The Great Fallacies

1. The government won’t let it happen
2. This time it’s different
3. It’s now a world economy
4. The internet changed everything
5. The world is flat (only if we want it to be)

The Rising Tide

The rise in credit drove the rise in the financial markets, home sizes, debt levels, confidence, waistlines, car sizes, and childhood obesity. It’s all intertwined and some might say it was all artificially created. The “supersize me” era has ended. History will show that 2000 was the beginning of the end of this massive credit orgy. While everyone is blaming the mortgage market, I believe that this situation or cycle dates back to 1982 with Reagan/Voelker. That’s when the credit and greenback printing presses started warming up. Bush Sr./Greenspan participated. Clinton/Greenspan accelerated to a higher level and Dubyah/Bernanke continued the process. ALL were participants. Both political parties. To hear Greenspan interviewed last week and state that he knew this was coming is outrageous. He was the mastermind behind the majority of the credit cycle. The Fed continues to destroy the U.S. dollar. At some point, the printing presses will run out. Two years ago the Fed quit reporting M3 figures. They said that it was too expensive to track!!! Zimbabwe did the same thing with their inflation rate. Don’t worry, we got ya covered!

The Creature From Jekyll Island

The Creature From Jekyll Island
Probably one of the best books documenting our financial system and the history behind it.

If you don’t want to read the book, check out the author in this multi-video presentation: http://www.youtube.com/watch?v=F3TAh1gy6rc

*Note that there are 7 more parts/videos
The 6th segment addresses BAILOUTS.

The $700 Billion Bailout

The vote failed. I’m shocked, but it will pass on Thursday because “fear” has now replaced “greed” as the primary emotion consuming the world. The Plunge Protection Team has put fear in the minds of all. In addition, too many politicians are up for re-election. Placing a wrong vote is perceived to be better than casting no vote. Get ready for a temporary stock surge and gold plunge. It was stated this weekend that funding will be phased in and there will be congressional oversight….can we say IRAQ! This is so wrong. Financial markets, when left alone, behave in Darwinian fashion. Irrational exuberance will always correct itself. Poorly managed and unethical companies should be left to fail. Poor management should be removed without golden parachutes. The bailout won’t remove the correction it will only make it worse and last longer. Everyone is pointing the finger, but we ALL participated. Whether it was through the Dotcom orgy, cheap and creative mortgages, credit cards, or 0% financing. It’s a system and the consumer is one part of the equation. John McCain believes that firing the SEC Chairman solves the problem. It’s much larger than that.

Weekend at Pelosi's

“The Party is Over” Nancy Pelosi, 9-29-08

Euphoric credit orgy: 26 years
Time taken to come up with a plan: one weekend
Time taken to review the plan prior to a vote: 4 days
Priceless!!

Where were the politicians during Nancy’s party?? head under the keg tap!

“This is an economic Pearl Harbor.” Warren Buffett 9-23-08

Economics of a 12 Year Old

Last Sunday morning I was watching C-Span where they were showing snippets of the many events of last week. My daughter walked in the room and we had this great discussion:
Daughter: Dad, can’t the president get as much money as he wants.
Dad: sort of
Daughter: doesn’t he have his own ATM machine?
Dad: sort of; he has a friend, Ben Bernanke, who does
Daughter: who is he
Dad: he’s the Federal Reserve Chairman
Daughter: he really has his own ATM?
Dad: sort of
Daughter: is he a good guy?
Dad: today he’s probably best described as the “fall guy”
Daughter: what’s a fall guy?
Dad: he’s someone who takes the blame for something he really didn’t do
Daughter: can we turn on the Disney Channel?
Dad: you bet!

Weekend at Bernie-anke's

Remember the movie “Weekend at Bernies” where Bernie died and his two associates kept him “virtually” alive all weekend for the beach party? The current financial markets sure do feel a lot like Bernie. And how about Fed Chairman Bernanke. He’s holding Greenspan’s bag and trying to figure out what to do. He’s standing at the podium trying to explain Greenspan’s sins. Isn’t it ironic that he’s a student of The Great Depression? The Fed will only lengthen the correction. Don’t try to control Adam Smith’s “invisible hand”.

I Liked IKE

After being caged up in a “non-electric” world for five days after IKE, I had too much time to think. The result…….another rambling rant. Two weeks ago Wednesday at our 15th backyard, no-electricity BBQ, one neighbor said “have you heard what happen in the markets this week?”. I said “no”. He said “Lehman Brothers failed, Merrill Lynch was acquired, AIG may fail, and the market dropped 400 points!”. I responded “this is the week my mentors have been warning about and I missed it!”. Well, it appears that many more fireworks will be going off for all to watch in the near future.

