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FRED
03-05-08, 12:08 PM
http://www.itulip.com/images/goldcoins.jpgGold Update: The small trade within the big trade

We remain long gold as we have since August 2001. Recent price action compels us to remind readers that the precious metals markets have two primary drivers, with the currency depreciation and inflation trade driving long term prices and highly leveraged trades by funds driving short term price action.

Note the following long term price dynamic.


http://www.itulip.com/images/au00-08.gif

Since 2001, the gold price has increased in four distinct growth trends as depicted above.

A. 2001 - 2006: Post-bubble gradual currency depreciation and inflation trade
B. H1 2006: Rapid speculative trade
C. H2 2006 - 2007: Resumption of gradual currency depreciation and inflation trade
D. 2007 - Present: New rapid speculative trade

Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. A similar correction today would take gold prices down $200. We are also within the long term for volatility that will portend the end of the currency depreciation and inflation trade that began in 2001.

The reason for yesterday's News with AntiSpin (http://www.itulip.com/forums/showthread.php?p=29380#post29380) is the following observation of coordinated gold and silver price action March 4th and 5th.

Note in the two charts below that show gold and silver spot prices March 3 thru March 5. Both declined at the same time march 4 just before noon Eastern time and partially recovered in a similarly steep price change after 8AM Eastern time March 5.


http://www.itulip.com/images/silver0305-0808.gif

http://www.itulip.com/images/gold0305-0808.gif


In view of the charts above we ask: what trade forces are driving these simultaneous short term price changes in two precious metals markets, for silver and for gold? Platinum (not shown) remained unchanged.

We are certain that it is not the same long term function that drove prices gradually in periods A and C defined above. We believe these short term price movements are driven by funds.

A Tale of Two Markets

Within the long gold and silver trade are players that create price movements that at times are counter to the long term trend and at other times exaggerate the long term trend. It is our position that the pullbacks created by the short term counter trends are buying opportunities for long investors and for traders the peaks of exaggerated short term price movements are selling opportunities. More importantly it is critical to distinguish between the kind of price volatility that funds can create with leverage versus the kind of price volatility we will see at the end of the long term PM inflation trade in place since 2001.

We do not foresee in light of ongoing liquidity problems in global bond markets, combined with slowing economic growth and rising inflation around the world, how governments will be able to make bonds more attractive than hard assets by raising yields above the rate of inflation to draw money away as occurred in the early 1980s during the previous cycle at a time when increased liquidity is needed to manage the debt deflation.

As long as future real interest rate expectations remain negative, the long PMs position that we took in 2001 remains in place.



iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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metalman
03-05-08, 09:27 PM
that's tight. thanks.

Contemptuous
03-05-08, 09:34 PM
Ted Butler regards the funds deployment into the metals as the "buy and hold, long term money". The "specs" or speculators are the short term "hot" money, but he describes them as always trading opposite the Funds.

I have no idea myself, but I do recall him referring to these two groups of players in the metal markets as "reciprocal" to each other.

FRED
03-05-08, 09:39 PM
Ted Butler regards the funds deployment into the metals as the "buy and hold, long term money". The "specs" or speculators are the short term "hot" money, but he describes them as always trading opposite the Funds.

I have no idea myself, but I do recall him referring to these two groups of players in the metal markets as "reciprocal" to each other.

We're saying there are buy and hold vs trading players in the market: ignore the trades, follow the long term players.

Contemptuous
03-05-08, 09:43 PM
OK Fred. Got it. I'm on board.

GRG55
03-06-08, 01:05 AM
We're saying there are buy and hold vs trading players in the market: ignore the trades, follow the long term players.

The version with the charts above was a lot more fun to read than this one... :p

Mega
03-06-08, 02:58 PM
OK Fred. Got it. I'm on board.


Yep, me too Fred-o!
Mega

ASH
03-06-08, 04:25 PM
Regarding gold and silver moving in tandem recently... I note that Central Fund of Canada (CEF) recently issued $57M in new shares (closed as of March 5th). Since CEF invests equally in gold and silver, might not the buying associated with the share issue have caused some of the synchronized movement? (Of course, I'm not sure whether $57M over a few days is significant relative to the size of the metals market, but I just thought I'd pass along the observation.)

Jim Nickerson
03-06-08, 04:40 PM
Regarding gold and silver moving in tandem recently... I note that Central Fund of Canada (CEF) recently issued $57M in new shares (closed as of March 5th). Since CEF invests equally in gold and silver, might not the buying associated with the share issue have caused some of the synchronized movement? (Of course, I'm not sure whether $57M over a few days is significant relative to the size of the metals market, but I just thought I'd pass along the observation.)


Nice avatar, ASH. I don't know the answer to the consequence of what you noted.

touchring
03-19-08, 01:31 PM
Based on today's development, does it mean the 20% correction is starting? So retrace back all the way to $800? :confused:

Jim Nickerson
03-19-08, 01:34 PM
Based on today's development, does it mean the 20% correction is starting? So retrace back all the way to $800? :confused:

Only who can see the future knows, so to my understanding no one knows.

Jayhawk
03-19-08, 06:41 PM
I was just about to pull the trigger last week at the peak to buy a boat load of bullion...WHEH!

mercerbear
03-20-08, 07:04 AM
Yeah, I pulled that trigger. Spot was $1012 on my latest 20 oz purchase. Oh well, I'll just hold it an buy more towards the bottom of this "correction."

bart
03-20-08, 03:53 PM
We're saying there are buy and hold vs trading players in the market: ignore the trades, follow the long term players.

Would Jim Sinclair be a long term player, even with his trade 1/3 viewpoint for some players?

raja
03-20-08, 06:49 PM
Yeah, I pulled that trigger. Spot was $1012 on my latest 20 oz purchase. Oh well, I'll just hold it an buy more towards the bottom of this "correction."
Me, too. Bought lots . . . but staggered my buying, as suggested by jk/Hussman, so wasn't hurt as badly as if I'd bought all at one price.
First lot was at 1002, then more at 985, 975 and then 961.
Will try to buy more at some future low point.
Hope I do better at catching the low . . . .

Also, bought a bunch of market shorts right before the Dow rose 400. Ouch.

What keeps me from feeling too bad is my hope that EJ is right, that in the long term, gold is going up and the market is going down

Contemptuous
03-20-08, 07:33 PM
I can't understand what the hell some of you guys were doing buying gold at $1000 after seeing it rise from $650 in barely six months. One should never buy anything when the price action has been strongly bullish for months. You are chasing a trend and that's dangerous. If you had very little exposure to gold when such a parabolic rise started, you should have resigned yourself to waiting it out and buying the month's long flat price after that parabola crashed!

And buying more in multiple purchases spaced closely together in price, while the price is dropping hard? What the heck is that? You are your own worst enemy piling into a volatile asset that way. Gold could well see a prolonged downturn here and your collected buys could end up deeply underwater! Safest time to buy is after the plunge in prices, when you encounter a long interval of basing action - just exactly the way prices were all through the summer of 2007.

It costs maybe $800 - $1000 a year to simply buy the seasoned market watching skills of a half dozen gold monitoring newsletters. Looks a little pricey on the surface of it. But many people here routinely throw that kind of money away on quite risky puts and calls suitable only for professional traders - yet these same people willing to be adventurous on puts won't buy a couple of newsletters to take out some insurance on their buy and sell timing affecting tens of thousands of dollars? This order of priorities sees spending money on gold price advisor newsletters as 'profligate', but thinks of any loss from mis-timed market puts as merely 'the cost of doing business investing in the PM's? Nuts.

These advisors were warning not to put any new money into gold for the past two or three months already!

Using puts and calls instead of simply waiting for safe entry windows in the gold price action, probably means many of us who are not professional traders are simply thrashing around spending several thousand dollars a year on such strategies, with uncertain results. Bottom line: If you have even $20K invested in the gold market, pay up some money for a little professional guidance as to when gold is overbought or oversold! You wouldn't think of owning a home without fire insurance - why consider having a big chunk of your savings in a volatile asset without taking out a little insurance at least on buy timing decisions?

jk
03-21-08, 02:32 PM
I can't understand what the hell some of you guys were doing buying gold at $1000 after seeing it rise from $650 in barely six months. One should never buy anything when the price action has been strongly bullish for months. You are chasing a trend and that's dangerous. If you had very little exposure to gold when such a parabolic rise started, you should have resigned yourself to waiting it out and buying the month's long flat price after that parabola crashed!

And buying more in multiple purchases spaced closely together in price, while the price is dropping hard? What the heck is that? You are your own worst enemy piling into a volatile asset that way. Gold could well see a prolonged downturn here and your collected buys could end up deeply underwater! Safest time to buy is after the plunge in prices, when you encounter a long interval of basing action - just exactly the way prices were all through the summer of 2007.

It costs maybe $800 - $1000 a year to simply buy the seasoned market watching skills of a half dozen gold monitoring newsletters. Looks a little pricey on the surface of it. But many people here routinely throw that kind of money away on quite risky puts and calls suitable only for professional traders - yet these same people willing to be adventurous on puts won't buy a couple of newsletters to take out some insurance on their buy and sell timing affecting tens of thousands of dollars? This order of priorities sees spending money on gold price advisor newsletters as 'profligate', but thinks of any loss from mis-timed market puts as merely 'the cost of doing business investing in the PM's? Nuts.

These advisors were warning not to put any new money into gold for the past two or three months already!

