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Remembering Why We Hold Gold

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The price of gold has been falling for more than two years, alleviated by the occasional sucker rally and a stretch of tedium in 2012 that made the year tolerable at best for long-term investors. Any complacency they may have felt back then was not to last, however, for quotes fell a further 30% between February and June. And although they initially bounced back sharply with a 20% rally that got airborne last July, the respite for investors has been short-lived, having given way to a wearisome relapse since late August.  Our technical runes now suggest that a washout to $1125 is possible. That would represent a 15% fall from current levels – enough, presumably, to elicit the kind of despair we typically associate with bear market bottoms.  Not that things will necessarily have to get worse before they get better.  For if gold were to forge higher in the weeks ahead, exceeding the 1487.20 peak highlighted in the chart, it would be well-primed for a rampage to $2000. My practice is to keep an open mind about such things, although as an investor I try never to put myself in the position of having to hope for them.

It’s not the technical side of the picture that should engage our earnest attention right now, but rather, ominous geopolitical rumblings. I credit my colleague Jim Willie with a visceral reminder that the global financial collapse is happening before our eyes. In his latest essay, Huge Cracks in the U.S. Financial Fortress, he sees a veritable armada of blacks swans threatening to undo the banking system.  This conclusion might seem extreme, especially to readers who believe such things only when they read about them in The New York Times or The Wall Street Journal. But only those who are blind to the obvious would say that Jim Willie has exaggerated.

Fill a Shoebox with Cash

He and I have had our differences in the past.  Jim Willie believes hyperinflation is inevitable, and although I tend to agree, I think it will come like a thunderclap after deflation has laid waste to the financial system.  In the past, we have both recommended holding physical gold against any and all possibilities. However, I also suggest keeping a shoebox full of intrinsically “worthless” paper currency to hedge against the ultimate deflationary event – i.e., the forced closure of U.S. banks for more than a day or two.  Although no one can predict what might cause this, we shouldn’t be in doubt of its likelihood.

If Jim Willie and I are in complete agreement about one thing, it is this: the dollar’s long reign is near an end. As he notes, Saudi Arabia is looking for a new protector for the Persian Gulf now that America has shown itself to be an unreliable ally. “The Saudis will soon announce acceptance for oil payments in euro terms, in yen terms, in British pound terms, and most important in Chinese yuan terms,” says Jim Willie. “The effect will be felt like a gigantic crash impact of a seven-story building hitting the ground, marking the Death of the Petro-Dollar.”  China is the country to whom the Saudis will turn, Jim Willie asserts, with hugely bullish implications for gold.

Gold Flowing to China

This is underscored by recent revelations at Goldseek.com that massive quantities of Western gold are being imported into China through conduits in Switzerland and Hong Kong.  At the same time, hedge funds have been liquidating gold ETFs, putting pressure on prices. Who benefits, and why?  It’s hard to tell. However, as the essay notes, “those who innocently own gold for asset preservation purposes can rest assured that they will never become collateral damage in these affairs as long as they do not allow themselves to lose patience or forget the reasons why they purchased gold in the first place.”

Indeed, with  bullion prices in a bear market that has persisted for more than two years, this is not the time for investors to throw in the towel. The cataclysm that Jim Willie has described so vividly may be postponed for yet a while longer, but not indefinitely. When the day of reckoning comes, any misgiving investors may have had in the past about sticking with bullion are certain to seem trivial.

Please do not ask trading questions!

  • rickj November 11, 2013, 4:37 pm

    Gold over 10-12 years has gone up over 400%.
    The risk free rate of return has more than halved!
    End of Debate!
    To the extent that you believe we are in a permanent, manipulated low interest rate environment,when normal Economics tells you that rates go up with increased risk, then we are in a state of constant capital destruction.
    We are being liquidated! This is without taking into account the increasing debt burden that has to be paid by our grandchildren, one way or another.

  • Redwilldanaher November 10, 2013, 8:21 pm
  • Andrew Gutterman November 10, 2013, 2:58 pm

    Gotta love the conspiracy theorists! Every problem can be blamed on some large entity doing something bad to control the world. You watch too much TV or read too many thrillers and for some reason fiction becomes fact.

    I quote from Jim Willie:

    http://www.marketoracle.co.uk/Article43032.html

    “The Gold Market is truly unique. It represents money and savings.”

    It is? Twenty years ago you could have bought Gold or shares in IBM. Which do you think was a BETTER investment, which was a better store of value and savings?

    Gold went from $400 to $1290 today, and increase of 322%

    IBM went from $20 to $180, an increase of 900%

    In your world gold is the better store of value and money?

    Gold is just another commodity, albeit one that has a lot of very emotional followers who think it is the center of the universe.

    Its not. And we found that out in 1971, when the world did not come to an end when Nixon did his bit.

    I know, there will be all sorts of explanations about how the price of gold went up and the value of the dollar went down, but you know what? Prices of everything else went up as well, just like they did before the gold window was closed, and nothing much changed.

    Gold is actually a rotten investment vehicle. It doesn’t really hold its value, and its subject to the whims of the market.

    I wonder what the value of an acre of land in NYC would be from 1860 to today vs. the same investment in gold from 1860 to today? I did a little research.

    Gold sold for about $20/ounce in 1860

    The cost per acre of central Park in 1857 was about $6500.

    Gold today is $1290, an increase of 6450%

    Land near the park sells for about $100 million per acre. an increase of 153000%

    So which was the better store of value, gold or land?

    Andy

    • Cam Fitzgerald November 10, 2013, 6:09 pm

      Thanks Andy. A lot of gold holders have certainly found out that gold is not the center of the universe after all. You can sense the disgust so many of them now feel. Especially those who got carried away investing as it rose near its peak. It could be a long time before they are able to break even, never mind see a profit. I certainly agree there are much better investments. Easier ones too that don’t come with a hymn book to sing from or a charter of economic emancipation framed in the language only anarchists seem to understand. Thing is the gold bugs are out of step. The larger trend is towards more electronic investing, not the acquisition of physical anything. The gold camp is out of step with time although I would agree they will get the last laugh if the currency implodes and the financial system one day comes apart at the seams. The probabilties of that happening are not high enough to justify the premiums on buying, holding and storing metals for insurance though. Not yet anyway. One thing does look certain though….gold is trying to make a bottom before commencing its next upleg. Just where that bottom comes is a mystery to pretty much everyone. We probably need capitualtion amongst the die hards before it happens. They will have mostly give up in disgust and nobody will care to discuss metals on sites like this anymore. On that score I have noticed interest is way down from a year ago when almost any article on gold attracted massive interest and traffic. These days a lot of people just snub the topic and move along. Not interested…..there is no damn money in it!

    • Oregon November 10, 2013, 8:17 pm

      So… are you saying IBM and land around Central Park are overpriced?

      • mava November 11, 2013, 7:23 am

        Lol, you know, I’ll talk once to anyone…

        On gold, Cam, I agree, there are fewer people eager about it than before. And I assume, even fewer will be eager about it tomorrow.

        Which is how I prefer it, actually. I was sort of disgusted when all those traders were pouring into gold. They do not deserve it, in my opinion, as they would worship anything that makes them money. Even the corruption.

  • mava November 10, 2013, 9:10 am

    Andy,

    If the global economy slows down, then this would have a fundamental meaning that the capital is not producing.

    If that was the case, then there would be a demand to consume the capital.

    Such development would create a strong demand for gold, as capital owners do not want to see it consumed, therefore they need gold, to transfer the capital under their personal control.

    The economy is slowing down, and the price of gold should be rising. You are incorrect, expecting it to fall. Also, it should be rising now, but it is falling, you are correct here. It is falling, because the US is printing money, buying gold with it, and then selling that gold even lower than they bought it. This is to lower the price of gold. They doing it according to the recommendation of an experienced technical analyst, thus, you can expect the downward movement of gold to be fairly classical in the technical sense.

    How long can the US print money and spend it on delivering cheaper gold to the Eastern buyer? Not too long, and not because they run out of money.

    Just because they will run out of gold.

  • Andrew Gutterman November 9, 2013, 4:06 pm

    Getting back to gold, the whole point of this discussion.

    I have this idea that keeps tickling the back of my mind: Is all the demand for gold over in China and elsewhere, outside of the western world, just gold bugs buying too late? Prices keep falling over here, but in slogging through Jim Willie’s so-called rebuttal of Rick’s article, Jim points out that the activity has moved over there.

    Yet prices keep falling.

    Are they like the public buyers in the stock market who are the last to know that the bull market is over? They start buying when prices start to fall, and keep buying as prices fall further. Today’s price of just under $1300 is still higher than any price prior to 2010.

    If the global economy really is slowing down then what is there to push up the price of gold? WHY wouldn’t gold go down to $750 or so, which would represent a Fibonacci 62% retrenchment from the high?

    Andy

    • Mario November 9, 2013, 4:32 pm

      Surely reasonable Andy. The Chinese love a bargain and are patient. They surely have their eye on hold but if the circumstances suggests to them that prices are in a relative downtrend which may continue for awhile, they’ll keep accumulating on the way down for the long term. It’s a sensible pragmatic approach. Until gold breaks above its descending trendline and other technical and fundamental indicators, there not much for bulls to get truly excited about.

      Cheers, Mario

  • Mario November 9, 2013, 8:52 am

    Gary, may I take a moment to comment on your indefatigable positive view. As doomsayers, it is equally unrealistic.

    Few comprehend the incredible strength in China, it’s private domestic economy is growing in a healthy way, it’s govt and banks are in sure control and I will not endeavor here to address any nauseating on the matter, it is as advisor as it can be that China has the healthiest rising thriving exhibit on the entire planet and that’s too be thankful for at this time.

    In the USA corporations are doing fine, very profitable as you note. It is also undeniably the case.

    Now I must point to what you do not seem to also see as hand in hand very bad.

    At who’s expense do we have the above two main themes true in observable reality? At the expense of what once was a great and fair nation with a broad rising middle class the envy of all. But this group has been pillaged, clearly so my friend. 57% of all jobs created in the past ten years have been in the lower wage categories, making a comfortable carefree life impossible, especially also considering how many American families are single parent families with the worst employee benefit support of any major country coming from U.S. employers. The might of the country has been pillaged, their wages FLAT for ten years, only recently rising slightly, a pittance in relative terms as throwing a dog a bone. Huge numbers of Americans have dropped out of the employment system, quite clearly indicative of a systemic deterioration of what once was. And now tens of millions of these folks are being forced to pay for a bloated, corrupt healthcare system that bills 10 to 50x higher for services than it should in its greed and corruption making the rich richer again and again in a different way, that’s all the system is designed to do in today’s USA. All of this is also clearly true and it is not a pretty picture with a turnaround anywhere in sight for ten more years.

    I agree with you that there will not be a collapse, most likely, and sure as heck not from China, but any positive goodness which exists to the benefit of any nation or group of citizens has come at a dire cost to what was before the most formidable fuel of economic sustenance the world over, America’s middle class. Which incidentally is replaced by China’s whose is even bigger and more wealthy than the U.S. middle class ever was. We live IN the unthinkable shift of our global economy and society.

    Yes you are right the system is working for many in fact with over 50%of s&p500 earnings being outside U.S. borders, but 1) at the expense of who has lost in the U.S., And 2) happening ONLY WITH QE of 80 billion a month, a notion that is so extreme we mistakenly forget, what was supposed to be a temporary radical emergent stop gap is now the new normal and if withdrawn? I can’t imagine it. Yet if it continues, we also can’t imagine it.

