Deflation / Inflation revisited. Deleveraging vs Hyperinflation; the Fed vs the free Market. 2012-01-24

I have just listened to the ultimate hyperinflation guru, John Williamsd of the excellent www.shadowstats.com on Jim Puplava's Financial Sense Newshour and straight afterwards, I am now listening to the ultimate deflationist, Robert 'Bob' Prechter on GoldSeek radio.

Yesterday, I listened to Ian Gordon on Jay Taylor's show and before that I have listened to the always interesting Bob Hoye on www.HoweStreet.com - Ian Gordon is a deflationist who thinks the dollar will collapse afterwards (so he seems to have a foot in both camps) and Bob Hoye is also somewhat in that camp, thinking that the US dollar will be strong for at least a period during the deflationary/deleveraging process.

It is difficult to reconcile these two types of view, because I can see both points of view. One basically believes that the Federal Reserve can continue to debase the dollar ad infinitum until there is hyperinflation and the others basically are saying that the Fed is "not omnipotent" (Bob Prechter's words) and, as Bob Hoye says, the dollar will not be repudiated but the policies of the Fed and the interventionist economists will.

I am not entirely convinced by either argument actually.

Bob Prechter thinks that the setup now for gold and silver is like 1974 when silver crashed and gold went on rising before crashing by 50%.

Bob Hoye and his colleague, technician par excellence Ross Clark, see a stong dollar rally coming soon with a break well above 80 on the US dollar Index (the USDX). This rally may have started from the downturn in the general markets in the credit crisis around March 2008 and might last for around 10 years.

I can see that we may see a reconciliation of the deflationist/inflationist point of view here. As debt collapses in Europe for instance, money flows into US dollars, as Bob Hoye says, because most of the debts in the world are payable in the pimary financial centre of New York, in US dollars. During the deleveraging process, similar to a margin call in the futures market, the debtor or loser has to pay off the debts in an awful hurry and has to sell alkmost anything to raise US dollars to pay them off.

Prechter sees some very negative changes in social mood and mass psychology, irrational behaviour, anger, riots and even massive political changes, such as states seceding from the union in the USA.

Prechter sees the repudiation of the Fed as already in process with politicians and citizens criticizing Chairman Ben Bernanke, whereas they all sucked up to his predecessor Alan Greenspan and treated him as a demi-god. So, maybe Bob Hoye is right that the Fed will be repudiated, together with governing class of bankers, Keynsian economists, politicians and central bankers as a whole.

The great James Dines, in his interview on King World News last weekend, is seeing many changes towards the dark side in social mood. These would be illustrated by the riots all over the world and the revolutionary changes in the MENA (Middle East North Africa) countries.

A major rally in the US dollar would be what Bob Hoye describes as the worst thing for central bankers - an "outbreak of sound money," which increases the purchasing power of the debt, screwing debtors into the ground by making them sell off even more of their other assets to find US dollars to pay off those debts. This applies to individuals, companies, financial institutions and countries!

His technician colleague Ross Clark spotted the nascent rally in the dollar restarting before Christmas during the market crash from a level of 74 to the 82-82 level just now. However, the gold guru Jim Sinclair is asserting in his interview on KWN last week thatr the dollar will top at 82.

A major rally in the US dollar would be in line with the 40 year trend channel, which slopes down gradually and has major declines lasting 6-8 years followed by major 8-10 year rallies. The last decline was from late 2011 to early 2008 and the bottoming process may have been completed with choppy action at the 71-80 level recently. The deflationists scored a massive coup in this intellectual battle by predicting that the dollar would strengthen on a credit crisis and it has, somewhat, despit e all the money printing (Quantitative Easing, QE1 and QE2) as well as all the backstops of bad debtors carried out by the Fed since late 2008.

In the 2008 markert crashes, the dollar index rallied from 71 to 90 and then began another decline as the money printing came back in. However, the dollar did not make a new low below 71. The decline stopped at 74 and the dollar is now up at 81.

The 'reconciliation' of the deflationist and inflationost points of views might come from the situation where there are many other countries, financial institutions, companies and individuals in the western world and elsewhere that are basically bankrupt.