Using puts and calls instead of simply waiting for safe entry windows in the gold price action, probably means many of us who are not professional traders are simply thrashing around spending several thousand dollars a year on such strategies, with uncertain results. Bottom line: If you have even $20K invested in the gold market, pay up some money for a little professional guidance as to when gold is overbought or oversold! You wouldn't think of owning a home without fire insurance - why consider having a big chunk of your savings in a volatile asset without taking out a little insurance at least on buy timing decisions?
lukester, i think a little understanding is in order. it's always easy to pick a top in retrospect. i haven't added to my pm positions for some time, because i felt fully allocated at recent prices. had i not been fully allocated, i.e. had i not fully accepted the investment thesis about gold until quite recently, then i surely would have wondered how high gold was going on this move. around xmas '07 gld was at 80, having hovered just below that level for 2 mos. from there it went to 85 in about a week, and by the middle of january had reached 90, and corrected back to 87. then 92 in about a week, etc. where was one to buy? gold was moving higher and the financial world looked very much on the edge of complete meltdown. the fed was coming out with new liquidity facilities on almost a daily basis, but financial stocks were plummeting. there was no way to predict when or if the meltdown would end, or even pause. [still isn't, really.] if one felt underinsured, speaking of insurance, it seems to me reasonable to have purchased some gold under these circumstances. [how much is a subject for a different discussion. i favor hussman's recommendation of buying 40% of what you wished you had, and then waiting a month to re-evaluate.] so, yes, i agree it's a bad idea to chase an idea that's run away from you. but i still think gold is a long term buy, and that the folks who bought recently will eventually be glad they bought.

as to spending money on advisories, i am in full agreement with you. if you figure that the average mutual fund would charge you at least 1%, it makes sense to allocate up to 1% of your portfolio for information/advisories. that's a lot, and likely you can get by with significantly less than 1%, but i think it's worth spending some money to get useful information.

kemper28
03-22-08, 12:59 AM
Can you name some good gold newsletters?

Thanks,

Jason

Contemptuous
03-22-08, 04:01 PM
Jason -

John Doody's GOLD STOCK ANALYST - large and mid cap producers. No need for a focused gold stocks mutual fund. He can build a small concentrated portfolio better. He's very good. Will keep you consistently in 10 - 20 of the most dynamic producer stocks through the entire bull market, with annual average results that are a stand out. Not flashy, but highly consistent.

The ADEN FORECAST - varied commodity stocks portfolio with excellent long term charting. Takes "technical analysis" and makes it real simple by charting the long trends and not getting thrown off by short term noise. "Short term" for example would be this past week's convulsion in the gold price.

As far as I'm concerned the ADEN sister's very long term charting tells 90% of the actionable story each month, leaving all the frenetic "up close" chartists chasing around in circles to discern the short term trends (which they love to do incessantly). A very welcome relief from the frantic short term traders.

Casey Research - BIG GOLD - a new service on large cap and mid-cap gold producers. New service but supposed to be quite good. Doody and Casey replicate each other's work in this sector.

__________

Junior stocks? IMHO that's for your play money. Lots of stock market enthusiasts like to play in there. I personally dislike all stocks to begin with - prefer "stuff" like real commodities in an index or real-estate, or gold and silver metal which I can grab a hold of. If I can't "see it" I don't trust it nearly as much. It's maybe a retrograde instinct, but in recent years it's actually served me really well.

The above services cover the mid and large cap producers. For me the sweet spot in the gold shares is the mid-cap universe, like where Yamana was two or three years ago (maybe still) or where Silver Wheaton and Goldcorp were three or four years ago also. The mid-caps can really roar up, and have much more "weight" in their momentum than the small caps.

Having said that I dumped every last share a year ago and want nothing to do with stocks right now. I'll leave them to the rest of you stock mavens!

There are one or two "special" gold metal timing services - which are entirely different from gold stock newsletters. IMHO these are what's really interesting for the next five years. The conservative investor in gold owns by far more positions in the metal than in the shares. That's my bias. So you need a timing service that is really good, to time the peaks and blowouts of the metal, for a 25% portion of your holdings..

In that area, I'm keeping my own discoveries under my hat - If I post them here a couple of hundred thousand readers will pick over them (the iTulip community is growing like King Kong), and this would steer tons of clients to these small advisories, and my buys and sells will get shot to hell. I apologise for this reservation. If you dig around however you'll unearth these yourself. These are perhaps the most valuable advisors for the scary markets we are heading into.

Hope this helps.

Contemptuous
03-22-08, 04:06 PM
lukester, i think a little understanding is in order.

Sorry for not replying to this JK. I have been busy making an ass out of myself attempting to hash something out with El Bartos and the inimitable J.N. (Mr. "I think you're full of shit"). Didn't get very far - and managed to make a fool of myself in the process. Always very lively and entertaining around here! :)

grapejelly
03-22-08, 05:36 PM
I recommend Doug Casey but also Steve Saville's Speculative Investor.

Spartacus
03-22-08, 07:01 PM
didn't Casey ride Gold down most of the way from $850 ? (I'm NOT completely sure of this, it's a vague recollection, not a "I'm sure he rode it down ...")


I recommend Doug Casey but also Steve Saville's Speculative Investor.

Howard Ruff was one of the few, AFAIK who got out near the top.

jk
03-22-08, 08:37 PM
Can you name some good gold newsletters?

Thanks,

Jason

i'm not sure you want "gold" newsletters. one question you need to ask yourself is whether you want to trade, or buy long term positions based on a more macro approach. do you want to accumulate over time, or do you need to deploy a larger amount all at once? i subscribed to doody's letter for a year, and it is very good, but i decided i didn't really want to own gold stocks, i wanted to own the metal [albeit in paper form - gld and slv - though i am mulling over the wisdom of that].

so first think about the big picture and how your own situation might determine what kind of information is going to be of most use.

kemper28
03-22-08, 08:47 PM
Thanks for the info... I am looking for a service that may alert me to a 10% or more upcoming decrease in the gold spot price. I may then decide to sell part of my position and buy back at a later time. I mostly only deal with real gold coins.

So the "special" alerting type is what I am looking for... I need to get that hat so I can get the info...:)

Thanks again...

Jason

I am on board with the belief that I may witness the end of the US dollar in my lifetime (I am 36). It's the 10-15% drops in gold along the way I am trying to hedge against.

BiscayneSunrise
04-24-08, 10:12 PM
Fred,

Will you be suggesting a buy point during this "small trade within the big trade"?

It seems like we are getting close to a good entry point for gold again and for silver, may already be at bottom.

Finster
04-25-08, 04:24 PM
Thanks for the info... I am looking for a service that may alert me to a 10% or more upcoming decrease in the gold spot price. I may then decide to sell part of my position and buy back at a later time. I mostly only deal with real gold coins.

So the "special" alerting type is what I am looking for... I need to get that hat so I can get the info...:)

Thanks again...

Jason...

Definitely empathize with your sentiment. I'm basically a "long term" investor that holds a fair proportion in hard money at all times, but does like to layer on a bit of a counter trade due to the sometimes gut-wrenching volatility. Unfortunately, I know of no reliable service to that end.

Fred's opening comments here are as helpful as any I've come across, pointing out that within the context of an overall bullish trend, traders will sometimes push prices above trend and at others back below:




A Tale of Two Markets

Within the long gold and silver trade are players that create price movements that at times are counter to the long term trend and at other times exaggerate the long term trend. It is our position that the pullbacks created by the short term counter trends are buying opportunities for long investors and for traders the peaks of exaggerated short term price movements are selling opportunities. More importantly it is critical to distinguish between the kind of price volatility that funds can create with leverage versus the kind of price volatility we will see at the end of the long term PM inflation trade in place since 2001.

We do not foresee in light of ongoing liquidity problems in global bond markets, combined with slowing economic growth and rising inflation around the world, how governments will be able to make bonds more attractive than hard assets by raising yields above the rate of inflation to draw money away as occurred in the early 1980s during the previous cycle at a time when increased liquidity is needed to manage the debt deflation.

As long as future real interest rate expectations remain negative, the long PMs position that we took in 2001 remains in place.




Fred,

Will you be suggesting a buy point during this "small trade within the big trade"?

It seems like we are getting close to a good entry point for gold again and for silver, may already be at bottom.

FWIW, I'd look at it at least partly in terms of where you are now. If I had no gold and silver at all, I wouldn't wait a New York minute before picking some up. If I had 100%, I'd sell some pronto. At some point in between, I'd probably hold off a little longer before adding to my position if at all. Best guess as far as prices go is gold could pull back as far as the low 800s before resuming the uptrend, due in part to the dynamics of the market (gold tends to become less volatile near lows and more so near tops) and in part to seasonal factors. But these factors are not so reliable as to be one's sole basis for action.

FRED
05-01-08, 02:44 PM
Fred,

Will you be suggesting a buy point during this "small trade within the big trade"?

It seems like we are getting close to a good entry point for gold again and for silver, may already be at bottom.

We are hearing from some of our members who are trading gold that they are buyers again at $850. We are still above the $200 decline that this analysis speculated on March 5, 2008 that implies a bottom price of $780 for the small trade within the big trade.

bart
05-01-08, 09:59 PM
We are hearing from some of our members who are trading gold that they are buyers again at $850. We are still above the $200 decline that this analysis speculated on March 5, 2008 that implies a bottom price of $780 for the small trade within the big trade.

My current time window for a bottom is between May 22 and June 9, ideally June 5th.

Contemptuous
05-01-08, 10:32 PM
My current time window for a bottom is between May 22 and June 9, ideally June 5th.

Thanks Bart, for sharing your 2008 gold trade ideas with the rest of us "unwashed masses". Kudos to Jim Sinclair also for sketching out this 'notional' projection for gold's price action back in mid-2007? Guy wasn't born yesterday. I think he posted this chart back in 3QTR 2007.


366

GRG55
05-02-08, 12:35 AM
Thanks Bart, for sharing your 2008 gold trade ideas with the rest of us "unwashed masses". Kudos to Jim Sinclair also for sketching out this 'notional' projection for gold's price action back in mid-2007? Guy wasn't born yesterday. I think he posted this chart back in 3QTR 2007.


366

I seem to recall that you also were pretty vocal about a near term setback in gold and (even more so?) silver about the time of the Bear bail out Lukester.

bart
05-02-08, 11:59 AM
Thanks Bart, for sharing your 2008 gold trade ideas with the rest of us "unwashed masses". Kudos to Jim Sinclair also for sketching out this 'notional' projection for gold's price action back in mid-2007? Guy wasn't born yesterday. I think he posted this chart back in 3QTR 2007.



My pleasure Lukester, and who knows if I'll be correct on that best guess timing for an upcoming bottom. All I can really say is that I won't fight the market.

Very true on the general record of James Sinclair too. As long as one pays very close attention to him, the calls are there... and its far from as easy as reading EJ's work.

Starving Steve
05-02-08, 08:07 PM
I am still out of gold--- except for my survival gold hedge. Remember that I recommended going out of gold at $907?

Here is what makes me bullish for gold long-term:

Bernankee
Bush
the FOMC
the Sierra Club
Greenpeace
solar roofs
windmills
solar lights
Hummers
Islamo-fascists

I look to get back into gold under $750.