    We aren’t arguing, I just think you do need a bit of a reminder here man. Indeed for me, I can easily tell you how strong China is, and I KNOW I am indisputably correct even with fresh information I have yet to share at Ricks, but I am no patsy to a feel good China view, they are clever and selfish and to be feared indeed. And there’s plenty of issues on their table that are tough, it’s just not the stupidly common distorted patently incorrect ones bandied about in the public sphere on that subject.

    Cheers, Mario

    • gary leibowitz November 10, 2013, 6:56 am

      Mario, I appreciate the fact that you are trying to make a connection, a cause and affect, relating to our countries long standing problems. I bring this subject up simply because historians don’t seem to have as much problems with making that connection many years after such a debacle. Why hindsight makes it easier to see must have to do with the emotional attachment of the times. I wish to strip that out of the equation. The other glaring conclusion that I can make is that every prior debacle in history didn’t permanently destroy our society. In fact we have always moved above the prior stumbling blocks and learnt from our mistakes. That’s not to say we don’t repeatedly go thru boom/bust cycles, but it does mean we have taken two steps forward for every one back.

      I think that China and other Asian nations are helping to prop up world demand at a time when we need it the most. That alone seems to help prevent the bleeding from getting out of control. I also acknowledge the very long deterioration of the middle class as corporations and top tier individuals have gained control. I have no doubt that something will trigger the next bust where increasing debt will not be an option. I just don’t have a anything on the radar yet that would tip me off as to how that would happen. As for the reasons why we have survived intact for so long it is most probably involving multi-layered interconnected reasons. The transference to a Service nation has had huge consequences, as much so as the industrial revolution. Tech boom, which continues today still on our shores is another reason for our survival. The transference from a cash society to one of credit is perhaps the greatest reason we are still afloat. Lastly but not least is the housing boom from the 70’s on. Now that the Fed has orchestrated a low rate environment, thru manipulating the bond market, house values have risen significantly.

      What has to change to speed up the demise of this accumulated debt? I have thought about this for years and came up with only one answer. In order to force debt to be contained we could willingly start sacrificing our standard of living with an austerity program. that seems unlikely to happen with politicians being what they are. The other way is by default. How can we default if the government can keep a cap on interest and continue to print money? I can think of one way, and perhaps others can see more. If our economy starts heating up internally creditors will force rates to rise. The day the Fed tapers should indicate to me we are witnessing the start of the end. The debt will never be serviced if rates rise by as little as 200 basis points. The recent news on employment actually caused the future market to continue its slide. It was only after the market took off we saw a stabilization and eventual greed factor kick in. This good news is actually the absolute worse news for the stock market. income growth these past 2 months, along with hours worked, confirmed this move is for real. Income grew by 1 percent in the last 2 months. That is huge in this environment.

      As for GOLD, it will be driven by a stronger dollar, and accelerated domestic growth. It is very unlikely in this environment it will rise from here. It should hit the lows soon, where ever that is.

      Mario, once again thanks for staying on topic to make an intelligent discussion out of it. Sorry for the interruption and side track. Back to the scheduled program.

      • redwilldanaher November 10, 2013, 8:57 pm

        ” The other glaring conclusion that I can make is that every prior debacle in history didn’t permanently destroy our society. In fact we have always moved above the prior stumbling blocks and learnt from our mistakes.”

        One of your richest comments EVER!

        These guys that have completely HIJACKED capitalism are making Marx look prescient. Bubble after bubble, larger and larger bubbles…

        Their courting disaster like never before and old reliable just ‘splains it away like it is nothing.

        Every hyper injection becomes less and less effective. How you can see any of this as sustainable proves that you are un-certified yet certifiable.

        You’re a 3 card monty operator’s wet dream!

      • redwilldanaher November 10, 2013, 8:58 pm

        Look Troll, I slammed the post together and have to head out. You can get me on a they’re… or just play Xbox instead…

      • Troll November 11, 2013, 2:29 am

        Nah, Red . . . I’ll leave it for another day.

      • Troll November 11, 2013, 2:30 am

        PS . . . I don’t have Xbox

      • Troll November 11, 2013, 2:32 am

        Nor spell-check

      • Troll November 11, 2013, 2:37 am

        I do, however, possess the kick-assin-est charts known to human kind.

      • Troll November 11, 2013, 3:00 am

        So while you are busy arming yourself with news that is already public knowledge . . . and convince yourself gold is going higher and everyone who doesn’t agree must surely be an idiot as they while away their (or is that “they’re) time playing Xbox . . . you have told me nothing in your posts about the economy and life on earth that I don’t already know.

      • Troll November 11, 2013, 3:03 am

        Now, if you want to show me, on a spreadsheet, how much ZeroHedge and the Rolling Stone magazine have made you (on a spreadsheet) . . .

        I’m all ears.

      • Redwilldanaher November 11, 2013, 4:56 pm

        You’re better off not knowing the truth about the world you live in…

      • Troll November 12, 2013, 4:33 am

        What do you mean by that, Red? That I can’t read?

        Perhaps you would be better off ignoring the news?

        If I am to take all the things people complain about (big brother and the whole doublethink media thing):

        Who is to say you aren’t the one being bamboozled?

        You?

        Well, certainly you are not, because you believe everything you want to believe.

        And it’s absolutely impossible that someone, somewhere, somehow, could be steering an intelligent individual like you in the wrong direction.

        How’s your bottom line?

        Are you ready for another potential upward run in the markets?

        Stranger things have happened.

  • gary leibowitz November 9, 2013, 7:42 am

    What I find truly fascinating is that whenever there is news to support market advancement, it is denounced as fake. This has been going on for a long time now. Everyone acknowledges that it is impossible for the market to stay up if the economy crumbles.

    Yet here we are with a market that has made run ups for the record books.

    I would prefer a discussion grounded in reality. Evaluate the current situation, determine if it can be viewed against historic data for any clue as to where it is headed in the next 6 months. Accumulation of debt must have some tipping point where it can’t be sustained. there is always clues before a possible debacle. Is it the interest rates, the dollar, credit market?
    Rick uses his precise method to determine entry and exits points, yet when it comes to discussing the collapse of the economy no one has a clue? If only you used your smarts to come up with a plan or model that can be deciphered from past calamities. Now that would be something truly constructive. Imagine if each of us were to put together the puzzle that could warn us of imminent disaster, much like seismic equipment before an earthquake. I guess I am just spitting in the wind.

    • mario cavolo November 9, 2013, 9:43 am

      Well yea that’s very right, no one has a clue! We are in uncharted territory, in Joshua Ramos’ Age of The Unthinkable, operating on an entirely different economic model the world has never seen and those in charge are groping with the future unknown, they truly do not know and cannot predict with any degree of accuracy compared to yesteryear.

      We cannot comprehend that there is 80billion/month of QE going on now for years already. We cannot comprehend that China will have a middle class twice the size of the U.S. in a few short years, with 50 MILLION upper middle class households, and selling over 2 million cars per month, that China’s household bank deposits not total 7 TRILLION USD and have increase by 3 TRILLION USD just in the past 3 years, which is the TOTAL amount of current U.S. household deposits, that America is reshoring factories with new lower wage American factory workers, and on and on, that the U.S. govt is now an oligarch socialist govt that has clearly won, that China’s pollution is truly off the scale and will take years to improve no matter they are throwing more investment at the problem than any other country in the world, that the U.S. has 50 million people on food stamps, that luxury retail is doing great!, that we all walk around with our smartphones and tablets and CAN”T do without them and that the market is still not even close to saturated for them, that billionaire American bankers and their cronies in the govt DON’T even get investigated, that a monthly health insurance premium could possibly be $1000/month? plus the deductible? That a heckler at a political luncheon speech in Florida wasn’t “asked to leave”, he was thrown down on the ground, cuffed and arrested, and another woman who on a different occasion was given life in prison for letting a boy touch her bare breast! (youtube it) Geez we could go on and on for pages about the extremes which now exist, that of matters we cannot comprehend in the global economic models and societies, nor would ever have imagined just a few short years ago. You bet your as* no one has a clue and if we’re not dreadfully worried, we’ve no pulse or conscience.

      Cheers, Mario

  • David E November 9, 2013, 4:37 am

    JJ wrote in regard to the dumping of the petrol dollar:

    “A feud with the KSA would present a great opportunity to label them “Terrorists” and allow us to seize their assets here and default on the bonds they hold.
    We could get back some of the trillions we have sent them since 1972.”

    What do you think is the real reason why KSA just bought nuclear weapons from Pakistan? Is it as a threat to Iran or to us (USA)?

  • mava November 9, 2013, 12:18 am

    Killing people for their money is not a necessity, Troll.

    Thus, taxes are not necessity. To say that taxes are necessity, means that to violently demand payment for things people don’t need is a necessity, means that killing to rob is a necessity.

    Just because you cannot see a logical connection, doesn’t make the violence necessary.

    The honest way to say this, would be for you to admit that killing people for their money is a survival necessity, and be done with it. Then you could claim honest approach to be your advantage.

    But, just trying to tell me that you’re going to violently rob me, but in my own favor, is not going to fly.

    I am telling you n open text that I don’t need taxes. And you are telling me that I do need taxes. Do you realize how lame you make your argument sound?

    Everything I need I can buy voluntarily.

    • mario November 9, 2013, 4:11 pm

      Mava I am happy to allow a man state his ideals and fantasies, that is part of the fuel and creation of life s journey. You might want to clarify when you are being literal or figurative when stating extreme states you desire which in reality dont exist such as living somewhere without a society and form of governance that of course has costs that ate paid for by taxes, don’t get me wrong I’m all for the beach bungalow off the grid jungle mountain treehouse island goodbye to civilization thing… Lots of remote places to disappear if one really wants to, but even then you’re doing so on a public device of some kind along the way paid for by taxes or assessments of some kind.

      Cheers, Mario

      • mava November 10, 2013, 8:54 am

        This is the way my teacher used to get me to accept authority. He explained:

        ” When you go from home to school, you walk on the road that belongs to your nation…”

        I disagree. This way of applying the argument is backward.

        No road just exists first, before the taxes are collected to build it. Thus, please, take a note, that first I am taxed. From this point on, the road is my property already. Why would not I use it?

        My argument is that I am against taxation. My reason is that the taxation is violent, where everything that we truly “need” we should donate for. If you think that the people will not donate, you then confirm that the people don’t want to build it.

        One problem remains, and that is the free rider problem. The excuse of the statist is that yes, mava, you want it, you just don’t want to pay for it!

        This is not true, but let us not argue back and forth like children. I can sign a waiver, declining the right to use the public stuff, in exchange for not being taxed.

        The end of this argument is that there are certain things that you want, Mario. Like NASA. Or, in your case, something else. And you know that not everybody wants it. But, by violently forcing us all to pay into it, your project gets better funded. It is a small price to keep spreading the “we all need it” propaganda.

        True problem with the statism is that in the end the argument becomes – we will “defend” our way of life. Meaning, “we are done using logic, and we are going to use the violence because we can”. The problem with this approach is that it leaves no moral high ground in case the other party responds likewise.

        This is the true source of all wars. Unless we learn to leave others alone, this will keep happening.

  • gary leibowitz November 8, 2013, 11:03 pm

    There is absolutely nothing in this report that doesn’t spell accelerated pickup in the economy. Sorry but wages, hours worked, employment and unemployment are all pointing in one direction. GDP was also higher, consistent with all the other data.

    You can’t look at this report and dissect it to fit your no growth model. These data points, whether skewed or otherwise, showed a decidedly big jump. The method of collection and the dynamics on how they come up with these numbers haven’t changed. You are still comparing apples with apples, and this is one big Macintosh.

