The Dow Jones Industrial Average / Gold Ratio: The Mathematical Relationships

This is the fourth post in a series reviewing one hundred years of the Dow Jones Industrial Average (DJIA)/ Gold ratio. The ratio divides the DJIA closing price by the price for one ounce of gold. This ratio presents a striking cyclical pattern over the past century.

This post will focus on the mathematical relationships across three different cycles. In my last post on the ratio, I noted the uptrend of the peaks over the past three cycles. The Roaring 20's peaked around 18, the early 60's at 28, and just prior to the turn of the new millenium, an all time high of 43. From this we conclude that the "highs" keep getting higher. The fact that the cycle increased basically at the same percent (54-55%) between the three peaks is compelling. More interesting, is the fact that all three peaks connect in a straight upward-trending line.

The % gain in the ratio during the expansion phases is impressive. These numbers reveal that the most recent expansion phase was quite significant. The ratio expanded 4097% over 18 years. This represents the most significant increase over the past one hundred years and it occurred during the shortest expansion cycle.

The contraction cycle during the Great Depression "bottomed out" with a ratio of 2.03. The 70's contraction bottomed out at 1.04, a 50% lower value. With only two data points, it's a reach to make any projections, but the trend indicates that the "lows are getting lower".

If the "straight line" trend from the expansion is real and one wanted to "straight line" the contraction bottoms, a projected bottom lands somewhere in the range of 0.5. In 1895, a low of 1.0 was reached. In the first half of the 1800's, the ratio spent a lot of time below 0.5.

The ratio in the first two cycles declined 89-96% from their peaks. On 2/20/09, the ratio at 7.42 represents an 83% decline from the peak of 43.

The contractions in the first two cycles hit a "first bottom" and ultimately fell further to the "ultimate bottom" of the phase. Extrapolating a straight line through the first two "1st bottoms" project a potential upcoming "1st bottom" around 4.7. The ratio on 2/20/09 is 7.42. This "head fake" presents the feeling that the bottom has been found and the upswing has returned. It is likely that in the coming six months, a rally will occur, the media will state "the stimulus is working" and the herd will jump back in only to be hammered at the ultimate bottom.



If the ratio were to bottom in the range of 0.5, that would represent a 99% decline in the ratio from the peak.

The prior posts in this series:

http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio.html

http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio_18.html

http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio_9935.html

PDF's of these charts can be downloaded at:

http://sites.google.com/site/randomroving/Home

It's A Mad Mad Mad Mad World

As a kid, one of my favorite TV movies was "It's A Mad Mad Mad Mad World". The story was fun and the movie had just about every TV actor known at the time in the film. The movie is a "cat and mouse" treasure hunt with greed as the core theme. The final clue indicates that a "W" is the key to finding the buried treasure. The "W-shaped" palm trees stand tall above the greedy mob.

Watching the news at night indicates that we now live in a Mad, Mad, Mad, Mad World. The Republicans are mad that the stimulus bill passed. The Madoff investors are mad. The Stanford investors are mad. The auto industry is mad because they want more free money. The stock market is mad. All stockholders are mad. The oil industry is mad. The reality has set in that all things can't go up forever.

I've presented Robert Prechter's psychological theory of mass social mood before. The essence is that mass social mood amongst human beings oscillates between rising and falling mood. While ascending, people are generally happy and positive. During these times the economy expands and greed reigns. During a descending mass social mood, people become angry and fearful.

It's almost comical that a guy named MADoff is involved in one of the most significant scams. Maybe if the bust would have occurred in the 90's, the scamster would have been named Happyoff. What's significant is that the SEC investigated him during the "upswing", but found no wrong doing. In the downturn, he was caught and will be brought to justice.

We had dinner with a friend last weekend that does a significant amount of business in China. I asked him if China would grow at 8% this year as in past years. He said that they would only grow at 6% and that would cause many problems. The Chinese have been partaking in an interesting experiment over the past decade moving all of their farmers and peasants to the city. He said that the drop to 6% growth meant that 20 million people that just moved to the city and abandoned their farm would now be unemployed. His final quote was "there's going to be a revolution".

A great clip from the climatic ending of the movie. This scene might be symbolic of all of the recently revealed scams.....the ending has poetic justice. Picture Madoff and Stanford up on the dangling stairwell.
http://www.youtube.com/watch?v=LlCb41nelD8

Trouble Along The Border

Last weekend we had some neighbors over for dinner. One neighbor works in the Fed's Homeland Security department. Halfway through the evening he snuck out to his house and returned saying "I just checked my email and something big is going on along the Mexican border". He's always a little mysterious about what his role is in the department. He basically said that the drug war has hit a "new level". He stated that we now have three drones flying along the border and that our troop level has increased significantly. The article below just appeared in USA Today.

