October 31st, 2014
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The Case for Dow 20,000 and $2500 Gold

by Rick Ackerman on January 4, 2013 12:01 am GMT · 32 comments

[The guest commentary below is the second we’ve published from James Tolard, an old and dear friend as well as a supremely gifted commodity trader.  Jim’s style is to surf the big trends, trading just a few times a year. He lives in a rural area outside of Paris, but we’ve coaxed him out of semi-retirement to write occasionally on an eclectic range of subjects suited to his deep intellect, worldliness and wit. This time, he is sharply at odds with our own, very bearish outlook for 2013. We have no qualms about sharing his thoughts with you, however, because Jim’s against-the-grain instincts have been right far more often than our own. RA]

One of the things that baffled me all summer, and into the stench of the campaign finale, was the supposedly odd “friendliness”’ of the U.S. stock market and the weakness of the dollar.  I was fairly bullish on stocks going into October, for a surge to – sit down for this — Dow 20,000!  But as October pulled in with a screech, and elections just a month away, I am old enough to have expected little good from either the Ides of March or those of October. So, I blushed, backed off, and decided to let the market tell me what kind of correction or sell-off it might need.

Now, contrary to all emotional expectations, we are facing the real possibility that a strong run-up may well launch in the coming weeks. So, assuming that I am going to be right, what do I use to support my arguments? First is the low borrowing rate. While the normal person or even smallish business cannot borrow 3% or less, large firms can. The banks are still re-building their reserves and doctoring their balance sheets, so they are holding onto the money very tightly like the bankers of yore, lending only to those who don’t need it.  This accurately describes the condition of the largest companies and private equity firms. They can re-finance their present debt and assume debt at less than 3% to 4% — and who the hell can’t make 3%-4% in a big business today?   The rush to sell commercial paper is well known to you all, so I won’t rehearse the facts: Buy low sell high. The present interest rates have many well-heeled takers, and if you have the means, I’d suggest borrowing now while the low rates lasts.

Weak-Dollar Benefits

Second reason and bullish sign: Lumber and construction are increasing, and lumber has managed to emerge from its listless two-year bottom. Meanwhile, there is plenty of money for builders and probably not so much for buyers, but that can be fixed. Third reason, and most baffling, even though I see it here: No matter how shrill the bank propaganda is about Greece, Spain, et al., the EU is in good shape on paper. Hence, the euro versus the dollar is favorable toward U.S exports . Despite all else, a lower dollar is good for U.S. business in that it is one of the factors that stimulates overseas buyers.

So, the low borrowing rates, the raw materials for construction and the weaker dollar should provide the support for a higher stock market.  Also, some key U.S. stocks are leaner and more profitable than three years ago. They have plenty of retained earnings sitting in Scrooge McDuck bins in the basement. It helps that they have little competition. On the consumer side, the sheeple are in the process of growing back their heavily trimmed fleeces, but many are not yet ready to spend like they are rich. While we await their resurgence and the slow lifting of their spirits, let the band strike up a tune and cheap wine to flow.

As for Armageddon…

What about those dire predictions of an End of Days? My dear friends, there is one thing for certain: The global economy is on course for a crash that will subsume commercial institutions and traditions that have dominated all sectors of life in the West for nearly 250 years. But the U.S. and Europe are not going to turn into an economic South Sudan overnight. Rather, money and credit will continue to flow, trade to expand, and hundreds of millions of consumers brought on line. Let’s enjoy it while it lasts.

Concerning gold’s prospects in such an environment, we should note that gold has risen when the Dow rose, when the Dow fell, and when the Dow was flat. Here is my belated Christmas present, as well as a Passover gift ahead of time: If the Dow surges above 15000 or perhaps even smashes though 20000, gold will easily reach $2500. So there. I said it, my belly is sloshing with a modest St. Emilion vintage, but that clears the head rather than blighting it. Can this happen?  I think so.  Of course, none of this correlates with the external “mood” of the press, the politicians, and so on, but they never know in any event, do they?  And, those numbers are not really that amazing. Suppose the Dow hits 20,000. That is only about 6600 points from here, a mere mis-programmed instruction in a high-speed trader’s algorithm. And gold at 2500 or more? I sold some around 1,800 just less than two years ago, and so from a current 1,700, at least, that implies a rally of just $800.  No matter how odd that kind of a move might seem now, I am persuaded that it is the only real direction for the market.