It’s not all bad news! During the down cycle we’ll turn away from materialism and return to God. We’ll focus more on family and friends versus buying new toys. My IKE experience was that no electricity is a good thing. It was amazing to see how “community” emerges when the power is turned off. It was amazing to see kids playing in the street and building forts with tree limbs. It was amazing to see people working together with chain saws clearing out trees. It was amazing to see everyone getting along. I can’t tell you how many multi-family meals we had in our backyard. Challenging times will bring out the best in most. The human spirit is strong and good.

To close, an excerpt from Kuntler’s “The Long Emergency”:
"And in a way, I have my own thoughts about that because I’m basically a cheerful person, and in my own way I’m also an optimistic person. I’m not really a doomy-gloomy guy. And I would leave you with this thought: that the American people have historically been a generous, brave, forward looking, resourceful group, and we’ve shown great courage in the face of adversity before. I think we’ve become kind of a somewhat sloppy and complacent people in the last 25 years or so, but it doesn’t mean we can’t recover a lot of those virtues that are really part of the fiber of our national character. It’s still there and can still be recovered, and I think we’re going to be able to do that. It’s not going to be true for every place and everyone, but I think that’s going to help us a lot. So I have a lot of faith just in our national character, and the better angels of our nature, as Abraham Lincoln said.“

My Email to Billy Boy and The Factor

It's painful to watch, but I have to admit that, on occasion, I watch the O'Reilly Factor. I find the man to be angry and spiteful. In October, 2007 after he called my musical hero, Bruce Springsteen, unpatriotic, I had to send him an email. Here it is.....

Billy-Boy,
I’ve watched your show for years and felt compelled so many times to send you a note, but your assault on Bruce motivated me to finally write. I should state that I claim no political party. All media channels appear to have bias, so one must watch several to get a balanced perspective. So a mix of Fox news, the NY Times, CNN, and NPR make an interesting blend. Your totally arrogant stating that individuals have to appear on YOUR show. When did you become the TV-god? Stating that you will donate $25,000 to Habitat for Humanity is such a farce. Bruce appearing on your show would provide Fox the opportunity to sell commercials at Super Bowl rates. $25,000 donation……give me a break. Your ratings would skyrocket even more! No one reports to you. Bruce for forty years has consistently written and sung about what he feels in his heart and ponders in his mind. He’s always had the courage to release music that was not what the mainstream wanted to hear. Whether it was the darkness on Nebraska, the pain in Streets of Philadelphia, the reality of American Skin or Dead Man Walkin’, or his perception of our country on Magic. You state that he is misleading the younger voters.
He has the right to his opinion just as you do. If people don’t like it, they don’t buy his CD or attend his concert. His business is about direct feedback. Your problem is that people are buying his “spin”. His problem is that people are buying your “spin”. You see, that’s the beauty of a free country.
Billy-Boy, you continue to mislead the evangelical/Republican babyboomers. You spit venom and spread hatred.

In the “up” cycle (1982-2000), you media mongers sold “greed”. Remember the euphoric ending (aka DotCom). Now in the early stages of the “down” cycle, you sell “fear”. Fear of muslims. Fear of Mexicans. Fear that our house value will drop in half. Xenophobia is a powerful force in the down cycle and you are fueling it as much as anybody. Why didn’t you care about illegal Mexicans in 1995? If you believe that the U.S. is in the business of removing evil dictators than why aren’t we in Iran, N. Korea, and Venezuela. If we are good Samaritans, why aren’t we in Darfur/Sudan, Ethiopia, and Uganda.

The interesting point regarding mass social mood is that two years into the “up” cycle (1984) Bruce released the album, Born in the USA. The title song ironically was misconstrued to be a national anthem when it really was a song about how poorly our Vietnam veterans were treated. Wikipedia states the following “Yet more notably, the widely-read, bow-tied conservative columnist George Will, after attending a show, published on September 13, 1984 a piece entitled "A Yankee Doodle Springsteen" in which he praised Springsteen as an exemplar of classic American values. He wrote: ‘I have not got a clue about Springsteen's politics, if any, but flags get waved at his concerts while he sings songs about hard times. He is no whiner, and the recitation of closed factories and other problems always seems punctuated by a grand, cheerful affirmation: 'Born in the U.S.A.!'.”
You see, in the “up” cycle we see the bright side of things. Now in the “down” cycle MAGIC is construed to be anti-American and unpatriotic. A very interesting psychology experiment.