Mexican drug gangs wage war
By Chris Hawley, USA TODAY
VILLA AHUMADA, Mexico —
Prosecutors say they are still trying to determine whether Munoz's son was an innocent bystander, or involved with the gangs. Either way, Munoz attributes his death to the unprecedented combination of drug-related violence and economic misery that is ravaging northern Mexico — and showing signs of spreading into the United States. "He never caused any trouble for anybody. But in this town, you never know who's going to decide you're a problem," Munoz said. "This is a town without laws."
That's literally true — the entire police force of Villa Ahumada, a community of 10,000 people 80 miles south of El Paso, deserted its posts last May after drug gangs executed the police chief and two officers. The crime wave, plus the crippling recession that has rippled here from the U.S., has caused the town's export factories — possibly the only source of reputable, steady employment — to slash production. "It's just one thing after another," says Villa Ahumada's mayor, Fidel Chavez. "First the economy, and now this."

The story is similar across much of Mexico's 2,000-mile-long northern border: a wave of beheadings, grenade attacks and shootouts as drug cartels battle each other for supremacy and lash out against Mexican President Felipe Calderon's drive to destroy their smuggling operations. The death toll from drug-related violence in Mexico last year surpassed 6,000, more than double the previous year, raising questions about whether Calderon's government can prevail against a brutal and often better-armed enemy without additional help from the U.S. government.

"People are scared and they have reason to be," says Michael Shifter, a Latin America specialist at Inter-American Dialogue, a Washington think tank. "The economic crisis is just going to aggravate the situation. It's very hard to imagine how things will get better in the short term." That's bad news in broad swaths of the United States, where Mexican drug gangs have extended their operations to at least 230 cities from Texas to Alaska, according to a recent Justice Department report. Police in Atlanta and Phoenix, both major drug transit points, have blamed a wave of kidnappings on the spreading turf war among the cartels. Drug-related violence has become ever more brazen and frequent, including a rise in attacks on Border Patrol agents.

In both Mexico and the United States, most of the victims have been linked to the cartels. Nevertheless, several travel agencies, colleges (including the nearby University of Texas-El Paso) and even the U.S. military have discouraged travel to Mexico's border areas as spring break approaches — resulting in a loss of crucial tourism dollars that could make the Mexican economic crisis even worse.

More than 329,000 jobs have been lost in Mexico since June, the government says; that translates to as many as 30% of Mexican adults who are now unable to find full-time work. Rene Jimenez Ornelas, an expert on crime at the National Autonomous University of Mexico, is among those who believe that unemployment could push more Mexicans into the ranks of the narcos. The gangster lifestyle has been glamorized by television shows and songs called narcocorridos, and it is a powerful temptation for many youths.

"What organized crime mostly has on the front lines are people who need to eat," Jimenez Ornelas said. So the cartels "have an 'army' available — not all of them, of course, but enough to have a good-sized force at their service."

A Note For Lent

by Father David Kirk

A preface about Lent:
People “give up” things during lent:
Pizza, beer, lobster, whatever.
But does it move us closer to God,
Closer to one another, to ourselves?
Maybe what we should work on at Lent
Is CHANGING ATTITUDES.
Leaving behind frustrations, fears,
Cultural attitudes
Which box in others.
TO GIVE UP NEGATIVE, DEFEATIST ATTITUDES
To see temporary setbacks as permanent
To escalate disappointment into catastrophe
To experience problems as insurmountable.
To try to see other possibilities
When things don’t go as we had hoped or planned.
Sometimes I set myself up to feel like a failure
Or to feel badly
About things I cannot control;
And I get out of this only by deciding
That if things can’t be one way,
Well, maybe they can be another.
Its possible, I think, even for me,
To still make inner changes,
To move old emotional garbage out
Permanently
To see the world in a whole new way,
To come closer to God.
So I’m not sure what I’m giving up this Lent
But I think its
HOPELESSNESS.
I think I learned this attitude
At an early age,
As a lonely adolescent,
As a young man whose people die young,
Whose sister died of alcoholism.
But God keeps seeking me, the lost lamb,
And in intervening in my life
Converting all these things into HOPE.
So I put all hopelessness on the altar
As a sacrifice to faith and joy.

As God Lives in me, I determine who I am.
[Mark 9:14-29]

*Reposted from Ash Wednesday 2009.

http://fatherdavidkirk.com/

Who Shot The Monkey?

The news was filled last week with stories surrounding the controversial cartoon in the New York Post. The cartoon depicted two police shooting a monkey and stating that someone else will need to write the next stimulus bill. Several came forward claiming "racism" was the motivation for the cartoon and that it was a direct reference to President Obama. My take is that I have to think that racism was not the motive, but the cartoon does imply a strong reference.

The real question is "is racism alive and well in the U.S.?". I believe it is, but it now resides below the surface for political correctness reasons. Following the election, the "geologist in me" couldn't help but notice an interesting pattern on the election results map. The correlation between the "civil war states" and the election results are quite interesting. As times get tougher, I predict that race relations will become more strained.