    While you would think this report is a positive for Wall Street, think again. Watch the dollar, 10 year note, and the 85 billion bond purchases come under a microscope going forward. I am sticking my neck out by still insisting that before November is out we have a nasty swoon. wages outpaced spending these last 2 months by a wide margin. that alone spells a possible pent up demand.

    Wall Street was in the eye of the storm for over 4 years. They will soon realize they were in the eye once it passes over them. Earnings will not grow the way it used to, and interest rates will initially cause havoc with housing. This is going to be real interesting how the Fed orchestrates a soft landing.

    A volatile season is upon us.

  • mario cavolo November 8, 2013, 9:22 pm

    Here you go folks, fresh out of a Marketwatch article tonight:

    ” A full 57% of new jobs gained since the labor market began growing in February 2010 have come from the retail trade, leisure and hospitality, health-care services, and temporary jobs, paying an average of $15.71 for non management workers.”

    Good grief…And yes, American manufacturing is on the rise with exports to China on the rise, seems a good thing on the surface, but as noted here before, due to related trends, we are going to see these new American “factory” workers also at these new low wages as reshoring continues by many large corporations. They will go into dirt cheap Detroit, for example, where oodles of cheap space/land is available to set up a factory, and hire the workers at low wages for the jobs. They have truly turned the citizens into economic servitude and slavery to the oligarchs. And now we all get to pay forced huge premiums for healthcare to pay for the corrupt healthcare machine that overbills by 5x-50x what a medical service should cost in the real world. The Republic is no more, what a mess. f

    • redwilldanaher November 9, 2013, 12:49 am

      Read the above Gary. This is why Mario retains credibility and you do not. No matter what rooftop you scream the opposite from Gary, all is not well…

  • Redwilldanaher November 8, 2013, 6:25 pm

    http://www.breitbart.com/Big-Government/2013/11/08/720-Americans-Leave-Labor-Force-in-October

    Soylent Green Corp. hired 720k Amerikans last month. The coincidences…

    http://www.zerohedge.com/news/2013-11-08/whopping-932000-americans-drop-out-labor-force-october-labor-participation-rate-drop

    Back at 1978 levels. Things are firing on all 3 cylinders Gary.

    I’m thinking about buying an AMC Pacer as my next car, waddya all think?

    • gary leibowitz November 9, 2013, 12:10 am

      Red, are companies making record earnings? is the labor market employment revisions a fluke? for 5 years now? Can you state here and now that you know better than all the institutional investors for the past 5 years? Who came out ahead? You are obviously wrong on the past 5 years. What will make you right for the next 5? Every single argument I hear on this board I heard for a very long time now. Isn’t it obvious that these arguments are missing something? You need to determine the catalyst that will stop earnings cold. Is the environment right for an earnings disappointment?

      Forget the generalizations, they mean nothing to wall street. If I owned a company would I sell because the there are disturbing data points? Would I go against my profit margin improvements instead? An owner only cares about the future bottom line. What is out there TODAY that would make me aware that my company is in trouble?

      • redwilldanaher November 9, 2013, 12:44 am

        Wrong Gary. Stop with the Strawmen. I proved this to you several months ago and you had to concede defeat. I predicted that they would move onto more financial and economic madness because in the end that is what they always do. They will do it until they no longer can.

        It’s all a sham Gary and worse it is built on a sham foundation. A private central bank adding electronic zeroes to huge numbers makes it all go round. I love how you look past it all. Talk about suspending disbelief! Do you really believe the BS they feed you on its face? An out and out, an in and out and an in and in fraud Gary. Anyway you twist it, shred it, spin it, shake it, puree it, it’s all a fraud. No matter how hard you try to convince us that it is real we KNOW it is a fraud. The accounting statements you hang your hat on aren’t worth the pixels they’re printed on. Does your CPA walk the straight and narra Gary? Is that why you hired him? It’s all supported by a make-believe money tree and lies. I hope you’re not using your real name in this forum because you come off like a fool in the purest sense.

        Was the dotcom bubble all real as long as it hadn’t popped Gary? How bout housing? Commodities?

        Institutional investors? You type it with reverence. They’re just as despicable as most other types associated with modern Wall St. They play the way they play mainly due to 2 factors. 1. That’s the way the game has been designed and sold. 2. It’s OPM Gary. Gotta risk or gotta give it back. Only way they win is to risk it.

        I haven’t been wrong Gary. Quite the contrary, I proved you were and you had to acknowledge it. Save your strawmen for someone else. I concluded that this was likely what they’d do and they’ve done it. I concluded that it could be even more dramatic than anyone would have believed at the time and it has been. I learned over 15 years ago just exactly how stratospherically manipulation and madness can equities at times.

        I don’t care if my seeking of truth and publishing it herein offends you. At least your getting paid by the State to show up here and incessantly push Big Brother’s message.

        What kind of unique tool are you?

        I left the smelling salts to your left.

      • gary leibowitz November 9, 2013, 7:24 am

        Red, your argument is foolish. To proclaim the system is not sustainable is not the same as saying the market will crash tomorrow. I can state that the earth will, with certainty, have a large asteroid hit it someday. To keep saying the end is near is not exactly the same thing.

        Give me something that will show evidence of an immanent debacle. You missed out on a perfect environment for corporate profits. If this statement is false show me where? If it is not sustainable and will reverse drastically show me how? I need something to guide my allocation of money. To declare you should put it in a mattress because in the next 1,000 years banks will be insolvent does me no good.

      • redwilldanaher November 9, 2013, 2:49 pm

        Do you even read the poster’s post before you respond to them or just stick to Ministry of Information script?

        Who are you arguing against? I have actually commented in this forum that I DO NOT see a looming catalyst. That is why I haven’t argued the end is near, as in days or weeks or even a month or 2 away.

        In simple terms:

        Get a clue!

        How have I “missed out” Gary? With the conclusion that I published here, my own TA work and Rick’s that I keep abreast of, please explain how I missed out.

        Show you how?????????? Are you serious???????

        Go review the Tech bubble. Go review the Housing bubble and the concurrent stock market bubble and the concurrent commodities bubble. Are you telling me that you don’t remember or haven’t learned anything about how four of the most massive modern bubbles popped right in the face of modern “investors”?

        You’re more (intentionally?/unintentionally?) obtuse than the mobius strip in the guest post of mine that Rick published a few years ago…

      • Redwilldanaher November 10, 2013, 2:11 am

        The basis for you utopia Gary:

        As Lawrence Kotlikoff points out, echoing our perhaps more vociferous discussions, Bernanke’s dangerous policy hasn’t worked and should be ended. Since 2007 the Fed has increased the economy’s basic supply of money (the monetary base) by a factor of four! That’s enough to sustain, over a relatively short period of time, a four-fold increase in prices. Having prices rise that much over even three years would spell hyperinflation.

      • Mario November 10, 2013, 4:05 am

        Wayne there’s a great article in rolling stone about how GS created and engineered the specific market bubbles, and they continue to do so.

        They’re not investors, they’re not bankers, they are sure as he’ll not concerned leaders with the power they wield.

        Hah! That’s their career, they are engineers!

      • redwilldanaher November 10, 2013, 8:51 pm

        Read this a while back Mario:

        http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405

        Is there a newer one?

        Thanks.

      • mario cavolo November 11, 2013, 2:27 am

        Nope that’s the one!

  • gary leibowitz November 8, 2013, 3:55 pm

    Just when I threw in the red flag on the Fed’s inability to inflate the economy we get unemployment numbers that shocked everyone. The revisions are just as shocking in the past few months. wage component went up .5 percent for 2 month in a row. 10 year rate back above 2.7 percent.

    If these data points are to be believed we will have an acceleration in GDP going forward. This is not good news for the market. costs and interest rates will go up.
    Most importantly the sugar rush of 85 billion a month will be taken back. How the Fed orchestrates a soft-landing is anyone’s guess. Housing will most likely tae it on the chin for the next few months.

    This is a perfect setup for a swoon in November followed by a rally in December. Moving forward retail sales for the holiday will dictate the market move in December.

    &&&&&

    All McJobs, Gary. The economy’s descent into Depression is under way, notwithstanding seasonality and the kind of statistics for which we should shoot/hang/imprison those responsible for them and the reporters and editors who spin them. RA

    • ExNav November 8, 2013, 9:01 pm

      The labor participation rate fell from 63.1% to 62.8%
      I don’t believe for a second this economy created a single actual net new job last month.

      • mario cavolo November 8, 2013, 9:12 pm

        Exactly ExNav, America’s 2 trillion dollar off the books shadow economy is actually increasing in size the past several years, primarily because of more and more people doing their very best, and out of necessity to exit the system, earning money in cash on their own. In other words, more and more of the unemployed who have simply stopped looking for official payroll work. This all clearly spelled out in Professor Feige’s work and book on the subject, who is at the University of Wisconsin. People who are in survival mode simply start deciding to do whatever they must to make sure they don’t give the govt any more of their money. And this is also to their advantage with ACA, as at low or no reported income, they don’t have to sign up and/or they are eligible for subsidies and will pay very little. As the rich get richer and the poor get poorer they will start gaming the system and cheating more and moref sans any guilt. Heck, they see the oligarchs getting away with it so they do it more and more without a shred of guilt or an apology. This is the rising trend amongst the U.S. struggling lower and middle class.

      • gary leibowitz November 8, 2013, 11:24 pm

        With 4 plus years of spectacular earnings I keep hearing the same argument, without any revisions to account for the discrepancy. If most on this board believe the end is here, they must have been even more enthusiastic 4 years ago.

        My point is how does your doom and gloom model fit into a scenario that failed for 4 years yet will happen today. If you ignore or dismiss data that you don’t like that defeats the exercise. Lets assume the data is correct. What are the ramifications going forward? The dollar, rates, housing, earnings?

      • redwilldanaher November 9, 2013, 12:29 am

        Good stuff ExNav and Mario. Couldn’t agree more.

        Gary, as for your assumption, you are asking us to assume pure fantasy is gritty reality.

        You have no idea how much fraud is involved in all of the information that you blithely consume.

  • DK November 8, 2013, 9:03 am

    Excise taxes, we can talk there. Income taxes? No sir. Heck, I’m unlikely to ever see the social programs I’m mandated to participate in. I’d love to have an opt-out, I would have been a “no, thank you.”
    Regarding the rest, I’m not even going to bother. There’s a reason they categorize the mafia as “organized crime.”

    If we had any REAL transparency, I’m sure you’d be surprised how many conspiracies actually exist? You refute them all but my guess is you believe in one of the biggest every concocted in HISTORY, the FED. How is that?

    • Troll November 8, 2013, 9:52 am

      I don’t refute every conspiracy, I just tire of them,

  • Troll November 8, 2013, 6:16 am

    You cannot have it both ways. You can’t complain about infrastructure tax while using the roads and bridges these taxes provide.

    While you rag on me that I use something as simple as bees and ants as an example of supply and demand, you also complain about nuclear technology and all the potential disasters that Fukushima has brought upon us.

    While we drive our cars and heat our homes, we are outraged about the disaster in the Gulf.

    We bitch about Monsanto.

    We hate the banks.

    Yet, we are the soul reason that, collectively, all the things we hate exist.

    Sucks to be us, doesn’t it?

    • Redwilldanaher November 9, 2013, 10:26 pm

      When did soul become sole?

      Sorry, resume your boot licking.

