Rearranging The Deck Chairs On The Titantic

I began my morning like I do every morning. I opened a refreshing can of Vanilla Coke and settled into the comfy chair behind my home office desk. As I perused the morning headlines, one quickly captured my attention: European, Asian markets bounce back. It was 8:10 AM est.


A rally late Friday on Wall Street, overnight gains in Asia and coordinated attempts by European and U.S. authorities to prop up the banking system brought a measure of relief to markets after investor panic sent world equities markets spiraling downward last week.


"Putting an end to the run on the financial system as well as getting the interbank lending market working again are priorities but there is much healing to be done," said Divyang Shah, an analyst at Commonwealth Bank of Australia.


"The initial stock market reaction has been positive but the key will be on whether the sentiment boost can be sustained," Shah added.


The latest coordinated move emerged earlier when five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions. The Bank of Japan said it was considering similar measures.
http://ap.google.com/article/ALeqM5h3kgMAkbLwyfxBdjzw8Pc4KZ7DhQD93PI1FG0


After recovering from the scintilating sensation of having Vanilla Coke go up my nose, I reread the following over:


"...five central banks — including the U.S. Federal Reserve and the European Central Bank — unveiled new measures to thaw frozen credit markets and bolster funding to banks. They joined the Bank of England, the European Central Bank and the Swiss National Bank in saying they would provide unlimited U.S. dollar funds to financial institutions."


Unlimited U.S. Dollar funds to financial institutions? Are they freaking nuts? No, just desperate. I quickly deduced the implications for Gold and Silver and brought up my charts in anticipation of a raging Gold Bull on my screen. Nope. Gold was nearly $30 off it's overnight high in Asia. "What a freaking joke," I bellowed.


"When will this bull shit ever end? How can Gold be down? The Dollar is down, the Yen is up, Oil is up and Gold is down?"


Silver was even up 4% and Gold was down, and the world's monetary authorities had just declared the death of the dollar. Go figure, nothing new really. Gold continued to go down, the low today actually below Friday's. What a load of crap. And the Dollar reversed from down to up as the day progressed, and the DOW moved higher in one day than it had ever done in history.

I kept asking my self, "Are people really this stupid?"

"Do they really think that this is 'the answer'?"

"Do people really believe that all the worlds financial problems can be fixed behind closed doors during a weekend in Washington?"

Not a freaking chance! Cheap money, and lots of it created this crisis. More of the same in never gonna fix it, it can only make it worse. The sheep are being lead to slaughter. I have no pity for the lot of them.

From the Bear Stearns Bailout up to and thru this mornings flood of US Dollars across the globe and at every stop in between, there has been instant euphoria in the markets quickly followed by another downdraft. Will it be any different this time? I doubt it. This rally too shall pass. The fuse on the Gold rocket has now unabashedly been lit. We sit back and wait...


Dow sees biggest runup ever
NEW YORK (CNNMoney.com) -- Stocks rallied Monday afternoon, with the Dow up over 800 points during the session, as investors bet that the worst of the credit crisis is over, following a series of global initiatives announced over the last few days.

Stocks were buoyant Monday as investors welcomed a global effort to unfreeze the credit market and get money flowing through the system again. Although stocks reacted positively, credit markets barely budged.
http://money.cnn.com/2008/10/13/markets/markets_newyork/?postversion=2008101315

AND THERE'S THE RUB. The credit markets barely moved.

The financial crisis will soon abate, but the real crisis will soon begin
"Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.

Thus, what the government should do, according to the Misesian analysis of the depression, is absolutely nothing. It should, from the point of view of economic health and ending the depression as quickly as possible, maintain a strict hands off, "laissez-faire" policy. Anything it does will delay and obstruct the adjustment process of the market; the less it does, the more rapidly will the market adjustment process do its work, and sound economic recovery ensue."

Clearly, in response to the current financial crisis the US government -- and most other governments, for that matter -- is doing exactly what Mises and other great economists of the "Austrian School" claim should NOT be done. Specifically, the US government is trying to prop up unsound business situations; it is bailing out and lending money to business firms in trouble; it is attempting to prop up prices; it is trying to inflate again in order to boost the economy; and it is rapidly increasing its own expenditures.
http://news.goldseek.com/SpeculativeInvestor/1223913355.php

The End is Nigh
The big question is, how are they going to pay for it? If they pay for it by issuing debt, the debt of the USA (already $9 trillion and rising rapidly) will soar. Already they have lifted the debt ceiling to around $11.5 trillion to accommodate the $700 billion bailout, the bailout of Freddie and Fannie, AIG and a host of others. The other way is to print money as it would be the Federal Reserve who would take the equity positions by injecting funds directly into the banks. Remember the Federal Reserve is essentially a private corporation and they basically can do whatever they want. In Canada the Bank of Canada is agent of the Government of Canada.