Slumdog Gazillioinaire

Congratulations to Slumdog Millionaire for sweeping the Oscars. I just saw the film a few weeks ago and thought that it was fabulous. It's rare that the Oscar winner appeals to me. This was a neat film with some extraordinary young Indian actors. The Indians are a nice, gentle people and I'm sure they're enjoying this moment and finding a great sense of pride. While the film did not depict the best part of their country, it did tell a real story.

The Dow Jones Industrial Average / Gold Ratio: Timeframes

This is the third installment of a series on the DJIA/Gold ratio. In the past two posts, the ratio has been presented over the past one hundred years. The chart below depicts the timeframes for the cycles and phases. The earliest cycle depicted on the graph experienced a 32 year expansion culiminating in the Roaring 20's. This euphoric party came to a crashing halt in 1929 with the DJIA correcting 89%. While the initial crash lasted 2.85 years, the contraction phase lasted 13 years until 1941 when the next expansion cycle began. The expansion phase represented 71% of the cycle's overall length. The entire cycle reprented a total of 45 years.

Expansion returned in the early 40's as WWII occurred. As they say, there's nothing like a war to stimulate an economy and workforce. The post-war boom in the 50's was significant with growth occurring in most industries. The "happy days" of the 50's were good times for most. This expansion phase lasted 23 years until 1964. The inflection point between these two phases aligned with significant social disorder and crises. This contraction encompassed the hippie 60's, major racial conflict, assassinations of several major figureheads, and ended with the inflation and oil embargo of the 70's. The contraction phase last 15 years and represented 40% of the cycle time. These were challenging times and the entire cycle reprented a total of 38 years.

The current cycle kicked off the expansion in 1980. Carter's challenging presidency was coming to a abrupt ending, and Ronald Reagan was about to time the next expansion very well. The 80's and 90's represent what will likely be documented historically as the greatest credit expansion of all time. During this expansion, just about everything expanded with stocks reaching astronomical levels. The rise lasted 18 years until 1999 when the contraction phase began. The DotCom Era was the appropriate euphoric finale to an incredibly expansionary period. Many would argue that the expansion lasted until mid-2007 when the credit market imploded. The value of understanding this ratio has never been more significant. The stock market corrections commenced in 2000 and lasted for several years. The "last hurrah" in 2007 illustrates the power of the Federal Reserve's manipulation via the money supply. It's now obvious to all that this level was purely manipulated and that the DJIA/Gold ratio was telling a very different story. This last eight years also illustrates the forecasting strength of the ratio.

The $64,000 question now is "when does the contraction phase end?". Using the cycle lengths of the prior two cycles would indicate that this contraction phase could last 13-17 years. With a beginning in 1999, that puts an end somewhere in the 2012-16 timeframe. Note that in the first cycle, the DJIA bottomed in July 1932, but the next expansion did not commence for eight more years.

Several other observations can be made from this ratio over the past 100 years. The expansion phases appear to average 2/3's of the cycle while the contraction lasts 1/3. Growth appears to be gradual, while contraction is more abrupt. A second observation is that the expansion cycles continue to be shorter (32-23-18 years). The most recent expansion, while the shortest, had the steepest growth. The contraction after the Roaring 20's illustrates that a short rise is usually followed by a sharp fall. This time should be no different. The last observation is probably the most significant and timely. Over the three cycles, the "highs got higher" and the "lows got lower". If this trend continues for this contraction phase, the low could be frighteningly low. This being the "lowest low" in the past 100 years.

The prior posts in this series:

http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio.html

http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio_18.html

PDF's of these charts can be downloaded at:
http://sites.google.com/site/randomroving/Home

Hogs & The Sheeple

Can anyone distinguish between the two?

http://www.youtube.com/watch?v=xWhWRZCfTho

http://www.youtube.com/watch?v=7y2nK3c2s7E

The only difference I know is that one taste great in a frying pan!

I'd Like To Take A Big Swing At You Sergeant

My college buddy, Michael P., used to entertain me with his constant renditions of Bill Murray's character in the hit comedy, "Stripes". The movie, one of the great comedy classics from the 80's, had many great "one liners". One of my favorite scenes was when the new recruits were having their first platoon meeting with Sergeant Hulka. Each recruit went around the circle introducing themselves and the country boy, The Cruiser, made this statement about the draft. "I joined the army 'cause my father and my brother were in the army. I thought I'd better join before I got drafted". Sergeant Hulka quickly informed him that "son, there ain't no draft no more!".
http://www.youtube.com/watch?v=einZgVrnfG0&feature=PlayList&p=F6671499A36BC3E4&playnext=1&index=10

In a prior post, where I made a few predictions about the future, I stated that I believed that the draft would be reinstated in the future. My belief is that conflict will continue to increase around the world and our military is stretched very thin.

For a more serious look at the topic, watch this:

http://www.youtube.com/watch?v=9nYPfpGL5TE

Lets hope and pray that none of our children have to become "lean, mean, fighting machines".

Post Analysis on Puplava's Commodities Pick

In 2000-01 Jim Puplava in his Storm Series made a strong case for the purchase of commodities. His convincing analysis encouraged me to share his predictions with my inner circle of friends. I jumped in late in the game (Oct-07) for the final ascent and subsequent correction.