The long-run trend in gold is set in oil prices. It is hard not to be bullish on oil with the idiots in Greenpeace and the Sierra Club having the ear of government.

Jim Nickerson
05-09-08, 03:24 AM
I got an email alert that babbitd has posted the following in this thread, but I do not find it?????

So here is what the email said he posted:

Forbes.com (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html)):

'With our fundamental and technical (foreign exchange) strategists negative EUR/USD and our oil strategist unenthusiastic about the prospects for further gains in crude oil, we continue to favour the downside in gold, targeting $850/oz in one month and $800/oz in three months,' said *UBS* analyst John Reade.


After reading John William's report brought to our attention by atreyu42 here (http://www.itulip.com/forums/showthread.php?p=35456#post35456), that report has for the moment solidified my thinking about precious metals. If EJ and Williams are correct, and sure as shit I am not prepared to argue with them, then gold and silver for that matter appear to be very decently priced in here NOW.

I'm even shaken enough by William's report to go buy some physical PM's.

metalman
05-09-08, 10:19 AM
I got an email alert that babbitd has posted the following in this thread, but I do not find it?????

So here is what the email said he posted:

Forbes.com (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html)):

'With our fundamental and technical (foreign exchange) strategists negative EUR/USD and our oil strategist unenthusiastic about the prospects for further gains in crude oil, we continue to favour the downside in gold, targeting $850/oz in one month and $800/oz in three months,' said *UBS* analyst John Reade.


After reading John William's report brought to our attention by atreyu42 here (http://www.itulip.com/forums/showthread.php?p=35456#post35456), that report has for the moment solidified my thinking about precious metals. If EJ and Williams are correct, and sure as shit I am not prepared to argue with them, then gold and silver for that matter appear to be very decently priced in here NOW.

I'm even shaken enough by William's report to go buy some physical PM's.

there's a very comprehensive discussion about inflation and deflation Door Number Two (http://itulip.com/forums/showthread.php?t=3122), worth a reread, and The End of Money (http://itulip.com/forums/showthread.php?t=812)


http://www.itulip.com/images/MZM_GDP1990-2006.gif


also found this from my search...


Warning about a dollar hyperinflation makes good theater but has little value from an investment perspective. As we've pointed out many times and most recently here in How to make $301% in six years with low volatility (http://www.itulip.com/forums/showthread.php?p=23397#post23397), dollar hyperinflation is not in the cards.

For a nation to experience a hyperinflation, all four of the following conditions need to be met:
Large and growing external debt as a percentage of GDP with falling GDP (Yes, like the US.)
Politically and economically isolated and irrelevant (Not like the US. Think: Zimbabwe.)
No external demand for the currency (Not like the US dollar. Think: Iraqi Dinar.)
Political chaos (i.e., tanks rolling down the street, not like the US.)The US meets only the first condition. The US is certainly more politically isolated than in the past but as the world's largest economy is hardly irrelevant. The dollar is still a reserve currency so hardly meets the third criteria. The US is arguably one of the most politically stable on earth so the 4th condition is out.

Hardly the stuff of hyperinflation. That said, the value of a common share of USA, Inc. (http://www.google.com/url?sa=t&ct=res&cd=1&url=http%3A%2F%2Fwww.itulip.com%2Fforums%2Fshowthr ead.php%3Ft%3D936&ei=yAmZR9yNF5ucerit5bAP&usg=AFQjCNHFkSskaNCs3-LZLoVbdcwlZZeojA&sig2=mnU4er5M7n934OcSkWHbNA)–the US dollar–will continue to come under pressure.

We're working up the "Ka-Poom" update. In the process of researching it we came across a new way of thinking about the issues and it's taking us extra time to digest and process this but it'll be worth the added wait, we hope.

and... last but not least... from 2005


(http://www.itulip.com/forums/showthread.php?p=2080#post2080)Inflation is Dead! Long Live Inflation! (http://www.itulip.com/forums/showthread.php?p=2080#post2080)

Five-Year 100% Inflation Scenario

If a Ka-Poom event happens, the inflationary part of the cycle might evolve according to the model below. The model predicts an inflation that results in a 100% increase in the general price level over five years, not far short of Price Waterhouse's definition of a hyperinflation, which is defined as 100% or more over three years. But keep in mind that the difference between a major inflation and a hyperinflation is not a matter of degree. Both result in a rapid increase in the general price level, but while a major inflation is due to a surfeit of money, a hyperinflation is due to a loss of confidence in a currency. While they are related, the key difference is that inflation is mostly a monetary event, while hyperinflation is primarily a psychological event, the process of a currency losing its function as a store of value in a society.

A major inflation (http://www.howestreet.com/mainartcl.php?ArticleId=1151) can lead to a hyperinflation, but does not need to. The 100% inflation total that I use in the model is more or less arbitrary, used primarily to make the math easier. But there's no reason why in reality the inflation could not be either less or more. I have seen convincing arguments for 1000% inflation over a ten-year period, but few that anticipate an inflation of less than 50%. The Vietnam War period resulted in a 35% inflation over six years; it's hard to imagine how the additional amount of debt that needs to be monetized in our current period will not lead to inflation in excess of 35%.

We're likely to experience a major inflation in the U.S. as an outcome of the bond, housing, and dollar bubbles that came about as a result of past monetary and fiscal policy errors. In fact, a political decision process that favors inflation, as evidenced by the housing bubble, started in the mid-1990s. The U.S. may muddle through an adjustment to less reliance on foreign debt, and households may regress to the mean in terms of savings and debt, as John Mauldin (http://news.goldseek.com/MillenniumWaveAdvisors/1105282799.php) suggests. That is my hope. But highly leveraged nations and households are prone to crises, and with little savings and much debt, the opportunity to muddle through a crisis is limited.

http://www.itulip.com/images/janszen_4-26a.JPG

Slimprofits
05-09-08, 12:29 PM
I got an email alert that babbitd has posted the following in this thread, but I do not find it?????

So here is what the email said he posted:

Forbes.com (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html (http://www.forbes.com/markets/feeds/afx/2008/05/07/afx4980314.html)):

'With our fundamental and technical (foreign exchange) strategists negative EUR/USD and our oil strategist unenthusiastic about the prospects for further gains in crude oil, we continue to favour the downside in gold, targeting $850/oz in one month and $800/oz in three months,' said *UBS* analyst John Reade.


After reading John William's report brought to our attention by atreyu42 here (http://www.itulip.com/forums/showthread.php?p=35456#post35456), that report has for the moment solidified my thinking about precious metals. If EJ and Williams are correct, and sure as shit I am not prepared to argue with them, then gold and silver for that matter appear to be very decently priced in here NOW.

I'm even shaken enough by William's report to go buy some physical PM's.

It was me that deleted it. Does UBS have any credibility left after the subprime meltdown? I was unsure about that one.

*************

Jim Sinclair is not backing away from this:



Jim Sinclairs Commentary
(Originally Posted May 4th)
According to the talking heads, the ECB is going into a race with the US Fed for lower rates. This has been the spin basis for the gold decline based on the spin of lower interest rates in Euroland to produce a euro decline.

Whatever the gold price was to do on the downside will end by the first week of May.
The US dollar is going to trade at .5200.
The euro will trade at a minimum of USD$2
The gold price will trade at $1650 on or BEFORE January 14th, 2011.
$1024 was the first price block on the first move above $1000.
My job is bottom identification, not tops, because there is no top to the gold price for a long time to come. I gave you $1024, but that is as close as I will come to calling any top before the top.
I last purchased at $904 but have been sitting on the sidelines since waiting for it to stabilize.

Jim Nickerson
05-09-08, 03:42 PM
It was me that deleted it. Does UBS have any credibility left after the subprime meltdown? I was unsure about that one.

*************

Jim Sinclair is not backing away from this:


I last purchased at $904 but have been sitting on the sidelines since waiting for it to stabilize.

The problem as I see it with all information regarding investment is the burden of determining its credibility. I think everyone is aware of lying that takes place with those who have vested interests, and the screwed up reporting in the MSM, yet there is no lack of most of us continuing to reference many of the reports. This is no answer to the dilemma.

FRED
05-09-08, 05:13 PM
The problem as I see it with all information regarding investment is the burden of determining its credibility. I think everyone is aware of lying that takes place with those who have vested interests, and the screwed up reporting in the MSM, yet there is no lack of most of us continuing to reference many of the reports. This is no answer to the dilemma.

Track record is king.

Was looking over old itulip stuff. ran across this, reminded me of you:

"One of the best rules anybody can learn about investing is to do nothing, unless there's something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over and pick it up. I do nothing in the meantime. Even people who lose money in the market say, "I just lost my money, now I have to do something to make it back." No, you don't. You should just sit there until you find something." - Jim Rogers, 1999

Found it here with this recession forecast from 2001:

http://web.archive.org/web/20010201052200/http://itulip.com/#Quick

Question is, after reading John Williams today, "sit there" in what? Cash? No way, Jose.

Jim Nickerson
05-09-08, 08:06 PM
Track record is king.

Was looking over old itulip stuff. ran across this, reminded me of you:

"One of the best rules anybody can learn about investing is to do nothing, unless there's something to do. Most people always have to be playing; they always have to be doing something. They can't just sit there and wait for something new to develop. I wait until there is money lying in the corner, and all I have to do is go over and pick it up. I do nothing in the meantime. Even people who lose money in the market say, "I just lost my money, now I have to do something to make it back." No, you don't. You should just sit there until you find something." - Jim Rogers, 1999

Found it here with this recession forecast from 2001:

http://web.archive.org/web/20010201052200/http://itulip.com/#Quick

Question is, after reading John Williams today, "sit there" in what? Cash? No way, Jose.

Rather scary, eh, FRED. It scared me out of 100K of cash today.

You, or one of you FRED's, made it somewhat clear that there would be some on-going censorship here from yesterday. As an aside that pains me, but pertinent to the moment is that I would like someone, if someone exists, to cast Williams' perceptions with a negative light, i.e. say that he is wrong in something he wrote. And I am not asking the iTulip staff or EJ to do that, but it seems someone here in the audience would see something wrong with what Williams wrote. And I sure would like to read something by someone smart enough to argue against his perceptions.

FRED
05-09-08, 08:27 PM
Rather scary, eh, FRED. It scared me out of 100K of cash today.

