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Try Tuning Out the Craziness

By Rick Ackerman Posted on December 28, 2012, 12:01 am EST Last Updated December 27, 2012, 9:56 am EST

[Inflationary pressures are not exactly rampant right now, notwithstanding the huge increase in the cost of living imposed on us by Obamacare. For your interest, we present below some observations with a deflationist theme that were left in the Rick’s Picks forum yesterday by Cam Fitzgerald, an occasional guest commentator here. In our opinion, he gets the big picture  just about right. RA]

There’s no doubt that deflationary pressures are still the overriding concern of most Western nations. That deflation itself is at our gate is hardly even debated anymore, as it is now widely acknowledged that the coming wave of baby boomer retirements will lower consumption , hold home values flat in real terms and push up Medicare costs for at least the next decade. Ongoing deleveraging and the prospect of rising savings rates and falling consumption could prove to be very damaging to economic performance while lowering growth and pushing us into recession. Jobs growth is still tepid, and it is difficult to imagine this improving substantially as public debt is finally dealt with at the policy level while taxes rise and program spending is cut.

Others have asserted here that we will deflate first and have nasty inflation later. I agree. The worry is just how bad the inflation might be at the later stages, but my guess is that it will take years to play out.  We who watch the trends will have time to adjust if we pay attention to the signs and use our heads to avoid the shoals that lie ahead. We have been fortunate, though. The worst of our worries have not yet materialized. That is not to suggest that they are not lying latent, awaiting the right circumstances to spring on us in surprise. Instability abounds, and any broad shake-up on the macro level has the potential to trigger a financial conflagration. Lets just say a small prayer that the wheels do not come off the wagon in the meantime, that common sense rules the day, and that bipartisan accommodations are made in the best interests of the country and global community.

Food Inflation First

My own view, as I have mentioned in the past, is that inflation will creep into our lives in the agricultural sector and food costs first. Corn and soy will play an increasing role in future inflation. Should a war erupt, we can also count on oil to be a primary force in driving costs around the globe. The combination of rising energy and food costs have the potential to make a dramatic cocktail, and that combination will come as a surprise to most who do not heed the signals.  Many [in this forum] see the risks. Actually, most investors see the broad set of problems with clarity, but the majority are too early or too late with an investment remedy.

It is a crapshoot where timing is concerned. The gold camp is ahead of itself right now, while the Armageddon of a bond market rollover is not as close as many would have us believe. Interest rates are flat without any real signs they might rise, and competitive currency devaluation has now become the name of the game across the globe. We might understand the endgame, but knowing how and when to take advantage of is quite another story.

Euro Is Still There

Nor is the dissolution of the euro near despite the repetitive bleatings of the gloomer camp who fixate on debt alone while ignoring the social, political and historical reasons for it coming into being in the first place. We do not have hyperinflation either, nor are we in a true depression despite the evidence that things are really pretty bitter for millions of people in America and Europe who are watching in dismay as their living standards drop by the month.

Ambivalence towards stocks on the other hand is epidemic even as the circumstances arise for a shift to equities despite the prospect of declining quarterly profits. We are swimming in a sea of irony and confusing signals.  It is times like this when it pays to focus on technical patterns while trying to avoid investing based on large-picture theory or dynamics that are not playing out according to anyone’s perceived time frames.

Gold Worshipers’ Mistake

Those who worship gold seem to be making the most mistakes lately where timing is concerned, and in some respects I think they are wasting their efforts in trying to protect wealth from evaporating at a time when posted inflation rates are low and the dollar is still holding up relatively well (much to their disgust). We should be striving to stay objective about day-to-day market moves and keeping some distance from the emotional debates and big-theory ideas that are not panning out according to anyone’s schedule. That is preferred to tail-chasing and betting big on theories about how things “should” play out when in fact something unexpected might be looming on the horizon. I don’t make bets on the collapse of the dollar or the bond market, for example, since no one can predict when such events will occur, assuming they occur at all. I also won’t obsess over what the gold price “should” be doing versus what it is actually doing

The hundreds of memorable rationalizations for pricing precious metals based on everything influence, including the Mayan calendar, is a waste of time and effort, in my opinion. Most of the quasi-religious adherents seem stuck in a mental warp, unable to envision a real future through the fog of their own fantasies.  I try my best to ignore them all. Where investing is concerned, talking about things that may or may not pan out is just blowing hot air.