Sent: Tuesday, January 14, 2003 8:40 AM
To: Kirk A. Barrell
Subject: Bedtime reading

a interesting new article at financialsense.com.....

http://www.financialsense.com/stormwatch/update.htm
..........a snipit.....................
Given all of these uncertainties, where should one invest this year? I believe the "Next Big Thing" is going to be in "things" such as commodities. The big winners in this decade are going to be gold, silver, and energy. Other commodities from sugar, coffee, cocoa and grains, to other soft goods will also be winners. Commodity prices will rise because of two trends: a declining US dollar and rising populations and industrialization of developing economies.
The time for paper is over and the rise of "things" has just begun.

These charts reveal a very timely recommendation by Puplava.

His "buy" recommendation was incredibly accurate. You might ask if he recommended selling before the fall 2008 deflationary downward spiral? The answer is "no". Puplava still foresees an inflationary depression with these commodities skyrocketing again. If he's right, it's time to load up. I'm holding steady with my commodity holdings. Checkout some ETF's that provide the easy option to participate in the commodities market:

http://finance.google.com/finance?q=gld

http://finance.google.com/finance?q=uso

http://finance.google.com/finance?q=ung

http://finance.google.com/finance?q=gsg

http://finance.google.com/finance?q=NYSE:IAU

http://finance.google.com/finance?q=NYSE:SLV

The Dow Jones Industrial Average / Gold Ratio: Expansion & Contraction Cycles

This is Part 2 of a series on the Dow Jones Industrial Average / Gold Ratio. In the first part, a basic review was presented on the ratio and it's potential meaning.
http://randomroving.blogspot.com/2009/02/dow-jones-industrial-average-gold-ratio.html

The chart below annotates the ratio with expansion and contraction cycles. Expansion cycles exhibit steeply ascending trends while the contractions exhibit abrupt and steep declines. When the ratio is increasing, historically, it aligns with expansion cycles in business and the associated stock markets. Contractions, in contrast, exhibit abrupt downturns. Typically, for some unforeseen reason, these "changes in trend" come as a surprise to the masses.

Both "tops" and "bottoms" exhibit "V-shaped" patterns. The change from contraction to expansion appears abrupt while the same occurs when trending from expansion to contraction. I use the term "inflection point" to define these abrupt "points in time". Subsequently and most interestingly, many other variables change in alignment with this ratio.

While this ratio exhibits sharp inflection points, the associated stock market indices typically do not always present the same obvious "change in trend". The chart below of the DJIA illustrates this in the time frames from 1963-1981 and 2000 to present. Both timeframes exhibit a flat "zig-zag" pattern in the DJIA. In contrast, many variables such as unemployment, inflation, and money supply changed drastically during these periods. From this, one could conclude that the DJIA/Gold Ratio presents a more accurate depiction and timing of economic cycles. It also appears to present very obvious inflection points that could be utilized to make changes in one's investment strategy and choice of asset classes (e.g. Gold purchase versus stock).

I believe that the most significant conclusion from the ratio in the most recent cycle is that the contraction began in the 1999-2000 timeframe. The U.S. public and the media were oblivious to this significant inflection point and they have just awoken to the consequences of the "already in progress" contraction. All are fixated on blaming the recent mortgage crisis and the politicians in Washington. The mortgage crisis was just one more "falling domino" with many more to come.

These data and the "invisible hand" of the economic cycle do not care what CNN or Fox report to the public. It also does not care who is in power in Washington. The cycle will carry on despite the political games being played out in the Senate, Congress, and on "bubblevision".

This analysis and the associated data illustrate the significance of understanding the historical cycles and the associated changes that align with them. Time would be best spent trying to understand history and how it might portend future events that could ultimately effect us all personally. As they say, "a good offense is the best defense". I once again state that the ratio appears to indicate that we are still quite far from "the bottom". The cycle began in 1981-82 and we rode the "expansion wave" for many years. We now want "the pain" to be very short. As they say "good luck with that".

PDF's of these charts can be downloaded at:

http://sites.google.com/site/randomroving/Home

The Blind Squirrel and The Broken Clock

It's been entertaining lately to see Peter Schiff get beat up on bubblevision over the fact that foreign equities have taken a beating along with a rising U.S. dollar....both, Schiff didn't predict. I'm "on board" with Schiff's forecast for the future (hyperinflation, cratering U.S. dollar), so the entertaining part was that the media jumped on him so quickly because he received so much "overnight fame" for accurately calling the market collapse.

The media pundits just don't want to hear anyone's negative forecast. They want everyone watching Cramer and getting "jacked up" on equities Kool-Aid. My friend, Robeesh, says that "every broken clock gets the time right once a day". Another told me that "every blind squirrel finds a nut". Yes, both are true. It might be wise to start listening to some of these intelligent squirrels that are not stampeding with "the herd".

