[cobran20]

Inflation vs Deflation

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Keeping rates low (really negative) insofar as what banks are paying people for their cash, makes things like holding physical gold less onerous because you are not losing interest income. (2) Eventually the low rates will NOT stimulate borrowing, but a migration of capital from cash to private assets including stock where there is a real rate of return in dividends not attainable in a bank and this sets the stage for rising rates as there becomes LESS cash on deposit at the banks - COMPETITION. (3) When rates rise, this will send the government deficits into hype-active status causing the Sovereign Debt Crisis to accelerate. Therefore, the whole point of reviewing historical events is critical for the plot remains the same – it is just the actors playing character role that change. The Panic of 1796-1797caused the end of Debtors Prison ONLY because so many FAMOUS POLITICAL people went to prison. The US was the emerging market and thus it was the same effect we saw in Russia and China after 1989. There are still booms within a declining trend but each rally fails to make new highs. Hence the trend remains intact. Those who cannot see the pattern in history are condemned to repeat the same mistakes.Keeping interest rates low may have the APPEARANCE of stimulation, but that effect is NOT being passed on by the banks. Interest Rates on loans, even credit cards, have not declined in proportion to the drop in interest rates at the Fed. Therefore, the deflation aspect is shifting profits to banks further bailing them out to make up for their losses in the speculation of mortgages. NOTHING is being done to help the people or the economy whatsoever! They are NOT lowering borrowing costs of consumers or business so the Fed can pretend it is helping the economy, but it is ONLY helping the banks. If the banks passed on the low rates to borrowers, then there might be some stimulus effect. It is NOT lower interest rates that will create inflation – but HIGHER! There are two primary factors to understand. (1) Keeping rates low (really negative) insofar as what banks are paying people for their cash, makes things like holding physical gold less onerous because you are not losing interest income. (2) Eventually the low rates will NOT stimulate borrowing, but a migration of capital from cash to private assets including stock where there is a real rate of return in dividends not attainable in a bank and this sets the stage for rising rates as there becomes LESS cash on deposit at the banks - COMPETITION. (3) When rates rise, this will send the government deficits into hype-active status causing the Sovereign Debt Crisis to accelerate. Therefore, the whole point of reviewing historical events is critical for the plot remains the same – it is just the actors playing character role that change. The Panic of 1796-1797caused the end of Debtors Prison ONLY because so many FAMOUS POLITICAL people went to prison. The US was the emerging market and thus it was the same effect we saw in Russia and China after 1989. There are still booms within a declining trend but each rally fails to make new highs. Hence the trend remains intact. Those who cannot see the pattern in history are condemned to repeat the same mistakes.

Those who ONLY wish to see a single trend and everything has to be bullish gold because the world just has to collapse, are setting themselves up for a very serious loss. Gold declined for 19 years between 1980 and 1999 and all the same fundamental bullsh*t was still present. It is just far more complex than that. Those in search of some GURU who can forecast the future from a gut feeling, might as well move to some cult farm because you will soon be separated from all your wealth. The whole purpose of creating a model is TO ELIMINATE human judgment because NOBODY can forecast the future in such a manner. The ONLY way to understand the future is (1) through the past, and (2) in a dispassionate black and white manner. The numbers are the numbers. We need a closing ABOVE 1763 today and then ABOVE 1755 on Tuesday January 31st. Will this signal a bull market that never ends. Of course not! It will then signal gold will either make (1) a slightly higher high but remain within the channel increasing the threat of volatility to the point everyone’s nose will bleed, or (2) it will bounce off of the next area of Weekly Bullish Reversals standing at 1925. However, a closing BELOW 1709 today will scrape the icing off the cake and a close BELOW 1680 would warn look out next week. The Forecast Array we published showing volatility rising next week. The Directional Change on the 23rdwas correct. That is where gold broke-out to the upside.

This post has been edited by cobran20: 27 January 2012 - 10:39 PM

[wulfgar]

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It is NOT lower interest rates that will create inflation – but HIGHER!

More likely the other way around, high rates are a symptom of high inflation.

Remember the supply/demand .......it's a two way street.

Low rates are be a symptom of too little demand for borrowing or an oversupply of cash for borrowing. Many state that an inflationary money supply creates "economic" growth.....that's true......in the quantity of product created but not the quality. And in this case quality means the real demand. A vast oversupply of hula hoops has little monetary value.
As the Mises crowd correctly states, vast oversupplies of anything eventually will have to be liquidated.

A clear example of too much money in the GFC when the Aus banks filled with money and they had no eligible borrowers.

With gold money when there was too much money, the commodity itself was still in great demand. What do you do with an oversupply of fiat money? Try and suck losers into borrowing it to buy ever more overpriced houses?

