/THE CANADIAN PRESS FILE PHOTO
MPs Ruby Dhalla, left, and Judy Sgro join Liberal Leader Michael Ignatieff on stage after his speech at the party's convention May 2, 2009 in Vancouver. Dhalla has been a supporter of Ignatieff since his 2006 leadership bid.
www.thestar.ca

Ottawa under pressure to probe Liberal MP after caregivers claim they were mistreated


May 06, 2009 04:30 AM

IN OTTAWA

IN TORONTO


The federal government is facing pressure to launch a legal probe of Liberal MP Ruby Dhalla in the wake of charges that she and her family illegally hired two nannies and subsequently mistreated them.

Immigration Minister Jason Kenney said yesterday there are several legal penalties for the type of allegations the nannies have made against Dhalla, 35, MP for Brampton-Springdale since 2004 and the Liberals' critic for youth and multiculturalism. He did not specifically mention Dhalla or the specific allegations published in the Star and he said he could not launch his own probe for fear of politicizing the process.

"We're aware of stories of abuse of the rights of live-in caregivers that are very disturbing. These are typically vulnerable workers," Kenney told the Commons.

Dhalla did not make herself available to reporters yesterday, and Liberal Leader Michael Ignatieff would only say he was still "collecting facts" on the case. NDP immigration critic Olivia Chow said that if the nannies' reports are true, "then there are three or four laws at least that have been broken, whether it's labour laws or immigration regulations."

The Star reported yesterday that two nannies, Magdalene Gordo, 31, and Richelyn Tongson, 37, have publicly complained they were abused while working as live-in caregivers for Dhalla and her family. They alleged, during a public forum two weeks ago with two Ontario cabinet ministers, that their passports were seized, they worked unpaid overtime and were forced to do non-nanny jobs such as washing cars, shining shoes and cleaning family-owned chiropractic clinics.

"One question I have is if this information came to light in a public forum, I would hope that any responsible authorities would have notified the appropriate officials," Kenney said. "I think these allegations may have been provided two weeks ago to a minister of labour in Ontario and I presume that the appropriate authorities were informed."

Jill Fairbrother, Ignatieff's spokesperson, would not say what facts he was collecting nor how long it would take him to make a decision, if any, on Dhalla's fate. Dhalla couldn't be reached for comment, but her office released a statement late yesterday saying she took the assertions in the Star story seriously. "I have hired a lawyer to vigorously defend my reputation and ensure the facts of this matter are fully explored and corrected."

Dhalla told the Star on the weekend she was "shocked and appalled" by the allegations and said "anyone who has ever worked in our home has been treated with a lot of love."

Dhalla's name is becoming synonymous with controversy, and her troubles present Ignatieff with tough questions about how to handle someone who has been a loyal supporter of his since the 2006 leadership race.

Generally seen as a probable cabinet pick should Ignatieff ever assume power, Dhalla may be coming to be seen as too controversial, despite her photogenic and multicultural appeal. She's the first Sikh woman ever to be elected as an MP. Only a little more than a month ago, Dhalla was embroiled in a dispute over release of a Bollywood DVD in which she appeared, before she got into politics.

And just over a year ago, while on a trip to India, Dhalla was portrayed as cavalier and insensitive when police administered beatings to two children who stole the purse of an aide to the Liberal MP. Dhalla later said she condemned violence of any kind.

Yesterday, the head of a non-profit group that advocates for caregivers said she gave Dhalla 24 hours to turn over the passport and other documents seized from Tongson. Agatha Mason, executive director of Intercede, said she warned Dhalla that if she did not hand over the documents immediately she would call in the RCMP to retrieve them.

Mason said she called Dhalla in Ottawa last May after nanny Tongson, who was working "illegally" as a caregiver in the Dhalla home, was having trouble getting her documents back from her employers. "I said to her, in 24 hours if you don't give her the documents I will call the RCMP – I have your address – and have them go there to get the documents," Mason told the Star.

Mason said she told Dhalla Tongson shouldn't be working at the Dhalla home because the family did not have federal approval under the Live-In Caregiver Program.

"I remember telling her that, until you have and LMO (government approval documents) the person is working illegally, so you're breaking the law," said Mason, adding she has notes and telephone records to prove she contacted Dhalla.

In a telephone interview with the Star last week, Dhalla denied she had spoken to anyone from the Toronto-based agency. "I have never spoken to anyone there," Dhalla said. "What is Intercede?"

The Independent Workers Association called on Ontario Attorney General Chris Bentley to investigate Dhalla's employment of nannies, and for Dhalla to be relieved of critic's responsibilities until the inquiry is completed. "These accusations should be investigated promptly and thoroughly. And while the investigation is ongoing, Ms. Dhalla should step down," Peter Leibovitch of the association said in a news release.

Coincidentally, the Commons immigration committee – on which Dhalla once served as a member several years ago – is due to deliver a report today on undocumented and temporary foreign workers. In the House of Commons yesterday, Conservative MP Paul Calandra (Oak Ridges-Markham) said the nannies' complaints painted a picture of "involuntary servitude" in their employment with Dhalla.

Kenney responded by listing potential offences Dhalla could be facing.

"If someone was working in a home who was here without a work permit appropriate for that job, that would be my ministry and so that should be reported to the officials at Immigration Canada. If someone was paid under the table without taxes paid, that should be reported to Revenue Canada. And if workers did not have their basic labour code rights respected, if they were forced to work 12 hours a day or something then that should be reported to the provincial ministry of labour," Kenney said.

"As it relates to passports, you know, I think that would probably fall within my ministry. Passports are the property of the government, are administered by the department of foreign affairs."

At Queen's Park, an aide to Labour Minister Peter Fonseca said the minister last spoke with Kenney about three weeks ago, before the public meeting where the allegations about Dhalla were raised.

With files from Robert Benzie and Bruce Campion-Smith

Tuesday, May 5, 2009

whats on the dome today....



heres what im thinking:


1. we've seen many a sudden gold rally spike up, consolidate with a slight downward slope before spiking up again and continuing the pattern. even with golds recent jump's we are only a few dollars higher today than we were yesterday so i see the current move as having some potential but nothing outstanding yet.

2. the volume on the mining shares was weak for most during this upswing, but the % move up was nice. we would need to see some serious follow through on volume to signal the move up beyond $1000 imho. its not going to happen on this kind of volume.

3. good to see the Venture Exchange getting some ground, especially old favourites like Miranda. its been so long since the jr's behaved bullishly i dont know what to think. they still have a loooooog looooog way to get back to anything reasonable. there are many exhausted jr mining investors begging for prices to return to these stocks after years of torture.

4. good to see the USD falling a bit along w/ bonds, i suspect everyone was so concerned about calling this "bear market" rally's top that it just kept going to prove everyone wrong once again. most money managers are shy right now imho, mabey too shy if this turns into a crack-up boom. it will break at some point but not until more reluctant people are dragged along.

5. im getting the feeling that massive dislocations will start to take place b/w precious and base metals. alot of money is getting thrown around here and it doesnt always seem to correlate very well. ie: wheat up large, while corn down, then massive reversal's the next day despite crop problems in both on the horizon...