A SHORT BLIND SQUIRREL LIST

http://www.financialsense.com/

http://www.europac.net/

www.trendsresearch.com/

http://www.chrismartenson.com/

http://www.elliottwave.com/

http://www.dailypaul.com/

Crash And Burn

The stimulus received approval. Image that! Some say that by the time Obama took office, we already had $8 trillion of obligations. I guess we now have $8.7 trillion. In my November 2008 post, I made the reference to Hogs, but I wasn't hoping that we would be approving some massive "pork" spending. We have just burdened our grandchildren.

I've recently made a few references to microcosms and fractals. Here's a comical example of the government trying to make progress:

DTV NASCAR Campaign Off To Bumpy Start
NASCAR driver David Gilliland rams into wall during first race in FCC sponsored DTV Transition Ford.
By John Eggerton -- Broadcasting & Cable, 10/20/2008 4:16:00 PM MT

The road to digital TV apparently includes the wall at the Martinsville, VA, Speedway.
The FCC's sponsorship of NASCAR driver David Gilliland got off to a rocky start when a late-race accident Sunday--with only an unlucky 13 laps to go--caused him to finish 32nd out of an original 43-car field and put more than a few dents and dings into his #38 DTV Transition Ford.

The FCC has ponied up $350,000 to sponsor Gilliland in three short tract races--appropriate since there are less than four short months until analog broadcasters hit their own wall Feb. 17, 2009. At least the FCC got the spotlight that always goes on a crash, and Gilliland's Web site liberally sprinkled the race summary with references to the "Digital TV Transition Ford," rather than, say, "the car." An FCC spokesman was not available for comment at press time.

Gilliland will also be racing toward the digital transition at Phoenix International Raceway Nov. 9 and Homestead-Miami Speedway Nov. 16. For that $350,000 the FCC gets signage on the hood, sides and back of the car as well as on the driver's suit. The hood will feature a picture of a TV set and the words: "Is your TV ready for digital," as well as a yellow banner with "DTV Transition Deadline: February 17, 2009," inside. It will also say "DTV transition" on the back and sides of the car. The FCC says those races will reach an average 8 million weekly TV audience, as well as some 125,000 spectators in the stands at each race.

The "crash and burn" of our tax dollars!

A 32.5 Minute Investment

My favorite Republican sent me this link yesterday and it proved to be a great watch. I highly recommend that you invest 32.5 minutes of your time to watch this movie. We discussed it on the phone last night until midnight. It's very non-partisan and focuses on the data and the facts. Both teams participated at the highest level.

The documentary premiered at the 2008 Sundance Film Festival. It is very well done and the data is not only accurate, but very revealing. Continue to educate yourself on the facts.

http://www.iousathemovie.com/

In the movie, Buffet refers to a narrative that he wrote last year....great stuff:

http://randomroving.blogspot.com/2003/10/squanderville-vs-thriftville.html

A Thought Provoking Quote

I heard this quote from Gerald Celente on Puplava's weekly radio show:

"I always ask the question. How can anyone believe the people that didn't see it coming now forecasting what's going to happen next? So why anybody would listen to these people that are making these forecasts is beyond me. This is just the beginning. The collapse of "09" is happening before our very eyes, but people are in denial and they're refusing to look at what is really going on."

Jackson says he's face-to-face with what is going on. Don't fear the kitty!

The Disappearance of M3

Based on the number of times I've received the YouTube link for Glenn Beck's recent animated performance on M3 (money supply), I conclude that this "piece of the puzzle" is finally coming to the forefront. Many don't know that during Bush's term in 2006, the Federal Reserve decided that it was too costly to track and report M3 to the U.S. citizens. Here is the official release from the Fed:

Discontinuance of M3
On March 23, 2006, the Board of Governors of the Federal Reserve System will cease publication of the M3 monetary aggregate. The Board will also cease publishing the following components: large-denomination time deposits, repurchase agreements (RPs), and Eurodollars. The Board will continue to publish institutional money market mutual funds as a memorandum item in this release. Measures of large-denomination time deposits will continue to be published by the Board in the Flow of Funds Accounts (Z.1 release) on a quarterly basis and in the H.8 release on a weekly basis (for commercial banks). M3 does not appear to convey any additional information about economic activity that is not already embodied in M2 and has not played a role in the monetary policy process for many years. Consequently, the Board judged that the costs of collecting the underlying data and publishing M3 outweigh the benefits.

SOURCE: http://www.federalreserve.gov/releases/h6/discm3.htm



Glenn Beck's performance:
http://www.youtube.com/watch?v=dlHBYQrCnIk

As I've said in the past, it is NOT WEEL

Bullion Boom

Gold's knocking on the $950 door. Is it time for another "lift off"?

Article from FT.com
Bullion sales hit record in rush to safety
By Javier Blas in London FT.com
Published: February 9 2009 18:16 Last updated: February 9 2009 18:16

Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.
The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007.

Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS.

Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month’s flows of 105 tonnes were above September’s previous record of 104 tonnes, and absorbed about half the world’s gold mine output for January, said Barclays Capital. “We estimate that investment demand [into gold] could double in 2009 compared to 2007,” said Mr Reade. “Purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis ... have intensified.”