      • Troll November 10, 2013, 2:55 am

        Good for you Red 🙂

  • Troll November 8, 2013, 3:27 am

    This is not a question of how I want things to be. Someone mentioned private enterprise to fix roads and bridges … that’s TAXES! Someone has to pay for it. I think we are all out of good Samaritans.

    Why would I compare bees and ants to us?

    It’s simple.

    They contribute, they don’t take away.

    People take away.

    If you think not, you ought to check out a mining site.

    • DK November 8, 2013, 7:15 am

      That’s private enterprise? Really? So you’re telling me the DOT in any given state is a private enterprise? You’re kidding me. They are completely different, fundamentally. People can choose to pay for it by contracting with a company, or they can have it taken from them through TAXATION, “voting” on it, and presto. More often than not, there’s some kick back involved, someone’s family member or friend scored the contract for such and such. Quid pro quo. Welcome to politics. Further, having projects such as those go to a private company by by people who voluntarily pay for it would not only be less costly (within or under budget), on time or ahead of schedule, it would be done as efficiently as possible – because that’s exactly what competition commands, i.e. the free market. What happens in your tax/regulation/fee laden bureaucracy? Yea, that’s what I thought.

      And no, people don’t just take away, that’s called theft and that it is amoral. Didn’t anyone ever teach you the difference between right and wrong, “survival” notwithstanding (which is what you may be referring to). Regarding contributing, humans have been contributing in various forms for as long as we all collectively know. Charity is one of many great examples. Judging by what you’ve written perhaps it is something you haven’t done. I donate and volunteer time, money, resources, etc. all the time. I offer help when I can, do you? In fact I take great joy in my efforts to help, I don’t know how much I’ve actually helped, but I’ve been told I have. It’s great! I’d say that’s contributing.

      I’m not saying people don’t take, we all do in many ways. Many of us also contribute, not enough of us, but contributors do exist, I know dozens of them. You note a mining site? I’ll note the Surfrider Foundation (which I have to renew, actually) and there are others I belong to. Many religious organizations could be included. How about doctors without borders? USAID? Sometimes you find a bad seed, it happens, but don’t give me that “people don’t contribute” noise. I’ll be the first to agree that we need a lot more of it.

      • Troll November 8, 2013, 7:43 am

        Go ahead with your kickbacks. In the mean time, you are using all the things the government provides. Given a choice, you would probably not pay for the use of roads, bridges, dams, and whatever else . . . because you would put those expenses off to another day. Come on, let’s get real about necessities and why we pay for them, for goodness sake! You can make a conspiracy out of anything, if you try hard enough.

      • Troll November 8, 2013, 7:57 am

        Did you take Rick’s course? If not, how did you end up here?

        If so, why did you take the course? To short the stock market at each and every positive “D” yet refuse to buy every optimistic midpoint entry because this course only works when it suits your negative stance on the world?

        Taxes are a necessity. Indeed, not to the extent we’ve been subjected to, but a necessity all the same. I am not going to get into how it all got messed up, aside to say back in the day the Mafia was heavily involved in “private enterprise.”

        So give me a break . . .

        We are going to be taxed one way or another.

      • DK November 8, 2013, 8:21 am

        Perhaps I should retract my USAID reference:
        http://venezuelanalysis.com/news/10148

  • mava November 7, 2013, 5:37 pm

    Troll, I do understand that this is how you want things to be. However, I was asking about the way things are. There is a difference.

    I am pointing out the fact that the majority of people do not want to be taxed. This is true, because the rest has such a hard time making sure everyone pays taxes. This is not my desire, this is a fact, the people do not agree with your view.

    Currently, everyone is violently made to pay taxes. But, this could be changed, because it is the majority that does not want to pay. People simply need to be made aware that your story is a lie. Once they are aware, they can peacefully reject obligatory taxation.

    You can still pay taxes, though, I am not trying to violently stop you (like you intend to violently made me to pay). In fact, I don’t care if you pay, how much, when, etc. It is all up to you. Including the reason why. You can be a worker be if you so desire.

    You see, I am a free man. I want to grant you the same, but it is up to you to be a human or a workers bee, or even a Roosevelt Horse, if you so desire. I am fine with either of your desires. I won’t force you to either, and I don’t want to be forced to anything.

    Once those who do not agree with your idea are free to not participate, then I am sure your world will crumble (although I can be wrong, of course). It will crumble, because, contrary to what you preach, you to will not pay taxes voluntarily. You simply lie to yourself. In an absence of violent inhuman obligatory taxation, the lie that we need taxes will crumble under it’s own weight, as everyone stops paying.

    All we need to achieve this is few more years of internet and a bit more work of pointing out the truth to the people.

    As for the gold, the beautiful thing about is that it is freedom minded. It doesn’t need to be owned by you. Sell it to me, I will give you what makes the great sense to you, – the dollars.

    • DK November 7, 2013, 7:46 pm

      When was the last time bees imposed a tax or inflated an idea (a mechanism of exchange, a store of value, etc) on other bees? When was the last time they bailed out or bailed in a hive? When was the last time they made arbitrary laws governing life for how they all should live, for the greater good by force? Where is the bees prison? Where is their bureaucracy?

      You’re really comparing bees and ants to creatively intelligent, free willed humans?

      I can’t even believe I’m writing this.

      Mava, I’ll leave it up to you, you were doing a great job.

      • Cam Fitzgerald November 9, 2013, 12:42 pm

        Ah DK! As a beekeeper from years gone past I can assure you that the tax in the colony is labour itself. A worker bee lives just weeks after first venturing from the hive in summer. Thereafter she works ceaselessly through the good days to bring home nectar and pollen before finally collapsing as her wings are literally beaten to wisps of gossamer. The bee tax is quite high. It costs you your life.

  • Troll November 7, 2013, 6:08 am

    Oh yes, as for gold and why we hold it? That remains a human mystery.

    No living creature (aside from humans) on this planet could possibly fathom why we hold something that has no real use in such high esteem.

    Maybe all the other creatures are idiots.

    Or maybe WE are.

    You be the judge.

    • gary leibowitz November 7, 2013, 11:43 pm

      Gold is a rare commodity. that in itself is reason people own it. if all major currencies falls apart gold will have strong barter potential.

      Regarding taxes, try taking away social security and the tax we have imposed on us. Try taking away Medicare. We love to complain about the cost of things but only when it benefits the other guy. How many Tea Party members use these social programs? The more empathetic one is, the more they see the need for taxes. Even Ayn Rand took handouts in the end. Easy to philosophize in an abstract setting. Less so when reality bites hard.

      • Jason S November 9, 2013, 2:12 am

        Gary, I disagree. The more empathetic one is the more they see the need for charity. I dont think that they necessarily equate the government as the agent of that charity. We have been conditioned to think that way because it is more convenient, but is far from the most efficient option.

      • Cam Fitzgerald November 9, 2013, 12:35 pm

        If all major currencies fall apart we are likely heading for both economic and social collapse. A huge war would follow but in the interim while you await the ends of civilization you are probably better off with chickens and eggs than gold!

  • Troll November 7, 2013, 5:30 am

    We’ve been offered something here for (pretty much) free: Take this course and work hard at it, and money will surely follow.

    What Rick teaches is correct.

    Money will follow us.

    But what did we do for it?

    Robbed an idiot of their money.

    Where is the “greater good?”

    That would depend what we do with an idiot’s money after we’ve robbed them of it . . .

    Wouldn’t it?

  • Troll November 7, 2013, 5:11 am

    Mava, seriously, we pay money to use roads and bridges. It’s called taxes. I don’t need nor want to spend 20 to 40 minutes of my time each and every day while people fumble around dealing with how they are going to pay for a toll. Either way, taxes are taxes.

    Certain things are a necessity.

    Whether you decide that is a road, a bridge, a soccer field, an art project or looking after your neighbor next door should they become sick . . .

    Some things need to be taken care of for the greater good.

    This is how every species on the planet operates except us, who do nothing but complain about it.

    • Troll November 7, 2013, 5:24 am

      Do you think ants or bees complain about their lot in life? No, they work for the greater good, and all pay “taxes” in their own way. Is it fair that a worker bee has to work 100 times harder than the queen bee? That depends . . . are they pissed off they are relegated to hunting and gathering? They do this without question, yet they realize and appreciate they are subject to one simple rule: Supply and demand.

      Are you above that rule? Am I?

      All species on this planet are subjected to the rule.

      Why do you think you are above it?

      Because you are human?

      You would be better off going back over the rules of supply and demand.

  • mava November 7, 2013, 4:51 am

    Loved the video. Loved your comment, Jason S!

    @Troll:
    No, bridges and roads have nothing to do with taxation.
    1. Most taxes spent on interest on bonds.
    2. If bridges and roads were truly needed, you would pay money to use them, but you don’t, which is why the money taken violently. Meaning, that according to the people themselves, they do not need the bridges and roads.
    3. Real reason for taxation is to create the deflation for the poor, while for the rich, the inflation is created. The rich therefore take the benefit of inflation, sending the disadvantage of the inflation further down the road. But not too far. As soon as the poor take damage from the incoming inflation, the inflation is dis-inflated by the deflation that is the taxation, before the system becomes unstable. In this part of the process, as soon as the poor take the heat, then the latter part of the process (beneficial) is moved back to the banks.

    The beauty of this is that the poor themselves beg for the taxation, because they think they tax the rich.

  • Jason S November 6, 2013, 11:18 pm

    The one big reason, for me, to own gold is that it is the only thing that is easily transportable, acts like currency but does not have any debt associated with it. As a contrarian I want to invest where others aren’t and avoid owning what everyone else owns. Everyone else the world over has debt (in some form) in spades. And through some delusional spell, the world has come to the conclusion that the problems created by excess debt can only be solved by more debt. Lie to me all you like that 1+1=3 but any foundation built on that cannot last.

    The following video helps explain how this works as well as illustrates Rick’s deflationary death spiral prediction very well.
    http://hiddensecretsofmoney.com/videos/episode-4

    • Cam Fitzgerald November 7, 2013, 4:38 pm

      Jason, if gold is money then why does it usually move inverse to dollars? Another way to look at this is if we go back in history to a time when dollars were literally the equivalent of gold then the two would always have moved together. They had too. There was no other option. From that perspective it is easier to understand why during the Great Depression when the dollar strengthened considerably that Gold was also a slam dunk winner as were gold miners. But nowadays that is not the case and so we cannot expect metals performance in the current sluggish environment. Gold moves more typically with commodities. Thus when dollars rise we should generally (not always) expect gold to fall and even moreso if a deflation scenario erupts. This basic setup casts considerable doubt on how helpful gold would be during periods of weak growth and disinflation. On the flip side though this same idea should offer good proof that gold is indeed an inflation hedge. What we are seeing now backs up the hypothesis. Most commodities are in decline and therefore if that trend continues gold will not perform to expectations. It will continue to decline in other words UNLESS there is some policy initiative that suddenly links gold back to the modern currency system. For example, a new commodity backed SDR would more than likely see gold soar overnight. Just the news alone or whispers that it might happen would leave most investors gasping for air. This may be what gold buyers await even as they continue to live in the mistaken belief that gold is money here and now. It simply is not as far as your investments are concerned. Certainly though it is advisable to keep a little aside just in case we get a major currency reform as many expect is inevitable. You sure won’t want to be empty handed the day our global finance ministers, the IMF and BIS hold a press conference to tell us that SDR’s are being phased in as one of the new reserve currencies. Fact is…..the day that happens you will be lucky to even find a single free ounce available to buy anywhere. They will all have vanished in a heartbeat.