And lastly, there’s all of that silly stuff about the fiscal cliff and the national debt. Forget it. Debt will continue to metastasize, big companies will hold onto their tax breaks, and the military will surrender perhaps $10 to $20 billion of a current budget of  around $700 billion. Taxpayers will pay more, and everyone will declare victory. Can you understand the Tax Code? How about the effect of riders on the budget?  If you can, I’d suggest that we carve your head into Mt. Rushmore, right next to Teddy Roosevelt’s.

***

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{ 32 comments }

Oregon January 3, 2013 at 5:05 am

Strike up the band Gary!

gary leibowitz January 4, 2013 at 4:23 am

You aint seen nuttin yet!

The sheeple have not joined in yet. China is showing a very strong rebound, corporate profits hit a new all time high, after-tax profits of 12.6 percent, consumer spending is on the rise, and corporate spending has been near record lows.

Yes all this on a grand scale world manipulation. There, I said it. The reason i never use the word myself is becuase it is so tranparent. Why even the esteemed panel on this blog can see that.

The question I have asked for over 12 months now is why fight it? It will flame out eventually but that doesn’t mean you ignore the added oxygen.

BTW, in the next 2 months watch the Republicans score big with those spending cuts, assuming the market starts heating up. Spending cuts spells a market top, give or take 3 months.

allen January 4, 2013 at 4:26 pm

The sheople are broke and not coming back to the equity markets for decades,better get a history lesson.

gary leibowitz January 4, 2013 at 6:18 pm

Broke? You should look at the data before you say that. In fact the crash created a huge opportunity for the sheeple to go back to old bad habits. They paid off debt, increased savings, and became a cautious consumer. In that time employment has been rising, house price increasing, and confidence on the future at a four-year high.

I don’t make these data points up, just use them to explain the possible future path.

If you want to debate me on real figures we can learn from each other.

As for the market the Nasdaq is trailing the other indices and the final SPX target of 1464 hasn’t broken yet. I am not expecting an immediate rally from here. If I am wrong, and we rally hard, than the timetable for the “top” is moved closer than I expect.

allen January 5, 2013 at 12:21 am

Where do you get these data points?I’m in the Austin,Tx area(quite a bit of money here) and do alot of remodel work for higher end peeps.They say they have no intention of putting money in stocks and are sticking with real estate.There aren’t any data points showing retail going back into the markets hence low volume.(mostly hft trading)And the banks aren’t loaning money to the masses anymore(don’t need data points for that).By the way big engineer base here(peeps making a 100k a year)that couldn’t a loan if they had to.Apartment rents high and a low vacancy rate.Not trying to be a dick just tired of hearing about bs “data points”

mario cavolo January 3, 2013 at 5:19 am

Hi James and Happy New Year to all here at Rick’s. Thanks for sharing your insights with us.

Suffice to say I have a rigorous, well founded litany of data points and observations from my Asian perch which support your argument that somehow, despite the problems, the world economy will keep on expanding right up until the awaited D-day event we all fear. Expansion and inflation will continue for decades and even centuries more…

Your “But the U.S. and Europe are not going to turn into an economic South Sudan overnight. Rather, money and credit will continue to flow, trade to expand, and hundreds of millions of consumers brought on line. Let’s enjoy it while it lasts.”…is right on the mark for so many reasons, for so many unprecedented developments, most of which are happening outside of the United States which I don’t hesitate to remind everyone is not the center of the earth as much as the earth is not the center of the universe, with appreciation to Galileo on that note. The one exceptionally large development to this may be the oil via fracking sector which is located on U.S. soil.

It is not as if everyone across America nor the world is broke and struggling, not even close. Select groups of population across the world, indeed, are, and for well-identified reasons. The American lower/middle class struggle will continue for the next ten plus years, ditto for Europe. Elsewhere, the world is expanding, the rise of Asia led by China is sadly underestimated and naysayers deeply misguided. America’s 150 million getting screwed with an increasing level of struggle in their lives is or is not offset by Asia’s 400 million rising into better and better lives than ever, with much of their revenue and corporate profits ending up supporting the U.S. Fortune 500 companies, 50% of whose earnings come from said places outside the U.S. Do I err in this representation?