The sovereign debt crisis in Europe could collapse the Euro. If it does, then one could see a large flight into the US dollar as varioous countries undergo currency collapse. If any or all of Greece, Portugal, Ireland, Spain and Italy are forced to leave the Euro, their new national currencies would be likely to collapse under an orgy of money printing to pay off the national debts and/or support their unsupportable socialist policies. With the people heavily enfranchised into socialism and wealth tranfers and many millions employed direcutly and indirectly by their governments, money printing would likely be demanded and hyperinflation would probably ensue as worlwide creditors cut off those countries and collapse their currencies.

In that case, the dollar could have major rallies as this unfolds. It might take several years. The US government would have plentiful sources of funding for its extremely excessive spending. It would only be when the European issues and other national currency collapses of countries outside the USA (such as the British Pound in the UK) that the speculative inflow of money fleeing into the US government could cease, leading to a government default and currecny collapse in the USA a few years from now.

It is all very conjectural. John WIlliams sees hyperinflation in the USA beginning as soon as 2014. OK, it might, but if we get an 8-10 year dollar rally and it started in 2008, we might not see a top in the dollar until about 2017 and then perhaps the US dollar hyperinflation and collapse.

This would be all very very disappointing and a long wait for gold bugs and silver bugs, who are always expecting the dollar to collapse and the gold price to go to the moon at any moment.

I will post the links to all these interviews on this article soon. The combination of interviews has been particularly good in the last couple of weeks, at a key moment in financial and monetary history!

What is certain is that the future is uncertain!

Gold now bearish, SIlver more bearish! 2011-12-20.

OK, it's been 4 weeks since the last p[ost by me. I couldn't believeit was so long. During that time, gold has done nothing positive, silvee has done nothing positive.

Gold reached a breakout point at $1760 on its pennant formation and then completely broke down and smashed down right out of the pennant by a long way. Silver went under $30.

Interestingly, on the Point & Firgure chart on silver on http://www.stockcharts.com/, the PO (Price Objective) on the chart for silver swiched right from $46.0 to $22.00 in an instant! Take a look!

http://stockcharts.com/freecharts/gallery.html?$SILVER

Gold's smash down from the potentially bullish pennant was a bit of a shock and it just cratered below $1600. Europe is a mess.

While the EU is a mess that dollar index moved above 80 to 81+. Imagine what might happen to gold and silve if the USDX goes up to 90 as it did in 2008. They will get SLAUGHTERED.

Just an opinion, remember I am a useless trader. No advice is intended or implied in this post. This is just commentary.

Bearish for silver, undecided for gold? 2011-11-23

"You never had the things you thought you should have had,
And you'll not get them now,
And all the while, in perfect time, your tears are falling on the ground
No, No, No don't cry..."

Hey, that's the story of my life and maybe the story of the goldbugs' and especially the silverbugs' life!

Are we still gonna get the big drop to $1400 gold and $20 silver?

Well, these charts say maybe not for gold and maybe yes for silver.

This is not investment advice as Al Korelin says - because I am a crap investor.

Clive Maund bearish, my call on Fresnillo and the Pt:Au ratio breakdown. 2011-10-02

I liked Clive Maund's commentaries on silver recently:

http://www.kitco.com/ind/maund/sep262011_silver.html

As someone interested in the silver miner Fresnillo that is on the UK stock market (I live in the UK and have some Fresnillo shares), I had noticed a magnificent bearish rising wedge pattern that had formed as it made repeated new highs in the face of poor performance from silver and the rest of the stock market:

http://1000gold.blogspot.com/2011/09/is-this-perfect-rising-wedge-pattern.html

This pattern worked out wonderfully and the price crashed to below 1600, the target zone.

I wondered if the target for the deline in gold and silver had been reached after this decline in Fresnillo. So, one might have expected a bounce here, perhaps. Also, there is a gap down in the decline between about 1920 and 1860 that ought to be filled on the upside.

However, the silver chart has looked so ominously like 2008 since May this year, with a tepid post-decline rally being like that in 2008. So I am not sure that it is the end of the decline and it is great to see an important commentator whom I have watched since about 2002 give great charts to show this.

There instinctively looks like a target of about $21, which was the last major high in silver from March 2008, in the same way as the late 2008 silver crash went to the previous major high from 2004 (and 1998) at $8.40 after a brief consolidation in the $15 area.

To my view, the $50 top now = the $21 top in 2008, $32.50 now = £16 in 2008 and $21 now is potentially the bottom = $8.40 in the 2008 crash.

It would also be a magnificent 60% decline from $50 to near $20, the same percentage as 2008. The big worry is that we haven't had big bank failures yet and if we do get them we could easily get a crash to $20 or maybe even lower!