6. pork. its usually on my mind because im addicted to it, but i suspect the buy of a lifetime coming up and a cyclical bull market in pork will take place. for all the talk of what the chinese are doing people forget its not gold they want as much as their main food staple: pork. rice is simply the vehicle to carry the porky juices and fatty run off.

china cut canada's pork exports despite very reasonable support that there is no risk at all to contracting swine flu. it shows how unscientific most nations get when things get hairy. it reminds me the futility of the WTO and UN who lack any real teeth when the going gets tough. what is happening right now will decimate the pork industry in north america, especially canada and pork will continue to be in high demand. its nutritionally more dense than beef because its fat is so prized. (and tasty!)

problems in pork production are going to make local pork jump in price as entire herds get slaughtered if things get worse. a good case study for prices rising as demand falls, farmers will find it not worth while to have pigs if more nations start cutting us out. watching pork for a longer term move up once the carnage is done and the dust settles.

7. i was just thinking the only thing more awesome than a flying unicorn is a unicorn with wings made out of bacon.

8. i have a standing challange to anyone for a few rounds of brazilian jujitsu if and when the HGU breaches $35 in 2009. here's your chance to choke me and my smug commentary out. just no knee-bar's, i have a soccer career to maintain!!

happy trading...


J

Saturday, May 2, 2009

Summer Solstice rally or May showers...

A very interesting article by Andrian Douglas titled MONEY MOVING INTO COMEX GOLD & SILVER CALL OPTIONS gives a well thought out analysis of the Open Interest in gold and silver, predicting a leg-up in the coming months.

Another fantastic macro-economic article by Martin Armstrong outlines a case for a paradigm shift in the markets and world government. His masterpiece thesis is outlined here and was written in 2008. A more condensed and recent missive was published on Contrahour.com and provides an overview of what many believe are the words of an economic sage, currently jailed for contempt of court:

Is It Time To Turn Out The Lights?

By Martin Armstrong

Since the beginning of the year, everyone has expected either one of two outcomes: (1) The election of Barack Obama would spark a recovery and the economy would be saved by his stimulus package, or (2) we would see a major wave of rising interest rates to pay for the Obama spending-spree that would spark serious inflation. But there is a much darker side to these shallow views.

To put it mildly, it may just be a far more complex outcome than anyone has dared to guess. We may be in the midst of a "Waterfall Effect" that could undermine the very structure of Western Civilization. Historically, it has always been the debt crisis that destroys the greatest plans of men and dictators. This could be phase two of the collapse of Marxism. After phase one reshaped Russia and China, phase two may mean that it is the United States' turn.

Is it the Time to Turn out the Lights?

This Economic Depression is far more complex than meets the eye. I believe that the Investment Bankers, in their own greed, used the final days of the Bush Administration to try to grab as much as they could while there was an ex-Goldman Sachs boss in the driver seat. I believe they needed to scare Bush into giving them everything that they dreamed of, and Congress was stupid enough to hand-over a pile of cash with no strings attached. This scare tactic worked. The bankers got what they wanted and even settled scores by getting rid of their competition like Lehman. But in the process, they pricked the bubble in which everyone lived. They set in motion a collapse in confidence that is the critical key to a contraction. Once people lose confidence, they get depressed which is why we call such events a “Depression."

This Depression has centered on the most vulnerable of markets - real estate. It is the least economic force of production, yet it is the most visible sign of wealth in the minds of the average person. People will hoard cash whenever they feel that wealth is impaired.

States are in crisis and their way of doing business is also facing a new reality. As the real estate base collapses, so does the tax base. Unlike the Federal Government, the states cannot print cash without limit. What use to be safe like Muni-Bonds is no more. The end of borrowing for everything is now here.

Yet we are also reverting to the age old problem of Regional Capital Flows and disparities within each nation. This is a critical issue that is tearing Europe apart placing the Euro at risk. At the same time, the disparity among regions in the United states is percolating beneath the surface and is about ready to split the nation asunder.

The Disaster of One Size Fits All

Just prior to the formation of the Euro, I was giving numerous seminars on the subject and warning that the one-size-fits-all policy will not work and may be the undoing of the European Union. Some people believed that just because I was an American I was naturally pro-America. But that was certainly not true. The key warning I was illustrating at that time is starting to come to the surface. Let me make this perfectly clear. I believe Europe can survive and reverse the trend if it listens to reason!

Politicians have no long-term view because their self-interest is to merely win the next election. No one will run for office on a claim that they prevented a disaster. You just don’t know what could have happened! Just as President Obama is taking every possible wrong step that will ensure that this global economic disaster gets far worse, his advisers truly know nothing about history, trends or have any practical real world experience from the private sector to draw upon. How can we expect them to understand when such people have only lived within the bubble of government and convince themselves they have all the answers?

Call Money Rates 1870 Before there were central banks, the perpetual swings in the economies of the world rose and fell not in unity, but diversity according to the local economic mix. In the United states, these regional capital flows created localized booms and busts. For example during the Gold Rush of California, inflation in that region was running at multiples of that on the East coast. There were even $50 gold coins being privately minted in California whereas the largest denomination in the east was $20. When the San Francisco 1906 Earthquake hit, the insurance companies were in the East and the claims were in the West. The flow of capital left cash shortages in the East that contributed to the Panic of 1907 causing call rates to rise to 125% on the NYSE.

The analysis that followed the Panic of 1907 came to the realization that there had been a capital flow problem. The answer led to the creation of the Federal Reserve Bank in 1913 with its 12 branches. Why were there so many branches? What is not widely known today is that each branch operated independently. In other words, there could be 12 different interest rates. If cash was tight in California, that branch could raise rates by 1% and that would attract capital flows for investment.

The mistake of the Euro that is now starting to pull apart the entire system, is that the model used was that of the United states post-World War II. Because of Franklin Roosevelt and World War II, central power seemed to be the main goal. The independent status of the 12 branches was usurped into Washington and never given back. This usurpation of power completely altered the ability to manage the economy and thus, the Europeans based their model upon the mistakes of the United States. Just as there were regional distinctions in the United States, the same exists in Europe. The Euro is being torn apart by the ignorance of economic history.

The way to save the Euro before it is too late is to allow interest rates to float independently within each nation. This is necessary to allow capital to flow naturally to the regions that need it the most. Unless the Euro is fundamentally restructured, it is following the path of destruction that has been tearing apart the US economy not to mention many others. For example, in Canada, the central bank was raising rates to fight real estate speculation in Toronto. At the same time, it was putting farmers and miners into bankruptcy in Vancouver. There can be no one-size fits-all economic policy.

Outlook for the Euro

The Euro Monthly 2006The highest monthly closing for the Euro came in March 2008. The April high was exceeded slightly on July 15th, 2008 when the high was established at 1.5988 US. This is a clear double top that could yet be exceeded. The March 2008 highest monthly closing was in line with 2008.225, which was the first minor 'turning point after 2007.15 on the Economic Confidence Model where the US real estate peaked and made a major high that may last for several decades to come.

From the high in the Euro on July 15th, 2008, there was a bold collapse that, so far, constitutes a reaction amounting to a 3 month decline. While the Euro penetrated the low of 2007, it did hold its major closing support that remains at $1.26. A monthly closing in the Euro beneath this area would signal the end is near. For now, the Euro could still survive if the right steps are taken and Russia keeps its weapons harnessed. The greatest problem for the Euro long-term remains the geopolitical problems on the horizon in Russia, which still lives in the world of empire, rather than the age of production.

In order for the Euro to show some sign of strength, it must first accomplish a monthly closing back above $1.4215. This is the minimum threshold level from a technical perspective to show same sign of survivability. The next level of key monthly closing resistance will be at $1.4315. As long as the Euro remains below this level on a monthly closing basis, then a test of the major long-term support is still possible at $1. 1680. A monthly closing below that area and it will be very unlikely that the Euro will survive in its current form.