Concerning the larger macro views of the insanity that is now the state of affairs in the United States, we all benefit from taking a look at 2000 years of world history, where we do in fact find many a collapsed empire from ancient Greece to Constantinople and several others. However, in every case we’re talking centuries, not decades. Nero fiddled while Rome burned, it was two centuries later that the Roman empire was truly economic and political ashes.

The current balance of good and bad, of expanding growth and expanding debt may easily remain for the next fifty years, finding us perhaps with $15 milk, a Dow at 30,000, gold at $4000, with world GDP measured in USD “currency” at 200 trillion, far above today’s 60 trillion. If I were to sit down and try to explain the present and future expectations of the world to my now 14 month old son, this is how I would describe it to him, including the ever present possibility of very unwelcome economic and societal armageddon.

Cheers, Mario

wayne siggard January 3, 2013 at 5:55 am

Considering the insanity of the market manipulations of the last 4 years, anything is possible, but Obama doesn’t need to run again, and he doesn’t really care about the rest of the Democrats. So it doesn’t matter if the market rises or falls to him. What matters is that he utterly transform America at any cost.
His buddies like the Hollywood crowd continue to get additional benis despite the current economic sluggishness. The unemployed get another year of freebies. The green energy crown continues to get billion-dollar gifts, and the workers of America (down to 40K/year) are hit with additional taxes. $800 in additional employment taxes make a big dent in spendable dollars to someone making $40 K. And what about AMT?
The only people building are the big apartment builders and the merchant builders. Copper at $3.70 and lumber at $400 aren’t conducive to building for the small builders. House prices even decreased in Texas last month.
The borrowing rate will crash, but when? I don’t know, but it could come a lot quicker than anyone expects. In 2008, the commercial paper completely collapsed. The Fed had to give money to keep the big companies afloat.
Europe is not in bad shape? The Greeks are back in 1950s, burning wood to keep warm. Real estate is so bleak in Spain that anyone willing to spend $160K on a house will get residency. Unemployment is over 25%.
Italy is in la-la land just like LA. Berlusconi appears ready to regain leadership. Bunga-bunga. Their economy is like ours -if the celebrities are there to be watched, life will go on – until it doesn’t. The people of means are deserting France like rats on a sinking ship. Germany’s GDP isn’t expanding, and they haven’t yet written of their bad loans. Who is going to buy American products?
The Black Swans are paddling, preparing for takeoff. Japan will crash when they find out they have been lent all their money to themselves and have no money to pay themselves back. Their savings have all been spent. Has Israel abandoned its creed of “never again”? If not, beware the ides of March. Will Ahmadinejad go quietly into the night? Will Syria use chemical weapons? Will Russia back Assad up with military force? When will China’s Ponzi scheme collapse?
Will gold go up? Newmont is selling at 216 x earnings. Coeur d’Alene is selling for 105 x earnings. Barrick is selling for only 10.5. Are they above high-grading? Gold appears to be headed in the same direction as gun sales. There isn’t enough to fill current commitments. What happens when panic demand arrives?
As for the tax code, it’s the simplest thing in the world. Basic rates take up one page. The other million pages consist of special deals for people who have government connections and have funded enough for our public “servants”.
So, Gary, here’s to you. Bottom’s up. I sure hope you get out of the market in time and have your gold in your own possession and not traceable by our big brother when the swan song is sung.

mario cavolo January 3, 2013 at 6:24 am

Hi Wayne, happy to debate with your focus.
China has a ponzi scheme?…I didn’t know that. Lots of loans out there, surely. Overbuilt infrastructure? No no. Ghost towns? That’s funny at best. I do know they have a domestic consumer driven economy of 300 million rising middle class citizens growing at 15% that will continue for the next fifty years that will ultimately dwarf U.S. GDP. I do know that the world’s largest online retail platform is, um, Amazon?…No, Tmall, its in China and its still growing at 20% plus per year. The shape of society is transforming, not collapsing, there will be plenty of losers and plenty of winners. Japan is going to collapse because they’re out of money? Don’t think so my friend, you would be jealous of the average bank account balances of a Japanese citizen and their stock market will rise being pushed up by the rise of Asia led by China all around them, not to mention a determined policy to knock the yen down. The entire planet is not the U.S.-Europe-Middle East triangle, only part of it…