Too Many Variables

Not that I believe an understanding of history and market dynamics is a waste of time; rather, the number of variables at play is so large that only those who keep close daily tabs on the markets have any real hope of turning a buck. Let’s not forget we are investing to make money and keep ahead of the curve while avoiding all the pitfalls put in our path. We need to tune-out the noise and set aside preconceived notions about the many factors related to debt, deleveraging, easing and credit that might otherwise colour our thinking from day to day.

In that regard, it simply pays to go with the assessment of guys who consistently deliver good results, especially if you don’t have the time to follow the twists and turns yourself. All other commentary amounts to little more than worthless news blurbs and fluff, and most of us don’t have the time to follow up on the many crazy assertions anyway.

That, in a nutshell, is why I am a big fan of Rick’s site and his daily calls.  This post is an unabashed and unsolicited plug for him this Christmas season. [Thanks, Cam! Your check is in the mail. RA] Best of luck to all in 2013. It looks like it will be a very “interesting” year.

***

[Click here for a free trial subscription to Rick’s Picks that includes access to a 24/7 chat room and timely trading touts.]

  • John Jay December 30, 2012, 9:29 pm

    BDTR,
    “until it became necessary for proxy banks like JPM to break US regulatory LAW at the direction of the ESF”

    Never forget this quote from “Deliverance”

    Drew” “It’s a matter of the Law!”
    Lewis: “The LAW! What LAW! Where’s the LAW Drew?

    That sums it all up:
    “The LAW! What LAW! Where’s the LAW Drew?

    There is no LAW left in this country at the level of the elites.

    And it gets more so with every day that passes.

  • DK December 30, 2012, 5:18 pm

    Oh, yea, because THIS is a good idea? Are you kidding me? These are the kinds of ideas that are toyed with behind close doors with our money.

    http://www.examiner.com/article/austin-fitts-push-for-digital-currency-or-a-new-dollar-backed-by-food-not-oil

    And you thought the droughts last year were bad? Can’t wait for this to get hacked.

    • DK December 30, 2012, 5:22 pm

      Also, on the above, that would certainly make regulating the internet a high priority as well.

      Oh Joy.

  • Cam Fitzgerald December 30, 2012, 8:48 am

    Part of the way by which the reciprocal devaluation process is unfolding, Gary, is that news out of Europe will improve while that in America grows more negative. This is no accident and it is why I rarely read more than the headlines to gather information on where currency strength lies going forward. The signals now indicate that the Euro will see strength while the dollar will decline. I have discussed this phenomenon pointlessly with others who simply cannot believe it despite the principle having held up well for almost three years. The Euro and the dollar are both being devalued one against the other in a ping-pong fashion driven by a financial crisis here and then later a political crisis there. Almost none of it is really of significance as the object is really only to make the devaluation believable to Joe Public who follows the news. Living standards are dropping and inflation is deliberately being supressed as an outcome of the refusal of the electorate on both continents to accept any form of austerity, tax cuts of program reductions. It is all going to be paid for by falling living standards and stealth inflation in the end. We had best get used to it. But don’t count on Gold to save you. It is priced relative to currencies despite the naysayers who will insist it is inflation sensitive alone and so can remain fairly flat even as both the Dollar and Euro lose real buying power. This is a puzzle that too many can’t seem to see through. The trick will work as long as interest rates don’t rise. They are effectively negative right now and yet metals have not seen a banner year.

    • DK December 30, 2012, 5:12 pm

      Cam, another excellent follow up.

      “We had best get used to it.”
      Indeed, you’d think we would be by now.

    • BDTR December 30, 2012, 5:44 pm

      Cam,

      As you no doubt know, Greenspan openly admitted to joint committee the Fed’s stealth program of selling gold in its ongoing efforts to shake it as competitive to the $ and as inflation harbinger, all while issuing in the new banking windfall anti-savings/pro-debt derivative leverage regime.

      Worked pretty well for them nominally until it became necessary for proxy banks like JPM to break US regulatory law at the direction of the ESF to accomplish the task. It’s evolved predictably into excessive wholesale and HFT manipulations of everything from equities to LIBOR and the hated metals with SEC, CFTC, Congressional oversight and DoJ turning their collective blind eye to law in quid pro quo in TBTF. Arrogantly, they deny physics.