Currency Is Still The Key

British Pound 1919 - 1933We must understand that currency values may still prove to be the key. Often forgotten is the international and regional capital flows that dictate the overall trend and the outcome of what we face. The Free Market will always prevail. It even forced the collapse of Communism. No matter how much politicians may want to bury it or call it a Republican dream, it cannot be suppressed. The chart to the right shows the British Pound between 1919 and 1934. The currency clearly shows the decline of British power. It fell from $7.50 in the 19th Century to about $5 for the start of the 20th and it has flirted with $1-$2 going into the 21st. No matter what system, the Free Markets always prevail as this now shows even during the Gold standard. This is a safety-valve that the currency absorbs economic stress in a complex relationship with interest rates. This is a dynamic between capital concentration and capital flow internationally.

Today, we have the same interesting trend emerging. Despite the fact that the Debt Crisis has emerged from the United States, or more correctly, the London office of AIG, capital is still fleeing to the dollar in this flight to quality. But how can there be a flight to the dollar that is a flight to quality in a rational world?

The underlying strength of the dollar is also geopolitical. From a conventional perspective, the United States is still a very difficult place to land troops. There is also the maturity factor. The dollar is one currency that has remained intact. If you have a note printed in 1934 or 1864, it is still legal tender. That cannot be said even for the British Pound.

Yet there is something more profound. So far, the United States remains the key Super Power and the largest economy. Hence, what we are really looking at is the similar effect that Rome had in ancient times followed by Constantinople. When the Roman Empire in the West fell in 476AD, the Byzantine Empire of the East became the leading world economy. Its gold coin the "solidus" became the world currency even in Western Europe when no other states existed with the economic power to issue gold coinage. The coin began to be called the "'byzant" much the way the dollar is called the "buck" or "greenback" in slang terms.

For better or worse, the dollar is still the reserve currency of the world. It may not deserve that status, but that is another story. There is only one primary world currency at a time. The dollar may be humbled by internal stress and the political split of the nation and when that day comes, we will see it fall. For now, the world currencies have been few and far between.
Reserve Currencies

Silver Denarius of Julius Caesar Currency has always been a safety valve to relieve economic stress. This is not always understood, yet it is a vital component of global economics. When an economy comes under great stress where confidence collapses, people then hoard their cash. This is why Roosevelt confiscated gold, and it is why there was a Dark Age after the fall of Rome for there was no real capital flow nor banking, leverage, or borrowing - just hoarding. This drives the purchasing power of the currency higher (deflation) and when it declines, it does so against tangible assets (land, etc). The decline in the value of a currency is in reality a Free Market tax taking away wealth that is overstated. So currency can also be an indirect tax to compensate for the poor management of the state.

To illustrate the difference that capital concentration and capital flows will have on an economy, we need only look at the discount rate at the NY Federal Reserve between 1915-1933. Note that the worse economic decline was surely the 1929 Great Depression. Yet when we look at the real world effects, we come up with a different perspective.

NY Federal Reserve Discount Rate 1915The high at the NY Federal Reserve on the Discount Rate came during the Panic of 1919s aftermath - not the Panic of 1929. We can see the earlier high was 7%, yet in the Great Depression, the peak was only 6%. If we refer back to the Call Money chart from the NYSE, the peak was 1899 and in 1919 the high was 30% compared to 20% for the so called Roaring 1920s in 1929.

If the 1929 Crash was the worst in history and it was sparked by even shoe-shine boys speculating in stocks, then why did the Call Money rate reach the lowest level compared with every other crash going back to 1882? The answer is simple. Show me the Money!

The key to understanding the Great Depression is not speculation and Wall Street any more than what is going on today. There was currency crisis in 1931 that you can see illustrated by the British pound. And England was the least European-nation affected. Yet the pound crashed and burned from $4.86 dropping to about $3.15. It cannot be emphasized enough that the contagion spread then like today. All of Europe defaulted on its debt except Switzerland. Britain went into a moratorium and eventually honored its debt. This created an intensive capital outflow from Europe to America. We can see that the Fed lowered interest rates (discount rate) from 6% to 1.5% very rapidly. It did not matter, for capital was still pouring into the US seeking a flight to quality driving US rates down, but driving the dollar to record highs. We can see that the British pound had fallen in the Panic of 1919 to $3.40, and recovered going into 1925. Therefore, despite lower interest rates in the US during the Great Depression compared to the Panic of 1919, the dollar rose to higher highs. So we can see that there is no linear direct relationship that can be drawn. This is a complex dynamic interrelationship that must be understood.

England Cuts Rate to Historic Low

One would have expected interest rates to rise where there is a Debt Crisis. Yet interest rates even in England have collapsed to new historical lows going back to 1694. Indeed, most are now expecting interest rates in the United states to rise sharply in the face of Obama’s stimulus package. This is a rather simplistic view that we may not see unfold as many expect. This one-dimensional aspect of the problem is counter-balanced by the massive contraction in leverage at the core of the Great Depression of the 21st century.

It would appear that adding $1 trillion in spending would be inflationary and send interest rates higher. But this assumes that there is an alternative to investment not just domestically, but also internationally. We are also looking at a counter-trend causing the collapse in the avenues for capital to seek shelter. As I mentioned earlier, what use to be regarded as the safest bet - Municipal Bonds - for they were seen as backed by revenues, collapsed during the Great Depression. The City of Detroit defaulted on its bonds, but to be precise, it did eventually pay them off with much cheaper dollars in 1963.

Total Bonds Listed At Par Value on NYSE 1930s Another aspect of the Great Depression that has been lost in the details was that foreign nations, who defaulted on their debt, resulted in a collapse of the money supply in the United States. Back then, the investment banks sold these Bonds in small denominations to the average people. The irony of the Great Depression has been often hurried in history. Those who lost the most, tended to be the most conservative. Those who stayed away from the "risky" stock market, were still wiped out by the bond markets. For decades, there were groups of women who ware children whose family fortunes were wiped out by the collapse in the bond markets. Corp And Treasury Spread 1930s We can see from the above chart, the total amount of debt listed on the New York Stock Exchange exploded in 1928 and collapsed at the end of 1932. Another detail lost in history, the Fed lowered interest rates in 1925 in order to steer the capital flows to Europe. It was then presumed that lowering interest rates in the US would shift the capital flows and relieve the crisis building in Europe. Yet the defaults in 1931 wiped out conservative investors who stayed away from stocks contributing to a collapse in US money supply by one-third. We can see that the premium of AAA corporate debt over federal even reached a peak of more than 1.3% in 1932. The state and Municipal Debt also collapsed so the Flight To Quality did not subside until after 1932 and took place both domestically and internationally, not unlike what we are seeing again today.

The Waterfall Effect

The Waterfall Effect There are two primary different patterns of how markets collapse. The first kind is the speculative bubble. Typical speculative bubbles end with a spike whereby a sharp rise goes exponential, followed by a sharp and steep decline. The chart pattern appears like a heart-beat. This short-term panic typically does not lead to ruin. The spike formation is dramatic and highly volatile.

The far more dangerous pattern is the rolling over of an economy that is less dramatic, but does far more damage. Suddenly you just wake-up and everything is changed. This happened in China and Russia during 1989. There was no spike, just what I call the ''Waterfall Effect" that appears to be how a political state simply dies with no flare nor big bang.

The greatest concern that we should have is the degree of volatility is off the charts. We are looking at nearly an outside reversal to the downside of the Euro on an annual basis! This degree of volatility is truly amazing on an annual level and has not been seen since 1933. Just look at the previous chart of the Pound. Note that in 1933, the Pound fell to new lows, but then reversed and even exceeded the $5 level, due to Roosevelt’s 60% devaluation of the dollar and the confiscation of gold domestically. The sheer level of volatility is clearly back to the days of the Great Depression.

