Avast behind!

Cut-throat Jake spies danger

Pearce Financial (Financial Sense, yesterday), like Marc Faber, believes that the East is dangerously overheated and deflation could hit commodities as well as shares; also, the dollar could rise again, and the Japanese yen might break free from its moorings.

I'd like some help with understanding this last, as tides of returning dollars and yen would seem to argue inflation in their home countries.

Karl Denninger (Market Ticker, yesterday) explains it as a relativistic effect:

Our problems are bad. The problems that will be faced overseas are FAR WORSE. Overseas economies are dependant on us, not the other way around. When this sinks in the other currencies against which the DX is measured will collapse; this will appear to raise the dollar, but in fact it is the sinking of other currencies.

"Tom the cabin boy smiled, and said nothing."

Stop engines

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Julian Phillips (Financial Sense, today) explains why he thinks central banks may soon have to stop selling gold, and may even need to start buying.

Devil take the hindmost

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The Mogambo Guru vents his muscular spleen on inflation-capping for pensions in Britain. Quite right. The old are spending the kids' inheritance royally. There's so much talk of the selfishness of the young, but the oldies really knock the lights out in that competition.

Red speckles

Paul Nolte (Financial Sense yesterday) strikes a more judicious note. He points out that house price drops do not hit everybody equally, since not everyone has extracted equity and not everyone needs to sell:

... real estate is not like buying 100 shares of Cisco in early 2000 and watching it drop 80% - everyone loses the same amount, very unlike the real estate market. The point – the real estate market is not like the stock market bubble and will take a much longer time to work out – our best guess is an initial bottom is likely in 2009 and we won’t see a meaningful turn higher in overall real estate prices until sometime 2011-2012.

Similarly, there is opportunity for people to cut back on energy consumption in response to higher oil prices.

He expects a bit of a pullback in commodities and precious metals, and currently tends to prefer bonds to stocks.

Tough, but believable

Read Karl Denninger's Thursday piece over at Market Ticker. Semi-apocalyptic, but with hopes for America's survival, in what he thinks will be a deflationary depression accompanied by civil unrest and regional conflict in the East.

He thinks it's not too late for the US to recover its economic base. I hope the same for my country.

Bailing out the gold traders?

Here's an interesting story from Thomas Tan in SafeHaven yesterday:

... There has been a lot of discussion among gold investors on gold manipulation by central banks... I am not quite into the old conspiracy story, but financially I see incentives and benefits for central banks to lease and loan gold to bullion banks during gold's bear market... However if gold is on [an] explosive move like right now, bullion banks will suffer heavy losses when they buy back gold in the open market. Whether this act can be called manipulation and conspiracy? Maybe, but it was probably more financial interest driven, and suppressing gold as secondary goal.

... in May 1999, the then Chancellor Gordon Brown (now Prime Minister) of Britain sold 415 tonnes of gold, almost 60% of its total reserves, leaving Britain with only 300 tonnes. 11 days earlier, Brown had requested the IMF to sell $10 billion of its gold on the open market too. So far no real reason has been officially offered for selling gold in such a hurry... According to Mr. Schoon, it is rumored that British was acting probably in a joined effort with US Fed to save a large Wall St bullion bank which had a 1,000 tonne short gold position loaned by the US government. And it was at the brink of disaster when gold took an unexpected rise at that time in 1999 and the tide was turning against them. If true, this bailout is no different than LTCM and the current subprime bailouts, except the US government had absolutely no choice in this case since it had to rescue the bank and get its gold back.

... No matter what happened then, today it seems: 1) Rise of gold is a nightmare for all CBs since they have been the net sellers; 2) All CBs have less gold than they claim to have, and will run out of ammunition to suppress gold and eventually be defenseless to protect their paper currencies; 3) At the end all CBs will have to turn themselves into net gold buyers from sellers.

The inflation race

The pound is now worth around $2.10 US, which has some advantages: I know someone who's just had two nice holidays in America this year - to Disneyland and Las Vegas. Anyone who's inclined to sniff should remember that these places, unlike so many in Europe, try really hard to make it fun for you to spend your money.

But why doesn't the pound buy even more dollars? After all, look how gold has soared against the buck. The answer is that most currencies are competing in a devaluation race, as Chris Puplava shows here. The UK is ramping up its money supply at a similar rate to the USA's, but we don't hear so much about it on this side of the water - I think middle-income Americans are generally more clued-up on finance and... is it fair to suggest that they're more patriotic?

For a long time, we've been buying from poor people around the world. They've been storing up the money - you do, when you know how hard you've worked for it and don't want your children to go back to the fields - and now they're not quite so poor. Unemployment is on the rise here, but our trading partners aren't going to pay the Social Security bill for us.

So it's more taxes, or printing more money. The difference between taxation and inflation is the difference between robbery and theft. Theft is less confrontational.

Ron Paul was talking about digital gold currencies five years ago - now watch for the progress of the gold dinar.