To me the chart of Fresnillo crashed below the 1600 target to less than 1500 - and 1600 now looks to me a bit like potential resistance. If that is true, then things could get very nasty quite soon in the silver space. The signals though are a bit mixed.

More nasty signs are the breakdown of the platinum:gold ratio below the 2008 low of 0.965 and the recent upsurge in the gold:silver ratio.

I am going to watching Clive Maund's commentaries like a hawk to see if he is correct.

I wonder though if silver might hold up better this time, since after going down to $8.40 in 2008, it then went up by nearly x6 to $49.75! I wonder if that might bring buyers in sooner this time, anticipating this possibility. It's a fascinating market; history is being made here.

The bearish rising wedge in Fresnillo was bearish! + 2011=1933? 2011-09-22 2213 UK time BST

Two posts ago I observed the bearish rising wedge pattern in Fresnillo the key silver miner.

Well, that pattern has indeed worked out and was indeed bearish!

Please note: This is not investment advice in any way, merely a market observation about a stock that (unfortunately right now!) I do own to a small degree.

Here's a little idea. If this crash thing in the markets continues with strengthening US dollar, then we are in the second leg of the great deleveraging. That would be like 1933, perhaps.

For me,
1. Year 2000 = 1929 = crash of speculative stock market bubble
2. Year 2008  credit crash in USA etc. = 1931 crash in Credit-Anstalt in Austria, then Germany, then UK off the gold standard leaving only USA on godl standard (most prudent creditor nation). Senior currency GB pound debased while new senior currency US dollar remains prudent for a while.
3. Year 2011 = 1933 = crash in the stronger currency Euro area, Germany being somewhat equivalent to USA in the 1930s as more prudent creditor nation. Greece is on the equivalent of the gold standard in 2011 with no printing press, thus credit collapse moves to those weaker Eurozone nations locked into Germanic tight monetary policy, similar to to crash moving to the USA in 1933 because it remained on gold when all around were debasing.

WATCH OUT! 1933 IS ABOUT!

The platinum:gold ratio a sign of credit crunch #2? 2011-09-20 1858 BST UK time

Here is a great chart. This is the chart of the platinum:gold ratio from stockcharts.com. Recently, the ratio has dipped below 1.0, a rare and remarkable thing for recent years.

I have been wondering whether it would be a good idea to swap some gold for platinum but here in the UK there is a prohibitive VAT tax on platinum of 20%, isn't that outrageous? That tax is on most things by the way; oh, the boundless greed of government!

I just listened to a super interview with Rick Rule on King World News, where he gives his always interesting view of the markets. This time he gives some time to platinum.

I decided to pull the $PLAT:$GOLD chart up again on stockcharts during his interview and lo and behold, the ratio is making a double bottom as I write at a ratio of about 0.97!

The first low was in the credit crunch of 2008 and we are right back at that low again, making an almost perfect double bottom. There has been a very slight bounce but it would be fascinating to see whether the ratio makes a double bottom and rallies or is it breaks down on this current Greek and Eurozone credit distress below 0.97 and plunges to a new low.

At any rate, one might therefore think of the gold to platinum ratio (that way around) as acting like a credit spread; this ratio is making a double top, or maybe it is about to break above 1.03 to a new high. Bob Hoye of Institutional Advisors and Howe Street radio talks of the gold:silver ratio acting like a credit sptread. I am gonna ask him if he thinks the gold:platinum ratio is similar.

Here is the gold:platinum ratio chart (the inverse of the one above).

Is this a perfect rising wedge pattern? 2011-09-12

I was looking at the new highs of silver miner Fresnillo thinking, "Great! I own some of this stock and it's going up repeatedly to new highs!" A little later, I read an article on bearish rising wedges and then I thought, "Uh oh!!"


Here is the chart:

Oh well, the chart won't come up on my stupid computer. Look at it here!:
http://stockcharts.com/freecharts/gallery.html?FRES.L

and tell me that it isn't an amazing example of a bearish rising wedge. Now some analysts say that this pattern is usually found in bear markets though here we have new highs with Fresnillo in a bull market instead.
The target might be about 1600 for Fresnillo since the downmove usually wipes out the entire upmove made while the wedge was forming. Note the lowering volume at each of the new highs, typical of the bearish rising wedge formation.

It will be fascinating to see if this wedge pattern works out or if Fresnillo takes off instead.

1. Wedge formed:

2. Breakdown? :