The move into gold is being driven by the very rich, with bankers saying that some clients are hoarding gold in their vaults. UBS and Goldman Sachs said last week that investor hoarding would drive prices back above $1,000 an ounce. On Monday gold was trading at $892 an ounce.

Traders and analysts said jewellery demand, historically the backbone of gold consumption, had collapsed under the weight of the high prices. Sharp falls in demand in the key markets of India, Turkey and the Middle East have capped the potential of any price rally. But the lack of jewellery demand has not discouraged investors.

Jonathan Spall, director of commodities at Barclays Capital in London, said: “We have seen more new enquiries about investing in gold so far this year than during the whole 2008.”
Philip Klapwijk, chairman of GFMS, the precious metal consultancy, said that investors were buying gold because of fears about the global financial system rather than looking for a quick gain.

“This is a new round of safe haven buying,” Mr Klapwijk said.
GFMS estimated bullion coin demand last year reached its highest level in 21 years.

http://www.ft.com/cms/s/0/359da604-f6d4-11dd-8a1f-0000779fd2ac.html?nclick_check=1

Post Analysis on 2002-03 Gold

In 2000-2001 I read Jim Puplava's "Storm Series" and it really impacted me. He presented an incredibly thorough and data-supported analysis of the state of the world economy. Following that, I bombarded my friends with tidbits from his website. I had caught the "commodities bug".
The Storm Series:
http://www.financialsense.com/series2/perspectives2.html

The chart below provides a post-analysis of his forecast. The arrows represent the timing of my PUPLAVA "email alerts".


From: Kirk A. Barrell [mailto:kbarrell@geodynamic.com]
Sent: Tuesday, September 30, 2003 9:21 AM
To: Kirk A. Barrell
Subject: Gold/Silver

interesting article on precious metals....sounds similar to the petroleum supply/demand picture...
http://www.financialsense.com/Market/archive/2003/0929.html

From: Kirk Barrell [mailto:kbarrell@geodynamic.com]
Sent: Monday, August 19, 2002 9:51 PM
To: Kirk Barrell
Subject: RE: Big banks are next on list of free-falling stocks. Some good gold articles here…

http://www.financialsense.com/metals/main.htm


From: Kirk A. Barrell [mailto:kbarrell@geodynamic.com]
Sent: Wednesday, September 24, 2003 4:20 PM
To: Kirk Barrell
Subject: RE: reading
you better start buying up that gold and oil!!!


From: Kirk Barrell [mailto:kbarrell@geodynamic.com]
Sent: Friday, February 22, 2002 10:19 AM
To: Kirk A. Barrell
Subject: There's Gold in Them There Hills!!

some light reading for the weekend!!!
http://www.financialsense.com/stormwatch/update.htm

From: Kirk Barrell [mailto:kbarrell@geodynamic.com]
Sent: Tuesday, July 23, 2002 8:38 AM
To: Kirk Barrell

Subject: RE: markets

Implosion is the only word I think of when I read the news in the morning. At this point, even trailing earnings are in question due to the bogus numbers. So do we even know what the PE's are? I told Michelle this weekend, it's kind of like it used to be in the airport when you arrived early and you sat there and watched all of the "latecomers" running to there flights. My advice is to sit back and watch things unfold. If I had some cash outside of retirement accounts I would be shorting and buying gold (the real stuff).

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The moral of the story? It might be time for golds next big move...... $2000/ounce???

Marc Faber On The Economy

Marc Faber, author of the Gloom, Boom, and Doom Report made some interesting points last week. They might sound familiar:

Source: CNBC
'The US risks being hit by Zimbabwe-style hyperinflation and there are signs that the world's biggest economy risks turning into a banana republic, Marc Faber, author of the Gloom, Doom & Boom report, told CNBC's "Asia Squawk Box." "In the US, we have a totally new school, and it’s called the Zimbabwe school," Faber said. "And it’s founded by one of the great leaders of this world, Mr Robert Mugabe, that has managed to totally impoverish his own country. And that is the monetary policy the US is pursuing."

'The government's increased intervention in the economy is likely to slow down economic growth because history shows that every time the private sector shrinks to make way for the government sector, the economy suffers, he said. Asked whether the US risked being faced with 200 percent inflation, Faber answered: "Well, not yet. Not yet. But I think eventually. If I look at government debt in the US, and debt in general, I think the only way they will not default physically on their debt is to inflate."

The Federal Reserve's policy of printing money and the government's intervention in the economy might undermine the US's economic and political clout, Faber warned. "Well, I wrote two years ago a report entitled 'Is America becoming a banana republic?' And there are some features that characterize banana republics- totalitarian states, very strong government intervention into the economy, and the polarization of wealth," he said.