Cheers, Mario

allen January 4, 2013 at 4:28 pm
redwilldanaher January 5, 2013 at 6:47 pm

Hopefully Mario will respond. He seems to be one of the few people left that will not acknowledge that these exist.

mario January 6, 2013 at 11:20 am

Boys Boys Boys, come on, this ridiculous subject again! ? Stop generalizing. I didn’t say “they” don’t exist. Percentages and related circumstances tell the real story. I said and KNOW that they are not a meaningful or significant representative of the broader real estate market. It’s like pointing at a slum building somewhere in Manhattan and then extrapolating that the whole place is ruined. Or pointing to wrecked neighborhood s in Michigan and concluding that confirms other representations which it doesn’t.

The number of large empty buildings and failed New communities in China are a tiny fraction of the market. Second of all, there are hundreds of millions of dollars in untraceable cash in the hands of such rich people tied into their municipal level govt connections , I am certain many such developments were done as a way to launder funds, move funds, spread the wealth around, take advantage of the rules, incentives, loopholes, tax breaks, of the system. Stop looking at the tip of the iceberg., You rarely find more than in such asinine one sided media articles. So reading into situations which are the exception not the rule.

Cheers, Mario

wayne siggard January 3, 2013 at 9:34 am

Mario, la bella vita esiste senza proccupazione. I was working in a law firm in downtown LA in the late 70s. I remember when the Japanese bought the Arco Towers where I had worked. I also remember prediction by every one that mattered that by the year 2000 the Japanese economy would be 50% larger than that of the USA. The Asian Tiger would take over the world because of their cultural superiority and because they had taken American management techniques and perfected them. Nothing could stop them. I remember when the square mile of property in Tokyo consisting of the gardens and the royal palace was worth more than all the real estate in California.

I also remember a decade later when they sold the Arco Towers for less than half what they paid for them. I also remembered when they had to sell back Pebble Beach at almost half what they paid for it. I knew back then that America would come back. I no longer know that.

The Japanese savings rate has decreased to 2%. The age of the population is increasing rapidly. The culture is changing. Their metrosexuals make ours look like he-men. They no longer want to dedicate their lives to work.

So where do the Japanese invest? Primarily in bank CDs and annuities from insurance companies. And where are these funds invested? In Japanese Government Bonds, which have been sold to over 220% of GDP. And when the retirees need to disinvest and spend their savings because a one per cent return is not sufficient to live on, who is going to buy the bonds they need to sell to get their savings? I’m not, are you? This is the same as overbuying on a house, and when you don’t have enough to pay the mortgage, you borrow against the equity. And what happens when the loan is larger than the equity?

As for the Chinese, their high speed railways aren’t earning enough to pay operating expenses, let alone interest on debt. They government recently floated bonds to pay for interest on the existing bonds. If ridership increases substantially, theoretically, on paper, they could be able to pay back the debt – but then again, so could Solyndra if they could have waited 30 years before repaying their debt.

mario cavolo January 3, 2013 at 3:17 pm

Hi Wayne, yep, same story in Taiwan. That stock market went like a rocket and then kaboom. The China equity market hasn’t done that same outrageous spike yet so it will be interesting to see if it comes in the next couple of years or so, especially after this past down year. The rest of the stuff, we’re moviegoers watching to see the end of the show I suppose.

Cheers, Mario

watcher7 January 3, 2013 at 10:57 am

Wayne, I liked your comment:

“Japan will crash when they find out they have been lent all their money to themselves and have no money to pay themselves back.”

It reminded me of this:

* Andrew Smithers, Japan’s Past Decade – Bad Luck of Policy, smithers.co.uk, December 22, 2003:

Excerpts from talk at the Keidanren Kaikan conference Center, Tokyo on November 10, 2003:

“It is often remarked that Japan is a rich country, whose citizens have greater wealth than any other. At first sight this is entirely true. Japanese households have a wealth to income ratio which is 100% greater than that of any other G5 economy. Unfortunately this wealth largely represents the debts of the corporate and government sectors and is thus largely illusory.