[cobran20]

Technical Analysis - Is Sometimes Fraud
Biggest Profit Margins

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The number one question pouring in is about the banks and their profit margin. Yes, the bottom
line remains that the cost of money declines sharply for depositors while the cost of borrowing
rises. Where the value of cash for three years is 0.7% to a depositor, for a fully collateralized
borrower, the cost is about 4%. This is a profit margin for the banks of 571%. In other words, when the
discount rate was 17% in 1981, this would have been the equivalent of a prime rate at 9707%. The profit
margin at banks has NEVER been so high. The Fed has increased the profit margins of banks but they in
turn are not accommodating the economy. They require more stringent collateral today than at any
time in the past and want ZERO risk failing to stimulate anything. Have a brokerage account? Ask the
broker how much he will lend you against fully collateralized shares. You will quickly see that the profit
margins are EXTRAORDINARYILY high for no risk at all! This is becoming a giant shell game whereby
everyone THINKS the objective is to “stimulate” the economy, but in reality, it is bailing out the banks
once again covertly by allowing their profit margins to increase dramatically. Therefore, lower interest
rates only widen the spreads increasing profits to the banks while the economy fails to expand
significantly. It has not led to a borrowing boom in the slightest – essential for inflation.

The Fed is covertly still bailing out the banks because they cannot foreclose on a lot of properties when
they were pooled, sliced, and diced lacking a single institution to come up with a certified mortgage. So
the banks are STILL being bailed out through the back door. So everyone is wondering where the
inflation is, yet QE1 & QE2 failed to do much of anything. Congress is even blind to what the Fed is
doing. Everything is not exactly what it seems. Even the economic growth at 2.8% for 2011 is highly
dubious. If businesses increase their inventory holding because they were unable to sell their products,
GDP shows this as expansion because the business bought the inventory, forget selling it. Welcome to
Wonderland Alice! You can check-in, but you cannot check-out until you find the way out of this maze.

[cobran20]

The Sovereign Debt Crisis – WHEN

[cobran20]

Greece – the Prelude to the Fall

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While Greece has been criticized for just about everything, especially about going on a debt binge, to be fair, that is the kettle calling the pot black. Let’s be honest. ALL Western governments have been doing the same thing. Greece is merely the PRELUDE to the Decline & Fall of Western Society. This is always about politicians and their inability to manage anything whatsoever. It always comes down to their personal self-interests and until we reform our political systems BARRING reelection of ALL politicians to prevent a political class from rising, then politicians will always say: “Vote for me and you will get" xyz. Let’s face reality. Every country borrows perpetually with NO intent of ever paying their debts be it Germany or the United States. Greece has also exposed the stupidity of politicians who designed the euro in a half-ass manner not establishing a single national debt for fear they would be unable to sell the idea back in 1998. That brain-dead decision has further shown that an economically weak country has been able to expose the structural fragility of the entire design of the Eurozone. 1


Of course the guardians of European monetary union have refused to discuss in public the possibility of any member state abandoning the euro. This would merely highlight how the politicians did not know what the hell they were doing from the outset. Without TERM LIMITS, politicians are incapable of making economic judgments. The truth now dawns with each new day that Greece and other weak euro zone economies gave up their economic sovereignty to join the euro. That price for remaining bound to the single currency is being exposed as economic hardship and sacrifice that threaten civil war. The fools that buy sovereign debt get what they deserve – UNSECURED instruments that are worthless in time of crisis. There is a growing number of legal and financial experts behind the curtain that are discussing what would happen if Greece abandoned the euro. I have warned that it is political uncertainty that drives capital underground. Much of the Monetary History of the world we were able to reconstruct because people withdrew their money from banks and buried it. Over the last year, Greeks have been doing the same thing because human nature never changes. They have withdrawn almost 40 billion euros ($53 billion) in deposits from their banking system. This is equal to about 17 percent of the nation’s gross domestic product. A staggering total of 14 billion euros in deposits was withdrawn in September and October alone. Quite frankly, Greece should simply default 100% and call it a day. They should reintroduce the drachma. If Greece tried to honor its debts, it couldn’t. If it converted its debt to a new drachma, there would be at least a 60% devaluation and still they would struggle to meet that. There are some that would fear a coming hyperinflation. That would be possible by trying to honor the past debts and the Greeks are withdrawing their cash from banks accelerating the economic implosion. There is a greater risk of a military coup or a civil war. At some point, the choice will have to be made – saving society or honoring the debt. This is the PRELUDE to the Decline and Fall of ALL Western Nations. You cannot borrow perpetually with no intent of ever paying anything off. It just does not work. Until we get political reform and eliminate this professional political class whose self-interest will always be against that of the people, there is little hope on the horizon. This is one primary reason why we are on the edge of a major bull market in equities – the alternative to burying your cash in pots and jars.

[cobran20]

The British Pound - the Decline and Fall

[cobran20]

The 13Year Curse

[cobran20]

cobran20, on 26 February 2012 - 02:26 AM, said:

The 13Year Curse

Nice timing on silver. Not bad on gold either

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The Daily Forecast Array shows ...02/27 and 03/02 as key days this week with a Panic Cycle due the 02/29 and a Directional Change due 03/02. It looks like volatility will pick up the following week of March 5th.The Daily Forecast Array shows 02/27 and 03/02 as key days this week with a Panic Cycle due the 02/29 and a Directional Change due 03/02. It looks like volatility will pick up the following week of March 5th....