The Rise of Volatility

I cannot stress enough that the level of volatility that we are experiencing during this financial crisis is just well beyond even that experienced during the early stages of the Great Depression and is more akin to the collapse of Rome. That is a stark comparison tells me this decline is nothing to fool around with. However, the likelihood of either Europe or America following prudent economic policy to save our free economies is about as likely as me running for President.

Dow Industrials 1897 - 1937As we can easily see from the annual chart of the Dow covering the Crash of 1929, the decline does not reflect even an outside reversal in the first year of the decline. We can see that 1929 formed a spike high but it did not penetrate the low of 1928. The Dow Industrials did close lower than 1928, but it held the 1928 low

In 1930, the high remained below that of 1928, and it did penetrate that low and closed well below it. This provided a major annual sell signal and indeed we find the low 3 years from the 1929 high in line with the reaction rule duration of a maximum duration of 2 to 3 years.

When we look at the Dow Jones Industrials between 1897 and 1937, we actually do not find a single annual outside reversal to the downside until 1931. There was the Rich Man's Panic of 1903, the famous Panic of 1907, the Panic of 1919-21, the Panic of 1929 and then the Panic of 1937. Notice that none of these financial chaotic periods took place with the degree of volatility we have seen today, except 1937. The rise from the 1932 low into a 1937 high came with rising unemployment. Primarily, as gold was confiscated, capital was attracted back to stocks insofar as this afforded some tangible value for cash. The stock market became a hedge against the deliberate inflation that Roosevelt was creating. But keep in mind, Europe was still quite unstable economically and don’t forget that this economic instability also brought to power Adolf Hitler at the same time as Roosevelt. Change was the battle cry of politics in 1933.


Public/Private Confidence Wave

For years, I have warned that the greatest degree of volatility comes during a 51.6 year Private Confidence wave. This is a period that government, fearing losing power becomes most aggressive. For example, the Public Wave that peaked in 1671.75 was followed by a Private wave that was marked by tremendous upheaval including very serious spreading wars that included the early stages of revolution both in Britain that spilled over to Russia during 1689. This is the period of Oliver Cromwell, the beheading of Charles I, that all culminated in the South Sea. Bubble as well as the Mississippi Bubble both in 1720. This gives way to a Public Confidence wave that began in 1727.65. This wave reaches its peak in 1774.95 and that began the great period of revolution that overturned the idea of monarchy both in America and France. So we can see, we are now in a Private Confidence wave and the degree of volatility is certainly extremely high.

Call Money Rates 1870Looking at the call Money Chart, we can see that the pre-1913 period displays a much greater period of volatility. The end of the previous Public Confidence Wave peaked in 1878.15 and it bottomed in 1882.45. This is precisely the year we see the first spike to the upside with call Money Rates reaching the 30% level.

The Private Confidence wave marked the near bankruptcy of the US Treasury in 1896 and we can see that the major high in interest rates actually takes place in 1899 at nearly 200%. It is this Private Confidence Wave that peaked in 1929 that ended with the Great Depression.

The high degree of instability in 1937 was due to the fresh memories of the Great Depression. The press was filled with negative comments and the fear was that there would be another Depression. The fact that we can see the reflection of that degree of instability in 1937, illustrates that there was a deeply seated lack of confidence. This is the beginning of a Public wave where the Private wave peaked with 1929. Therefore, the growing lack of confidence in the private sector is reflected in the sharp volatility seen in 1937 compared to the previous panics.

The next 51.6 year cycle reached its peak 1981.35 marking the high in interest rates once again as the Government began to battle inflation due to its collapse of the Gold Standard in 1971. Hence, that Public Confidence wave peaked in 1981 giving rise to a new Private Wave.

Dow Jones Industrials Weekly 1929 - 1932Even when we look at a weekly chart of the decline and fall of the Dow Jones Industrials during the Great Depression, although this was about a 90% decline in three years, it was still very orderly from a technical analysis perspective. From the initial low that was made from the September 1929 high, there was about a 50% recovery as the Dow rose from about 200 to about 300. We do not see even this degree of strength in the current trend. To match that reaction rally, the Dow would have had to rally to 11,000. The first decline from the 1929 high was about 48%. So far, the decline from 14,198 to about 7,400 was also about 47.8%. Yet the recovery is nowhere in sight. Even the election of Obama has had virtually no impact upon the whole world economy.

Waterfall Effect Dow JonesIf we look at the current monthly chart of the Dow Jones Industrials, we see a very different sort of pattern from 1929. The main panic decline in 1929 took place in 3 months from the major high, with a 5 month reaction recovery from about 200 to 300. What we are confronted with currently, is what I have throughout the years defined as the "Waterfall Effect" that is a complete type of collapse from what you might call Exhaustion following a curved decline. Penetrating the Nov. low, could lead to a drop to 4,000 by June 2009 or September 2009.

Throughout the years of research covering all major economies and civilizations back to the beginning of recorded time, what has always distinguished the end of an era is how the decline unfolds. Sharp spike drops are indicative of corrections within a long-term trend that ultimately survives. When we see the “Waterfall Effect" the decline tends to mark the end of that organized state as we once knew it.

We are confronted with a major shift that could lead to the same mistakes that caused the fall of Byzantium and destroyed individual liberty and capitalism. We are in a battle that may be far greater than anyone dares to think. The fall of China and Russia was phase one of the collapse of Marxism. We may be facing the fall of Socialism in a battle to the end.

In building databases of all civilizations and using computers to correlate both global interactions and domestic trends, there are certainties that do emerge. It is clear that civilization emerges time and again because mankind is a social animal and seeks the benefit of banning together in sort of a tribe of nations. But there is also the downside, and that is that civilization creates leaders and the self-interest of those in power always is pitted against its own people to exercise and extend its own powers.

Civilization is destroyed by the inability of all governments no matter the form it may assume, to spend only what it earns. Every state in history has fallen into a Debt Crisis and that has always led ultimately to higher taxes. In the Byzantine Empire, the taxes became so outrageous, they forced the average person to become serfs seeking shelter and to retain a portion of their crops for protection from the state. It was taxation that created feudalism, drove people from the cities to the suburbs, and just led to the Waterfall Effect whereby the state became so weak, it could no longer defend itself or sustain its economy. Taxation destroyed civilization and capitalism.

This "Waterfall Effect" was evident also in the Roman economy going into the full collapse that took place between 253 and 266 AD in just 13 years out of 1,000. The economic decline that changes the face of society forever, takes place in the shortest amount of time. The likelihood of Western Society listening before it is too late, is nil!

The End Of Real Estate

This economy peaked with real estate precisely at 2007.15. The stock market made a brief tally thereafter, but it was not sustained. However, American real estate has been an unrealistic market funded purely by debt that strangely produces no real national wealth. Purchasing a house creates dead capital. It does not create jobs after its construction, yet consumes capital through financing. Because mortgages have been available for 30 years, the price of a home is significantly higher than in other nations where there is no such a deep market available for borrowing.

Real Estate has been hailed as the greatest investment of all time - at least post-World War II. But the wealth created by real estate is mainly an illusion created by currency movements. During the 1970s, a Porsche 924 cost as little as $10,000. By 1980, a Porsche was going for more than $50,000. People saw foreign cars as a good "investment” because you could drive them around for two years, and still get your money back. The same thing took place in England in 1985. A Ferrari that was $50,000 in the US, could suddenly be purchased for $30,000 in Britain when the Pound fell nearly to par with the dollar - $1.03. Because Ferrari could not afford to sell their cars in England at a substantial discount, they raised the price of the car to 40,000 pounds. However, the pound then rallied back to nearly $2 as the G-5, formed in 1985, manipulated the dollar lower by 40% to increase trade. Suddenly, that same Ferrari was now selling for nearly $80,000.

