Hyper inflation will be the result after hyper deflation...

First, DEFLATION...then monetize with currency devaluation = HYPER INFLATION in 2014 to 2016. This movie is too optimistic about a linear path to inflation...I think characteristic to the market's pattern, we will get deflation first and then currency devaluations that attempt to compensate for fiscal deficits and other obligations.

Bear markets like EVERYONE to lose money...if we get deflation people who make money on that decline will most likely lose it on inflationary activity when currencies become worthless.

Works for me!

Another one -" The demise of the dollar"

"In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."

What I find interesting about this is that it will make all the inflationists to happy. However, as we have seen with this market NO trade is allowed to be easy. On that basis alone, inflationists should be careful about counting chickens. But clearly the dollar move as I indicated in my "Market Observations" post last night is not complete. I think my alternate scenario that I have been discussing has gained stature. I expected the dollar to rise to the upper boundary of its diagonal. It has not even done that before breaking decisively below it once more. Today's market is very important. If we can get selling into this gap - that what I want to see...that's the only thing that will keep the current market structure pointing immediately down.

When all the rappers decided to get paid in euros rather than dollar's that was the top in the euro...I guess when the manipulators and government officials decide to do so also...they will be equally well or better timed. 


see article here

Faber speaks with forked tongue

On the 22 of September Faber said this:

"Now we have a particular situation in the US whereby interest rates are at zero and the fed has made statements whereby they will not increase interest rates much. They will keep them below the rate of inflation. In this environment the worst investment, of course, is to be in cash, in the long-run, or be, even worse in US government bonds. What you want to be is in assets, whether it be real estate, commodities or in equities. And ideally, of course, you are in foreign currencies or a currency that can not be increased in its supply, like gold, silver, platinum, palladium etc."

 ..."my view is, probably over the next 2, 3 years you are better off being in equities"

It is clear that these statements can not be misinterpreted. I can find no other way to understand the statements above than he foresees a total collapse of the dollar and explosive inflation in the long-run. While I agree, inflation will likely be a problem at some point. It is likely 4 to 6 years away. Anyone who takes the Faber trade will be broke by then, yet Faber may still try to say - "I was right". Again, I think that his views are irresponsible and dangerous.

Currently he is saying:

“I wouldn’t be surprised if we’d seen the peak of the market for this year because the economic news isn’t going to improve very much. The correction in the market has been overdue for quite some time.”

A correction is not deflation...and a pullback in Gold is not deflation. He is looking for pullbacks. And, in my opinion the stated basis for a pullback is pretty flimsy at best. I would much prefer him to state some technical reason...absense of good news does not drive prices one way or the other. If absence of bad news were to drive prices then this bear market rally would not have been possible. Faber looks pretty confused and disoriented. I can understand that, this market is not rational (and no market is), but the smarter you are the more you try to rationalize it. This is why Faber is missing the big picture...he is trying to come up with a nice rational and intellectually stimulating story or thesis. That is, by the way, a great way to be entertained...but definitely not a great way to make money.

A dollar crash and inflation fit into a very marketable story... probably you can get a lot more signups for $200 if you use that story than a huge dollar rally and epic deflation.

What we will likely get in my opinion is not a pullback, but a resumption of the trend. Just look at that real estate chart that I posted previously. We have a way's to go before we even get to wave 4. And, Faber absolutely recommends real estate assets in the above video.

Another sign of a top...Dr. Martin Weiss, Phd, Md, Esq, Jr, III

Martin Weiss, in my book, is a freak. He pushed leverage short ETF's at the bottom. His options and leap trades are 90% losers if you check the actual trades...I had to do a lot of work to find a history of his option trades. Most of his trades, in general are losers and he wants to charge you $5,000 a year for advice. (see trade history below)

Interestingly, after 27 years of promoting a deflationist view, Weiss has now converted to an inflationist. Clearly, he is responding emotionally to rising market prices and to all the angry letters from people who bought leveraged short ETF's with out any risk limits. SRS which is one he was promoting at around 100 is now 10 bucks. If you followed his advice he did not advise you when the trade was broken, nor did he advise you that these are depreciating assets. The market could go down 50% in a year and this type of security could be up only 10 to 20%. Now get this, after putting everyone through this...he now is essentially saying buy long ETF's.

His announcement is here.

If this is not another sign like Faber, Grant and others...I do not know what is. Weiss has to be the worst market timing trading advice I have ever seen and now he is wrong on the fundamental side too - right at the top...is there any better time to change your view?

Inflation Era Economics at work...