      What they can’t ultimately control are the physical realities that true markets represent that eventually overpower political fictions created by default. Physical markets are the core reality that defy and invariably overturn politically induced fantasies as certain as laws of thermodynamics. War is often the manifestation.

      One other thing. Consider as exercise not pricing gold in fiat, rather fiat in relative weight and purity of gold as a true measure of value. If one requires $ liquidity, one may exchange 1 ounce 99.999% pure Au for about 1,660 of those future toilet wipes. Intrinsic value.

  • gary leibowitz December 29, 2012, 6:13 am

    For the here and now:

    Housing rebound, Business Activity Up, and even how consumers feel about their present situation rose to its highest level in more than four years.

    Once the Fiscal Cliff worries are out of the way the market will surge. EU has already telegraphed this. No one will allow the automatic fiscal cuts to take place, no one. I do believe military cuts will be mandatory. Now you tell me, will the Republicans allow this? It’s a matter of playing chicken. Who flinches first and gets the most desirable outcome.

    As a gambler the odds are 3 to 1 in favor of yet another stock market surge in the next 3 or more months. I even count holiday sales only slightly up from last year as a positive, given the recent storm damage and worries over fiscal cliff.

    Call me the Bear with a bowl of honey within its outstretched hands.

    • DK December 30, 2012, 5:06 pm

      Conversely, business activity only seems to be showing upticks in seasonal shopping and 1 out of every 10 homes sold in CA right now is to someone of Chinese origin.

      http://www.youtube.com/watch?v=kVSJOPG745M

      $16.4B in US companies? $1.3B in California companies? Hmmm.

      Guesss we are lucky, the Atlantic Northeast is getting buried in snow so that hospitality sector will show some “green shoots.” Hope it continues, this area could certainly use the jobs.

  • gary leibowitz December 29, 2012, 5:55 am

    Gold will be treated like any investment. It will have its day but will not stay in lofty status forever. It will never replace government currencies while there is a government, and if their isn’t one, than gold will be less valuable than food.

    A great test of this theory is how well it does while a sharp deflation phase hits. My guess is it goes down.

  • bc December 28, 2012, 10:14 pm

    My two cents:
    We are exporting inflation to the rest of the world by lending money at zero cost to our decrepit finance sector which immediately engages in a carry trade lending it to emerging market economies at a nice spread. This reduces dollar purchasing power world wide while simultaneously driving up asset prices as these EM economies overheat. Like Ancient Rome we are thus taxing the whole world in our death throes.
    A second point:
    I expect a large number of small to medium sized companies to announce they are calling it quits after the holidays. A lot of third and fourth generation management teams are finally going to throw in the towel as they admit things are not getting better any time soon. The trend toward bigness aka Fascism will now accelerate. TBTF will extend into other sectors as the status quo starts to crumble starting with insurance and health care. The big question is how will they hide the propping up of TBTF countries? Most notably Spain, Japan, and Italy. Very difficult political challenges lie ahead.

  • Erin December 28, 2012, 8:59 pm

    Cam,
    I agree that deflation is waiting in the wings but the reality is, the money printers will destroy every last one of us to keep that big bad deflation at bay. When you skew the real inflation data to your liking, then nothing really matters anymore. Does anyone really believe inflation is around 2%?

    We were so close to rebuilding a real economy in the crises of 2008. If the money printers would have just left it alone, we could have healed ourselves through savings and production and most of all, lower prices of everything which would have corresponded with wages. Lowering the cost of credit does nothing but prolong the agony for everyone and increases our ability to take on more debt loads. Is America really that stupid?

    But of course, saving the parasitic banks was much more important than building a real economy. The fed knows they have been exposed as a fraud and now it is just a matter of time. At all of the major speeches by Bernanke, he has referenced something that is supposedly out of his control like long term debt, fiscal cliff, whatever. In reality, politicians and government can’t spend any money they don’t have. So the enabler is just another lying, vile piece of shit. Our real troubles are only beginning.

    For the educated society that we are, this whole charade is embarrassing. This economy will continue to implode from within because of inflation. While it may not be raging, it is extremely high and continues to find ever higher places to flat line.

    There is no other way for us as a nation to get back to real productive growth without deflation, regardless of what anyone says. We simply have to much debt that we cannot pay off.