The point I am illustrating with the European sports car example is that the fluctuations in currency of 30-40% in a short time period, created the illusion that the cars were the real investment. However, the value of the car was related to the indirect swings in the value of currency. The rise in foreign car values throughout the 1978 instilled the image in American minds that a good German car held its value and was thus better than an American car. This image, created by the decline in the dollar after 1971, produced the age of inflation added to by OPEC. This period in time also created the "brand" image for foreign cars. This did more to destroy the American car industry than any other event.

What we must also come face-to-face with, is that the same source of capital appreciation in foreign cars caused by the decline in the value of the dollar, has been the steadfast momentum behind Real Estate. A home purchased in 1955 for $14,000 at the peak in 2007 rose to $300,000 on average. The question becomes, after excessive property taxes, does real estate really provide a good long-term investment? Most would just answer yes. But you are being paid with dollars that have far less in purchasing value. Add up the taxes paid, and you find out in real net terms, the same fluctuations in currency that make cars appear to be investments, do the same to housing.

Of course, there are segments of the real estate market which outperform the drop in currency and exceed other areas by 50% or more in "capital appreciation." This is the natural business cycle that takes place. You will notice that the rise in real estate after a setback, starts typically in the City. It spreads from that center to the less central portions of the city, and then to the suburbs. As the suburbs are still rising, you will begin to see the core city district peak. That will be the first sign that the cycle is over. This manner in how real estate rises and falls was something that emerged from our studies at Princeton Economics monitoring real estate trend from Europe, America, Asia, and Australia. It always was the same pattern.

But what if the current economic decline is running much deeper and is along the lines of the Great Depression insofar as the total collapse in real estate values? Today, the cycle is far more volatile because of the widespread loans on real estate that did not exist during the Great Depression. The length of debt on mortgages post-World war II is far greater than what existed in anytime during the past. As banks were willing to lend for 30 years, it drove the price of housing up to meet the available cash. If there were no mortgages and property could trade only for cash, the value would drop substantially. So it has been the availability of money that has also accelerated the rise and fall in the value of real estate.

It was the S&P Real Estate Index that peaked with the Economic Confidence Model on 2007.15. This is the target market that will see the greatest fall. We are now facing a very serious possibility that the decline in real estate may not be over for at least 4.3 years into 2011, but the more likely scenario of a minimum of 10 years with the outside shot it will never again be an "investment" as we know it.

How could real estate decline for so long? The two contracting factors that are conspiring against real estate are (1) the Debt Crisis cutting off available capital to keep the bubble expanding, and more importantly, (2) the collapse in state revenues. The states and municipal districts rely upon property taxes. The greater the mortgage crisis, the greater the foreclosures, and that suspends the tax revenues as well. This causes the collapse in state and local revenues forcing states to raise taxes even higher and this is precisely the combination of a debt crisis that ends societies and has been the destroyer of civilization. When it goes to extremes as it did in Byzantium, it even destroyed capitalism reducing the average worker into a peasant who was forced to sell himself, his family, and future children into servitude just to survive.

Is Gold Trying To Speak?

Gold Monthly 2009 Gold has been the best performing investment on the board. It has continued to make new highs in all currencies but the dollar, but even there it is holding on like a politician in his right to control the lives of others. While production of gold was expanding dramatically going into the 1980 high of $875, today, South African production has been dropping like a stone. South Africa is no longer the leading producer in gold and just as demand is rising, the production is falling.

From a pure technical view, the breakout line from the 1999 low stood precisely at $718 last October, and provided the closing support. Once exceeded, it was penetrated 601 y during Sept/Oct of 2006 on a monthly closing basis and has held nicely for this '08 reaction low. This technical line moves up to about $810 by the end of 2010. Near-term, if we see a real Waterfall Effect in the Dow Jones Industrials going into June 2009 where a collapse takes place back to the 4,000 area, we may see a corresponding high or a major key turning point in gold also for June 2009. This does not appear to be the major or high, but we may see a shocking punch upward with a next thrust. If gold breaks out to new highs going into June 2009 as the now makes a major low, there could be a 5 month reaction low forming by November 2009, with a rally thereafter into about April 2011 for the intraday high, but leaving 2010 as the highest close annually. Gold would then reverse perhaps, but this may be due to Government intervention at that point in time.

Gold still appears to be headed to at least the $2,500 level by 2011. Exceeding that area before the end of 2009, would open the door to a potential rally even up to the $5,000 level. Please keep in mind, this is a relative forecast. That means the dollar would be little of its former self. What we are honestly talking about is the collapse of our Governmental infrastructure not so different from Russia. In plain words, Russia could no longer sustain its control of the economy because it was broke. We are approaching the same problem. Just because we have been always able to borrow and never worry about what would happen when the day comes that the well is dry, does not mean we have bottomless pit. A very minor technical projection shows resistance for gold scaling in from the 1 ,100 to 1,200 level for 2009. Breaking through this technical resistance area will signal that we are in a very serious economic implosion.

The United States' Turn

The reverse side of the Seal of the United States has an interesting Latin saving that was part of our inheritance from the Founding Fathers. They recorded their belief in the history of man - Novus ordo seclorum. What they recorded there was what they believed they were creating - a new cycle of the ages. The men who had the courage to stand against the tyranny of Government, believed that the American Revolution was a dawn of a new age where the cycle of fortune had completed its revolution and it was now Just time to establish a new world order without kings. And what was the saying that more than any other reflected their wisdom?

No Taxation Without Representation!

Thomas Jefferson believed in cycles. He doubted that the United States would even survive beyond 100 years. He was correct. The dream the Founding Fathers created fell with the passage of the Income Tax in 1909 that required amending the Constitution to say, Jefferson, we disagree and it shall no longer be in our people and God that we believe, but in the self-interest of Government and Karl Marx. The prohibition against direct taxation was eliminated in 1913. With that came uncontrollable borrowing, spending that always exceeded revenues, and interest paid to foreign lands no different that Spain to its Italian bankers that wiped out both nations and shifted the core economy in Europe to the North, eagerly seized by the Dutch.

Jefferson even believed that revolution was a necessary part of the long-term cycle for he wrote that the Tree of Liberty required to be fed with the blood of tyrants and patriots. We have so far avoided that outcome. But the cycle is still very young.

I am not trying to yell "fire" in a crowded theatre. I believe that our future remains ours. History repeats because we ignore the lessons it offers. If we understand the possibilities and how things fall apart, we can exercise a choice and correct them. To look into the flame and know that its power to burn exists, does not mean we have to stick our finger into it just to see.

We are standing on the edge of a cliff in the middle of nowhere. The hatred that spilled out of the mouth of Karl Marx has led to this battle between freedom and the control of individuals that is capitalism vs. Communism/Socialism. We must ask our politicians a very important question - Quo Vadis? (Where are you going?) To date, the answers have been more of a riddle, or in Latin – lucus a non lucendo. In other words, we get a paradoxical explanation that is of something that is the opposite of what it suggests. What we must fear the most, is also what the Romans called – lex talionis - the law of retribution. We must now also ask, quis eustodiet ipos custdes? (who shall guard the guardians?)

