Inflation or Deflation?

After I was published making that point (and emailed it to all the top writers in the industry):

http://goldwetrust.up-with.com/economics-f4/inflation-or-deflation-t9-300.htm#2526 (nearly 2000 reads in 2.5 days at marketoracle!)

(note I will be sending my 25,000 Cool Page owners a link to that "How Deflation Is Inflation" article, as it shows savers gained 33,900% more on a gold standard)

Several are now writing similarly:

http://goldwetrust.up-with.com/precious-metals-f6/gold-as-an-investment-t60-105.htm#2547
http://financialsense.com/fsu/editorials/clark/2010/0105.html
http://financialsense.com/fsu/editorials/willie/2010/0106.html
http://www.kitco.com/ind/Clark/jan062010.html

Not saying I influenced them or vice versa, but the community is coming to the realization.

2010 is the last year to get out before the capital controls, because the dollar is cornered. When I say it is cornered, what I mean is the developing nations could careless about their own fiats, they are accumulating gold and using their own paper to play ball with the dollar until it is finished. Read Jim Willie's comment about China's secret deal to convert their Tjunk to land in USA (something I had also speculated might happen):

Willie wrote:The Chinese crisis then ignites a global sale of USTreasurys. As an offshoot to the chaos, the colonization of America then begins, as China cashes in on its USAgency Mortgage Bonds. It exploits it cut deal of Eminent Domain conversion of bonds into property. (chance: 20%)

http://www.kitco.com/ind/Summers/jan082010.html

Also Mr. Copper could give a signal, but hasn't yet:

http://www.gold-eagle.com/gold_digest_08/hamilton010810.html

I have been keeping some of my powder dry.

It is very hard to call this one short-term. Of course within a year, Gold will be much higher than it is now.

But gold can not be held back too long, so don't hold that powder too long:

http://www.gold-eagle.com/editorials_08/degraaf010810.html

My guess is we get one more test under $1100, might even get to $1050 or so, and then up, up, and away. Which is supported by this:

http://www.gold-eagle.com/editorials_08/radomski010810.html

This prediction seems to jive most with mine expectations:

http://www.gold-eagle.com/editorials_08/banister010710.html

http://market-ticker.org/archives/1830-401kIRA-Screw-Job-Coming.html

CAPITAL CONTROLS!

Get your money where you want it to be now. Don't risk it.

I have been warning about the 401(k) scam since 2007:

http://goldwetrust.up-with.com/economics-f4/urgent-warning-iras-401ks-are-a-govt-scam-t39.htm

And as I have been saying, I expect rising rates to drive people into stock temporarily for a 5th wave blowoff in stocks, before bringing them back into bonds with a stock crash in later 2010 or 2011:

http://market-ticker.org/archives/1826-Here-It-Comes-You-Were-Just-Warned-Folks.html

http://www.gold-eagle.com/editorials_08/nielson011710.html

I think the one point he is missing is the percentage of the Chinese economy which is still driven by exports. Seems to me it will take more years for China to grow it's non-USA export market to avoid riots at home. I don't buy the decoupling argument. The USA was not able to decouple from Europe's monetary implosion in early 1900s without a Great Depression and WW2. But those would have been unnecessary if FDR had not confiscated the gold. But the Yuan is not a gold backed currency and can not become one. Also he is missing the likely fact that there is massive overproduction in China, and wasteful duplication due to easy credit policies.

The USA will not go down in isolation. The world will not transistion from the dollar reserve currency bubble without massive global pain and tumult.

http://www.kitco.com/ind/GoldReport/jan192010.html

...Given the U.S. dollar's role as the world's reserve currency, I look at U.S. interest rates. The gold price starts to rise when three-month real rates go negative (when rates are positive, you're getting paid to hold dollars whereas gold doesn't pay anything). However the gold price really takes off when 10-year real rates go negative. That's what happened in 1979 and very briefly at the end of 2007. The 10-year real rate is positive right now, around 1.6%. As the three-month rate is negative, it's positive for the gold price but if the 10-year real rate goes negative and stays in negative territory, look out. The gold price could really spike...

As someone pointed out to me recently, and I had also pointed out as early as 2007, that real interest rates on 3 month (90 day or 13 week) Treasuries actually went negative in 1992 (and about 1996 for 10 and 30 year Treasuries), if you use non-liar inflation data:

http://www.shadowstats.com/alternate_data/inflation-charts
http://chartsrus.com/#FOREX

Thus the only thing that has to change is that people realize the truth about their bond holdings in negative real interest rates. I repeat again from my prior article, this is why the Fed is so concerned about "inflation expectations". They are trying to cook the frogs slowly, with most people unfocused on the fact that their 401(k)s and retirement plans are invested in bonds. The bond market has just peaked with a massive H&S pattern and there is talk of confiscating this money when the people wake up and try to stampede, which IMHO coincide with the big jump over the financial cliff in 2010 to 2011 or so.

I am telling you that all the doors are closing in 2010 or perhaps 2011/12 at latest, and we are headed for the massive realization and stampede and the govt measures to control it. Get the H&*^% out before it is too late.