Either way is potentially inflationary or hyperinflationary impact of massive Fed injections should not be underestimated. Whether you effectively print money or borrow it via debt (we put less chance that this will happen because the huge dependence on foreign lenders who will become increasingly reluctant to finance the USA’s financial mess) both should result in a falling US dollar and rising gold prices. The Federal Reserve has already turned its balance sheet into a junk bond portfolio and will see it deteriorate further.
http://news.goldseek.com/UnionSecurities/1223907753.php

Gold's The Real Treasure... So Why Did Investors Dump it For Treasuries?
...all of this is HORRIBLY dollar negative

However, investors, mindlessly seeking “safety” above all else, are selling gold and plunging into Treasuries. It’s mind-blowing. They’re selling an actual storehouse of value—one that’s been used for millennia—to buy Treasuries when:

They’re yielding less than the current rate of inflation

The US Government just took on a potential $5+ trillion in additional liabilities.

The US Central Bank—the Federal Reserve—is virtually tapped out.

The US budget deficit is expected to hit $400 billion this year and $500 billion the next.

Which would you rather own… a government guarantee from a government that is not only virtually bankrupt but at an all-time low in voter confidence and whose central bank has announced it will print money ad infinitum… or a finite resource that has been used by mankind for millennia as a currency and storehouse of wealth?

To me the answer is clear. And it’s clear to a lot of "real" gold investors too. Paper gold may be plummeting, but demand for real bullion is red hot. Several dealers I’ve spoken to are having difficulty meeting investor demand for bullion. Heck the US Mint even stopped selling Golden Eagles because it couldn’t mint them fast enough.

No, gold is the real treasure. And it’s going to go a lot higher in the future. I cannot predict when this will reverse. But at some point gold’s quality as an inflationary hedge will override its association with commodities. When it does, gold will erupt upwards past $1,000 and on its way to $2,000. The US Treasury and Federal Reserve can inflate the dollar all they like. But they can’t produce gold.
http://www.kitco.com/ind/Summers/oct092008.html

Bond Market Collapse is Imminent
Imagine a country such as Venezuela announced that it was bailing out an investment bank, then just days later said it was nationalizing its mortgage industry, and then just days later that it was bailing out its biggest insurance company, and then just days later its government pledged 700B$ to inject into its failing banks, and then just days later its stock market fell 20%. Would you feel comfortable having your money invested in such a country, in its stock market, in its bond market or in its currency?

I hope you answered “No” or “Hell, No!” to the above question! So why should you feel any different about the situation if the country is called “America”?

Imagine that instead of living through this nightmare yourself you were watching this complete financial drama unfolding in Venezuela. Who in his right mind would predict that Venezuela would experience massive deflation as a result of creating massive amounts of money and credit out of thin air? So why is it different for America? The laws of economics are not country specific.
Because the Cartel hit gold and silver in the middle of the night on Thursday October 9 many started invoking deflation theories. This is nonsensical and the bond market is about to confirm it!

We have seen the mega-shorts on TOCOM reduce their shorts in gold and silver to next to zero. They know what is going to happen to the prices of precious metals!

Many investors are starting to think that after this stock market rout and with a G7 package things will begin to improve. That is not the way things work! 20 years of excesses with even more monetary excesses about to be heaped upon us as a “rescue package” do not get unwound in 5 days. This is just the beginning. The bond market is the biggest market in the world (if we ignore the ridiculous, unregulated casino peddling OTC derivatives!). When the bond market heads south the money that has to find a safe haven somewhere else is in the trillions. Just a small percentage of this capital will blow the precious metals to unimaginable levels.

The authorities keep saying that they will “use all tools available to them”. They only have one…it’s an electronic version of the printing press. They will spin it in many different ways using jargon like “increased liquidity” and “injection of capital” and “buying equity stakes” and “buying toxic debt” but it all translates to “create more money out of thin air”. Gold and silver and the mining equities will be the place to be and soon thereafter commodities in general.

Clarity will come when the metals reach new highs and at that point a child of six will be able to say where to invest. Of course, that is the greatest incentive for the Gold cartel to prevent new highs being achieved! But new highs are already being achieved in the retail market and on e-bay. The silly manipulation on the COMEX will soon end. You can help it end if you buy a contract and stand for delivery...
http://news.goldseek.com/GoldSeek/1223911533.php

Gold Prices Getting Fishier And Fishier
There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.

The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.

The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?
http://www.istockanalyst.com/article/viewarticle+articleid_2698527.html

Here's what I think. Global governements know they would have a serious struggle on their hands if they tried to take our Gold away from us. So, instead they try to make it VERY hard for us to get any. Stop and think about that. It's not as crazy as you think. Buy what you can, when you can, and take delivery. Lift-off in Gold is fast approaching. The fuse has been lit. Thanks Ben, Thanks Henry...burn in Hell.