“A country is not wealthy when one half owes debts to the other half that it can never repay.”

My note:

With the coming Great Depression of the Twenty-first Century I expect to see a revival of military shintoism in Japan; and the Chinese better watch out – note, I did not say China.

Doug January 3, 2013 at 3:19 pm

Hey wayne,

Good stuff!

Andrew Gutterman January 3, 2013 at 3:45 pm

All I can say is to look at lumber in perspective:

http://www.futuresbuzz.com/lumberlt.html

Prices go up, prices go down. I don’t doubt the market can go onto make new highs, just go read Popular Delusions and Madness of Crowds if you want some insight into why.

The connection between stock prices and the economy is tenuous at best. Witness the 1973-75 bear market when earning rose for six straight quarters but prices fell anyway. I got creamed in that market.

Watch out below!

Andy

John Jay January 3, 2013 at 4:33 pm

The reason why we all can look at the same data and come to different conclusions is because we are now off the map due to universal acceptance of the fiat/debt model.
What determines prices?
How much is supply and demand?
How much is currency debasement?
How much is outright fraud?
Hard to tell.
However here is some anecdotal evidence for how much havoc inflation has created since 1965.
While watching a Three Stooges short over the Holidays I noticed in one of their skits they were gas station attendants. The prices on the pumps were all in the 20 cent a gallon range. That short was made in 1938.
When I was growing up in the 1960s, gas prices were still the same, and gas stations still had attendants.
Then July 23, 1965, LBJ ends silver coins.
Link:http://www.presidency.ucsb.edu/ws/?pid=27108
From his speech on the matter:

“Now, all of you know these changes are necessary for a very simple reason–silver is a scarce material.”

“Some have asked whether our silver coins will disappear. The answer is very definitely-no.
Our present silver coins won’t disappear and they won’t even become rarities.”

“If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.”
(Gee, LBJ, I thought you just said silver was “scarce!”)

Flash forward to 2013.
How much does a gallon of gas cost?
Have silver coins vanished form circulation?
Seen any attendants at your gas station?
Go to that link and read that LBJ speech for a good laugh.

I won’t even bother with Nixon and the gold window closing.

It is as simple as watching a couple of Three Stooges shorts!

Rick Ackerman January 3, 2013 at 8:39 pm

I might add that even the lowly the gas station attendant was able to save enough to put his kids through college without hocking his house and requiring his wife to get a job.

bc January 3, 2013 at 6:47 pm

The long bond is tanking. Money flows into equities or rates finally moving up? Why not both ? Somebody has to go first for the cliff dive.

Rick Ackerman January 3, 2013 at 8:44 pm

From a Hidden Pivot perspective, there is zero tanking going on, just the continuation of an apparent consolidation that began last summer. The current selloff will have a chance to turn around from 143^16, but it could go to 141^19 (basis March) and still be a ‘normal’ correction. We’d need to watch things closely thereafter, though, since any downtrend that exceeds the obscure and seemingly unimportant May 10 low at 142^18 would be bearishly impulsive on the daily chart. [Real-time update: March T-Bond futures have trampolined a full point this morning from a low at 143^17, a tick from the Hidden Pivot support identified above.]

Robert January 3, 2013 at 7:04 pm

Looking at lumber prices as a future indicator of construction trends has sketchy historical relevance or precedence.

Construction trends dictate lumber demand, but lumber supply does not predicate construction trends.

The prime volatility indicator in the lumber market seems to be annual rainfall levels, and bug infestations.

US drought levels (and resulting bark beetle outbreaks) have been affecting the commercial US lumber harvest for the past 5+ years.

Prices now seem to be rising on the fact that stored stockyard inventories are finally declining, and there is less new production coming into the stockyards to replenish these diminishing stocks.

in 2006, during the peak of the US construction boom, a trip to the local Home Depot lumbar racks would mean sorting through pallets of moist, green lumber (read: fresh cut and sawed)- most of the wood was warped due to decreased kiln and drying times at the lumbar yards as they tried to keep the wood rolling from the forest to the tract home subdivisions .