      • Jason S November 9, 2013, 1:50 am

        Cam, the classic economic definition of money is:
        Medium of Exchange: Gold can be used to transact for goods and services the world over.

        Store of Value: While a dollar purchases about 1/97 of what it did in 1913, gold’s purchasing power is about equal to what it was then.

        Unit of Account: You can still settle trades and balances in ounces of gold since every country has a conversion and market price for gold in local currency.

        Gold functions as all of these so it qualifies as money.

      • Cam Fitzgerald November 9, 2013, 11:53 am

        I hear that often, Jason. Many have asserted that gold and silver can be used like money to transact exchanges for goods. In practice it does not happen though. Ever tried it? I live in the developing world where inflation is extremely high. We are running above 20% in any typical year and much, much higher during certain months (you guys are very fortunate over there with your pipsqueak inflation!). Anyway, it is hardly different here than back home when it comes time to pay for goods. People still want cash in their hands. They want what they know and naturally enough everybody understands currency. If you offer them silver coins they respond with a puzzled look. I actually tried this with an appliance. So let me explain what happened next. The seller, who actually did know the rough retail value of this silver coin, immediately discounted it to what he thought was fair value. After examining it closely in case it was a forgery (they are common here) he agreed to take it at about half its value on the basis that the buyers would give him no more than that at sellng time. In other words I faced an immediate 50% purchasing power decline versus using paper currency. His rationale for the reduction was simple enough too. He claimed it would cost him time and effort to redeem cash from it in the traders market and that selling prices were not certain. In effect, I had already used the cash that he needed to buy something else (a silver coin) and was now offering him that which I had purchased in exchange for his goods (a fridge). In the end I just paid cash and kept the coin. Please remember that gold and silver coinage are goods and not money or currency. They have a premium and discount attached to them that money does not ordinarily have except when you try to exchange for another currency. They are viewed as an impediment to business transactions as well. The key point though is that they are treated like a tradeable good and not a fluid unit of exchange despite their known values. So in my experience precious metals are not a good store of wealth for transaction purposes because I face two costs with them that I do not suffer with paper money. In the first I must pay a premium when I buy them. In the second I must offer a discount to sell them. I lose at both ends. That is not how good money works in my opinion. I would need a certainty of at least a 30 to 40% price appreciation in metals before they are worth the time to buy, hold and store. Otherwise it is just spinning your wheels. There are MUCH better investments.

      • rickj November 11, 2013, 4:03 pm

        Cam; US or Western centric thinking is not a help to understanding the gold issue. The Growing Nations have decided gold is the basis of international trade settlement, so that is the way things will go.
        To reverse the process which has a long way to go due to inertia, the West must grow again by cutting waste, guv influence, fraud, and imports.

    • gary leibowitz November 7, 2013, 11:28 pm

      Gold certainly doesn’t act like currency. You would need a near apocalyptic event to see that happen. Like any asset it can fluctuate up or down when you convert it back to currency. Treat it like all investments. Do not place it on a shrine, nor think it is inevitable you come out ahead.

      &&&&&

      Agreed. RA

      • Jason S November 9, 2013, 2:08 am

        Gary, gold is both currency and money. Currency is everything that money is but it lacks the store of value aspect that money has. My little green pieces of paper have value in most places in the world, just like gold does but 100, 200, 500 years from now which will likely have the greater purchasing power? Yes, gold may become worthless but it has been used as money and currency for 5000 years now and it’s track record trumps anything else.

      • Cam Fitzgerald November 9, 2013, 12:02 pm

        Indeed I also agree, Gary. I liked that short sweet post of yours. Right to the heart. I just made a similar, if not long rambling post above, prior to reading yours and then got instant gratification as I scrolled down to your comments.

      • Cam Fitzgerald November 9, 2013, 12:23 pm

        And just a quick follow up related to the reasons for keeping a shoebox of money (physical cash) for that bad banking day that lies ahead.

        My instincts tell me the rationalizations in favour of storing paper are far more convincing than holding metals and awaiting Armageddon. Not just because I have my doubts that Armageddon will happen any time soon but rather that if it did I would not want gold for protection on that sorry day.

        More importantly though, the prospect of unexpected bank holidays are quite real and should be expected in our lifetimes if not within the next few years. We have seen several in just the past decade. Think Iceland, Greece and Cyprus as just three current cases where the ATM’s went down and limits were placed on withdrawals or outright bank closures happened.

        Go back to the 1980’s and we were also witness to the devastation in the Soviet Empire as the Ruble imploded and the wall came down. There are dozens of instances of banks closures and financial trauma just within the last decades that easily come to mind.

        So yes, bank closures, crisis of confidence, financial crashes and revaluations are all legitimate threats to our solvency and well being. These make a much more compelling case for holding paper money than the gold camp makes for holding physical metals in my opinion.

        Lets keep in mind we are talking about taking concrete steps to protect our finances and our families, not make impractical statements of philosophy about the importance of metals versus paper. On the bad-bank-day that is coming I assure you nobody will give a damn about golds 5000 year history as money. They will just want to get paid!

  • John Jay November 6, 2013, 8:58 pm

    Is this the future for US Healthcare under ACA?

    “Half the public health system’s doctors quit under Chavez, and half of those moved abroad, Natera said.

    Now, support staff is leaving, too, victim of a wage crunch as wages across the economy fail to keep up with inflation.

    At the Caracas blood bank, Lopez said 62 nurses have quit so far this year along with half the lab staff. It now can take donations only on weekday mornings.”

    Scary story at this link:http://tinyurl.com/peqnqvj

    By the way, my Primary Care Physician in my health plan just decided to retire.
    The best MD I ever saw, really knows his stuff.
    If they pass a “Law” to force MDs to treat Medicare patients for pretty close to “No Charge”, they will very likely all quit.
    And we can go to Cuban medical clinics like they do in Venezuela!
    Ole!

  • mava November 6, 2013, 7:49 pm

    You do not “increase the benefits to the well to do” by cutting taxes.

    Taxes are theft, plain and simple.
    There is not a single argument in favor of taxation, and taxation of the rich in particular, that does not center around an idiotic assumption that the rich first steal from the poor.

    Idiotic? Yes, and that is because the government is using the force of violence to give it to the rich, not the rich taking anything by themselves.

    Just stop the welfare to the rich, instead of stealing back from them. Ah, but such cannot be done! Why? Because, then no one would need the government!

    The government is a luxurious way of life for some, where they make the resources of the many available to the few rich people, by violence, and take their fat cut. Such as, for example, the Obama with his obligatory “buy from the rich” program of “healthcare”.

    However, what must be understood is that the rich and the government would never be able to maintain such a system, where it wasn’t for the stupidity of the poor, who in their insane desire to steal from the rich deliver the political power to the government, which then puts that political power for sale for the rich.

    So, no, by taxing the rich you do not balance the system, you do not equate anything, nor do you compensate for anything.

    By allowing the government to steal from the rich, you are signing up the legal power to steal from anyone to the government. Since you will vehemently oppose the idea of being any different from the rich, then this power will be applied against you, “too”, but really, only against you.

    If you wanted to be sane and to stop the rich from abusing the lack of thinking on your part, you would first “made them a favor” by declaring that no one has the right to take anything from anyone, thereby removing the power of the government to deliver your resources to the rich. Then, you would not have to tax the rich.

    • Troll November 7, 2013, 1:16 am

      Of course there’s an argument for taxation. Roads, bridges and other necessary infrastructure.

      • DK November 7, 2013, 4:48 pm

        Of course there’s an argument for private enterprise. Roads, bridges, and other necessary infrastructure.

  • C.C. November 6, 2013, 7:35 pm

    Credit to Rick for seeing foreign policy blunders as the catalyst that will signal the end of $USD hegemony, and by extension, the U.S. economic empire. Nothing is going to happen here domestically, as the Federal Reserve can supply all that is needed and more. The domestic economic front for all intents & purposes, is captured. There is no fear – yet. Stocks are up, food and supplies are readily available, the distribution chain is intact and functioning. Any type of domestic disturbance can be handily put down, and the culprits or movement sufficiently marginalized. Confidence can be manipulated up by any of a handful of means by fiscal-cum-political figureheads. Isn’t that what has been going on since late 2007?

    No, the ‘comeuppance’ as it were, for the U.S., is going to come from outside. Small and seemingly insignificant at first – sorta like Saudi Arabia cozying up to ‘ole Vlad right now… Trivial to our powerful markets and military capability to coerce ‘trading partners’ into line, right? When the shock waves of these tremors become apparent to the American public at large, that is when the party gets started in earnest, and likely not a moment before. And don’t think for one minute that our ‘security’ apparatus doesn’t know and isn’t preparing for it.

    &&&&&&

    Nice analysis, C.C. The ‘likely not a moment before’ part of your thinking is the thunderclap we’ve all been anticipating. But there’s no point in pretending we can know what form the black swan will take, since it will be something none of us has imagined. RA

    • gary leibowitz November 6, 2013, 10:47 pm

      If I were to guess China should be front and center for any major force that can affect our markets.

      A slowdown from here domestically, combined with a China policy of tightening its monetary policy could push us into a steeper recession.

      • Rick Ackerman November 6, 2013, 11:47 pm

        Think lovelier thoughts, Gary, and UP you’ll go! For inspiration, try to imagine what people might have felt when they learned, on June 28, 1914, that Archduke Ferdinand had been shot: “Archduke who???”

      • gary leibowitz November 7, 2013, 12:22 am

        Not likely we get into a world war anytime soon. I wouldn’t push this to an Armageddon scenario. With the world debt the way it currently is, I suspect something much more tame will set off events that spook lenders.

      • Mario November 7, 2013, 7:53 am

        China has far more precise control, more easily and flexibly able to put on the brakes or give it gas along the way, they’re in the economic pole position for the next 30 years, last on the list to worry about unless it’s because they start playing nasty politically and since they are not likely to shoot themselves in the foot, that’s highly unlikely…they’re enjoying quietly taking over the world economy…

      • DK November 7, 2013, 4:47 pm

        Oddly, I think I agree with Gary on this, since a confrontation with Syria seems to have been averted on our part. Of course that doesn’t meant it can’t be revisited or some other situation will put Syria right back in the crosshairs.
        The table is set. Any one of dozens of things could cause a precipitous fall in this country, and subsequently others, only the US likely won’t come out of it clean.
        We will find out soon enough.

      • gary leibowitz November 7, 2013, 9:53 pm

        Today the selloff was a result of economic healing. Imagine the market wants more of the same, muddling along. Tomorrow we have the all important employment numbers. While it will be hard to decipher this months numbers because of the government shenanigans with the shut down, any number higher than say 150K will cause a further drop.

        I can guarantee you that this government would love to be able to reduce their purchases of bonds. Wall Street however would be deprived of their sugar high.

        &&&&&

        ‘Healing’? There are only brazen, outrageous statistical lies, Gary, not ‘healing’. Do you not have any friends who work, or who have businesses, that tell you this is so? Yes, we do ‘believe’ that corporate profits were firming, at least until recently. But the wage side of the equation has not improved. As Henry Ford understood, you must pay your workers if you want them to buy your products. At the macro level, this is most surely NOT happening. RA

      • gary leibowitz November 8, 2013, 11:48 pm

        Rick, we have gone thru this already. if all are lies than you must be living in the MATRIX, where even your every day activity is a lie. You can’t materialize earrings out of thin air without some truth to the notion that jobs are not dead. In fact the recent blow-out revisions and current employment numbers suggest an improvement even if you thought they were terrible and misleading. How in the world are companies making record earnings these past 4 years with your notion that the economy is dead? Deal with the reality of the situation and figure out what the future ramifications could be using all the data available.