Laissez faire (doctrine that opposes government intervention) is dead in the current political discussion. We will not hear this again until Western Civilization collapses. The idea of smaller government and the dream of Thomas Jefferson, Benjamin Franklin, James Madison and others, has expired and vanished into the night suffering what Horace called - Pallida Moors - the pale death. Any solution that somehow excludes government, will never be even attempted. What Marx failed to realize was there was never a dramatic battle between the classes. It has always been a battle between Government and the people. No matter what happens, Government will always blame the private sector and never admit mistakes. Out of self-interest, it will hunt down those in the private sector to sacrifice in the public square.

This Economic Depression is unstoppable, regardless what Government says. I remain nil admirari - unimpressed with the nonsense of the stimulus package. Even if it did work, by the time it had any effect, it would be election time. Jobs are not created out of thin air. It requires something different than the private sector working for government. It requires a demand and confidence that increasing production will find a willing buyer. Government policy is to hire, but the quality of the work means nothing.

Unless we start to get sane people with real live experience outside of the governmental bubbles, we may see the total meltdown of western civilization. Everyone will then blame the next guy which will lead to war. Already both Russia and China blame the global meltdown on the United States. This is perhaps rightly so since the legal system is so corrupt, regulators like the SEC and CFTC can be bought easily since the people they were to regulate, can hire them as well. No politician can act in such an unethical manner. Yet this is why we have the problems we do now because those Investment Bankers, not Wall Street brokers, have been manipulating the system. It worked so long, we forgot what real "free" market was all about. Just look back at how many Secretaries of the Treasury were ex-Goldman Sachs chairmen.

Unless we restructure the taxes and restore our international competitiveness, jobs will continue to leave. Unless tort reform is imposed, there will never be an affordable national healthcare service. Even corporations can no longer afford to pay the benefits. States and cities are starting to implode because they have promised much to workers, but always ran their own Ponzi schemes taking money currently to pay past obligations. We are facing a harsh reality that governments have expanded assuming resources would always be there, but that day has now arrived. Horace also once said:

naturam expellas furca, tamen usque recurret
(Horace 65-8 BCe)

Horace said though you may drive nature out with a pitchfork, she will keep caning back. The same can be said of the nature of mankind. We can cling to Marxism for it points the fingers at the so called rich who are always defined as the neighbors who just have a little more than me. Socialism is a form of Marxism that Western politicians have used to further their own power. Socialism created the illusion that we can create the benefits of civilization and cooperative alliances without destroying our liberty.

We are on the edge where the way of life may be altered forever. We must open the door to all solutions and judge our future without bias and prejudice. It is time we recognize Marxism for what it is - the most dangerous theory of all time that may destroy now western Civilization. The more Byzantium could not cover its debts, the more it became aggressive against its own people that in the end, destroyed capitalism and freedom itself. Marx gave us the only alternative to capitalism, and that he called Communism that was just a false dream of Utopia - everyone works for the government, the government takes care of everyone, and in the process, you not merely sell your soul, you give up your right to be an individual. The Western culture has flirted with Marxism because politicians see the power belongs to them. Socialism is no different, for it is trying to be just a little-bit pregnant. It still involves centralized planning of the economy that cannot be done by people who have never worked in the real world.

We must stop the bullshit! We must open our minds and understand the nature of mankind cannot be altered by passing laws. Marx is dead, and his ideas have to be allowed to die. The class-warfare must stop.

Ironically, China has no debt, nor does it have an income tax. Yet China has been exploding in economic growth rising to the second largest economy faster that the United states ever did. This is part of the cycle of volatility. The very design of the Founding Fathers is by default alive and well. All China has to do, is pay attention on domestic growth and expansion, and it is ready to replace the West and assume its historic moment to emerge as the center of the world economy. China has rejected Marx. It is now our turn to learn the same lesson.




By Martin Armstrong

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With gold having come back down from the $900's on weak volume (both for the metal and the mining shares), a leg-up into the closing of the June/09 futures for gold appears reasonable.


Friday, May 1, 2009

Pakistan, a manufactured crisis?


Pakistan is in crisis at the moment, and calls by the American Secretary of State have bordered on arm-flapping panic-level assessments of the situation. Calls for the nation to be overrun by the Taliban and place Pakistan's nuclear arsenal in their hands bear the classic hallmarks of disinformation and fear-mongering.

Under the guise of "Pakistan 101" type articles, few have written succinctly on the issue. Juan Cole's recent missive is the most detailed and reasoned assessment Ive come across and confirms that all is not as dire as we might think. The sheer size of Pakistan's standing army, the lack of popular support for the Taliban and the mirage of proximity claims (ie: "the Taliban are 60 miles from Islamabad") mislead us as to the reality of the situation.

The Taliban are a problem for Pakistan as a nation, and for the safety of it's people. But Pakistan is in many ways an unstable state held together by a fairly stable army who has no interest in the nation slipping into chaos or relinquishing control over its nuclear arsenal.

Dont believe the hype,

J


Sunday, April 26, 2009

Pakistan Crisis and Social Statistics


by Juan Cole


Readers have written me asking what I think of the rash of almost apocalyptic pronouncements on the security situation in Pakistan issuing from the New York Times, The Telegraph, and Secretary of State Hillary Clinton in recent days.

As I have said before, although the rise of the Pakistani Taliban in the Pushtun areas and in some districts of Punjab is worrisome, the cosmic level of concern being expressed makes no sense to me. Some 55 percent of Pakistanis are Punjabi, and with the exception of some northern hardscrabble areas, I can't see any evidence that the vast majority of them has the slightest interest in Talibanism. Most are religious traditionalists, Sufis, Shiites, Sufi-Shiites, or urban modernists. At the federal level, they mainly voted in February 2008 for the Pakistan People's Party or the Muslim League, neither of them fundamentalist. The issue that excercised them most powerfully recently was the need to reinstate the civilian Supreme Court justices dismissed by a military dictatorship, who preside over a largely secular legal system.

Another major province is Sindh, with nearly 50 mn. of Pakistan's 165 mn. population. It is divided between Urdu-speakers and the largely rural Sindhis who are religious traditionalists, many of the anti-Taliban Barelvi school. They voted overwhelmingly for the centrist, mostly secular Pakistan People's Party in the recent parliamentary elections. Then there are the Urdu-speakers originally from India who mostly live in Karachi and a few other cities. In the past couple of decades the Urdu-speakers have tended to vote for the secular MQM party.

Residents of Sindh and Punjab constitute some 85% of Pakistan's population, and while these provinces have some Muslim extremists, they are a small fringe there.

Pakistan has a professional bureaucracy. It has doubled its literacy rate in the past three decades. Rural electrification has increased enormously. The urban middle class has doubled since 2000. Economic growth in recent years has been 6 and 7 percent a year, which is very impressive. The country has many, many problems, but it is hardly the Somalia some observers seem to imagine.

Opinion polling shows that even before the rounds of violence of the past two years, most Pakistanis rejected Muslim radicalism and violence. The stock of the Taliban and Al-Qaeda plummeted after the assassination of Benazir Bhutto.

The Pakistani Taliban are largely a phenomenon of the Federally Administered Tribal Areas west of the North-West Frontier Province, and of a few districts within the NWFP itself. These are largely Pushtun ethnically. The NYT's breathless observation that there are Taliban a hundred miles from Islamabad doesn't actually tell us very much, since Islamabad is geographically close to the Pushtun regions without that implying that Pushtuns dominate or could dominate it. It is like saying that Lynchburg, Va., is close to Washington DC and thereby implying that Jerry Falwell's movement is about to take over the latter.