Today, the quality of lumber in the over the counter market is pretty much top-notch, and the wood is fully cured and straight. This is a sign that the oldest, most properly aged board wood is getting to the small-fry commercial end-user.

As the US climate swings back into a wetter cycle (as it did in 2012, and looks to be repeating in 2013) expect more tree production, and therefore more wood production to replace the inventories in the stockyards.

Don’t bet on a new construction boom just yet. Once inventory levels are back up at the lumbar yards, I expect lumber futures should stabilize somewhat…

I see a range trade in lumber for the next 5-10 years, unless James Tollard’s anticipated construction boom does indeed take hold.

John Jay January 3, 2013 at 9:20 pm

Rick,
Let’s see if The Ministry of Truth now uses digital magic to change the gasoline prices shown in Three Stooges comedies. Then we’ll know it’s over for sure!

Pat January 4, 2013 at 2:43 am

This guy might be right about the Dow, but gold is more likely to be $500. Notice how as the Dow climbs higher gold keeps sliding lower. Once stocks are at new all-time highs (very soon) gold will be dumped bigtime.
Investors keep pulling money out of mutual funds and parking it in the bank, making nothing, and those banks turn around and use “their” money to bid stocks higher. So as long as people keep putting more money in the hands of the banks, and Bernanke keeps printing, stocks are going higher, much higher. When the sheep finally capitulate and decide to get back into stocks, that will be the time to sell everything. At least another year left in the bull market.

Tiburon January 4, 2013 at 9:54 am

Pat, … $500? Really? None of us know the future (though we try to extrapolate, certainly), but apart from discovery and rapid implementation of zero-point energy, I’m at a loss to fathom your thinking with regards your statement.
And the litany of contrary factors impacting your projection are too long and varied to list here, so, notwithstanding I’m as much a ‘deflationist’ as the next sheep, may I remind you of the “stock-to-flow ratio”?
http://www.youtube.com/watch?v=M9A7CZgPld8
(James Turk w/Ronald-Peter Stoferle – 7 min to ‘understand gold’ ;-) )
http://www.zerohedge.com/article/gold-we-trust-special-report-gold-erste-bank

If I see spot gold moving towards $500/oz, (and it’s still available physically, at any price) I’ll seriously consider borrowing every penny I can wring out of my pathetic FICO, selling everything I own including all but the clothes on my back to weight the keel with Au (w/homage to Neville Shute), and setting out to sea in that boat that I should have realized was never seaworthy in the first place ;-) .

Re: Wayne Siggard – as above regards prognostication but I take your read of things as The Unfolding more than the author’s, and coupled with a confirmation of ‘lumber quality’ at my local Home Depot, I think it’s generally good time to be directing our energies to a little prophylactic ‘prepping’… umm, everywhere on our beloved planet? Your read also dovetails with Kyle Bass’ yet very expensive bet on Japan (better to be early than right?) http://www.youtube.com/watch?v=JUc8-GUC1hY&feature=youtu.be
That said, I guess Bass sort of supports James Tollard’s take around US housing, at least obliquely, in that he’s got fair faith in non-Agency RMBS, and somewhat conspiratorially sees “principal debt forgiveness” in the cards for GSE holdings on the horizon.

gary leibowitz January 4, 2013 at 4:46 am

I stated many months ago that we will see an accelerated economy, consumer lead, that has not been viewed for many years. I still stand by it. The next 5 to 6 months should discourage all bears, even the die-hard ones on this blog. A spectacular flame-out.

I am not as sanguine as Mario or Jill on the future. In fact I am down right saddened if my scenario plays out. I only have a half-year left to see if my vision is the true one. If I see 1600 plus on the SPX in the next 4 months I will be betting the ranch on a minimum 25 percent drop over the last 6 months of this year. I have been hooked on the idea called “the contracting fibonacci spiral”. It implies we see violent and shortened swings till 2020. The next low should be seen at end of 2014. If a top to bottom lasts around 18 months my guess is by May/June of this year we see a top. It also implies a top to bottom drop of 50 percent. Wild prediction indeed!