You, or one of you FRED's, made it somewhat clear that there would be some on-going censorship here from yesterday. As an aside that pains me, but pertinent to the moment is that I would like someone, if someone exists, to cast Williams' perceptions with a negative light, i.e. say that he is wrong in something he wrote. And I am not asking the iTulip staff or EJ to do that, but it seems someone here in the audience would see something wrong with what Williams wrote. And I sure would like to read something by someone smart enough to argue against his perceptions.

The "censorship" is called "moderation" on other sites. Incredibly, we have until recently very, very rarely had to do any. The community pretty well "polices" itself.

If someone here wants to spend bandwidth and disk space to make the case that some other site or other is better than iTulip they can go use that site's bandwidth and disk space to do so, not ours.

That's common sense. You don't go to your local bar and grill every night and spend half the night trying to convince everyone there how much it sucks, not unless you want to get thrown out by your fellow patrons. Not everyone gets it. Some folks are a little thick.

As for criticizing iTulip or the Freds or EJ or anyone else, knock yourself out.

Jim Nickerson
05-09-08, 09:32 PM
The "censorship" is called "moderation" on other sites. Incredibly, we have until recently very, very rarely had to do any. The community pretty well "polices" itself.

If someone here wants to spend bandwidth and disk space to make the case that some other site or other is better than iTulip they can go use that site's bandwidth and disk space to do so, not ours.

That's common sense. You don't go to your local bar and grill every night and spend half the night trying to convince everyone there how much it sucks, not unless you want to get thrown out by your fellow patrons. Not everyone gets it. Some folks are a little thick.

As for criticizing iTulip or the Freds or EJ or anyone else, knock yourself out.

I guess the "knock yourself out" was directed at the general audience and not me in particular, hope it was.

When I ran across the reference to the Williams' article (http://www.shadowstats.com/article/292)last night, I wondered if it would be something that might be censored. The answer seems clear, or I hope it is clear now, to be 'No."

I am going to offer up a constructive criticism of EJ, since you put out the invitation.

Generally when I run across something like Williams' April 8 article that is relatively long (23 pages in PDF--shit, had I realized that last night before I started, I might not have read it) it has to lead me to believe it is something special for me to take the time to read it. Everything Eric puts up I am compelled to read despite whatever its length, i.e. I just grant him that what he writes will be something special.

Eric, even though as I understand studied to be some sort of a journalist--I hope I recollect that correctly--is a terrible writer, of course, that is just this ole boy's opinion. It is pure labor for me to get through a lot of what he puts up, and it is difficult for me to get as much information from what he writes as there probably is to be gotten.

Written communication is a difficult "art" as I see it, and I think Eric referenced the hardships or labor involved with submitting articles to editors and then making whatever necessary changes to improve readability and, of course, to get one's references and facts correct.

Anyone can correct me on this, but Williams article was not difficult to read or to comprehend--I say that because after reading it, I was impressed by the gravity it conveyed, and I didn't feel that I struggled to get his points.

I had the opportunity (and mental need) to write some papers that got published in professional journals and chapters in some books when I worked as an oral surgeon. I can remember how wrapped up I would become in trying to get my points onto paper (on into a file). Most fortunately the chairman of my department had published a ton of work and fortunately for him his earliest papers were done under a mentor who was a very good writer. I used to take my drafts into him--triple line spaced--for him to make comments and criticisms. As some time and learning from this went on, I did improve in my own abilities to better communicate whatever were the facts or ideas, always striving to achieve that what was written would be comprehensible by any interested reader. It was tough, tough task. Then one sends these things to the publisher and after their editors go over it, there are still things that are pointed out that are not clearly stated or that could be better stated.

I have no idea how big an outfit iTulip is or what are its capabilities, but I take it that EJ is fully serious about operating it on some on-going basis. Its value to us readers is its content which is a reflection of his thinking. This is important stuff, that is my impression, for the readers who subscribe or visit here. It is of prime importance that his thinking is conveyed is a manner that is comprehensible to all us readers.

To me the easiet answer to this--and for all I know you may already be doing this--is to have someone who is a capable editor proof read and ask EJ for clarification of things that are not as clear as they might better be, and finding such a person may not be easy.

It might also be hard for some individuals in a subordinate position to make strong recommendations to their boss, but my boss would give each of us underlings his manuscripts--triple lined spaced--for us to read and make comments that would improve other's understanding, and he took our advices more often than not. In our writings metaphors were never acceptable except in the rarest of instances, metaphors make reading important information more difficult, and should be relegated rather much to creative writing.

It is always easy for people to complain and it is not possible to rid the world of complainers, but what I am trying to get across here is totally intended as constructive criticism, and reading through William's paper shows how comprehensible things can be communicated even to those of my ilk.

One last thing, proofing and revising articles slows down their reaching the screen, but in the long run for important stuff that is not critical.

bart
05-09-08, 09:58 PM
...pertinent to the moment is that I would like someone, if someone exists, to cast Williams' perceptions with a negative light, i.e. say that he is wrong in something he wrote. And I am not asking the iTulip staff or EJ to do that, but it seems someone here in the audience would see something wrong with what Williams wrote. And I sure would like to read something by someone smart enough to argue against his perceptions.

I'm not saying I'm smart enough but I'll take a shot at it anyhow.

First and as you've observed elsewhere, what he's saying is not all that different from KaPoom... except in degree, and even there Mr. Williams did not specify an actual eventual rate of hyperinflation although he did define it as 4 digit and that the currency would become worthless... and EJ has even made mention of 4 digit hyperinflation, although my take is that he thinks it to be unlikely, and that 3 digits is more likely over a period of years.

Even his statement about a 90% loss (net of inflation) in US stocks isn't terribly different from the return to the mean that EJ has noted many times... and even my own chart of the CPI+lies adjusted Dow supports a 90% hit. The CPI+lies inflation adjusted mean is 1000-2000. The CPI only inflation adjusted mean is very roughly 3000-4000. Just to be clear too - that does not mean that the Dow will get that low. It could go to 30,000 or even much higher on a nominal basis.

I also urge a second look at the chart in the article - the one showing government obligations vs. GDP. The data for the US shows US government *obligations* where the section for the rest of the world show government *debts*... and there's a huge difference between the two. US gov't debts (including state & local) total about $11.5 trillion now, not the $60+ trillion of total obligations.
Also consider that neither India nor China have anything like Social Security payments, and also that a large portion of the US Medicare obligation is very recent.


And then there's the 2nd to last paragraph (emphasis mine):

What has been discussed here still has not been a comprehensive overview of all possible issues, but rather at least has raised some questions and touched upon some likely consequences.In other words, there are no guarantees. Likely does not mean assured.


He also mentions Howard Ruff's book which is an update of his best seller from the late '70s... and *many* folk misunderstood Mr. Ruff back then as meaning that the society would collapse... and it didn't.
Will it be rougher now than in the '70s? - yes, I think so.
Are there always consequences to actions? - yes, of course.
How much rougher? - I wish I knew.
Is it all "black"? - not only no, but hell no!


Is there a danger now just like there was a danger then? - of course. And prudent people do make preparations for unexpected or unlikely events - that's called insurance. Insurance takes many forms, tangible assets like precious metals being just one.


And from that same last paragraph in the article:

No one can figure out better than you the peculiarities of this circumstance and how you and/or your business might be affected. Using common sense is about the best advice I can give.There are other things I could bring up about the article, but I hope that this has helped.

Jim Nickerson
05-10-08, 02:30 AM
Thanks, bart, and you are definitely smart enough to perceive short-comings in such an article.

It's interesting your mentioning the chart of Government Obligations versus GDP--2007. Man, if there is any chart I can recollect seeing that I accept as reinforcing a point, it is that chart.



The GAAP-accounting is what a U.S. corporation would have to show. The Administration’s rationale as to why Social Security and Medicare should remain off balance sheet runs along the lines that the government always has the option of changing the Social Security and Medicare programs. That said, there clearly is no one in political Washington willing to go public with the concept of eliminating or substantially cutting those programs. Such includes the prospective presidential candidates.

Consider that given the current financial condition of the government, various politicians are pushing ever further for expensive cradle-to-grave programs for the electorate, ranging from national health insurance to bailouts of mortgaged homeowners at risk of foreclosure. With no full funding available for any new programs, the government again is showing its willingness to spend whatever money it has to create. The intent going forward is inflation — hyperinflation. This circumstance has evolved with the full knowledge of political Washington and the Federal Reserve.


I guess through some leads you and others have put up, it has been amazing to just how much data the US government makes available to those on the internet. I have to presume Williams is smart enough to get it correct when he states the liabilities (obligations) exceed 60 TRILLION BONARS, shit, that is what the accompanying table shows, but here is where readers must accept Williams' accounting, which personally I have no option but to accept. I really cannot fully comprehend a trillion dollars, much less 60 trillion. His chart shows 9 trillion federal debt which isn't that far off what you state as representing fed, state and local debt--if one considers in this conversation 2.5 trillion is chicken feed. Regardless of any understatement of what the rest of the world owes compared to its GDP, is it possible that with the current US GDP (which I presume will likely decline) to ultimately meet the current obligations?

The two parts I underlined are totally condemnatory of the elected officials of this country. I have often thought the dudes elected are too dumb to comprehend much about the criticality of the US debt burden, but perhaps Williams is correct and that makes all the bastards there feckless pieces of poop (I am particularly charitable when speaking out our elected representatives by choosing "poop.")

Thank you again, bart.

Ann
05-10-08, 12:01 PM
I guess the "knock yourself out" was directed at the general audience and not me in particular, hope it was.

When I ran across the reference to the Williams' article (http://www.shadowstats.com/article/292)last night, I wondered if it would be something that might be censored. The answer seems clear, or I hope it is clear now, to be 'No."

I am going to offer up a constructive criticism of EJ, since you put out the invitation.

Generally when I run across something like Williams' April 8 article that is relatively long (23 pages in PDF--shit, had I realized that last night before I started, I might not have read it) it has to lead me to believe it is something special for me to take the time to read it. Everything Eric puts up I am compelled to read despite whatever its length, i.e. I just grant him that what he writes will be something special.

Eric, even though as I understand studied to be some sort of a journalist--I hope I recollect that correctly--is a terrible writer, of course, that is just this ole boy's opinion. It is pure labor for me to get through a lot of what he puts up, and it is difficult for me to get as much information from what he writes as there probably is to be gotten.