    Somebody might want to also take notice of the continued assault on our freedoms, not that anyone really cares about stuff like this…http://www.zerohedge.com/news/2012-12-28/senate-can-least-agree-one-thing

  • Buster December 28, 2012, 8:49 pm

    Solid & interesting perspective, Cam.
    Of particular note is the need to separate ones world view from investment decisions, which Rick’s system does well, sometimes even to his own dismay.

  • jazzmaniac December 28, 2012, 7:03 pm

    This sanguine obsession with “inflation” especially as reported by the government will be the downfall of many conventional investors. The power of gold is all about the destruction of fiat money. Watching relative exchange rates will be an interesting but pointless exercise for those about to be run over by a train.

  • Rick Ackerman December 28, 2012, 6:02 pm

    I share your belief that the dollar ‘s collapse will come in mere hours and have warned about this repeatedly. I call it my Thunderclap Theory, and you should prepare for the extended bank holiday that will come in its wake by hoarding $1s, $5s, $10s and $20s. The May 2010 Flash Crash was a clear demonstration of what’s coming, since the global financial system is hard-wired exactly like securities exchanges are to trade desks.

    Concerning the euro, however, the lowest technical target I can identify lies at U.S. $1.08. As a practical matter, Germany will not be able to jettison the euro because a move back to d-marks would saddle the country’s export-based economy with the world’s hardest currency. Greece, on the other hand, can and will exit the euro, forcing on themselves an austerity that will make today’s riot-inducing measures seem relatively innocuous.

    • PhotoRadarScam December 29, 2012, 2:48 am

      Rick, After these considerations the picture becomes clearer about incentives for Germany to leave the EU:
      1. What is the cost of Germany continuing to bail out all other EU members? That money will never be re-paid. The citizens are growing tired of paying for the rest of Europe. The EU is dragging Germany down in a situation that will not resolve itself. How long will they punish themselves? Or should they kick the can down the road for several more years while things get worse and then leave?
      2. Germany’s debt (priced in Euros) will be reduced to a fraction of what it now owes. It can pay down its debts easily if it left the EU.
      3. The German currency would be in high demand due to its solidity.
      4. Much of Germany’s trade no longer comes from EU members. Plus, it makes no sense to sell on credit that will never be repaid. Plus, governments are good at devaluing their currencies.
      5. Germany would attract much more investment capital with a solid currency and being in full control of its future.
      Why again would Germany want to stay? Both paths have drawbacks, but the exit scenario is tempting and probably the better choice.

    • Jill December 29, 2012, 3:21 am

      Photo, Germany would want to stay with the Euro because if they went to the Deutsche mark & it rose up through the roof, their exports would be so expensive that no one anywhere on earth would buy them.

    • Tiburon December 29, 2012, 4:15 am

      In Kyle Bass’ last talk (3rd?) to AmeriCatalyst in Texas (16th Dec), “The Entanglement”, he spoke to Germany’s situation specifically, and Euroland generally – pointing out that while ‘thanks’ the Fed, Banks, especially the TBTF, have been recapitalized (with attendant costs of course). Whereas in Euroland, in even supposedly robust ‘engines of growth’ like Germany, the Banks are in no such way sitting on mountain-like piles of fiat, and are as exposed, or more, than the US financial sectors were previous to the Fall of ’08.
      If I understand him…think I’ll go back for another listen – (about an hour; – make coffee)
      “You know how this end’s, right? This ends through War.” (@ 5 min. mark)…and the comments about Euroland Banking (3x more leveraged than ours were pre-’08, etc etc @ 6min. mark)

      http://www.youtube.com/watch?v=JUc8-GUC1hY&feature=youtu.be

      VERY interesting and eye-opening info about Japan and their debt – most of the talk.

      His only comment about Gold this time, during Questions – (to paraphrase) ‘It’s a currency. That you can’t print.”

    • Tiburon December 29, 2012, 4:17 am

      {pls excuse typos and mangled syntax}

    • mava December 29, 2012, 7:24 pm

      I see a lot of people being unable to comprehend the meaning of relative currency strength. Time and time again, I see people saying ridiculous things such as what Jill said. Smart people. My own friend, who’d been a CEO of a giant corporation, and a private consultant to CEOs ever since, doesn’t understand this either.

      It is truly amazing that evidently, most people don’t reason on their own, but only copy and then toss and deal someone else thoughts. The reason this is amazing, is that there is this paradox: These copy-cats are actually the same people whom the majority believes to be the experts. Truthfully, I don’t understand why this should be the case, and would appreciate an explanation.