Billy-Boy, on another note, Iraq and global warming are about the same thing, overconsumption. No one wants to talk about that because then we all are guilty. Al Gore in his many houses is guilty. Bill O’Reilly is guilty. I am guilty. As you know, we’re in Iraq for strategic reasons…..to control the oil output from the Middle East. Afghanistan provided a great landing base. Iraq provides great oil reserves and proximity to Iran. Please be honest. Yes, it was about WMD’s, but those of another kind: weapons of mass depletion. As a country that represents 5% of the world’s population, we consume 25% of its resources. That’s just irresponsible. Why don’t you spend a week focusing on US consumption. Have Jared Diamond as a guest (author of Guns, Germs, and Steel; Collapse). Or maybe have Richard Heinberg (The Party’s Over; Peak Everything).
Historically, conflict between cultures is sourced in resources or religion. The current and coming years provide an alignment of both. Stay tuned. You’ll have a lot more interesting topics to talk about than assaulting iconic rock stars.

Mr. O’Neill, you are subject to external forces much greater than yourself. Your selling what the mobs currently seek and feel…….FEAR.

I’ve purposely made this response long so that you can selectively edit and combine to make your point seem valid.
Enjoy!

Purchasing Physical Precious Metals

Robert Prechter's recommendations for purchasing physical precious metals:

Gold Bars – buy standard bars and store a the safest depository possible; Two options:
-Commingled – piece of paper stating ownership
-Physical bar in vault – pay storage fees (Switzerland/Australia)

Gold coins – not collectibles; buy either:
-US Gold Eagle
-S. African Krugerand
-Australian Nuggets
-Canadian Maple Leaf

Silver coins – junk silver coins (90% silver) – up to 1964

Do NOT buy gold stocks. They are paper-based assets.

Buying Physical Gold

Recommendations from Larry Edelson, Editor, Real Wealth Report

Consider These Core Gold Investments
Gold Bullion
One convenient vehicle is 1- and 10-ounce gold ingots. For larger purchases, think about 32.15-ounce kilo bars.

What about American Eagles, Canadian Maple Leafs, etc.?
No, because the premium you pay for coins could cost you the equivalent of several more ounces of gold bars over time.

One other piece of advice: Pick a dependable, trustworthy dealer. Here are some dealers I like:
American Century Brokerage (800-826-8323)
Dillon Gage (800-375-4653)
Jefferson Coin and Bullion (800-593-2585)
Rare Coins of New Hampshire (800-225-7264)

Gold Funds
Consider Scudder Gold & Precious Metals (SGLDX)

Tocqueville Gold (TGLDX)

American Century Global Gold Fund (BGEIX): This no-load fund has a total expense ratio of just 0.67% (less than half the category average). Its portfolio is stuffed with gold companies, but many of them produce silver as well.

And if you want a broader stake in the resources market, consider this fund …
U.S. Global Investors Global Resources Fund (PSPFX): It is consistently one of the top-performing funds in its category, and has the flexibility to switch from energy to base metals to precious metals — whatever it thinks is hot. PSPFX gets four stars from Morningstar, has a total expense ratio of 1.3% (lower than the category average), and some of the sharpest management in the business. Given the recent pullback in natural resources, this fund is a bargain!

Oil Price Prediction With The Elliott Wave Theory - #3

The predicted price pattern of 2/7/05 has aligned very well. The price decline in October of 2004 is now labeled as the 4th wave in an overall upward trending cycle. The current forecast (below) calls for a continued surge above $75/bbl. At that point a correction should occur.

Prior prediction:

http://randomroving.blogspot.com/2005/02/oil-price-prediction-with-elliott-wave.html

Oil Price Prediction With The Elliott Wave Theory - #2

The current price pattern aligns well with the prediction of 10-22-04. The price appears to have completed an A-B-C down to $40/bbl and is rebounding into the next 1-2-3-4-5 wave count. The next leg is predicted to be well beyond the $56 peak.

The prior prediction:

http://randomroving.blogspot.com/2004/10/oil-price-prediction-with-elliott-wave.html

Prechter on Oil

Published by Elliott Wave International
Conviction as "Broad and Deep" as He's Seen in 30 Years...
The annual New Orleans Investment Conference was this past weekend, and, as in other years, Bob Prechter was there to give a talk. The November Elliott Wave Theorist (published today) gives Bob's impressions of what he heard -- several of his thoughts are well worth repeating here.