Written communication is a difficult "art" as I see it, and I think Eric referenced the hardships or labor involved with submitting articles to editors and then making whatever necessary changes to improve readability and, of course, to get one's references and facts correct.

Anyone can correct me on this, but Williams article was not difficult to read or to comprehend--I say that because after reading it, I was impressed by the gravity it conveyed, and I didn't feel that I struggled to get his points.

I had the opportunity (and mental need) to write some papers that got published in professional journals and chapters in some books when I worked as an oral surgeon. I can remember how wrapped up I would become in trying to get my points onto paper (on into a file). Most fortunately the chairman of my department had published a ton of work and fortunately for him his earliest papers were done under a mentor who was a very good writer. I used to take my drafts into him--triple line spaced--for him to make comments and criticisms. As some time and learning from this went on, I did improve in my own abilities to better communicate whatever were the facts or ideas, always striving to achieve that what was written would be comprehensible by any interested reader. It was tough, tough task. Then one sends these things to the publisher and after their editors go over it, there are still things that are pointed out that are not clearly stated or that could be better stated.

I have no idea how big an outfit iTulip is or what are its capabilities, but I take it that EJ is fully serious about operating it on some on-going basis. Its value to us readers is its content which is a reflection of his thinking. This is important stuff, that is my impression, for the readers who subscribe or visit here. It is of prime importance that his thinking is conveyed is a manner that is comprehensible to all us readers.

To me the easiet answer to this--and for all I know you may already be doing this--is to have someone who is a capable editor proof read and ask EJ for clarification of things that are not as clear as they might better be, and finding such a person may not be easy.

It might also be hard for some individuals in a subordinate position to make strong recommendations to their boss, but my boss would give each of us underlings his manuscripts--triple lined spaced--for us to read and make comments that would improve other's understanding, and he took our advices more often than not. In our writings metaphors were never acceptable except in the rarest of instances, metaphors make reading important information more difficult, and should be relegated rather much to creative writing.

It is always easy for people to complain and it is not possible to rid the world of complainers, but what I am trying to get across here is totally intended as constructive criticism, and reading through William's paper shows how comprehensible things can be communicated even to those of my ilk.

One last thing, proofing and revising articles slows down their reaching the screen, but in the long run for important stuff that is not critical.

I'm a lurker but I have to reply to this one.

I find EJ's writing clear and concise, engaging and approachable. A rarity in this world.

What part of Inflation in America - Part I: Five signs of inflation (http://www.itulip.com/forums/showthread.php?p=34140#post34140) for example is unclear? This is standard EJ fare.

Then there's the charts and images. My favorite image.

http://www.itulip.com/images/recession-itulip.gif

Hah! On target! Still makes me laugh.

This chart is a revelation like many others here.

http://www.itulip.com/forums/photoplog/images/174/1_personalconsumption10-2008.gif

What did you think of the Harper's article? Why do you think a publisher picked EJ out to write a book, because EJ's a lousy writer?

Really, I don't understand your comments at all. Maybe it's a matter of taste. Are you looking for a some kind of economics or finance manual versus actual writing? I sure hope EJ doesn't start writing that way.

bart
05-10-08, 12:47 PM
It's interesting your mentioning the chart of Government Obligations versus GDP--2007. Man, if there is any chart I can recollect seeing that I accept as reinforcing a point, it is that chart.



I guess through some leads you and others have put up, it has been amazing to just how much data the US government makes available to those on the internet. I have to presume Williams is smart enough to get it correct when he states the liabilities (obligations) exceed 60 TRILLION BONARS, shit, that is what the accompanying table shows, but here is where readers must accept Williams' accounting, which personally I have no option but to accept. I really cannot fully comprehend a trillion dollars, much less 60 trillion. His chart shows 9 trillion federal debt which isn't that far off what you state as representing fed, state and local debt--if one considers in this conversation 2.5 trillion is chicken feed. Regardless of any understatement of what the rest of the world owes compared to its GDP, is it possible that with the current US GDP (which I presume will likely decline) to ultimately meet the current obligations?

The two parts I underlined are totally condemnatory of the elected officials of this country. I have often thought the dudes elected are too dumb to comprehend much about the criticality of the US debt burden, but perhaps Williams is correct and that makes all the bastards there feckless pieces of poop (I am particularly charitable when speaking out our elected representatives by choosing "poop.")

Thank you again, bart.


My pleasure Jim. Glad it was somewhat useful.

As to the data and what the gov't makes available, I very much agree. Barry at the Big Picture made a great observation last week:

Lastly, as to the conspiracy theories, I have my own take on it: The government doesn't respect you enough to lie. They actually put out all of the official statistics each month for anyone with the time and interest to plow through them. All of these data runs, adjustments, changes to CPI, historical data -- its all online, waiting for you to review it, and be mollified or outraged.


Most people don't bother . . .



On the $60+ trillion total obligations, its in the right ball park for sure and the data does come directly from a government source - Williams just did straight reporting. Total Fed debt is also about $9.4 trillion and state & local is about $2 trillion.

If nothing changes, it is indeed impossible for the US to meet the obligations... not unlike most other Western countries. Greenspan's comments from a few years ago also apply:

"We can guarantee cash benefits as far out and at whatever size you like, but we cannot guarantee their purchasing power."

- Alan Greenspan (Chairman of the Federal Reserve US Central Bank), appearing before the Senate Banking Committee on February 15, 2005, in response to Democratic Senator Jack Reed of Rhode Island on the topic of funding Social Security.


One thing that is seldom if ever mentioned about the long term Medicare obligations is that the laws can be changed or rolled back. Currently of course, that has the chance of the proverbial snowball in hell of happening but given enough of a crisis and the proper spin, it could happen. After all, there are a lot more taxpayers than Medicare recipients...


Agreed too on most politicians not having enough integrity to punch through toilet paper but I don't think they're stupid in the sense of unintelligent. Even Dumbya brought up the problems with Social Security a few years ago... and it was pushed back under the rug.... again.
In other words, its not just scummy politicians that are responsible - responsibility is frequently very much of a 4 letter word.

metalman
05-10-08, 01:13 PM
My pleasure Jim. Glad it was somewhat useful.

As to the data and what the gov't makes available, I very much agree. Barry at the Big Picture made a great observation last week:



On the $60+ trillion total obligations, its in the right ball park for sure and the data does come directly from a government source - Williams just did straight reporting. Total Fed debt is also about $9.4 trillion and state & local is about $2 trillion.

If nothing changes, it is indeed impossible for the US to meet the obligations... not unlike most other Western countries. Greenspan's comments from a few years ago also apply:



One thing that is seldom if ever mentioned about the long term Medicare obligations is that the laws can be changed or rolled back. Currently of course, that has the chance of the proverbial snowball in hell of happening but given enough of a crisis and the proper spin, it could happen. After all, there are a lot more taxpayers than Medicare recipients...


Agreed too on most politicians not having enough integrity to punch through toilet paper but I don't think they're stupid in the sense of unintelligent. Even Dumbya brought up the problems with Social Security a few years ago... and it was pushed back under the rug.... again.
In other words, its not just scummy politicians that are responsible - responsibility is frequently very much of a 4 letter word.

you got it! lying to us in full public view for years... who needs to cover it up with these guys can count on the msm to not cover the story?

The Bubble Cycle is Replacing the Business Cycle (http://www.itulip.com/forums/showthread.php?t=360)

Maybe there's a New Economy after all

by Eric Janszen

Note: this article originally appeared on the AlwaysOn Network, March 13, 2005 (http://www.safehaven.com/forums_showmessage.cfm?id=10328).

Let's put to rest the myth that the Fed is blind to asset bubbles and never intentionally acts to prick them. The truth can be obtained by anyone with an internet browser and a few hours on their hands to read the voluminous Fed Open Market Committee (FOMC) meeting minutes. In the FOMC meeting minutes from March 22, 1994 (pdf) (http://www.federalreserve.gov/fomc/transcripts/1994/940322Meeting.pdf), Greenspan says (my emphasis in italics):

bart
05-10-08, 01:29 PM
you got it! lying to us in full public view for years... who needs to cover it up with these guys can count on the msm to not cover the story?

The Bubble Cycle is Replacing the Business Cycle (http://www.itulip.com/forums/showthread.php?t=360)

Maybe there's a New Economy after all

by Eric Janszen

Note: this article originally appeared on the AlwaysOn Network, March 13, 2005 (http://www.safehaven.com/forums_showmessage.cfm?id=10328).

Let's put to rest the myth that the Fed is blind to asset bubbles and never intentionally acts to prick them. The truth can be obtained by anyone with an internet browser and a few hours on their hands to read the voluminous Fed Open Market Committee (FOMC) meeting minutes. In the FOMC meeting minutes from March 22, 1994 (pdf) (http://www.federalreserve.gov/fomc/transcripts/1994/940322Meeting.pdf), Greenspan says (my emphasis in italics):




While its very much a non-trivial task, a study of the FOMC minutes is one of my top five items for enabling a broad and full understanding of what's really going on.

Here's the applicable quote from those 1994 minutes:

"So the question is, having very consciously and purposely tried to break the bubble and upset the markets in order to sort of break the cocoon of capital gains speculation, we are now in a position—having done that and in a sense succeeded perhaps more than we had intended—to try to restore some degree of confidence in the System."
-- Alan Greenspan, Chairman of the Federal Reserve.

Finster
05-10-08, 03:08 PM
The "censorship" is called "moderation" on other sites. Incredibly, we have until recently very, very rarely had to do any. The community pretty well "polices" itself.

As someone who has been at sites with little to no moderation, I am grateful for that which is here!

Finster
05-10-08, 03:27 PM
You, or one of you FRED's, made it somewhat clear that there would be some on-going censorship here from yesterday. As an aside that pains me, but pertinent to the moment is that I would like someone, if someone exists, to cast Williams' perceptions with a negative light, i.e. say that he is wrong in something he wrote. And I am not asking the iTulip staff or EJ to do that, but it seems someone here in the audience would see something wrong with what Williams wrote. And I sure would like to read something by someone smart enough to argue against his perceptions.

Finster: [raises hand]

No, I don't presume to meet all your specifications, but do "see something wrong with what Williams wrote". For the record, I think very highly of Williams and don't lightly disagree with him.