See also the prior article I wrote about the correlation to negative real interest rates:

http://goldwetrust.up-with.com/economics-f4/inflation-or-deflation-t9-300.htm#2526

(click images for article)

This is gresham's law in action. PTB manipulated the prices of commodities lower via future's (paper) markets, in order to keep the value of dollar (and the fiat system pegged to it...yeah even floating currencies are basically pegged to dollar) from collapsing. So what did people do with their dollars l(and fiat in general)? They stockpiled the undervalued money: base metals (and gold and silver and guns and bullets).

Greshman's Law says bad (overvalued) money drives good (undervalued) money into hiding (stockpiles). Examples are the fact that USA silver coins and pre-1982 90% copper pennies have been hoarded.

But there is problem that will cause waves of volatility in the above action. The world has a huge amount of fiat debt. If the debt is not paid (it can't be! QE just kicks the can up the worse road), the fiat system (contract law, i.e. rule of law and desire to do business) will stop working. If the fiat system stops working, then there will be no one (business) to consume to those stockpiles, and thus stockpiles become liabilities (incur storage expenses and opportunity cost for alternative investments) and need to be sold at lower prices unless they can be spent as money themselves. This is why gold (and to greater or less extent silver) could outperform other commodities. Or let us say that those commodities which are less like money, will be more volatile. Silver is less like money than gold (e.g. higher spreads, higher mass per value, more demand from consumption than money, etc), and thus will be more volatile than gold. However, remember the silver stockpiles are very low, and if ever this becomes known widely in the market or let us say if ever fiat system dies since the 2 statements can (and will!) cause each other, then the monetary demand for silver is unfathomable. China doesn't buy silver instead of the base metals, because the entire annual supply of silver is only about $15 billion, stockpiles are gone, and driving the price of silver up would destroy the fiat system and implode China into chaotic depression. Which is also perhaps why nickel is in counter-trend to other cheaper base metals in charts above, because nickel is primary used in stainless steel, which is a luxury item and nickel is a much smaller market cap.

Until the stimulost and QE liquidity spigots open (or are expected by market to) again, we will probably see some volatility to downside prices now.

We are riding a death star of the fiat system and rule of law. Final stop are infinite gold and silver prices, with interim volatility stops along the way.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7095818/Funds-flee-Greece-as-Germany-warns-of-fatal-eurozone-crisis.html
http://johngaltfla.com/blog3/2010/01/21/

Remember March is when Fed has promised to stop QE (purchasing toxic crap).

"In January 2009, a stunning 356,000 jobs were removed from the overall count because of the birth/death model. That resulted in a much larger- than-expected loss of jobs during the first month of the Obama administration. The panic was palpable.

"Without a change, the Labor Department will subtract a similarly large number of jobs this January. And when that month's labor figures are reported on Feb. 4, watch out! The stock market will not like this. "

But will they change the rules of the game again before this jobs data release? Well guess what I looked it up and yes there is a new format for the jobs data, see this link to the US gov site: http://www.bls.gov/cps/ "IMPORTANT Upcoming Changes to the Employment Situation News Release on February 5, 2010"

I don't know if this will mean hiding the number or not but it would not surprise me. (5th of Feb, not 4th as started by the Daily rec.)

http://www.investophoria.com/2010/01/inflationists-worst-nightmare.html?showComment=1265379278686#c4846906421201035635

Shelby wrote:Deflation is good for savers, especially when they save in gold, when the govt is determined to fight deflation by pushing on a fiat string:

Google "How Deflation Is Inflation"

Business is declining ad Govt is losing tax revenue at a -8% per year rate!

<- click for article

I wish the chart on right was logarithmic. It is thus not showing the relatively (as percentage) large decline now.

People following this genre of illogic:

http://www.zerohedge.com/sites/default/files/Brait%20Capital%20Hendry%20v%20Bond.pdf

Because they don't realize How Deflation Is Inflation.

More on the logic why Gold can't crash as much as commodities

http://www.investophoria.com/2010/02/not-much-happening.html?showComment=1265939716188#c8971499444282032105

Shelby wrote:Derek, in terms of gold falling away EXCESSIVELY into deflation, I think you are confusing capital and money. What people need most during deflation is capital, because deflation is the unwinding of mis-allocation of capital. Money is what society agrees is the best means of exchanging value and thus allocating capital. Unfortunately society has made a horrible decision, and they will be correcting that decision during this epoch. Gold will correct here to slightly below $1000, that is all. Silver will correct as it is more industrial in the mind of society (for now) and such a small marketcap ($11 billion per year annual production from mines) making it more controlled by the paper trades in the short-term.

http://www.investophoria.com/2010/02/not-much-happening.html?showComment=1265939901431#c2278961642019804985

Shelby wrote:Note deflation can also be due to the correct allocation of capital on a (near) gold standard, as was the case during the 1800s where savers earned 33,900% more than savers during 1900s.