        I am arguing that the last 5 years didn’t already collapse? Do I really have to argue that point? The right-around-the-corner scenario presented by the players on this board hasn’t materialized, and without concise arguments that this time is different, will not once again. I have my theory and until proven otherwise seems possible. Economic growth, real inflationary growth, will be the kiss of death for this s market, IMHO. Even if this growth is an aberration due to seasonality, it will skew the rates, wage component, and earnings going forward.

    • DK November 7, 2013, 4:39 pm

      C.C., great post! Orwell would be salivating!

  • gary leibowitz November 6, 2013, 5:42 pm

    Since I speak in a vacuum, no one will mind if I declare a terminal move in equities approaching fast. We should see a nasty drop breaking below the assumed SPX 1700 mark. It will however bring out the greed, and one more rally should happen before the year is out. This looks like a classic long term ending of this bull run. Mind you I don’t see the next bear as vicious as most want, but rather a decent 10 to 20 percent drop. This all depends on congress. If the current recession gets worse, it will all be up to the politicians to either continue to prop up wall street with more spending, or succumb to political pressure to cut spending.

    November will be a roller coaster ride dispelling complacency.

    • Oregon November 6, 2013, 6:09 pm

      Since you are just vacuuming… and because you are the open minded sort… I want to stray off topic a bit and present one of Armstrong’s articles that made me think of you. Yes, it is oversimplified, but it makes a point. In return, could you oversimplify the counterpoint.
      http://armstrongeconomics.com/2013/11/
      The article is “Socialism Brought Home”

      • Chuck November 6, 2013, 6:57 pm

        That was a very interested article….the only thing is…the rich are getting RICHER still……it’s the middle class that gets stuck with the bill……

      • gary leibowitz November 6, 2013, 7:27 pm

        Nice and tidy test. It is a great example of one-sided thinking. Set up conditions where you know the answer and proceed to reinforce your belief system. Too bad life doesn’t work that way. In fact had anyone really looked at present day data the exact opposite conclusions would be made. Facts such as this: Every single depression happened at the widest disparity between rich and poor, despite the government handouts. Largest control of government by few seen at apex of stock market. Largest productivity and financial loss to the working class seen at height of stock market. Every single stock market crash and depression was a result of too much power to the elite, too much financial burden on middle-class. Am I missing something?

        In fact if you look at the current groundswell movement politically it is to do away with socialism, handouts, and at the same time increase benefits to the well to do with tax breaks. Am I reading the pulse of the Tea Party wrong? Isn’t their mantra hard-work, less government intervention, and less social programs? In all this I see nothing to decrease the widening spread between the haves and have not’s. The recent Obama care enacted will be the tipping point to push for less government intervention, not more. Political suicide to enact such legislation when the people are convinced the money spent on social welfare should be stopped. I actually believe it will be stopped and with it a period of frugal government spending. I suspect the next set of politicians will fall all over themselves to agree to this austerity.

      • Oregon November 6, 2013, 8:39 pm

        Gary, I asked for an oversimplified counterpoint, not for you to start masticating your keyboard. “Facts such as these…” Nice and tidy facts. They are great example of one-sided thinking. Find a narrow sample of conditions that support your answer and proceed to reinforce your belief system. Too bad life doesn’t work that way.
        Same as it ever was. Same as it ever was. Same as it ever was…

    • Rick Ackerman November 6, 2013, 11:40 pm

      Ahh, Gary, so we at last agree on timing! I’m telling my subscribers to get short here via DIA puts. This is just a hunch that stems mainly from the imminent crash of Obamacare. As should be obvious to all by now, that would have no bearing on the crushing new tax that has already been imposed on America’s middle-class via spectacular increases in the cost of health insurance.

      • Troll November 7, 2013, 1:10 am

        Yes, Rick, and you said as much on your free tout page. Perhaps Gary is riding your coattails?

      • gary leibowitz November 7, 2013, 4:26 am

        Crash from Obama care? Not likely since it isn’t even here yet. In fact we will not know the full extent of the “damage” for quite some time. The 3 million people that are expected to lose their current coverage is not going to result in a one sided inflated premium as FOX would have you believe. there are as many stories of reduction in premiums as gains yet we only hear one side. It’s not the winners or losers in this new program that will derail the economy. The real culprit will be a combination of wage stagnation, and political blunders. Once the politics of spending to support this mess stops, so to will confidence it will ever get paid. I am not saying spending would have worked, but I am saying that without it deflation will be the winner. Governments can always survive in an inflationary environment by devaluing the dollar. Everyone loses in a deflation spiral. If you look to Japan as the model you will see they are now complaining that their policy of inflating is not being translated to wages, just like here.

        I am pretty darn sure we are NOT near a full blown crash scenario . That is still years away. I am saying this deflation bout will bit hard soon, by as much as 20 percent drop in equities.

      • Mario November 7, 2013, 7:46 am

        Looked into ocare recently, ugly in most every respect except for those getting subsidies. Bottom line simple, An incredible added expense for those earning 50 to 100k per year. I think MANY will simply pay the penalty tax which will be $2k max in year 3, but bets they’ll raise it higher along the way…

      • DK November 7, 2013, 4:35 pm

        Not to interrupt, but, Gary, please note that RA said the imminent crash OF Obamacare, not from. Huge difference, you will agree I am sure. From the looks of it, it doesn’t matter “of” or “from.” Pick your poison. We all seem to agree on a retracement ahead. How will the country handle that? Interesting times.

        One has to wonder which will be blamed, the former puppet or the Tea Party? Or perhaps housing or student debt? Another debt ceiling vote coming up in January. Heh, seems we can lump a few in there. It won’t be the FED, but the transition to Yellen seems to be getting a good amount of cushion.
        Even good ole’ Alan G.:
        “Former Federal Reserve Chairman Alan Greenspan said that Janet Yellen would be a “great” chief of the central bank and that he relied on her to explain the newest academic research in economics while the two served together.
        “She’s an extraordinarily good economist,” Greenspan said today and the National Press Club in Washington. “It was very helpful to me because she was a professor and academic who had very significant insights into where various new theories were coming up and the like in academia.””

        Grreeeeeeeeeaaaaaat.

        Oregon, you were saying? “Same as it ever was.”

  • Andrew Gutterman November 5, 2013, 3:02 pm

    Three comments.

    1. Think of deflation as a fall in your purchasing power and quality of life. Forget about the classic definitions, we are in a new world today, until we aren’t. (See #3) So if health care rises 200% then you have to reduce spending elsewhere. All things being equal the reduction is spending elsewhere will affect your coffee consumption so that we may yet see the price of coffee go down and competition grows for your shrinking dollar.

    2. Take a look at a log chart of the CRB, or $CRB in Stockcharts. About as picture perfect of a symmetrical triangle as one could ask for, as part of a long term decline going back to 2011. Two days ago it crashed through the bottom support, that would seem to indicate we are moving into a longer term price fall for commodities in general. Classic deflation.

    3. Take a read on this:
    http://www.caseyresearch.com/articles/federal-reserve-policy-failures-are-mounting

    My suspicion is that the healthcare debacle might just be the black swan that tips us over into a deflationary depression. If enough consumers get enough of a sudden cost increase in healthcare then they will cut back elsewhere. Won’t be in food or housing, everyone needs to eat or be sheltered, so where does that leave us? Anything that is the least bit discretionary will get reduced.

    One would think that money going to healthcare would eventually find its way back into the economy such that others would see an increase in income and spending, but not with the system we have. Its more or less a giant funnel of money from below to the top. You don’t see healthcare employees getting big pay raises because premiums have gone up. So that money is not really going back into the real economy, at least not all of it.

    There will be growth in the healthcare industry, but I’m not convinced it will grow enough to offset the decline elsewhere. Money is going to disappear. The economy is going to shrink.

    As for gold? Well my opinion is we will see $750 before we see $2000. Gold is just another commodity in today’s world. When was the last time anyone actually spent gold as money? Or silver, for that matter.

    Go down to your grocery store with a bag of silver quarters and see for yourself just what they are worth.

    Andy

    • Troll November 6, 2013, 2:57 am

      Agree.

      I think those silver quarters are worth something to someone, but they’ll only get you face value if you go shopping with them.

  • mava November 5, 2013, 10:04 am

    It started already. The collapse.

    As for the inflation, it has to be in geometric progression. The rate of past inflation influences the rate of the current inflation, and that determines the rate of the future inflation. The relation is geometric. On the chart it forms a parabola. Mathematically, this curve (the parabola), has a feature that it looks the same at any point you are. This is both, designed and predetermined by the past rate of inflation.

    Designed, because you have to have it this way, to have the curve look the same to the casual observer. And predetermined, because the rate of past inflation defines the degree of inefficiency, or a capital waste, and that rate gets “built in” into every possible facet of doing business. It is both, the chicken and the egg, if you will.

    Gold? When RA plays with technical analysis, what does he calculate? Does he calculate the future prices from the historical prices? Or does he simply observes the result of the FED action that tries to build an unfavorable technical background for gold? Does the FED also see the technical picture RA just built for us? If yes, does the FED not want to make sure that the gold not reach a technically important top?
    I think its a given. The tail wags the dog, but the dog is also wagging its tail.

    Why do you hold gold? Because the gold is the only money. Money is not bills or coins. Money is a social credit that is given to you and signifies how much of social credit you haven’t used yourself yet. How much is left to use. This cannot have any counter-party risk. Because the true measure of what you have done can not be dependent on whether or not the party to your transaction made stupid bets. Thus, the gold is the only money. Everything else is a derivative, a financial instrument, even if this is not how your professor defined this.

    Individually, we hold gold to preserve the accounting for what we have done. Collectively, we hold gold to preserve the division of labor.

    • mava November 5, 2013, 5:38 pm

      In the end, it is going to be about your moral strength, your faith. If you weak, you will believe the plastic gods of “modern times”, and then you will be swept under. Only those with enough strength to stick to gold, no matter what the kings of plastic are saying or “proving”, will emerge on the other side of this coming chasm.

      Forget any doubt you may have, and understand that what will die is all fake, paper tiger world. Along with all of its implements, such as the paper money and the paper kings. There is no real strength behind its facade, just the cosmetics designed to present a certain type of picture for your shallow consumption.

      But you can reject it all, and let the paper tiger disappear, – all you have to do is to copy those who will survive – hold gold against absolutely everything that the FED says.

      The way to easily and absolutely prove this to yourself is to ask the FED to audit its gold. You can’t, of course really ask them – because they will ignore you and focus the watching crowds on something else. But we know that the reason FED ignores this is because it knows it is a paper tiger. It has no gold.

      That the FED has no gold means that it has no more credit. It had used up all it had. Now it is only a parasite upon our society. But gold could also be present due to a fact of a robbery. Like in 1933.

      Yet, the FED has none. Not earned gold, and not even the robbed gold. It is afraid to even touch on the theme of the gold audit. The irony is, as the FED sees it, that it can print dollars to buy any amount of gold, and yet, because the dollar is a fake money, the FED has to do this all in order to sell the gold on the market, – it cannot afford to keep any gold for itself!

      So the FED’s days are numbered. It is locked into a predicament where it has to rob the people of their gold by keeping the fake price of gold low, and then turn around and give all that gold away to the Eastern banks! In other words, the only way that the FED can live another day is by sawing the branch on which it is sitting! Only by continuously working toward the collapse, can it have another breath.