      As for the relative strength of currencies, it is easy to see. If, say, an American dollar is tied to an ounce of gold like this: 1USD=1OZ.AU, while German Mark is tied to gold like this: 1DM=2OZ.AU, then the German Mark is twice as strong as American Dollar. OK?

      Now this was when the people were relatively smart. Then they got dumb children, and their children got even dumber children, and it came to be that today neither USD nor DM are tied to gold. Which changes nothing except that now there is a government hand in everyone pocket, either depositing or taking the money. The “repulsive” behavior of communists, that the Germans wanted to eradicate so bad that they were ready to implement the final solution, and that the other Europeans were volunteering into SS forces to extinguish, is now the order of the day. The good had lost the battle and the moldy communist filth is now sitting on the whole earth throne. (If you don’t understand anything here and want to bring up Nazis vs. Jews publicly fed version, then I just going to ignore you).

      “So, mava, what’s the point already?” – say you, – “Man, you’re long-winded!”

      OK, so my point was that we allow ourselves to live this miserable life because we are dumb children of dumb parents, bred that way, so, there isn’t really any choice, for us.

      The meaning of relative currency strength stays the same, but now, one can manipulate the relative strength by stealing from one half of the population and giving it to the other one.

      Stiff you brain for one second here and think. When Germany is able to keep it’s currency softer, how is it accomplished? The Germans who do not take profits from Germany exports see their money stolen by the Eurobank printing new Euros. Because these new Euros come in circulation with all the others on equal footing, the purchasing power of each euro the above Germans held is cut down.

      This weakens the currency. Now, someone in USA who doesn’t deserve to own BMW, is able to buy one.
      Magic? Well, you say, it’s because with new, weaker exchange rate between US and Euro, allows the same amount of USD that this undeserving one was able to afford, say 70,000 to be converted to 70,000 Euro, and it happens to be the same number that the BMW is priced for. If the Euro was traded higher, then the 70,000 USD would only amount to, say 35,000 Euro, which would not be enough to buy BMW.

      And, why couldn’t the BMW plant lower the price of one BMW to 35,000? Because, the plant has costs, that need to be paid, plus profits that must be met. So, roughly speaking, if each BMW has a cost of 60,000 and 10,000 profit, then one can not continue making the same quality good while selling it for only 35,000! If profit isn’t there, then the capital will leave, and if costs are not paid, even existing production will collapse.

      Yet, my friend, through the devaluation of currency, this very magic is accomplished every day. Do you believe in magic? Do you believe that because there is the central bank, then magically, 35,000 allow the Germans to continue the production of a car that has 60,000 cost and 10,000 profit?

      I don’t believe it. So, I look elsewhere. And what I see is that that purchasing power that Germans lost due to Eurobank inflating, went straight to to USA, to subsidize the man who didn’t deserve to drive the BMW. It was added to his limp purchasing power, and then paid to the German exporters. Because the euro become cheaper, the BMW plant is now able to pay the costs and the profits. It was able to extract 70,000 from USA for each car, and half of this price was paid down by the German man next door, who doesn’t profit from the export.

      So, when it is said that a country does benefit from a weak currency, it is a lie. The real meaning of this is that the country has set up a currency scam, where the citizens connected to the export industry are benefiting from the inflationary impoverishment of the citizens in industries not connected to exports.

      Further, if every citizen of a country is employed in export, then such country CAN NOT BENEFIT FROM A WEAK CURRENCY, because as we now know the hidden truth is it has to benefit from theft from the citizens in other production, and if there is none, then the magic of weaker currency can not happen either, as there will be no secret source for the theft.

      Why am I posting it here? To make the point that Germany, can not exit Euro only as long as their people remain dumb. As long as they don’t understand what you now understand, they will not see the solution to their perceived problem of having a strong currency.

      Once made aware, it would be elementary to see that in order to maintain the export one only needs to drop the price. Because the currency is stronger than otherwise desired, the lower price will still bring higher exchange value. Yes, the astronomical price can not be maintained any longer. But that simply means that the other huge part of Germany will no longer have to subsidize not worthy people around the world.

      Do you believe the Germans are smart enough to understand this? I don’t know. Honestly. They used to be smart, but after the horror of Hitler, they were bred down. Significantly. Those living today may well have an intelligence below that required to comprehend the relative currency strength.

      We will see.