"If there was one theme of the conference, it was the inevitability of soaring oil prices.... People were clamoring to sign up for oil and gas deals, drilling operations, etc....
"The consensus that oil prices can only go upward for the rest of human existence is as broad and deep a conviction as I have ever witnessed toward any market in 30 years in the financial analysis profession. When oil was selling for $12 a barrel a few years ago, no one was interested. There were no booths at conferences touting higher oil. But isn't that exactly when investors should have been buying it?... The point is this: If almost everyone is betting on higher oil prices, then all bets are in."

What got my attention is the comment about conviction being as "broad and deep" as he has ever seen in 30 years -- that covers lots of ground and lots of conviction.
The key issue is clear: If all bets are in, where does the market go from here?

Puplava's Prediction at The Inflection Point

from financialsense.com
We are now at an historic inflection point in history—with no turning back the clocks. Had our political leaders from Reagan and Clinton to Bush I and II been more fiscally responsible, we wouldn’t be facing the largest monetary storm in history. That monetary storm lies directly in front of us. Bernanke and Greenspan may summarily dismiss high oil prices, but for most of us who live in the real world, higher energy costs are going to be inflationary. Investors need to start preparing for $100 oil. Higher oil prices will eventually permeate all aspects of economic life, driving the costs of basic necessities higher. In the future you may be able to buy a flat screen TV, DVD player or personal computer at a cheaper price, but the cost of everything else will be rising. The things that you need in everyday life will all be going up: your grocery bill, your utilities, the gasoline that powers your car, visits to your doctor or dentists, tuition, and lastly, taxes.

The economy will vacillate between periods of deflation and inflation, with each recession bringing forth a temporary reprieve from what will be an inexorable rise in the general rate of inflation. Eventually wars, deficit spending, a rising mountain of debt, and peak oil will lead towards hyperinflation in the United States.

Already, the U.S. is exhibiting many of the pre-hyperinflationary conditions that are so prevalent in many South American and Eurasian economies. Evidence points to several factors that will lead us there:
Large budget deficits
Deteriorating international trade balances
An eroding international currency
Eroding financial confidence
Growing protectionism
An expanding war on terrorism and the need for security
Growing entitlements

Whether the U.S. experiences hyperinflation or simply higher inflation rates will be dependent on the political will of its leaders to rein in spending and bring its fiscal imbalances into order. At this point, it appears hopeless with over $51 trillion in unfunded Social Security, Medicare, and pension liabilities now growing at over $2 trillion a year. History teaches us that debt imbalances of this magnitude are always inflated away.

An expanding money supply, abundant credit, and negative interest rates are inherently inflationary. When investors realize that they can borrow money at next to nothing rates and invest that money in hard assets and get an immediate return, the demand for such assets rises. This leads to higher prices, asset bubbles or inflation. This is what is going on now in the financial markets, the real estate market, and in the commodity markets. A flood of money and credit throughout the world is driving asset bubbles and inflation. Central banks can create money and credit, but they are unable to direct where that money flows. One of the chief characteristics of inflationary cycles is asset bubbles. First, it was stocks in the 1990s. Then, it was real estate and mortgages in this new century. It is now working its way through to the commodity markets. The new bull market in commodities will dominate the financial markets the balance of this decade and the next.

As debt levels rise in the U.S. at unprecedented levels, the Fed will increasingly become impotent. Unlike Volcker in 1979, today’s U.S. economy is far more debt laden. Because of this huge debt overhang and the huge asset bubbles that support it, the Fed’s options are limited. The Fed simply can’t afford to raise rates in the same decisive and single-minded way that Volcker did during 1979-1982. The Fed’s new mantra is "measured." This means that real interest rates will remain negative for a long period of time.

No matter how high inflation finally gets, it is abundantly clear that the financial markets are undergoing a paradigm shift from a bull market in paper to a bull market in commodities or "things" as I like to call them. Investors will need to focus on a different class of assets. Real assets are going to be the big winners in this new emerging bull market. Commodities are becoming "The Next Big Thing." Precious metals, base metals, energy, water, and food are where the next fortunes are going to be made. Precious metals have, will, and are going to lead this new bull market. It is in regard to precious metals that I devote the remainder of this essay.