      And it is this miserable creature, this worthless stink bug that you think of something powerful. If you could see its true weakness and wickedness, you would experience the true shock and awe.

      Don’t be a fool.

      • rickj November 11, 2013, 3:53 pm

        awesome and common sense analysis!

  • Traveler November 4, 2013, 8:45 pm

    That the US financial system is a mess is agreed. That the ACA will result in deflationary havoc is almost a given. More for health care premiums means less for spending on *anything* else.

    But … I don’t see the collapse of the USD just yet. There are still plenty of hard resources in this country. The US is at or near the top of the world in the production of oil, natural gas and coal. That in spite of the Administration’s attempt to kill, er… restrain them. Plus we’ll be exporting natural gas in large quantities. Plenty of buyers for that. So what if KSA goes away, it’s about time, they’ve screwed us plenty along the way, the 19 guys and a camel really being the least of that damage.

    Yet I can’t imagine anyone really trusts the Chinese banking system given the status of the rule of law over there which hardly makes that country any better than ours with respect to this. Guessing the Chinese true GDP has been a fun parlor game based on observations of train and energy usage. Read Michael Pettis sometime.

  • bc November 4, 2013, 7:04 pm

    I’m really warming up to the work of Steve Keen. He points out that empirically it’s the acceleration in debt that correlates with macro variables like unemployment.
    Here is a link:
    http://www.eap-journal.com/archive/v41_i3_01-keen.pdf
    If total debt fails to accelerate, not just increase mind you, Keen says it will be hello Minsky moment time. So The Fed must move geometrically along with treasury to increase sovereign debt. Time to double down again? If not it will be lights out according to Keen and I agree with him.

    &&&&&&&

    I expect we’ll be hearing more about Minsky in the months ahead. RA

    • mario cavolo November 5, 2013, 3:30 am

      Ok, let’s all put together our relatively intelligent heads and put together a ten year down the line future model. I’ll start it

      Today’s world GDP $40T –
      10 years later $80T
      U.S. / China GDP ?
      U.S. household savings – $3T
      China household savings – $10T
      10 years later ?
      U.S. Debt $16T – 100% of GDP
      China – same
      10 years later
      U.S. Debt $24T
      S&P Corporate profits P/E
      Wages?
      Price of oil?
      Price of water?
      % of nuclear/wind/solar vs. today.

      I’m serious, I want to know more clearly for the sake of the future, my family’s future. Let’s really think about it…

      Cheers, Mario

  • Rick Ackerman November 4, 2013, 5:54 pm

    When real incomes are stagnant, as they have been for decades, then all of the symptoms of ‘inflation’ that you’ve described are actually deflationary. If you’re unpersuaded, think about the effect it would have on the economy if the cost of healthcare insurance were to rise to $20,000 per household by 2016, as the IRS has estimated.

    • John Jay November 4, 2013, 7:36 pm

      If my Healthcare Insurance goes from 2k to 20k and my wages are stagnant or falling the only deflation is in my wages, my costs have just inflated by 1,000% .
      Are you talking about wage deflation exasperating the rise in prices?

      In the past 50 years…………..
      Postage stamps have gone up 1500%, 3 cents to 46 cents.
      New car prices have gone up by 1,000% since I was a young man, gasoline has gone up 2,000%, rent, about 2,000%, etc. That $75 a month apartment in San Clemente is probably $1,500 a month now, for a one bedroom!

      For the sake of argument, lets say a good 1972 wage of $5 an hour now pays $15.
      The problem facing young people is the inflation in the cost of everything has out paced wage growth by roughly 6 to 1.
      That is leaving out higher payroll taxes and the lack of full time jobs.

      I knew lots of guys that worked two full time jobs to get ahead when I was young.
      Jobs were abundant back then.
      That is no longer an option, it is difficult to even land one full time job.

      In the Great Depression circa 1929 the problem was no jobs and falling wages, but prices were also falling at the same time.
      A Deflationary Depression.
      Now we have no jobs and falling wages, but prices are rising.
      More of the “Stagflation” we saw in the 70s, pre Volcker.

      Perhaps we are looking at dis-similar time frames, I am talking about the big picture since LBJ took us off silver coins in ’65 and Nixon shut the gold window in ’72.
      To me all the pieces fit, almost everything has gone up in price 1,000 to 2,000 percent in 50 years.
      It is uniformly so.
      Except wages.
      Inflation has destroyed the US economy.

      But, then again, we are arguing about how much water it will take to sink the Titanic, and if she will go down by the bow, by the stern, split in half or capsize.
      The only relevant question is…….. how long the process will take, the outcome is not in doubt, is it?

    • Oregon November 4, 2013, 7:43 pm

      Also, the fed is printing 80,000,000,000 per month, in what should be called ‘Operation Tread Water’; that does not scream inflation to me. Grocery store inflation is of the quiet, cost push variety.

      • John Jay November 4, 2013, 8:14 pm

        Oregon,

        Almost forgot………………
        Dow Jones Average circa 1963 at 539
        Dow Jones Average circa 2013 at 16,000
        That’s about 3,000% in 50 years.
        It fits my scenario, just like all the other price inflations in my list.

        They are QEing 80 billion a month to insure the inflated prices they have enabled remain inflated.
        The same with ZIRP, it maintains the inflated prices.
        If they ever stop one or both, then yes, you will see deflation assert itself with a vengeance.
        But not before then.

      • TMM November 6, 2013, 12:30 am

        Grocery store inflation is just a symptom of the major deflationary event to come. It’s analogous to the tide going out before a tsunami arrives. Those who don’t know any better will venture out into the seabed and frolic about, while those with the foresight will head for the hills, knowing full well what lies ahead.

    • gary leibowitz November 4, 2013, 8:55 pm

      That is the great debate. Whether the Fed can create enough money to influence wages to rise. Without rising wages, along with other big ticket assets (housing), the consumer will not be able to keep up. The cycle of stagnant wages and offset increase in credit will not go on for the same duration as it did previously. Banks will not allow it. We will come to a head soon enough.

      In the 5 years of supposed inflation, even with the Fed’s intentionally low rates (by buying up a trillion a year gov. bonds), commodities have spiked. This is due to external factors. Once they moderate, as they are right now, there will most likely be a big reversal in commodity prices. When food and wages fall that will spell the end of the debate. Deflation would have won out.

      Nothing is a given right now. The dismal attempt to inflate via world government pressure can’t seem to compete with the saturation of debt, and unwillingness of companies to expand wages.

      • John Jay November 5, 2013, 2:23 am

        Gary,

        Well, the problem is the disconnect between futures prices and the consumer prices.
        As someone posted here, there is a difference between futures prices for live cattle and what they go for in actual auctions, maybe they will read this and post again on this matter.

        In the supermarket, I can get low end cuts of beef for $3.29 a pound on sale. The high end cuts are going for $18.75 a pound! I usually just buy chicken leg quarters at $.99 a pound. Seafood looks pricey, but I don’t like seafood so I can’t quote prices for that.
        You know what food costs in the NYC area for sure.

        The classic economic description for inflation is “cost push”, and “demand pull.”
        I would add a third, “try and stop us”.

        I can remember that right after the first oil shocks back in the early 70’s, when gas prices went from $.25 to $.75 with limited supplies ( 3 AM gas lines to get it), it dropped back to $.50 with all you wanted at the pump. No one complained about the doubling after that bitch slap, big oil had shown their muscle.

        And, right after that, as if by magic, there were suddenly “Shortages” in Sugar and Coffee as their prices soared.
        I thought it was obvious I was seeing “Try and stop us” at work in the economy.
        It was and is a Witch’s Brew at work in the Macro Economy.

      • mario cavolo November 5, 2013, 3:24 am

        FED influencing wages? I don’t see any connection there at all…? I did write a feature article here on this point a year a year or so ago. The enemy is not only the fat cat govt cronies, its the corporations. If you didn’t get a raise and your wages are flat ultimately its your bosses’ fault. Companies earning record profits, raising CEO salaries from 50 to 350x average wages but employee salaries are flat, those are business decisions, Bernanke nor Obama are in the room. Life in America…

      • Cam Fitzgerald November 5, 2013, 8:10 am

        Commodities DID spike, you mean. As in the past tense. We had a hell of a run up in prices following the announcement of QEI but since early 2011 most commodities have been in steady decline. Some have fallen right off a cliff. Silver is an example of that.

        I happen to think there is now a tremendous amount of deflation stored up that could easily be released if the global economy hits a few shocks or bumps.

        Let me explain. Take a hard look at the weekly chart for coffee, Gary. How is that for a chart mountain formation! Coffee peaked at 300.00 dollars in the spring of 2011 but has now retraced all the way back to its 2008 price of roughly 100 dollars. I have been watching it with interest lately as what it does next might just be very informative of our futures.

        Anyway, during coffees spectacular spike in price we were all delivered a burst of inflation as higher costs on the farm fed right into the end products we all love. This incidentally offered many pundits proof that the world economy was quickly recovering with QE leading the way. A commodity boom was even declared by some. Inflation generally implies economic expansion and boy were we getting some.

        Anyway, that exact same inflation in stores today is just a hangover from the 2010 commodity boom which has already ended but that sure is not the whole picture. The inflationistas usually just seize on the simple store price picture and pile of reciepts but always fail to understand what is happening in the background. Ergo, to them higher prices mean inflation is here and the case is closed. Better buy gold! Hurry, hurry you damned fools!

        What about the fact that raw coffee has declined almost 66% since March 2011 without any significant corresponding decline in prices at the till though? The producers have been buying coffee at increasingly cheaper prices for more than two years already and have been enjoying quite a discount as their end just keeps falling.

        OK…..So then why are we not seeing deflation? See, this is really the point. The retail and wholesale prices did not ratchet down along with the input costs. They have remained sticky and unless you are lucky your favourite beans have not budged much in price despite the farmgate prices having dropped a stunning 66% in the past 31 months.

        So where did the money go? Well it is showing up as profits on the bottom line of pretty much anybody who is in the bean business and it is being distributed to shareholders as dividends or appearing as reinvestment, fattened balance sheets etcetera. It is not being shared with consumers though and certainly farmers are no better off.

        What is most interesting though is that this is not just a story about coffee. Virtually every single commodity has also been in decline along with our morning cuppa Joe. That includes the metals like gold, silver and copper of course. Soft commodities have been relatively bludgeoned though.

        So what I see now are the condtions materializing for some significant price drops and I happen to think they will be triggered if global economic growth keeps slowing. The reason is that market share will start to drop for some companies as people choose cheaper alternatives or simply stop consuming so many store bought coffees like those offered by Starbucks. You have all seen their coffee prices I trust? They source their own product directly from the farms incidentally. Anyone care to explain why they did not lower prices at the till to reflect those declines?

        The aspect of inflation being stored in the balance sheets at the corporate level only works as long as nobody breaks ranks and starts engaging in price cutting to eliminate competitors, to try to survive in a slowing market or to expand market share during a period of slowdown. The ammo they will employ is the profit differential between input costs and what price point they sell at. In this case a lot of the big guys are armed to the teeth. Recall all those fat corporate cash hordes and now you get a little insight into why they are necessary for the coming price battles.

        Meanwhile over in China we are hearing that the vast amount of surplus industrial capacity there is now finally rearing its ugly head and threatens to start exporting deflation globally in the form of reduced prices. There are just too many companies doing the same damn thing. Solar and shipbuilding are perfect examples. Price cutting is on the agenda.