My problem with this article is not the general direction of the scenario, but with the extremes. There will be inflation, maybe hyperinflation, but Williams is specific in calling for "seven- to 10-digit inflation". And it seems likely to take longer to evolve than he envisions.

Why? Partly because there seems to be a historical tendency for very extreme forecasts to not pan out. I remember the late 1970s well, when many people were stockpiling freeze-dried food and burying gold in the yard in preparation for a total breakdown of civilization. Hyperinflation had been forecast by some very smart people. And inflation did get very bad, but somehow we pulled ourselves back from the precipice.

And partly because of sheer inertia. There remains a massive amount of widely and deeply distributed debt in the US, and that debt represents demand for dollars. Yes, armed with printing presses and helicopters, the authorities can overwhelm that demand with supply, but there is enough of a distribution problem to make it unlikely the inflationary process will accelerate so fast as Williams postulates.

I'm not saying his outlook could not come to pass. Just that it's not likely to get as severe as he prophesies or that quickly.

Nervous Drake
05-10-08, 04:05 PM
Finster: [raises hand]

No, I don't presume to meet all your specifications, but do "see something wrong with what Williams wrote". For the record, I think very highly of Williams and don't lightly disagree with him.

My problem with this article is not the general direction of the scenario, but with the extremes. There will be inflation, maybe hyperinflation, but Williams is specific in calling for "seven- to 10-digit inflation". And it seems likely to take longer to evolve than he envisions.

Why? Partly because there seems to be a historical tendency for very extreme forecasts to not pan out. I remember the late 1970s well, when many people were stockpiling freeze-dried food and burying gold in the yard in preparation for a total breakdown of civilization. Hyperinflation had been forecast by some very smart people. And inflation did get very bad, but somehow we pulled ourselves back from the precipice.

And partly because of sheer inertia. There remains a massive amount of widely and deeply distributed debt in the US, and that debt represents demand for dollars. Yes, armed with printing presses and helicopters, the authorities can overwhelm that demand with supply, but there is enough of a distribution problem to make it unlikely the inflationary process will accelerate so fast as Williams postulates.

I'm not saying his outlook could not come to pass. Just that it's not likely to get as severe as he prophesies or that quickly.

Yes. The one comfort people should take is that it's not likely that those who went out and spent well beyond their means for years and years will suddenly have all their debts wiped clean through hyper inflation. That's quite a dream, isn't it? And if it did happen, I can imagine foreign countries seeing that as quite extreme, as well.

Finster
05-10-08, 04:08 PM
... Even his statement about a 90% loss (net of inflation) in US stocks isn't terribly different from the return to the mean that EJ has noted many times... and even my own chart of the CPI+lies adjusted Dow supports a 90% hit. The CPI+lies inflation adjusted mean is 1000-2000. The CPI only inflation adjusted mean is very roughly 3000-4000. Just to be clear too - that does not mean that the Dow will get that low. It could go to 30,000 or even much higher on a nominal basis...

This is an especially good point, Bart. Net of inflation, 90% stock market losses are not as extreme as they may sound. 1929-1932 set the market back about 90% in (both nominal and) real terms. 1968-1980 stock prices nominally went about net sideways, but in inflation adjusted terms, were down around 90%. 2000-date the stock market is already down over 40%, and 90% looks highly likely again this time.

jk
05-10-08, 04:34 PM
since the discussion of the probability of williams' scenario has migrated to this thread, i am taking the liberty of reposting a comment i made in the other thread:

-----

there is a case williams did not consider: that at some point the fed RAISES rates to support the dollar. the argument would be that by the time of williams' hypothesized monetization, long bonds would have sold off and thus long rates would be quite high. if at that juncture the fed raises rates, the dollar would be supported and - hypothetically- long rates might come down some, flattening the curve a bit and, overall, reducing the treasury's cost of borrowing. perhaps, in order to facilitate this, the fed will buy long bonds in order to inject money, instead of buying tbills. we know that bernanke discussed this very possibility in his "keeping 'it' from happening here" paper.

so, to recap, imagine the fed raising short rates while buying long bonds. this might cause the unwinding of the dollar carry trade which is appearing now, and thus support the dollar even more strongly.

the concern, of course, is that higher short rates would hurt the economy, but in this scenario, i think it would be a preferable policy.

i think this is the kind of "creative intervention" that goes along with the multiple targeted lending facilities that the fed has pulled out of its hat recently. and i would add that this might drop the price of oil and other commodities not just by reducing demand, but by killing the dollar/oil, dollar/agric, dollar/metals carry trades.

c1ue
05-10-08, 05:30 PM
JK, Bart, Finster,

Your collective points on how things might not be as bad are all quite reasonable.

However, the question I ask is whether the US can simultaneously inflate away its debt while also not losing its present dependence on imports.

I can also see lots of scenarios where the dollar will remain at some lower bound in order to prevent complete trade cutoff, but I still fail to see how a partial inflation policy will resolve the debt issue.

Perhaps I am being too simplistic - but I have been and continue to view the issue as being how to either inflate away the present debt pyramid and eventually finding out how to live without the massive imports presently being paid for with said debt, or finding out how to survive without imports immediately.

Unless this simplistic scenario is false, I would foresee either choice as being of the same result, only different timeline and somewhat different impact.

jk
05-10-08, 08:43 PM
i've read that with old-fashioned inflation numbers used for the annual adjustments, social security payments would be 70% higher. so part 1 of the "solution" is to continue understating inflation. part 2 will be means testing social security and medicare. we'll need to be in a hell of a crisis for that to be politically do-able, but herb stein's famous dictum applies. [if something can't go on forever, it will eventually stop.] part 3 is that other currencies also lose value, cushioning the appearance of the dollar's drop in purchasing power. step 4, at some point the fed raises rates to support the dollar, perhaps while buying long paper, as i've suugested. but this can only be done AFTER there has been enough inflation to lower the burden of debt. remember, there is too much debt: it cannot be paid at full value, so it will be paid in itty bitty dollars.

step 2 is key- without it there must be even higher inflation. a key point in williams' analysis is political -- that these obligations are not diminished by legislation. but they will have to be diminished in some fashion.

step 4 allows the fed to put the brakes on the inflationary process. the prior devaluatio0n of outstanding debt prevents this from triggering a deflationary spiral. [i hope]

Finster
05-11-08, 09:08 AM
JK, Bart, Finster,

Your collective points on how things might not be as bad are all quite reasonable.

However, the question I ask is whether the US can simultaneously inflate away its debt while also not losing its present dependence on imports.

I can also see lots of scenarios where the dollar will remain at some lower bound in order to prevent complete trade cutoff, but I still fail to see how a partial inflation policy will resolve the debt issue.

Perhaps I am being too simplistic - but I have been and continue to view the issue as being how to either inflate away the present debt pyramid and eventually finding out how to live without the massive imports presently being paid for with said debt, or finding out how to survive without imports immediately.

Unless this simplistic scenario is false, I would foresee either choice as being of the same result, only different timeline and somewhat different impact.

See below...


i've read that with old-fashioned inflation numbers used for the annual adjustments, social security payments would be 70% higher. so part 1 of the "solution" is to continue understating inflation. part 2 will be means testing social security and medicare. we'll need to be in a hell of a crisis for that to be politically do-able, but herb stein's famous dictum applies. [if something can't go on forever, it will eventually stop.] part 3 is that other currencies also lose value, cushioning the appearance of the dollar's drop in purchasing power. step 4, at some point the fed raises rates to support the dollar, perhaps while buying long paper, as i've suugested. but this can only be done AFTER there has been enough inflation to lower the burden of debt. remember, there is too much debt: it cannot be paid at full value, so it will be paid in itty bitty dollars.

step 2 is key- without it there must be even higher inflation. a key point in williams' analysis is political -- that these obligations are not diminished by legislation. but they will have to be diminished in some fashion.

step 4 allows the fed to put the brakes on the inflationary process. the prior devaluatio0n of outstanding debt prevents this from triggering a deflationary spiral. [i hope]

This is more than plausible, JK. Some historical perspective: Before, government obligations and those of other debtors could be reduced by means of inflation. Pay the dollar value of benefits and debts, but pay them in depreciated dollars. This is the usual mode of soveriegn default. But those having claims on those benefits and debts noticed, so the government eventually began indexing them to the CPI or other indices of inflation.

Of course this merely recreated the original problem when debts and obligations again grew beyond the ability of the government to pay. This meant they couldn't be inflated down unless the rate of inflation exceeded the rate of indexing - this margin then became the "new" inflation. We then reach a sort of "inflation squared" scenario where there is a new deception added on top of a fix for the old deception.

In any event, this does give the authorities a means to inflate away debt. It's not so critical that the rate of inflation itself reach a certain level nor that the rate of indexing reach a certain level, but rather that the difference between the two be adequate to serve the purpose the original inflation did.

Depending on how you reckon the real rate of inflation, that difference is already at least in the upper single digit range. Around 8%, for example, using William's SGS calculations versus those of the government's BLS. Provided the rate at which new debt and obligations are added is not too high, it does seem possible that the real debt level could be reduced to manageable levels given sufficient time.

Those provisos of course are far from trivial, but there is at least a path whereby catastrophic hyperinflation can be averted.

bart
05-11-08, 12:04 PM
i've read that with old-fashioned inflation numbers used for the annual adjustments, social security payments would be 70% higher. so part 1 of the "solution" is to continue understating inflation. part 2 will be means testing social security and medicare. we'll need to be in a hell of a crisis for that to be politically do-able, but herb stein's famous dictum applies. [if something can't go on forever, it will eventually stop.] part 3 is that other currencies also lose value, cushioning the appearance of the dollar's drop in purchasing power. step 4, at some point the fed raises rates to support the dollar, perhaps while buying long paper, as i've suugested. but this can only be done AFTER there has been enough inflation to lower the burden of debt. remember, there is too much debt: it cannot be paid at full value, so it will be paid in itty bitty dollars.

step 2 is key- without it there must be even higher inflation. a key point in williams' analysis is political -- that these obligations are not diminished by legislation. but they will have to be diminished in some fashion.

step 4 allows the fed to put the brakes on the inflationary process. the prior devaluatio0n of outstanding debt prevents this from triggering a deflationary spiral. [i hope]

I submit that step 3 is the one that does not receive enough attention, allows too much tunnel vision, and excess focus on the demise of the US dollar.