Clearly, this kind of thinking will not be allowed to go on in the future. Tax and Spend and Spend is not going to be an American past time forever:

At any one time, the New York City school system is forced to keep about 1,600 teachers on full salary and benefits (costing about $100 million per year) even though they cannot be required to work. Six hundred are in a multiyear arbitration process for terminable misconduct or incompetence, and 1,000 are long-term layoffs from shuttered schools but whom principals continually pass over for transfer. [The New Yorker, 8-31-09]

Unions promote the efficiency model...I think? Well, that model must be hopelessly inefficient, since this type of Unionization needs be replaced

Union Rules: One subway line in Boston is still forced to employ two drivers per train when the other Boston lines, and most all subway systems worldwide, use only one. A June Boston Globe analysis estimated that the second driver, doing virtually nothing useful, costs the government $30 million annually. [Boston Globe, 6-14-09]

Fed's Hoenig is worried about inflation...

"As we become more confident that we are at the bottom of the recession and are moving into recovery, we must become more resolute in systematically reducing our balance sheet and raising interest rates."

"If the government, the banks and consumers address the difficult issues of debt and the Federal Reserve begins to remove the significant stimulus in an orderly fashion, then we will come out of this recession without an inflationary hangover. Noninflationary growth will follow, new wealth will be generated, and we will continue to be the strongest, most successful economy in the world. But in the short run, these actions will involve painful choices, and it is the responsibility of citizens like you, and policymakers like me, to consider the impact of today’s choices on tomorrow. We must choose well."  

"If the monetary stimulus does not come out, the price level trend shown earlier in Chart 9 will only worsen. As a reminder of what that might imply, you need only study the early ’80s when high inflation undermined our economic system. "

"In considering these charts and the matters of policy, we should be aware of two pieces of legislation that I suggest influenced their contours: the 1946 Employment Act and the 1977 Amendment to the Federal Reserve Act. The 1946 Employment Act established as a national priority a goal of low unemployment.  Low unemployment is a worthy goal and one that I share, but it cannot be achieved by systematically keeping interest rates low.  In 1977, Congress passed the Amendment to the Federal Reserve Act—also called the Humphrey-Hawkins Act—which called upon the Federal Reserve, as the central bank of the United States, to pursue a dual mandate of promoting long-run stable economic growth and stable prices." 

"Assume for a moment that the 20 largest institutions were required either to raise new equity, or to reduce their total assets to meet the 6 percent equity capital ratio.  This would require that they raise more than $300 billion in new capital or, as Chart 2 shows, they would need to shrink in size by $5 trillion, or some combination of the two options. The numbers in Chart 2 make clear how much of an advantage the larger institutions have over smaller banks, and show the excess leverage the largest banks have accumulated."

full text available here: Thomas M Hoenig Text

The above are quotes from Thomas M Hoenig, President Federal Reserve Bank of Kansas City. Clearly, Hoenig makes some very good points regarding our financial institutions over leveraged condition and debt situation overall. I would say its too little too late however. Isn't this something they were supposed to be watching for the last 25 years?

But worst of all, as professed students of the Great Depression and keepers of the money...he apparently thinks that the Fed has been successful in its mandate of promoting stable growth and stable prices. If you look at the dollar chart...a 96% decline IS NOT STABLE PRICES. It may be stable growth, but it is definitely NOT STABLE PRICES.

Additionally, Hoenig is worried about inflation. Can you see inflation in that DBA chart? I can't. And what does this depression have in common with the 1974 recession? Not much - I will tell you. All the Fed does is worry about inflation, because they need inflation in order to continue their policies regarding fiat currency and fractional reserve lending.

Clearly, he may be a smart man and certainly seems much more sensible than Bernake...but he should not have his job if I can understand the financial system better than he does. This is astonishing.

End the FED.

Gold and Silver - the Fear Trade is taking off

Gold and Silver are curious beasts...If we look at their behavior in the past we can see some interesting dynamics. Firstly, they tend to be stable when the markets start pulling back from a bullish run. Then, as that run accelerates to the downside for equities - people become emotional but as Gold and Silver are not rising they do not chase them. However, when the equity market recovers people have a fresh crash in their mind...so, the first few days that the market pulls back off its recovery - people trying to avoid new losses in Equities flock to the safety trade - Gold and Silver. After a time, that safety trade falls apart as pressure builds Gold and Silver need to be liquidated to raise cash.

So, my interpretation is that this is not the Inflation Trade that I was worried about (see: Issues arguing against the top of Primary Wave 2 here), but rather the fear trade. I think we are likely to see Gold, Silver rallying and the Dollar stable/consolidateive/rallying near-term if that is the case.


I will post charts later...in any case, the Triangle for Gold looks like the best analysis pattern. If 981 breaks 1085 is a reasonable target. Daneric had a very good analysis of the gold setup on his blog...please check it http://danericselliottwaves.blogspot.com/.