"And we have all these trends occurring in the US. We are not yet there. And in theory it could be reversed, but I doubt it will be," Faber added. Because of these factors, US government and corporate bonds, including that of CNBC parent General Electric , should be downgraded, he said. "Yeh, I think GE should be a junk bond. But I also think the US government should be junk," Faber said, adding: "I don’t pay much attention to rating agencies. The rating agencies have totally failed over the last 3-4 years to identify sick companies."

P.S. I received more responses on my "puppy post" than any other. Are you guys trying to tell me something? Jerome says that most would rather read "warm fuzzies" than hear about the contraction of the world economy. Okay, here you go. Maybe I'll end every "serious" post with a warm fuzzy pic.

Jackson & Me

My golden retriever puppy, Jackson, is settling in at his new home. Like most puppies, he is just adorable and has that great playfulness. He's a chewing machine, but so far hasn't destroyed too many important items. Why the name Jackson? No, he wasn't named after Andrew Jackson in honor of his dislike for fiat currency. It was a name I saw on a dog training website....just sounded cool.
I'll continue to post some updates on Jackson to serve as a "balance" to most of my more serious topics! Maybe these posts could be turned into a book and then a movie. Jennifer Aniston could play my wife and some cool Hollywood dude could play me. :)

The Dow Jones Industrial Average / Gold Ratio: An Introduction

Somewhere around 1999-2000, I stumbled upon a chart of the Dow Jones Industrial Average / Gold Ratio (DJIA/Gold). It immediately presented a pattern of very repetitive cycles with intriguing mathematical relationships. I've followed it's evolution since and I have been impressed with it's continued pattern and apparent predictability. In addition, I've compared numerous variables against it and plan to present those in the future for discussion.

This ratio is simply the closing price of the DJIA divided by the price of one ounce of gold. Last Friday, the DJIA closed at 8280 and gold closed at $911 per ounce resulting in a ratio of 9.08. The number by itself appears meaningless, but observing it in a time sequence presents an interest story and "frame of reference".

The concept of the ratio is that the DJIA is an inflated and manipulated index that does not necessarily present an accurate value of the market. Historical charts illustrate that the DJIA is heavily influenced by the money supply (M3). Gold, many believe, to be a "less manipulated" price that has historically held value for thousands of years. Thus, the ratio possibly presents an index with a more accurate view of historical cycles. Aligning these data with other variables and historical events generates some very interesting conclusions. This chart will be used as a "frame of reference" for many posts in the future. The first conclusion that can be made is that "the bottom" could still be very far off based on a comparison to historical "market bottoms". Stay tuned.

A PDF can be downloaded from the Random Roving Document Archive: http://sites.google.com/site/randomroving/

Ted Forstmann on Charlie Rose

I stumbled upon this interview on Charlie Rose. I had never heard of Ted Forstmann before.
It's a very informative discussion on the economic crisis and he appears to be one of the "good guys":
http://www.charlierose.com/view/interview/9332

http://en.wikipedia.org/wiki/Ted_Forstmann

The Capacity of Hope

I continue to have some great conversations regarding the state of the world. I conclude that some have now become engaged in the facts underlying the situation. Others still hang on to this concept of hope. I believe that we all have hope. Hope is what keeps us all believing in the future. Hope is alive and well in most people.

It's important to distinguish hope from reality. After the Titantic struck the iceberg, all of the passengers on the ship hoped that the ship would not sink. Most didn't "sit idle" hoping, they took action. They either boarded a life boat, assisted others with boarding a life boat, jumped overboard, or they stood on the deck assessing the remaining options. To be paralyzed with hope might resemble the musicians that kept playing on the deck of the Titantic up to the point that it tipped and sank. Be hopeful but take action.

http://media.lewrockwell.com/media/2009-01-28_094_the_greatest_depression_in_history.mp3

Not Losing Your Head

Bubbalew turned me on to this presentation. I was hoping to attend this seminar in person, but a busy Saturday took precedent.

http://media.lewrockwell.com/media/2009-02-01_095_not_losing_your_head.mp3

The Expensive Freebie

I guess this proves that there is nothing free in this world:

Source: Houston Chronicle
ROSENBERG — A trip out for a free breakfast at Denny's took a big bite out of the wallets of several people in Rosenberg on Tuesday. Some of those who went to the local Denny's Corp. restaurant for a free Grand Slam breakfast Tuesday morning came out to find their cars had been towed from their spots outside other business establishments. The bill to get their cars back cost $217.15, or the equivalent of about 35of the $5.99 Grand Slam breakfasts. "I was just here to pick up my mother-in-law in her wheelchair. All the handicapped parking spaces were full, so I parked here in a regular space," Dalia Molina, of Rosenberg, told the Fort Bend Herald outside Hollywood Video, which was closed at the time. "I was gone two minutes and when I came wheeling my mother-in-law out in her wheelchair, my truck was gone."
"They knew that Denny's was going to have this today. Why not have someone out here to tell us where the line is drawn — where we can't park? I'm going to fight this. I want my money back. They charge $20 a day for storage fee, plus I had to pay for a cab."

Zimbabwe Math

It was announced today that Zimbabwe removed "12 zeros" from their currency. Can you imagine 1 trillion U.S. dollars becoming $1?