There is no country on Earth that is not inflating, and more than a few are also in double digits like the US.

Finster
05-11-08, 12:48 PM
There is no country on Earth that is not inflating, and more than a few are also in double digits like the US.

Bingo! This is crucial. This is why the declines in "the dollar" don't quite seem to fully account for all these price increases. The dollar falls, say 9% against the euro. But prices rise 14%. Well ... maybe the euro itself lost 5% in value! After all, Mr. Trichet seems greatly concerned about just that, resisting cutting ECB rates precisely because the purchasing power of the euro is falling too fast for the ECB's mandate.

bart
05-11-08, 01:34 PM
Bingo! This is crucial. This is why the declines in "the dollar" don't quite seem to fully account for all these price increases. The dollar falls, say 9% against the euro. But prices rise 14%. Well ... maybe the euro itself lost 5% in value! After all, Mr. Trichet seems greatly concerned about just that, resisting cutting ECB rates precisely because the purchasing power of the euro is falling too fast for the ECB's mandate.


I know you've seen this before, but it seems particularly salient now. Its far from perfect and does not take things like CPI+lies into account, but it sure does show the basic truth.



http://www.nowandfutures.com/download/gold_vs_currencies_ppp1900-2005_from_AEIR_report_rr11_pdf.png

c1ue
05-11-08, 01:53 PM
Gentlemen,

I understand where you are going with this line of reasoning.

The trouble is that if the $60T debt is anywhere close to real, then with a simple expectation of interest rate paid of 3% yields some ugly numbers. Note: I think this is a very low assumption given inflation.

At 3% interest, we're talking about $1.8T in payments per year.

Couple this with the continuing large trade deficits ($763B in 2006), we're now looking at a net of over $2.5T.

Granted, US GDP is over $13.5T, but $2.5T in cash payments vs. $13.5T of all dollars earned in the US is not a comforting ratio. If I use money velocity as a rough approximation of 'productivity velocity' and divide GDP by it to yield a rough approximation of cash carry capability, that looks REALLY ugly.

Even with a nominal 8% net devaluation rate (3% interest, 11% inflation), it would take 9 years to cut existing $60T to the present equivalent of $30T (rule of 72 in reverse).

So, if the trade deficits can be erased, even then we're looking at 9 years where in year 1 13% of all dollars earned go to paying debt (interest only). Alternately 18% of all dollars earned would be going to paying debt and buying crap from other countries.

In year 9 the interest carry is still 6.5% of GDP.

Obviously the actual rate being paid could be higher or lower, but only an interest rate of 1% or less would yield a comfortable scenario.

Actual interest rates paid of 5% or more would be ruinous.

Of course, in reality creditors don't stand still when their principal is being eroded. The real reason inflationary spirals go asymptotic is that creditors sooner or later start demanding interest payments in excess of past inflation in order to get ahead of future inflation.

Then there is the question of the upcoming 'Boomer bulge' in anticipated payments. The Boomers are more than large enough to swing politics their way, perhaps it will be necessary to 'clean the decks' of existing debt before this demographic starts demanding their entitlements - which means a 75% or 90% reduction in purchasing value by 2011.

BiscayneSunrise
05-11-08, 02:06 PM
We are hearing from some of our members who are trading gold that they are buyers again at $850. We are still above the $200 decline that this analysis speculated on March 5, 2008 that implies a bottom price of $780 for the small trade within the big trade.

Thanks Fred, I know we are close and I was badly tempted to jump back in after the May 1st decline but am still holding back.

Some say the markets are beginning to look across the valley now and equities (X-financials) should do well for the medium term. I share those sentiments. I know Eric thinks it is to soon although in the "Buy Ford " thread he indicated that over the very long term, equities in the right spots should do better than PM's.

Is that still the sentiment? Being an anti-doomer, I struggle with re-entering the PM trade when seeing all the really great innovation that is out there creating wealth.

Finster
05-11-08, 02:38 PM
I know you've seen this before, but it seems particularly salient now. Its far from perfect and does not take things like CPI+lies into account, but it sure does show the basic truth...

Donka. Illustrates your point about currencies all tending to decline nicely. Moreover, seems pretty safe to say that if we did "take things like CPI+lies into account", the US Dollar would look a little less like gold and the Swiss Franc, and little more like the German (Wiemar) Mark and the French Franc ...

bart
05-11-08, 02:53 PM
Donka. Illustrates your point about currencies all tending to decline nicely. Moreover, seems pretty safe to say that if we did "take things like CPI+lies into account", the US Dollar would look a little less like gold and the Swiss Franc, and little more like the German (Wiemar) Mark and the French Franc ...

As Valley girls used to say - fer shure, fer shure... :D

Verrocchio
05-11-08, 05:45 PM
...part 1 of the "solution" is to continue understating inflation.
part 2 will be means testing social security and medicare.
part 3 is that other currencies also lose value, cushioning the appearance of the dollar's drop in purchasing power.
step 4, at some point the fed raises rates to support the dollar, perhaps while buying long paper


JK, the Wikipedia list of government techniques to disguise the rate of inflation (below) is an elaboration of your part 1 (above):
Outright lying as to official statistics such as money supply, inflation or reserves.
Suppression of publication of money supply statistics, or inflation indices. An example of this in the United States is the discontinuance of M3 money supply.
Price and wage controls.
Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or similar.
Adjusting the components of the Consumer Price Index, to remove those items whose prices are rising the fastest.None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation.
--------------------
Perhaps we shall also see Bullet 3 and Bullet 4 before too long.

rabot10
05-11-08, 06:24 PM
i'm not sure you want "gold" newsletters. one question you need to ask yourself is whether you want to trade, or buy long term positions based on a more macro approach. do you want to accumulate over time, or do you need to deploy a larger amount all at once? i subscribed to doody's letter for a year, and it is very good, but i decided i didn't really want to own gold stocks, i wanted to own the metal [albeit in paper form - gld and slv - though i am mulling over the wisdom of that].

so first think about the big picture and how your own situation might determine what kind of information is going to be of most use.

Fred J/k what a weird planet we live on!! If ya figure it out let me know PLEASE - I haven't

Slimprofits
05-12-08, 11:38 AM
Is it on?


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</TD></TR><TR><TD align=middle><TABLE cellSpacing=2 cellPadding=0 bgColor=#003333><TBODY><TR><TD><TABLE bgColor=#ffffff><TBODY><TR><TD>Printer Friendly Version (http://www.kitco.com/charts/livegoldw.html) </TD></TR></TBODY></TABLE></TD></TR></TBODY></TABLE>

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metalman
05-12-08, 12:27 PM
Is it on?


<table align="center" border="0" cellpadding="0" cellspacing="0"><tbody><tr align="center"><td bgcolor="#ffffff" valign="bottom"><input style="border-style: none; font-weight: bold; color: black; text-align: center;" size="45" value="May 12 2008, Current New York Time: 11:37:42" name="face"> </td></tr><tr><td align="center">http://www.kitco.com/images/live/gold.gif (http://javascript%3Cb%3E%3C/b%3E:NewWindow%28%27/glossary/markets.html%27,%27AU%27,%27top=50,left=200,width= 500,height=350,scrollbars=yes%27%29)


</td></tr><tr><td align="center"><table bgcolor="#003333" cellpadding="0" cellspacing="2"><tbody><tr><td><table bgcolor="#ffffff"><tbody><tr><td>Printer Friendly Version (http://www.kitco.com/charts/livegoldw.html) </td></tr></tbody></table></td></tr></tbody></table>

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either that or it's a wave up in a series of waves down. too early to tell.

the theory here is that a bear market is a like a tide going out... each new series of price rises is less than the last one. a bull market is like a tide coming in. i like that analogy. now where the hell is it? itulip needs a bookmark function :mad:

krakknisse
05-17-08, 02:38 PM
Anyone read Jin Sinklair's last update on May 16th? What is he alluding to? I was puzzled at the sudden jump in gold on Friday at New York open, as I was expecting a leg down. Perhaps it is nothing.


Posted On: Friday, May 16, 2008, 10:48:00 PM EST. A Heads Up From Jin. Author: Jin Sinklair

Dear CIGAs (Comrades In Golden Arms), 50 years of trading markets and building companies combined with outrageous good fortune has given me a reliable sense of timing and value. I suggest that you cancel all sell orders at any price in precious metals immediately so that no orders exist when Asia opens. Sometimes Bert and Jesse trusted their years of experience to guide them free of any tools at major points of change. The hairs on the back of my neck are standing up at attention. Not a pretty sight. That is what happened at $400 in the 70s and $600 recently.

Bert Seligman is Jin Sinclair's father (http://oikonomikablog.wordpress.com/2007/11/04/jim-sinclair-second-warning-time-to-protect-yourself/) (?). Jesse Livermore (http://en.wikipedia.org/wiki/Jesse_Lauriston_Livermore) is a famous trader and a friend of bert..

phirang
05-17-08, 02:48 PM
this is why the rip:

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_ne91Qe_Pkw&refer=home

grapejelly
05-17-08, 04:45 PM
I took major positions in junior mining equities this past week. Methinks the elevator is headed up. The biggest bull leg to date in the ongoing secular bull market in everything gold and silver...along with uranium, natgas and base metals.

Nicolasd
05-17-08, 10:28 PM
Jim Sinclair is with you on this one

http://www.jsmineset.com/ARhome.asp?VAfg=1&RQ=EDL,1&AR_T=1&GID=&linkid=6141&T_ARID=6196

sadsack
05-21-08, 08:44 PM
I'm so late to the party it's not even funny; that being said, purely for PP preservation, is this the time for significant (30-50% of total assets) PM allocation?

FYI - I'm halfway there (25%) already, plus about 5% in DRIP CanRoyals.

Besides that, I've accelerated any needed purchases of durable goods (within the 1-5 year timeframe). Word on the ground - anything that involves imported raw or finished materials (given the parlous state of US industry, practically any durable good satisfies the aforementioned criteria) is headed for a 15% increase come July 1.