Who said I was a left-wing Pollyanna.

redwilldanaher January 5, 2013 at 1:03 am

No one said that. We simply said that you’re a lying idiot.

redwilldanaher January 5, 2013 at 1:31 am

http://www.zerohedge.com/news/2013-01-04/guest-post-united-states-delusion

Nice piece that demolishes you. You’re delusional and aside from that you won’t have the guts to read it. Many others like you thus the same for them…

&&&&&&

Thank for the link, which is to a post at ZeroHedge by Charles Hugh-Smith, whose work never fails to illuminate and enlighten. RA

redwilldanaher January 5, 2013 at 6:50 pm
mario cavolo January 7, 2013 at 4:57 am

I note an interesting parallel in the Charles Hugh Smith article, while he says nothing new.

He states “….will lead to the involuntary reset of the entire system.” I read those words to mean that no one person or small group of people is willing to take responsibility for the situation, go against the grain.

Here in China, this is is the #1 deep complaint about Chinese workers and rising management; no one wants to take responsibility. Its not their job. People are are narrowly focused to the job responsibilies and interests they were “assigned” in their department. I am not here to “think” or contribute. What is my job, specifically, and what is my pay for that job? The manager’s job is to do whatever they do, I don’t expec any one to ask for my creative input or feedback or anything else. Its the manager’s job to make decisions, mine is to perform my task, get my benefits and go home at the end of the day.” This has been endemic thinking in China, supported by the rote education system. As such, it is chaos when we might ask a group of Chinese to make a decision, even about something as simple as where to eat lunch. What should be a simple decision becomes a group fiasco that is hilarious and annoying to watch. It now becomes a more critical problem as companies have grown 20% per year for five or more years and now have thousands of employees. Managers have risen out of the ranks out of necessity of course, to manage without the thinking capability/skills to do so.

No one wants to take responsibility and then if all goes to s&^T, they say “oh its not my fault, its not my job”, and they move on.

The difference is that the stakes are far higher of course, and it IS their job to take responsibility as they were voted in to do so representing “of the people, by the people, for the people.” Puke. These louts in our political system are serving themselves and their elite masters.

Meanwhile, speaking of resets, I notice that last week’s market action was quite a shift, a reset of many asset class prices.

EUR/USD and GBP/USD had spiked upward even while the USD was holding steady, stopping me
out of my shorts there, then quickly spiked back down below previous pivot point supports. Grrr…

USD finally broke up above 80.

US equities wildly spiked higher.

T-bonds tanked.

Gold/silver popped then tanked.

All of these asset classes reset to new levels with mystical correlation. I conclude as an individual trader using pocket change, that I am fighting HFT machines and other influences far beyond what can be seen. I am a guppy in a shark tank. While we note that Rick et al takes refuge successfully in his ABCD hidden pivot. strategy…

Cheers, Mario

Brian Hemeryck January 4, 2013 at 5:15 pm

Can someone explain to me how QE works? I understand that the Fed buys treasuries by crediting the accounts of the banks they are buying them from (thus creating a payable) or do they pay with Cash. How does this filter down to the general populace.

I just can’t help but believe that all this intervention can lead to anything positive in the long term and I would think gold may be the only solid currency at one time. It would seem to me that the consumer who ultimately drives all production is a long way from being healthy from a financial perspective.

BKL January 4, 2013 at 6:55 pm

We can only ponder what it is that central bankers talk about on the phone. Imagine all the exquisite head-fakes they can engineer.

The yen is ridiculously overvalued for the kind of mercantilist economy for which Japan is hardwired. The country is in serious trouble as a result. Prospects for its young people are little better than for those in Italy or Spain. It would be interesting to hear Mario’s observations about the young people around him in China.

The problem for Japan, is that it needs to start doing now, what it needed to start doing 20 years, and about 170 pct of GDP-in-debt ago.

China needs a weak currency for many of the same reasons as Japan. The yuan only appears undervalued. It is probably just about right.

A stronger dollar would help the world economy by empowering a risk-averse American consumer. Small investors continue selling into this stock market, and are not stimulated by rising stock prices.

A stronger dollar would also increase retirement spending power.

mario January 6, 2013 at 11:29 am

Yet BKL A weaker dollar is good for US exports which creates US jobs. US exports are on the rise and at record highs to China and rising rapidly. So, alot of conflicting interests…Cheers, Mario

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