[tor]

cobran20, on 29 February 2012 - 10:02 PM, said:

Nice timing on silver. Not bad on gold either

5% drop. Wow. Anyone know what the talking heads are saying caused it?

[wulfgar]

tor, on 29 February 2012 - 10:16 PM, said:

5% drop. Wow. Anyone know what the talking heads are saying caused it?

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Both metals fell after Federal Reserve Chairman Ben Bernanke gave no hint in testimony before Congress that the central bank was planning more bond purchases.

http://finance.yahoo...-210354022.html

Generally if yields and thus interest rates rise it is bad for the gold price. A major reason gold has become so expensive is the very low international rates.

Keep an eye on the bond yields in the coming weeks.

http://www.bloomberg...nment-bonds/us/

[cobran20]

Flash Crash - Gold Silver and Bonds

[cobran20]

cobran20, on 02 March 2012 - 02:39 AM, said:

Flash Crash - Gold Silver and Bonds

and most of Africa and many other countries around the world!

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...Apple shares moved higher driving the company's value on the stock market to above $500 billion making it worth more than Greece...

[wulfgar]

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intermixed with the testimony from Federal Reserve chairman Ben Bernanke hinting at the end of intervention to boost the market. 1

He's found religion and given up handing out the punch! I wonder how long that will last?

[cobran20]

Instead of collecting their CDS, private bond holders will need to settle for a 70% beheading!

CREDIT default swaps prove worthless

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Rigging the game is always the way the NY Banks play. Of course, why anyone buys Credit Default Swaps is starting to reflect the triumph of hope over practical experience. You might as well bet on the USA balancing the budget and repaying all its debt. As expected, Greece has NOT triggered a payout on credit default swaps by its recent moves to prepare for a debt restructuring as ruled by the biased International Swaps and Derivatives Association made up of guess who.

This ruling means holders of these so called bogus “insurance” contracts, worth a net $3.25 billion, will NOT receive payment at this stage. Those who have made doomsday forecasts about the liabilities out there in the Credit Default Swaps markets assume an honest market. What they are overlooking is the fact that the issuers can always play with the definitions to wiggle out of liabilities.

The International Swaps and Derivatives Association ruled that the result of new Greek legislation that could force all bondholders to accept losses after the European Central Bank took steps to avoid losses on its Greek bonds unanimously held that this DID NOT meet their definition of a “CREDIT EVENT” . Nobody in government will tell the truth so there would be no way to prove that bondholders were placed in a queue behind the ECB to be paid. The CDS market is not a real free market.

[wulfgar]

The government has taxes. The free market collects on you with insurance policies...................it's just a free stream of profit for finance.

[cobran20]

This relates to this other posting.

Commodity Empire

[cobran20]

Pi - On the Verge of a Great Move

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...The June 13th-14th, 2011 Turning Point has been once again a remarkable change in trend. We now have the stock market rallying, cash at record levels, and the possibility that there is so much money on the sidelines that we are on the verge of an explosive rally....

We are on the verge of another great move. Cash is at record highs everywhere. A crash is only possible when the majority is long and invested. This condition does not exist. Additionally, there is a vast reservoir of cash sitting in government debt that will begin to shift away from PUBLIC assets and back into the PRIVATE asset world. There is a time and place for everything. Right now, the USA is spending about $4 billion per week in interest. That will rise to $10 billion by the top of the Economic Confidence Model and then rise to $15 billion by the next low 4.3 years later ASSUMING no change in interest rates, which is not plausible. The precious metals still have not broken out and have not showing any sign of doing so just yet. We may see that decline at first with the exponential rally pushed off into 2017....

[cobran20]

If nothing else, Armstrong is one prolific writer of economic history!

Anatomy of a Debt Crisis - only Julius Caesar understood

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...The only way out of this mess is not to guarantee everything and pour in money into the system through the creation of debt. We need someone like Caesar who takes the unbiased road and cuts down this beast we have created. Borrowing is more inflationary than printing because it pays interest and that necessitates borrowing even more to roll the debt. There is no plan to ever pay anything off. We are in a debt spiral from which there is no escape other than default or monetize. We are going to have to think out of the box to save the world as we know it.

It is the interest expenditures that are the critical component destroying society. It has absolutely NOTHING to do with what we call money! Any “standard” that attempts to fix the value of money is merely a version of communism. We must realize that money and assets are on opposite sides of the seesaw.

Currently, we spend $4 billion per week in interest. That will hit $10 billion by 2016 and $15 billion by 2020 without a rise in rates. We are in a perilous economic state....

[cobran20]

Gold - 17.2 Day Decline
Australia - Down Under turning Upside Down

[wulfgar]

cobran20, on 19 March 2012 - 01:33 AM, said:

If nothing else, Armstrong is one prolific writer of economic history!

]

I see Armstrong's insanity is plumbing new depths.

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Lucius Sergius Catilina, a noble patrician, led a rebellion against the state

He forgets to mention that Catalina had been tried before and got off by bribing the judges because he was incredibly rich. Had just taken command of an army about to march on Rome. At this point Cato was supposed leave his fellow conspirators at large (who were engaged in or about to engage acts of arson and murder in Rome) and observe all the constitutional niceties.