The Pakistani Taliban amount to a few thousand fighters who lack tanks, armored vehicles, and an air force. The Pakistani military is the world's sixth largest, with 550,000 active duty troops and is well equipped and well-trained. It in the past has acquitted itself well against India, a country ten times Pakistan's size population-wise. It is the backbone of the country, and has excellent command and control, never having suffered an internal mutiny of any significance.

So what is being alleged? That some rural Pushtun tribesmen turned Taliban are about to sweep into Islamabad and overthrow the government of Pakistan? Frankly ridiculous. Wouldn't the government bring some tank formations up from the Indian border and stop them? Or is it being alleged that the Pakistani army won't fight the Taliban? But then explain the long and destructive Bajaur campaign.

Or is the fear that some junior officers in the army are more or less Taliban and that they might make a coup? But the Pakistani military has typically sought a US alliance after every coup it has made. Who would support Talibanized officers? Not China, not the US, the major patrons of Islamabad.

If that is the fear, in any case, then the US should strengthen the civilian, elected government, which was installed against US wishes by a popular movement during the past two years. The officers should be strictly instructed that they are to stay in their barracks.

What I see is a Washington that is uncomfortable with anything like democracy and civilian rule in Pakistan; which seems not to realize that the Pakistani Taliban are a small, poorly armed fringe of Pushtuns, who are a minority; and I suspect US policy-makers of secretly desiring to find some pretext for removing Pakistan's nuclear capacity.

All the talk about the Pakistani government falling within 6 months, or of a Taliban takeover, flies in the face of everything we know about the character of Pakistani politics and institutions during the past two years. My guess is that the alarmism is also being promoted from within Pakistan by Pervez Musharraf, who wants to make another military coup; and by civilian politicians in Islamabad, who want to extract more money from the US to fight the Taliban that they are secretly also bribing to attack Afghanistan.

Advice to Obama: Pakistan is being configured for you in ways that benefit some narrow sectional interests. Caveat emptor.

The Pakistani military is not "unable" to stop the Taliban in the North-West Frontier Province. The Zardari government is just not desirous of alienating the Pushtuns by being heavy-handed. They only sent in 250 special ops troops to deal with Buner, which is a very light touch for an army with lots of artillery, tanks and fighter jets.

Pakistan now is not like Russia in 1917. Its two main political parties are of old standing, have contested many elections, have millions of supporters and canvassers. The main threat to the PPP government is parliamentary-- that it will be unseated by the Muslim League if it fails a vote of no contest and there are new elections.

All the military coups in Pakistan have been made from the top by the army chief of staff. Therefore Gen. Ashfaq Kayani is the man to watch. He was Benazir Bhutto's army secretary and has ties to the Pakistan People's Party. Not a Talib. The hype about Pakistan is very sinister and mysterious and makes no sense to someone who actually knows the country.

Tuesday, March 31, 2009

The American Dollar Sunrise or Sunset?

US dollar chart, 1 year. Fibonacci extensions have been marked vertically and horizontally to highlight some critical points. Mixed signals all around, but note the RSI (14) and W%R (14) both almost academically turned down at the mid-line EOD today.

Ive used the "sunset" option on Stockcharts for a reason; is this a picture of the sun setting on the US dollar, or the sun rising on a US dollar bull market?

Tuesday, March 10, 2009

The oracle of OMG....

Is there a conflict of interest when a man of Mr. Warren Buffett's influence goes on camera to sound the financial alarm? Did anyone ask what his short position was on the market and gold prior to clearly negative comments?





I think the financial world has made a false prophet of Mr. Buffett. Countless books and praise were written about him as Berkshire shares rose through the late 90's and the early part of this decade.

People quoted Mr. Buffett adinfinum about derivatives being weapons of financial mass destruction despite his continual involvement and losses in these and other SIV's. His most recent pronouncements to buy in late 2008 were wrong, along w/ others, but his new pronouncements that we are going to hell in a hand basket a few short months later smacks of indignation. What happened to the disciplined value investor who buys when there is blood in the streets?

How could a few months transform the Oracle of Omaha from American patriot buyer of stocks to doomsday sayer? Media focus is saturated with his predictions, yet ignore the suspect aspects of Berkshire's performance and a paradoxical involvement in derivatives, and his roundabout way of not fully counting current losses.


Buffett has become at least for the mass-media, a product unto himself, and people who turned to his style of investing and Berkshire shares the past few years are now in trouble. I suppose he will co-author another book titled "How to survive in tough times, the Buffett way" or something as such. Selling books seems to be the only profitable part of his current business.

It reminds us not to make false-prophets of people, that they make mistakes like everyone else, and lie/bullshit just like everyone else. The more you deconstruct Mr. Buffet's statements and so-called apologies the more you can see an overly-publicized and politicized figure, increasingly detached from the value-investment philosophy originally espoused.

Im waiting for the books that will eventually be written about the fall of the oracle as losses mount.

J



Monday, March 9, 2009

Afghanistan...a defense of history

Its sad what passes for op-ed's these days in Canada's largest newspaper The Toronto Star. Last week's article highlights everything that is wrong with people who not only ignore history but are defiant in the face of what lessons it can teach us about occupation, insurgency and exporting democracy.

Canada has over 2000 troops in Afghanistan, one of the largest contingents after the United States. President Obama has pledged more troops to the region as focus shifts away from Iraq to Afghanistan, in recognition that things are getting worse for the current expeditionary force in the region and Afghan citizens.

4 Canadian soldiers have been killed in Afghanistan in the past week. Over 100 troops out of a force of just over 2000. This map highlights the home town's of each fallen soldier. An almost %5 death rate, which would translate to approximately 15,000 dead American soldiers in Iraq. There are many forces at play in the current Afghan conflict. For Canadians there is a constant need to temper analysis with homage and respect for the soldiers in the field, but we do them a disservice when we choose to portray our mission in grand terms which generations of Afghans have heard before from different colonial masters. And generations have not only fought back against Western nation's so-called "good judgment" of how the region should be governed, they have been successful in deterring the worlds largest armies.

Yes of course Canada is not Russia. Yes our soldiers do not treat entire populations like the Russians did and continue to do in other Caucus states. But for many there is little difference among uniforms, invaders are invaders. To ignore this fact, and to whitewash our mission as a unique almost divinely sanctioned act is to be the biggest fool of all.


Afghan past wars not a harbinger

March 06, 2009
Rosie DiManno
http://www.thestar.ca/


Whenever I hear or, more frequently, see published the lament "Has history taught us nothing about Afghanistan?" in relation to foreign intervention there, I know instinctively that the speaker or writer has precious little knowledge about Afghanistan.
(your instincts are that sharp that the mere suggestion that history could teach us something allow you to rush to judgment? J)

They've never read the history texts, the military archives, the memoirs or the poetry. They've probably never been there.
(i dont have to go back in time to the 18th century to study the French Revolution or consider how the collapse of a state from within could be replicated in modern times. There are many who have traveled and lived in Afghanistan who hold contrary and varied views from the North American mainstream, they are not granted full authority because of their passports. J)

It is found wisdom, most likely a repetition of superficial commentary digested from elsewhere, a circular axiom that invests in the ill-informed a phony patina of insight. More disapprovingly: "Did we learn nothing from the Russians?

(a circular axion...a phony patina of insight?... great grouping of words that tell us nothing other than the presupposition that people who refer to Afghanistan's history of foreign occupation not only lack insight but have probably never traveled to the region.... quite a leap of intellectual faith. J)

Or, to quote our own prime minister: "We are not ever going to defeat the insurgency. My reading of Afghanistan's history is that they've probably had an insurgency forever, of some kind." Stephen Harper may have a big brain for economics – that's debatable – but he's talking through his hat here. More likely, because he's singularly lacking in communication skills, Harper was attempting to make contextual observations about the Afghan dilemma and sank under the weight of his own leaden language.

