Friday, May 20, 2011

Want to see the future of stocks and commodities

Ask yourself a simple question...were the run ups in commodities, silver, gold and equities funded with savings and/or the results of productive economic activity? The obvious answer is NO. They were funded by awarding incompetent people, in fact the ones who caused the last crisis and have always used accounting fraud to cover their losses and malinvestments, more money and credit. The public has not received more money or credit neither has small business. The result of this arrangement has been malinvestment...and its highly combustible at this point...which is why I loaded up on the dollar overnight near the lows around 75...

If you ever wonder what the charts of commodities, silver, gold and equities will look like...look at the last Federal Reserve funded manic asset inflation - housing...and ITS STILL COLLAPSING. Whats more is that its responsible for the destruction of our currency to the tune of more than 2.5 trillion over the last 8 months...anyone wanting to put that in persepctive will quickly understand that before the fed induced malinvestments in commodities started to implode the Fed was simply pumping enough money into the system in an attempt to compensate for this destruction of money. The reality is that, in addition, credit has contracted further which has exacetbated the money supply contraction even more. Then, when one compensates for the malinvestments in risk assets that are imploding (and have MUCH further to fall incidentally), the money the fed has printed has already vanished (and will ultimately significantly exacerbate money contraction) - with one caviat...the participants in the economy paid inflated prices for consumable products and commodities and that money is also gone without having the chance for productive its a more than double whammy...

Ben has taken trillions of dollars dropped them from helicopters into buring fields and they have simply inflamed the inferno and now apparently Ben BURNanke thinks that adding some gasoline to the mix will improve the situation...the result of this nuclear destruction of money is a lack of supply and availablity of our currency - which will translate to a VERY VERY strong dollar.
There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of the further credit expansion, or later as a final and total catastrophe of the currency system involved. - Ludwig Von Mises, Human Action

And Sovereign Debt...

And one last point, the collapse of sovereign debt throughout the world is a grave contributor to the net money supply. The US dollar is the reserve debt instrument of the world. Gold, Silver or any other commodity backed currency IS NOT DEBT MONEY...the unwind of this mess requires debt money to transact and insolvency to repair. Contrary to Eric Sprott's highly misinformed views regarding silver...Metals will NOT be a good store of value in this environment - his reputation will lay in tatters with the amount of money he will lose people with his rediculous hyperbole. Silver is at this time, a terrible investment, not a currency and not a good store of value/purchasing power.

In my view, Gold will most likely retain similar purchasing power as it does now. If you can buy 10 tanks of gas now with an ounce of gold, then I imagine in the future you will still be able to buy 10 tanks of gold or something near that. However, with cash you will likely be able to buy 25 to 40 tanks of gas...take your pick.

As many sovereign nations find the hand of the ECB, IMF and World Banks trembling with Parkinsons and dripping with disease, they will not be able to extract much of value from them...this will directly effect the US money contraction and fuel the dollar shortage. Mark the words...this is going to be a while and its going to be painful. The dollar money supply contraction implies an asset and credit over-consumption. Those instruments will collapse much further than anyone is expecting...or imagining.
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