Google search for my "How Deflation is Inflation" for the math on that.

http://www.investophoria.com/2010/02/not-much-happening.html?showComment=1265940605346#c2186791568226456303

By EXCESSIVELY, I mean relative price. Gold won't crash (lose value) as much on a % basis as commodities, thus relative value of Gold with regard to real things, will be increasing. This is what happens during deflation (on both a fiat money or a gold money standard).

Gold fell behind from 1980 to 2008 due to a bond bubble and massive selling of paper gold and silver futures (promises). The end of the fiat death dance is when the bond bubble ends. We are getting close. It is a giant ponzi scheme. The banksters sell us massive amounts of derivative paper, and they monetize it into real hard goods and industrial ownership. Music stops playing the sheople are holding confetti. Search "SilverBearCafe Think Like a Banker". Again I am calling for $12.50 silver and under $1000 gold by April. Then the monetary liquidity that has been injected starting Oct, will take effect again. "goldwetrust Shelby" for the charts.

I will try to make this my last post in your blog. Look forward to your counter-logic or comments. Good luck all.

Lie on the left, truth on the right:



Click above images for an excellent article from Katz.

That is why I say people are crazy to short bonds, the govt can change the composition of the way the future's are priced at any time

Stocks do go up in our post 1933 society for the reason that the Federal Reserve lowers interest rates below their free market level This pulls stock yields down as well, and that puts stock prices up. For example, the newly created Fed of 1914 lowered interest rates from 6% to 3%. This caused stock yields to fall in half and stock prices to double.

What he means is the yield on the dividends paid must decrease to match the prevailing bond rates, which means the stock price must go up (if the dividends remain constant).

If we take those early stock averages and map them on to the Dow Jones Industrials, then we find that in that age stocks moved sideways. Indeed, from the first index in 1885 up to 1932, stocks, as measured by Charles Dow, did not advance..

There is a simple reason for this. Stocks compete with one another. There is a normal return on capital, whether it is interest on a savings account or a bond or yield on a stock. These yields compete with each other. In the late 19th and early 20th centuries, it was normal to have a 5% yield on bonds and an 8% yield on stocks. The extra 3% for stocks was considered fair compensation for the extra risk.

The idea of people retiring by taking speculative profits out of the stock market is absurd. There is no wealth created when stocks go up. Wealth consists of good and services. Imagine that your neighborhood gang gets together for a Saturday night poker game. Can you plan to retire on your winnings? No, your winnings are someone else’s losses, and the evening’s events do not include the creation of wealth.

I wrote about that last year:

http://goldwetrust.up-with.com/economics-f4/stocks-vs-precious-metals-vs-bonds-vs-real-estate-t11.htm#17

There can instead be an oscillation between inflation and deflation policy, so as to not let hyperinflation nor hyperdeflation spin out-of-control. The monetary policy can still be expansive, yet if not sufficiently expansive, be deflationary relative to leveraged assets because the debt servicing grows exponentially.

This is detailed in the bankster business model:

http://www.silverbearcafe.com/private/01.10/thinklikeabanker.html

In short, they use this ratcheting oscillation to move the desired assets to them.

Inflationary monetary policy in the current situation, is actually deflationary relative to net worth of those holding gold, and inflationary for those holding leveraged assets. I explained the math for this in my "How Deflation is Inflation" article which had 4200 reads already here:

http://www.marketoracle.co.uk/UserInfo-Shelby_H_Moore.html

In above article, I wrote "In short, purchasing power is decreasing during deflation on a debt money standard. That has a similar wealth destroying effect as price inflation."

So this means deflation is really inflation for many, and inflation is really deflation for those holding gold or who are in underleveraged economies in the third world (their purchasing power is not deflating).

This is a recipe for rebalancing the world and transferring most of the assets to the banksters in the process. It is very clever. Took me a while to figure out what they were doing.

Hope this helps. I think it is very bullish for precious metals, but it also means they will be susceptible to liquidity crisis dips for as long as the paper (100-to-1 promises for "imaginary metal") metal markets are in control of the price. I think gold is just a pawn in the bankster plan for dominating all resources and industry, so they let it go out to those countries who will then need to relinquish it in the next global order where their currencies (China, India, etc) are too strong and they run huge deficits, as the USA did post 1950 or so. That should be the final stage to bring the entire world under their near complete control.

http://www.investophoria.com/2010/02/curing-addiction-and-acquiring-some.html?showComment=1267009225331#c8419886345184572068
http://www.investophoria.com/2010/02/curing-addiction-and-acquiring-some.html?showComment=1267009274485#c2310664074675570253
http://www.investophoria.com/2010/02/curing-addiction-and-acquiring-some.html?showComment=1267010242991#c2426726948412730537
http://www.investophoria.com/2010/02/curing-addiction-and-acquiring-some.html?showComment=1267010507442#c6862300002249911846 (talks about how we will be compensated for an attempt to confiscate)

Added something about how debt regulates gold misers and gold regulates over-indebtedness:

http://www.investophoria.com/2010/02/curing-addiction-and-acquiring-some.html?showComment=1267011341459#c417135978662048888