        That means in practice it is just a matter of time before price wars could erupt and with commodity prices still in decline we could see outright deflation at the retail counter in the coming year or two. The threat is palpable and virtually certain unless this trend turns around.

        And that is why I am watching coffee as it has just reached its downside resistance near the 100 dollar mark. What happens next will tell us a bundle about our collective futures.

        You read it here first.

        &&&&&&&&

        Great post, Cam, thanks. I’m going to initiate coverrage of coffee futures to see where they might be headed RA

      • Jason S November 5, 2013, 6:05 pm

        As long as we have a globalized labor force and cheaper labor overseas (including regulatory costs) then we will not create wage inflation but instead export it to the emerging economy that has cheap labor. This is why we are currently seeing everyone trying to beggar they neighbor and depreciate their currency. The problem is that too many of these emerging countries peg their currencies to ours, so we will not see meaningful comparible dollar devaluation.

      • gary leibowitz November 5, 2013, 6:33 pm

        John, I don’t think I disagreed with your analysis. In fact it is pretty much in-line with my view.

        Intersecting that in the 70’s when we had a bad bout of inflation unions and government workers were in the lead with wage inflation. With today’s artificial low rates any increase in cost of living is not being adjusted for the workers. That combined with a banking system that is much more stringent on lending has put a squeeze on the family.

        I had thought that companies would open their wallets once their profit margins increased, yet the exact opposite seems to be happening.

        The last 5 years no one predicted the current scenario would take place. It is as if the genie has been kept in the bottle. Can this continue until we find some sort of “normalized” formula where debt gets slowly taken out as we recover? I have great doubts. I suspect it all unwinds fast, with some unknown or unintended consequence by our leaders.

      • Cam Fitzgerald November 9, 2013, 7:58 pm

        Many thanks Rick. I am more than happy if even one person can see the risk I outlined. I believe we are almost certainly set for a serious deflation as prices now stand but we will have to wait and see what comes next. Coffee bounced a bit in the last few days but the whole story is not yet written. I appreciate you opened a tracking position to monitor the trend. Now we can only watch and wait.

    • Troll November 7, 2013, 3:57 am

      Cam’s post is only “great” if he can provide us with pre and post Starbuck’s prices.

      • Troll November 7, 2013, 3:59 am

        I, myself, have been buying coffee from 7-11 for years on my way to work, and I see no rip-off effect. The prices have remained quite stable for well over seven years.

      • Mario November 7, 2013, 7:39 am

        What are you going on about on this coffee thing Troll? Coffee beans have gone down from 300 to 100 and retail coffee costs the same or more during the same period, with Starbucks and similar chains overpriced in the first place, no?

        Yea that 7-11 java ain’t bad…:)

        Cheers, Mario

    • Troll November 8, 2013, 6:27 am

      Mario, I am simply wondering about historic prices. Has anyone kept track? 7-11’s prices have been stable for years, with or without the fluctuation in the commodity’s price,

      • mario cavolo November 8, 2013, 1:17 pm

        ah you mean retail coffee prices… Hmm, seems they’ve been pretty steady the past few years, small price bumps perhaps. Certainly no reasonable decreases which one might only hope with the price of the ingredient by 2/3rds. On the other hand, let’s be realistic about business, the “food cost” of coffee beans in a cup of coffee is a few cents in the first place, a very small part of the cost of doing biz, just like the syrup in soda, so actually it makes sense when you look at it that way….Cheers, Mario

  • John Jay November 4, 2013, 4:57 pm

    Mario,

    I see very little evidence of deflation anywhere here.
    I see plenty of evidence for crippling inflation everywhere.
    So many Americans are living paycheck to paycheck that a big price surge in one key item they purchase will kill them financially.
    Like Health Insurance for example.
    Who has enough surplus income to absorb a 200% to 500% increase in their health insurance, plus a massive increase in their deductible?
    Very few.

    Property taxes?
    Up or down for you?

    Food?
    Pasta has gone from $.99 to $1.79 in about 18 months.
    A gallon of bottled water went from $.99 to $1.49 from last Sunday to this Sunday (yesterday), in one week!
    Candy bars are $.99 and have shrunk down to tiny size.
    Gasoline has dropped from $4.15 to $3.83 in a couple of months, but 12 years ago it was $.99.
    When I was a child it was $.20 a gallon.
    When my mom was a child it was $.10 a gallon.
    So it took 30 years to double in price, from 1933 to 1963.
    What has it done since then?

    Somewhere around here I have a full page newspaper ad for new houses in 1928 for $5,000.
    I have another ad for an apartment for rent in San Clemente in 1972 for $75 a month!
    What has happened to those prices?
    There has been systemic inflation since LBJ seized power back in 1963.

    Utility rates are a hodgepodge in America, but out here, some peoples water bills have more than tripled once the water companies were sold off and privatized.
    Con Ed is always getting a rate increase.
    Once again, who has enough surplus cash flow to absorb endless increases in basic life support costs?
    Costs that Ben says “don’t matter”?
    Very few.

    The last thing the Government and the Oligarchs want is deflation, except for two key areas.
    One is interest paid on FDIC insured savings accounts.
    Mission accomplished forever.

    The other area is wages.
    Hence the massive corporate push to get Amnesty passed, even though the last thing we need is millions of more poor people every year added to the shrinking job market.

    If the KSA severs ties with us, we will do just fine.
    Refined petroleum usage here is still falling, Canada and S America have plenty to sell to us.
    A feud with the KSA would present a great opportunity to label them “Terrorists” and allow us to seize their assets here and default on the bonds they hold.
    We could get back some of the trillions we have sent them since 1972.
    And everyone in S America would love to hold the US$
    instead of the local currency.
    Those are two bright spots in this madhouse.

    But we can all agree this country is a mess.
    And Obama is busy purging senior commanders in the military.
    Thanks NSA!
    Everyone’s guilty of something!

    Is he setting up a DHS takeover of the Military, and eliminating anyone likely to cause trouble?
    Big Sis Janet proposed just such a thing on her way out the door.
    Shocking!

    That is how I see it, inflation with stagnant or falling wages.
    And an increasingly hostile, brutal Police State, desperate for revenue!
    So it is wise to prep for disaster as much as you can.
    Cash, gold, food, clothes, whatever.
    Family is best, and I used to have huge one, but they have all died off.
    Looks like it is everyman for himself in my case!
    Good luck amigos!

    • mario cavolo November 5, 2013, 3:21 am

      Hi JJ, I thought of you while I wrote that 🙂 , knew you were going to chime in. Even with all that inflation, relative to the rest of the world, U.S. consumers are living in the bargain basement. I just paid $8 for my 250g bag of Lavazza Crema de Gusto espresso, I think its more like $3.50 there…popular electronics like Ipads, Kindle tablets etc are 50% higher IN China (yet selling like made but that’s another story)…oh don’t get me started!! Cheers

  • mario cavolo November 4, 2013, 3:45 pm

    Just read Jim Willie’s article and can’t but admire the man for compiling dozens of sordid stories, all with plenty of truth to them. On the other hand, so what?

    His comment, “The reputation of the King Dollar is gone. The beacon of capitalism is gone.”, may very well be true, but you don’t have to LIKE something to NEED it. I always take with a grain of salt any idiotic, extreme pronouncements such as the “collapse” of the USD. Its really quite asinine and for obvious reasons. It CAN’T happen and to continue his harping on China’s rising power, THEY know it CAN’T happen. And so they don’t have to like it, no one has to like the U.S., what they have done, etc., that they may feel that the U.S. govt is now like a mafia, but in the end it doesn’t matter because if you have to play together with them in the sand box, then you do. The stability of the global economy is, like it or not, deeply linked, every country will have to do their part, like it or not, to keep it together. Well, that’s one point of view, we’ll see!

    Cheers, Mario

  • DK November 4, 2013, 3:21 pm
  • mario cavolo November 4, 2013, 3:15 pm

    Hi Rick, wondering about deflation. If I’m supposing correctly that “normal” deflation comes from a lack of demand of goods which drives prices lower, I’m not seeing a global macro body of evidence that that will happen. Most everyone here already knows that all the worst aspects of the U.S. decline, in particular the middle class decline, are already upon us. I won’t even get into the political destruction of the Republic that has taken place. And so frankly, the weak American middle class is growing more and more irrelevant to the bigger picture, its old news. We can add to that the European recession, and that’s our two big economic weak spots in terms of the supply/demand/price picture of goods & services across the globe. Other markets are growing/rising, China currently being at the top of that heap, but so are other countries of the Asia Pacific and Latin American regions.

    American deflation has already taken place as most of you don’t realize how, for all the wrong and unfortunate reasons, America is amazingly cheap in terms of consumer spending/cost of food, sundries, eating out, car ownership, avg real estate prices. The place is, by every account of those who visit from other countries, abound with bargains and has been perceived this way for several years. Property prices are reasonable relative to other countries across many American cities and even at 4% interest, mortgages are dirt cheap. Mortgage rates here in China, where the market continues strongly, are freakin’ 7% plus!

    Now we certainly don’t forget the dark side of this rosy picture, quite evidently and legitimately, that today’s American lower/middle class has been boxed into low income servitude to record corporate profits and now higher mandatory health care expenses. The good ‘ol days are long gone, sad and sigh.

    So that leaves your disaster scenario I suppose, a deflationary “event” of some sort that rises like a volcano from somewhere within the insane banking/financial system complicit with the lovely government and all its related cronies/oligarchs there.

    Reshoring is in a serious uptrend now that American lower/middle class wages have been engineered lower. This is a huge matter to consider. Companies are actually reshoring after 30 years of off-shoring. Yet at the same time be reminded that China, facing higher domestic costs/inflation with its rise, is now moving into the modern day version of European 17-1800’s colonization, setting up entities/manufacturing output in other countries like Vietnam, Africa, Brazil, etc.

    Well, I find these all to be meaningful macro trends that in the end are all influencing wherever the heck we end up…

    Cheers, Mario

    • Rick Ackerman November 4, 2013, 5:46 pm

      Know and understand deflation by its chief symptom: an increase in the real burden of debt. Now do you see it?

      In any case, I am not going to get into an inflation/deflation argument here, since it would lead nowhere. Where this forum discussion is concerned, I’ve said everything I want to say on the subject.

      • mario cavolo November 5, 2013, 3:16 am

        Thanks for the additional thoughts Rick! The word “debt” is the new scariest nastiest word on the planet.

    • gary leibowitz November 4, 2013, 6:10 pm

      Agree with Rick. The commodity pressure is due to third world development and a dollar that is losing its value. There are countries that are helping prop up world demand for goods, but there will eventually be a slowdown even in those nations. The debt burden is not getting solved, instead it is shifted onto government books. When it fails is anyone’s guess.
      I suspect our government policies will tip the balancing act of these last 5 years. There is pressure to lower taxes, reduce spending, and balance our debt. While today it doesn’t look like that pressure is very strong, when it comes to political shifts it can move as fast as the wind.

      I had thought we would first see a spurt of economic growth well above the 2 percent GDP, but with all the headwinds mostly devised by our own politicians, it looks like deflation pressure will surface well before that.

  • Craig November 4, 2013, 10:19 am

    More like the impact of a 47 story building… 🙂

    Sorry…I couldn’t resist….

  • Silver Surfer November 4, 2013, 7:28 am

    along with the stock market’s top, gold is going to be the last resort of any value, as it has for thousands of years
    take a look at the info here to see how a calculated ‘D’ in SPY matches EXACTLY the recent high…is the fat lady warming up for the U.S. financial system?
    http://overcomer.webs.com/MMM_11022013_SPY.pdf


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