  • mava December 28, 2012, 5:34 pm

    LOL! That was a very funny article. Completely wrong, of course.

    Anyway, PhotoRadarScam, I just wanted to say that you are 100% correct. Gold is the only way to go, and frankly, I like the fact that most people would probably agree with the author. What I want is for them all to scramble out, at the time when I am set to take advantage of that.

    My favorite part of Cam’s post is this:
    “I think they are wasting their efforts in trying to protect wealth from evaporating at a time when posted inflation rates are low and the dollar is still holding up relatively well (much to their disgust).”

    Actually, I like Gold is not moving up versus dollar. I don’t have to hurry for a profit, my bottoms are endless. I can wait, not forever, but quite a lot longer than the “stock worshipers”, because I never cared for anything “posted”.

    But, in any case, that’s right, Cam, the way to steal your wealth for the government is, of course, to post the actual inflation rates, so keep watching those, you’ll know when to move to gold. Haha. Good morning.

  • PhotoRadarScam December 28, 2012, 4:27 pm

    The problem is that the dollar collapse will happen overnight with no warning. So you can buy gold now when it is cheap and plentiful or you can scramble when it happens.
    I disagree with the comments about the Euro. I guess it may survive but some countries will be leaving the EU. There are increasing pressures for both Greece AND/or Germany to leave the EU. The Germans are increasingly irate about paying for the rest of Europe, and it would be incredibly advantageous for Germany to leave the EU. Likewise, the only way out for a country like Greece is to default and start over. The overall situation is unsustainable.

    • John Jay December 28, 2012, 6:31 pm

      PRS,
      Absolutely surreal the way the MSM spins the Fiscal Cliff story, as if it will be smooth sailing after that can is kicked down the road once again.
      Timmy says “We don’t need no stinkin’ debt ceiling.”
      The sky is the limit I guess.
      Why not!
      Just goes to show we are deep in Matrix Territory now.
      I am amazed by the endless crowd of people making a living as TV/Radio commentators/analysts for the MSM, all of them fawning over the Government functionaries.
      C SPAN 1 and 2 features Senators, Congressmen, and
      their ilk talking absolute rubbish about economics and foreign policy, around the clock.
      The only time I can watch those two stations is when they cover Great Britain’s Parliament floor debates, and Book TV on weekends.
      The shoulder to shoulder seating in the austere House of Commons seems to make for a more “in your face” repartee of point-counterpoint, compared to the childish speeches in our Senate and House.
      Or the silly, fake outrage at the endless “Investigations” staged for the cameras that always lead nowhere.
      The British will go broke with much more style than we will!

  • John Jay December 28, 2012, 3:42 pm

    At the rate the Feds are eliminating the Bill of Rights very soon all we will have left is the Right to try and make some money.
    After taxes and fees, of course.
    And with that “You didn’t build that” opinion from the POTUS, we may be forbidden to do even that.
    And anything we put away in a 401k etc. is not “Fair” to the paid to breathe Taking Class.
    Uncle Sam will probably command us to “Share” it soon.
    That’s some future I see off in the middle distance for us!

  • gary leibowitz December 28, 2012, 4:39 am

    Can’t poke holes in this article. Nice summation of where we are, what might happen, and trying to navigate investments.

    A gambler is the only person that should play this market. Love playing black-jack and double down every opportunity. A run by the whole table, during multiple shoes, gives a gambler a high.

    While I am not a subscriber of Rick’s, his strategy and technical discipline should help drown out the outside noise. He also uses hedge plays that mitigate the risk. Had I the temperament and patience I might be using his system.

    This blog however is another story. Wild and loose. Great for conversation, bad for unrestrained betting.

  • Rick Ackerman December 28, 2012, 4:03 am

    With pension funds and insurance companies immersed in equities up to their eyeballs, we all have a big stake in the stock market whether we like it or not. In fact, trillions of dollars worth of OPM have been malinvested in stocks and other assets, many of them worthless, with reckless abandon. It’s pointless to pretend we’re not all in it together.

  • mario cavolo December 28, 2012, 3:55 am

    Great contribution Cam! And with smart analysis on expectations for the uncertain present and future.

    China produced more corn than rice for the first time this year.

    As I have come to understand 85 million babyboomers retiring followed by 65 million GenX’rs who have earned much less puts the U.S. in the doldrums for the next 12 or so years. She will have to look outside her own borders to identify other influences which may help counterweight.