A further 17,000 US troops are on their way, dispatched by Obama. Despite the torque in some quarters by those who claim Obama is going to shift the focus by emphasizing diplomacy and reconstruction, combat troops don't do d├ętente.


As Americans discovered in Iraq, nothing can be done to smother an insurgency without first protecting the populace and then making allies with regional militias.
(A sad over-generalization, they fought regional militias for year and still are in many respects, its a blanketed statment to suggest you cannot defeat insurgency unless you protect the populace make allies with local fighters. Each situation calls for a different approach. The line between "populace" and "regional militias" is often a grey one, making the writer's prescription all the more untenable, and ill-informed. J)
Afghanistan isn't Iraq, or Vietnam for that matter. There is no nation-wide, grassroots guerrilla war. Even with the Taliban now at its most powerful since its 2001 ouster, on-the-ground polling shows they have only 10-15 per cent support among Afghans – and zero among Uzbeks, Tajiks, Hazaras, Turkoman or any other Afghan ethnic group beyond the Pashtun.
(On the ground polling? is Ipsos-Reid conducting polls in Kandahar and Kabul? No source is provided for these polls, and it is difficult to expect open and honest answers from Afghans if we dont know the circumstances of the polls. Even if we accept the %10-15 amount, we neglect to appreciate how few people are required to initiate and maintain an insurgency in a state like Afghanistan with a sparse population base outside of Kabul and weak infrastructure.

If %10-15 support the Taliban, they are quite effective thus far in battling the International Security Assitance Force or ISAF in the region. More troops are being promised by member states because as it stands the mission has not succeded in stabilizing the country. Be it by account of more troop deaths, lack of democratic progress or development and ongoing strife in the border region with Pakistan we have nothing but propaganda that tells us "all is well" simply because Canadian boots are on the ground bringing democracy. BS. J)
It is far from a lost cause, except among the defeatists, entrenched isolationists and jihadist sympathizers. More crucially, the NATO mission – about to have its chestnuts pulled from the fire by the U.S. cavalry – is not remotely similar to what the Soviets attempted in the '80s.

In support of a teetering Afghan Communist government – and these were made-in-Afghanistan Marxists, who'd unleashed revolution against religious fundamentalists in the early 1950s – Moscow went in with gunships blazing. Where the indigenous Communists had already plunged Afghans into social upheaval – instituting land and marriage reforms, liberalizing attitudes toward women, removing dedications to Allah from government statements and replacing Islamist green with socialist red in the Afghan flag – the Soviet occupiers were even more ruthless and terrorizing.

Their helicopters pounded villages. They used chemical poisons in the form of short-duration gas bombs, littered the land with butterfly bombs – often camouflaged as children's toys and designed to maim rather than kill, a far more disruptive outcome for guerrilla forces on the move – and anti-personnel mines dropped from aircraft. They killed livestock, ruined wells, blew up mosques.

The mujahideen favoured sabotage operations. The more common types of sabotage included damaging power lines, knocking out pipelines and radio stations, blowing up government office buildings, air terminals, hotels, cinemas, and so on. From 1985 through 1987, an average of over 600 "terrorist acts" a year were recorded. In the border region with Pakistan, the mujahideen would often launch 800 rockets per day. Between April 1985 and January 1987, they carried out over 23,500 shelling attacks on government targets. The mujahideen surveyed firing positions that they normally located near villages within the range of Soviet artillery posts, putting the villagers in danger of death from Soviet retaliation. The mujahideen used land mines heavily. Often, they would enlist the services of the local inhabitants, even children.

(Yes the Russians did do this, but their enemies, the mujaheddin were known for large-scale destruction of civilian and military targets, including bridges, major roads, attacking convoys, disrupting the electric power system and industrial production. On September 4, 1985, insurgents shot down a domestic Bakhtar Airlines plane as it took off from Kandahar airport, killing all 52 people aboard. Lets not engage in military dick-swinging when discussing the Russian-Afghan war. J)

Worst of all, for deeply religious Afghans, they tried to impose godlessness on a nation that lives and breathes Islam. That, more than anything else, bound Afghans together in the ultimately successful mujahidin resistance: It was their collective duty to fight the kafirs.

NATO troops have done none of this, at least not by design, and neither will the incoming Americans. Every armed outsider bends over backwards to accommodate religion and tradition and consultation with elders. Arguably, NATO has been too respectful and self-restraining as the Taliban reconstituted under its watch.
( I am dumbfounded at the revisionist ramblings of the Russian-Afghan conflict presented as fact before the conclusion that NATO and other member states havent done anything similar and have given no reason for the populace to fight back against their occupation. The audacity to somehow qualify the rebellion against Russia as "the collective duty to fight kafirs" and assume this very same logic wouldnt be applied to any and all invading forces, because thats exaclty what many who took up arms against "kafirs" see the current NATO invasion as. J)

There is no aim to destroy Afghanistan in order to reinvent it in whatever dim echo of democracy, Islamic-style, the citizenry favors. The vast majority of Afghans understand this. Too many Canadians don't.
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In reality that is exactly what the current mission in Afghanistan is meant to do; dismantling the remnants of the Taliban government, install a President (a former chief of an American-based energy company operating in Central Asia at the time) who only "won" an election by way of voting in the only remotely secure region in the nation: Kabul. Sadly the majority of soldiers being killed or injured are occurring outside the city, in regions less sympathetic to their hand-picked leader.

I find it ironic that this article begins with a generalization about anyone who suggests we attempt to learn something from history and proceeds to end their story with a larger generalization about what "the vast majority or Afghans" understand. To suggest we or any other nation knows what the majority of Afghan's understand is no different from the Russians, decades ago who believed communism and Russian rule was best for the region.

Too many Canadians probably have a better idea that this author is willing to ascribe to them. Not only are historians accused of misunderstanding the Afghan war, so are most "too many" Canadians. Only Rosie Dimanno and those who agree with her narrow and ill-informed world-view seem to know and have proceeded to tell us.

Its a sad day when we turn our backs on history and drink our own state-sponsored kool-aid on why our troops are deployed in a nation that never attacked Canada, that has never posed an identifiable threat to our nation, only elements that operated within its borders, and continues to show signs of defiance after 7 plus years and over 110 dead Canadians to show for our efforts.

What exactly do we intend to do other than pour in more troops in the region?

Even Wikipedia gives us a glimpse of whats to come... or what has already started:

In a 1998 interview with Le Nouvel Observateur, Brzezinski recalled: "We didn't push the Russians to intervene, but we knowingly increased the probability that they would...That secret operation (to support the mujaheddin) was an excellent idea. It had the effect of drawing the Soviets into the Afghan trap...The day that the Soviets officially crossed the border, I wrote to President Carter. We now have the opportunity of giving to the Soviet Union its Vietnam War."
March 1980-April 1985: Soviet offensives

The war now developed into a new pattern: the Soviets occupied the cities and main axes of communication, while the mujaheddin, divided into small groups, waged a guerrilla war. Almost 80 percent of the country escaped government control. Soviet troops were deployed in strategic areas in the northeast, especially along the road from Termez to Kabul. In the west, a strong Soviet presence was maintained to counter Iranian influence. Conversely, some regions such as Nuristan and Hazarajat were virtually untouched by the fighting, and lived in almost complete independence.



Mark Twain once said "history does not repeat itself, it rhymes".

J