Nervous Drake
05-21-08, 10:09 PM
Pretty sure this isn't the end of the world and you will have plenty more time to time your entry points. $12-$15 oil is probably not going to happen in an instant but over time just as oil jumped to 3 bucks a gallon around 2005 and now heading to around 5 bucks for another year or two and then probably 7 bucks after that etc etc.

sadsack
05-21-08, 11:24 PM
Pretty sure this isn't the end of the world and you will have plenty more time to time your entry points. $12-$15 oil is probably not going to happen in an instant but over time just as oil jumped to 3 bucks a gallon around 2005 and now heading to around 5 bucks for another year or two and then probably 7 bucks after that etc etc.

Thanks for the feedback.

I'm covered in the near to intermediate term - I have a 5 mile commute. Although I'm a renter, I have financially stable landlords, not to mention a big back yard which has, in prior years, been enriched and used partially for garden produce.

My greater concern is the 2-10 year horizon.

Chris
05-27-08, 08:01 AM
Can anyone explain why the Hussman fund are continuing to unload their precious metals?


In precious metals, the Strategic Total Return Fund has less than 2% of assets invested in this sector, which is about the lowest allocation since the Fund's inception. While we may see a bit of further strength in precious metals, downside risks have increased, and given the high volatility of this sector, the return/risk tradeoff has finally become insufficient, at least for now, to carry the 15-25% exposure that has been typical for us in recent years.http://hussmanfunds.com/wmc/wmc080527.htm

Jim Nickerson
05-27-08, 10:40 AM
Can anyone explain why the Hussman fund are continuing to unload their precious metals?

http://hussmanfunds.com/wmc/wmc080527.htm

Hussman has been selling PM stocks. To my knowledge he has not held physical gold or silver in his fund. Finster, I believe it was, somewhere here presented arguments, charts showing that PM shares moved on average as the general equity markets moved.

Hussman apparently thinks the general market is more likely to go down than up and the same for commoditities themselves, and thus has shed commoditiy related stocks. That is how I see it. May not be correct.

FRED
05-27-08, 11:00 AM
Can anyone explain why the Hussman fund are continuing to unload their precious metals?

http://hussmanfunds.com/wmc/wmc080527.htm

EJ writes in:

PMs tend to perform poorly in an an environment of rising bond yields and falling bond prices, and well during bond bubbles when inflation is running well above yields. At the inflection point of recessions, inflation tends to fall followed by yields. Bond yields have not been this low going into recession in more than 40 years.

The question is whether the current bond bubble, as indicated by a 2.5% spread between a year-over-year change in CPI and the 10yr bond, will persist until it reaches the level 5.5% spread experienced at the early part of the 1974 recession or will retreat as recession cuts demand and, presumably, inflation. Since the CPI understates inflation, the true spread is likely already in excess of the 5.5% level experienced before the 1974 recession.

Referring to the chart below, note that 10 year treasury bond yields tend to peak coincident with or soon after a peak in year-over-year change in CPI inflation early in recession. We expected a nominal GDP recession to start Dec. 2007. Perhaps it did, and we will not know for certain until revisions of the Q1 GDP numbers come out later this year, but unlike previous recessions since the 1970s inflation has been allowed to rise considerably in an environment of high energy costs and liquidity injected to fight the disinflationary impact of the credit contraction.


http://www.itulip.com/images/10yrvsCPI.gif

At this point in the current recession cycle, as indicated by the red outline, PMs at these prices make us nervous, too. However, the ongoing credit crunch, structural weakness in the dollar, and the steps governments are taking to counter these, including a flood of funds that continue to hold down bond yields, make us even more nervous. This combined with competition for constrained energy supplies has created a unique and uniquely treacherous investment climate.

The enormous bond market bubble gets far less attention in the press than the so-called bubble in commodities, now reaching hysterical proportions again as occurred during periods of rapid appreciation every year since 2004. Funds in PMs look at charts like the one above and worry. Old timers who were heavily invested in PMs during the 1976 to 1980 period who subsequently neglected to take the hint that a Fed pushing bond yields 9% over the rate of inflation is serious about fighting inflation, worry that a new Paul Volcker is waiting in the wings, ready to leap out at any moment and slam the economy into a disinflationary recession, sending commodity prices tumbling along with stocks. Our sources continue to indicate that the political will is not there, and as the credit crunch spreads and intensifies a policy of rising rates amounts to financial system suicide.

The Fed has been attempting to focus liquidity on specific credit markets, via TAF and other tools, to limit spill-over into commodity and other markets; this is as good as it gets. Meanwhile, it hopes that the recession will reduce inflationary pressures so that rate hikes are not needed, because they cannot hike rates.

All we can do at this point is keep watching for signs that recession is indeed lowering inflation expectations. It is with respect to homes and used cars, especially big ones, but the price of food and other goods affected by high energy costs shows no signs of abating. At this time a secular decline in inflation and bond prices, with a corresponding rise in yields, may be on the horizon but our Over-the-Horizon radar has not yet picked it up.

Chris
06-22-08, 04:49 PM
EJ writes in:
PMs tend to perform poorly in an an environment of rising bond yields and falling bond prices, and well during bond bubbles when inflation is running well above yields. At the inflection point of recessions, inflation tends to fall followed by yields. Bond yields have not been this low going into recession in more than 40 years.

The question is whether the current bond bubble, as indicated by a 2.5% spread between a year-over-year change in CPI and the 10yr bond, will persist until it reaches the level 5.5% spread experienced at the early part of the 1974 recession or will retreat as recession cuts demand and, presumably, inflation. Since the CPI understates inflation, the true spread is likely already in excess of the 5.5% level experienced before the 1974 recession.

Referring to the chart below, note that 10 year treasury bond yields tend to peak coincident with or soon after a peak in year-over-year change in CPI inflation early in recession. We expected a nominal GDP recession to start Dec. 2007. Perhaps it did, and we will not know for certain until revisions of the Q1 GDP numbers come out later this year, but unlike previous recessions since the 1970s inflation has been allowed to rise considerably in an environment of high energy costs and liquidity injected to fight the disinflationary impact of the credit contraction.


http://www.itulip.com/images/10yrvsCPI.gif

At this point in the current recession cycle, as indicated by the red outline, PMs at these prices make us nervous, too. However, the ongoing credit crunch, structural weakness in the dollar, and the steps governments are taking to counter these, including a flood of funds that continue to hold down bond yields, make us even more nervous. This combined with competition for constrained energy supplies has created a unique and uniquely treacherous investment climate.

The enormous bond market bubble gets far less attention in the press than the so-called bubble in commodities, now reaching hysterical proportions again as occurred during periods of rapid appreciation every year since 2004. Funds in PMs look at charts like the one above and worry. Old timers who were heavily invested in PMs during the 1976 to 1980 period who subsequently neglected to take the hint that a Fed pushing bond yields 9% over the rate of inflation is serious about fighting inflation, worry that a new Paul Volcker is waiting in the wings, ready to leap out at any moment and slam the economy into a disinflationary recession, sending commodity prices tumbling along with stocks. Our sources continue to indicate that the political will is not there, and as the credit crunch spreads and intensifies a policy of rising rates amounts to financial system suicide.

The Fed has been attempting to focus liquidity on specific credit markets, via TAF and other tools, to limit spill-over into commodity and other markets; this is as good as it gets. Meanwhile, it hopes that the recession will reduce inflationary pressures so that rate hikes are not needed, because they cannot hike rates.

All we can do at this point is keep watching for signs that recession is indeed lowering inflation expectations. It is with respect to homes and used cars, especially big ones, but the price of food and other goods affected by high energy costs shows no signs of abating. At this time a secular decline in inflation and bond prices, with a corresponding rise in yields, may be on the horizon but our Over-the-Horizon radar has not yet picked it up.


Sorry to return to this subject once more but with the potential for another period of turmoil imminent I've been racked with doubt about where to place a bit more capital. I'm not a wealthy investor, but thanks to you all at iTulip i've managed to protect what wealth I do have (so far).

Now gold at $900 is making me sleep badly but at the same time I can't find anything else that looks appealing. I entered the gold trade initially at $750 and against $800. So my question is really this; at this stage in the game should I be looking at more gold, gold stocks or something else (cash, etc)?

Thanks in advance for any advice.

jk
06-22-08, 07:49 PM
Sorry to return to this subject once more but with the potential for another period of turmoil imminent I've been racked with doubt about where to place a bit more capital. I'm not a wealthy investor, but thanks to you all at iTulip i've managed to protect what wealth I do have (so far).

Now gold at $900 is making me sleep badly but at the same time I can't find anything else that looks appealing. I entered the gold trade initially at $750 and against $800. So my question is really this; at this stage in the game should I be looking at more gold, gold stocks or something else (cash, etc)?

Thanks in advance for any advice.
jp morgan's advice: sell until you can sleep. there's nothing wrong with cash, short-term. or if you don't like the dollar, use an etf to get exposure to another currency.

FRED
08-28-08, 11:40 AM
This just in from iTulip writer and analyst John Serrapere:

Subject: Demand for Gold Rises as Price Declines Below $900

The quote below came to me today from analyst Larry Edelson. (http://www.larryedelson.com/Index2.asp)


Indeed, look at the recent happenings in gold: As the precious yellow metal's price fell back, demand for American Gold Eagle coins surged to such record levels that the U.S. Treasury temporarily suspended sales and is now only able to distribute limited supplies.

And in Asia, gold dealers are reporting record sales. One of Bangkok's largest gold dealers, Jin Hua Heng, reported a single-day, 40-year sales record of nearly 7,000 ounces of gold (worth about $5.75 million). That's in one shop, in one day!

The above confirms additional observations made by gold dealers around the globe over the past few weeks.

Gold sellers are mostly hedge funds and other leveraged players who are de-leveraging and trading short-term trends.

The above is one reason why we will hold our gold positions through this correction.

John R. Serrapere

Spartacus
08-28-08, 03:47 PM
For Gold I don't think private / investor accumulation this matters much - it's the same Gold going round and round (mostly)

For Silver it represents a pile of Silver that's not being consumed industrially, and could therefore eventually be dumped and/or confiscated.



[/B] The quote below came to me today from analyst Larry Edelson. (http://www.larryedelson.com/Index2.asp)
[INDENT][LEFT][COLOR=DarkSlateGray][I]Indeed, look at the recent happenings in gold: As the precious yellow metal's price fell back, demand for American Gold Eagle coins surged to such record levels that the U.S. Treasury temporarily suspended sales and is now only able to distribute limited supplies.