    Cheers, Mario

  • Dave December 28, 2012, 12:53 am

    “It is a crapshoot where timing is concerned. The gold camp is ahead of itself right now, while the Armageddon of a bond market rollover is not as close as many would have us believe. ”

    If mainstream media is to believed, bonds are where Joe Public is sinking money into…

    NEW YORK (AP) – Andrew Neitlich is the last person you’d expect to be rattled by the stock market.

    He once worked as a financial analyst picking stocks for a mutual fund. He has huddled with dozens of CEOs in his current career as an executive coach. During the dot-com crash 12 years ago, he kept his wits and did not sell.

    But he’s selling now.

    “You have to trust your government. You have to trust other governments. You have to trust Wall Street,” says Neitlich, 47. “And I don’t trust any of these.”

    Defying decades of investment history, ordinary Americans are selling stocks for a fifth year in a row. The selling has not let up despite unprecedented measures by the Federal Reserve to persuade people to buy and the come-hither allure of a levitating market. Stock prices have doubled from March 2009, their low point during the Great Recession.

    It’s the first time ordinary folks have sold during a sustained bull market since relevant records were first kept during World War II, an examination by The Associated Press has found. The AP analyzed money flowing into and out of stock funds of all kinds, including relatively new exchange-traded funds, which investors like because of their low fees.
    ……….
    http://apnews.excite.com/article/20121227/DA3ECI182.html

    • Andrew Gutterman December 28, 2012, 3:20 pm

      This is also why the gold bugs should not expect a parabolic rise in the price of gold. I keep reading forecasts about how the third leg is when the public jumps in and buys gold with wild abandon.

      Guess what? The public is broke and no longer trust anything, let alone gold. They are selling into a rising market for the first time in history. That doesn’t tell you something about expectations about the price of gold?

      And with deflation on our doorstep I don’t see anything that can push gold much higher than it is, but I can see it flat to falling.

      The thing about hard-core deflation is it robs companies of pricing power. So corn prices might be rising but when processed into whatever its used for the seller finds they cannot recoup all the costs by raising prices. Earnings take a hit, and the process repeats. Its very slow and not immediately obvious to the consumer who still sees prices going up. Unless they are selling their house, in which case their biggest asset has really deflated.

      We are in a long term swing from inflation to deflation, and I expect it to accelerate over time, with a bottom years away. Notice how ineffective the latest QE has been. The FED is out of bullets. Their gun is starting to get rusty, so its only a matter of time when they fire the next bullet and get blow-back.

      How long the market can continue to defy the inevitable is a real mystery, although from everything I understand its no longer based on anything rational anyway. Just like we have Washington playing venture capitalist. Everything has been turned upside down and sideways, nothing makes sense anymore.

      Is it any wonder the public is frightened?

      Andy

    • BDTR December 30, 2012, 3:40 pm

      Late to discussion, but nevertheless;

      “I think they are wasting their efforts in trying to protect wealth from evaporating at a time when posted inflation rates are low and the dollar is still holding up relatively well…” – Cam

      While I agree in general with your post, Cam, it’s precisely in the period preceding an overt and spontaneous decline in fiat purchasing power to accumulate gold. Right now is such a time. A decade ago was unquestionably more opportune, but this is now and as both RSI and open interest presently indicate a positive tale along with fundamental monetary reality.

      Andrew’s dismissal of the eventual parabola in gold price is rather short term sighted, and incorrect to suggest that the ‘public’ is broke. Many people have joined the ranks of the poor, many more have seen their net wealth impacted negatively, but are not ‘broke’. ‘They’ are ‘we’ looking to hedge the inflationary writing on the wall within the limited means available to do so. Miners will continue to suffer marginal profits due to production cost escalation and social/labor instability. The final parabolic leg up in the metals will propel the mining survivors as price overcomes cost.

      Please note that inflation/deflation is not some future event. Both are fully engaged right now as de-levering effects are resisted through massive and increasing frequency of QE, globally. There is no turning back with the current cast of intrenched characters and relative stability. They are committed.

      Simply because the effects of easing don’t register across the market in orderly expectation and proximate time frame, it’s a serious mistake to dismiss the fact that they will. The lag can be years.

      Think of today as the 70’s on steroids as the closest approximate model, with financial atonement an order of magnitude larger. Patience and planning is the rule.


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