HARARE, Zimbabwe (CNN) -- Zimbabwe slashed 12 zeros from its currency as hyperinflation continued to erode its value, the country's central bank announced Monday. "Even in the face of current economic and political challenges confronting the economy, the Zimbabwe dollar ought to and must remain the nation's currency, so as to safeguard our national identity and sovereignty. ... Our national currency is a fundamental economic pillar of our sovereignty," said Gideon Gono, governor of the Reserve Bank of Zimbabwe. "Accordingly, therefore, this monetary policy statement unveils yet another necessary program of revaluing our local currency, through the removal of 12 zeros with immediate effect." The move means that 1 trillion in Zimbabwe dollars now will be equivalent to one Zimbabwe dollar.

You ask, "why do you keep telling me about these irrelevant countries halfway across the world?". Yes, there's a reason. It can happen here in the mighty U.S. of A. Zimbabwe appears to be the most recent example of massive hyperinflation. Most of what I read and believe says that we're in for a major deflationary depression or major inflationary depression. Understanding the front runners might provide some clues and assist with preparation. The deflationary depression results in major declines in everything. This one looks like it's in progress, but the missing piece is that credit continues to expand and at record rates. A deflationary depression should be accompanied by credit contraction. The continued credit expansion and money printing should lead to an inflationary depression where costs skyrocket (Zimbabwe). Neither is good, but they present very different outcomes.

Secondly to the question, as I mentioned in a recent post, these events and microcosms by their fractal nature, can provide clues to the future on a range of scales.

Sierpinski's Triangle

If you understand the shape and form of one of the triangles, then you understand the structure on all scales.This historic unfolding event can be examined and observed on many scales: individuals, cities, counties, states, regions, countries, and continents. The weakest stumble first. Some examples:
-Individual: do you know anyone that just lost their job? I know of two friends in the past 3 weeks.
-City: New York - It was announced that NYC faces a $4 billion deficit with 23,000 jobs to be cut. Four cities in CA and six others are expected to declare bankruptcy this year.
-County: Jefferson County, AL continues to teeter on the verge of bankruptcy.

-State: California - The deficit is heading towards $40 billion. Moody's has warned of a possible downgrade....the kiss of death in the credit world.
-Region: The "auto belt" in the U.S. will be one to watch.
-Country: See my prior post on Iceland. Keep your eye on Mexico. The drug lords appear to be winning.
-Continent: Africa's struggles will rise to a new level in the coming years. S. America might be the 2nd weakest.

Keep your eyes and ears open. What might appear irrelevant could be very educational.

Big Brother, Mother Nature, and Father Time

This is an informative interview that presents a potential long term scenario that I agree with. Kress has some interesting thoughts on gold and the U.S.

"I believe that natural forces overpower those created by man and that everything goes in cycles. The market isn’t exempt [from this principle]. Cycles are a natural phenomenon and represent the natural law of physics which states that what goes up must come down. In effect, this is a cycle in rudimentary form. The cycles’ derivation are quantified by a basic mathematical sequence which identifies the natural order of universal events. The coming 10-12 year period will witness a long, agonizing bear market that will undoubtedly wipe out the wealth of vast multitudes." Samuel Kress

http://www.financialsense.com/editorials/droke/2009/0126.html

http://holyhormones.com/natural-cycles/an-interview-with-the-kress-stock-market-cycle-master/

Super Sunday

Well today is the biggest day in America, the ultimate capitalistic event, the Super Bowl. It's a great excuse to socialize. We're having 37 of our favorite neighbors over for wings, quesadillas, brisket, chips, and whatever else shows up. Yes, I was wrong again on one of my many predictions.....no Manning Bowl. I wasn't even close on that one. My New Orleans homies went "1 and out".

At least I still have Bruce and the E Street Band to look forward to at halftime. My buddy, E Street Guru D.M., was over yesterday and we brainstormed the possible set list. We agreed that "Born To Run" for the finale' is a no brainer. D.M. likes "Glory Days", a great upbeat tune with a sports connection. I'm betting on "Working On A Dream", the title track from the new album. Yes, I still call them albums for some reason. We'll see. I guarantee that it will be upbeat, energetic, and no wardrobe malfunctions.

That Kurt Warner story never gets old. I have to admit that I'm so out of touch with the details of the NFL, that I didn't realize till a few weeks ago that he was still playing. I better join that fantasy football league next year. Where have I been? It's just the ultimate Cinderella Story. From grocery bagger to Super Bowl MVP.....quite a leap. I heard a new story about him this week. In memory of the tough times his family had, when his family is eating out at a restaurant, one of his kids get to pick a family in the room and anonomously buy their dinner. Pretty cool. Keep "paying it forward" Kurt.

NBC is happy. They set a record with $260 million of revenue, $200 million of it for the commercials.

My favorite little Etrade dude didn't spend the money to participate this year. Check him out. "Can I hit you back, babe"
http://www.youtube.com/watch?v=X4GZfvXx9Js