Saturday, May 15, 2010

Beyond Help

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You know you're beyond help when a big, scary down trading day in the stock market gets the government to investigate. If the stock market goes down, there has to be an investigation. For everyone deserves prosperity. Be honest for just a minute and answer this question: would governments investigate the market if it suddenly went 2,000 points higher (whether by accident or due to intentional manipulation) in the course of an hour? Are there circuit breakers for overly fast bull moves in the stock market?

Everyone deserves to have a constantly rising stock market, whether in real or nominal terms. And the harvest was good. And real estate has bottomed. And China's bear market doesn't signify anything wrong with the global economy. Nor does the European stock bear market. We will get your stock prices higher. If it doesn't work, well we'll investigate.

You see, prosperity is due our society. We have become such a strange Orwellian herd of animals. The value of savings is at risk and many seek a government guarantee. Of course, the government is completely unable to provide such bounties when times get bad, but people enjoy the illusion that someone else controls everything. Look for more investigations and interventions related to falling asset prices as this secular financial market decline continues. You cannot prop up prices of anything without wasting vast resources and even then, the best you can possibly achieve is to get them to stabilize in nominal terms, not on a purchasing power basis.

Let's face it. Your savings aren't safe in financial assets. When savings aren't safe in traditional asset classes, people get scared. Some will buy T-Bills, some Gold, some ride it out using the "stocks for the long haul" mantra. But fear has not been wrenched out of the market yet on an intermediate-term basis. There will be at least one more "come to Jesus" moment in this secular general stock bear market, which is far from over. Now's as good a time as any based on my interpretation of charts/price action around the world, sentiment, monetary aggregates and time. Rome is [literally at times with the recent riots] burning.

A stock market is beyond help when any significant daily decline in prices is investigated. That doesn't happen in a bull market, folks. We are witnessing what a bear market can do to beliefs/faith/sentiment in real time. Or perhaps it's the other way around: our beliefs/faith/sentiment make us get rid of the bull market. Humans are not even half as rational as many of us would like to believe. The financial pendulum will continue to swing in the opposite direction of the collective herd's desire.

When the herd gets panicky, things can suddenly lurch forward in a drunken but determined fit beyond what the "rational" investor can account for with an equation. This can create panicky declines just as easily as it can create panicky bull runs. Sort of like the manic short-term bull runs Gold makes when it gets a mind to - witness the Euro Gold price over the past 6 months (chart from

Based on my previous bearish comments, I prefer to be long Gold over Gold stocks for the short term. I am planning to go long a double bullish Gold ETF (ticker: UGL) next week on any decent price weakness. Yup. Paper Gold. It's my trading account, so it's all electrons anyway.

I like the idea of going short the Dow to Gold ratio or long the Gold to Dow ratio. I do this mostly through owning physical Gold, as I don't see Gold having any problem continuing to outperform all other asset classes for the forseeable future. And, as I have mentioned, I am black bile bearish on the stock market here. I am thus going to create my own way to trade the Dow to Gold ratio by being long the Gold price and short the general stock market (i.e. Dow equivalent). As regular readers know, I have mentioned the Dow to Gold ratio a few times before...

But I digress. My point was to mention that abrasive apparatchik and banksta interventions into markets is expected to get particularly acute this cycle and no, we're not done. Most financial markets won't perform as hoped because these markets are beyond help right now and need to clear. Angry and fearful intervention is all part of the secular bear market landscape. If people don't get the returns they want out of their investments, governments feel the pressure to blame others and intervene.

Blame the participants, like those "evil" shorts who intentionally bet against the stock market, by golly. Blame Wall Street for their greed. Blame bankstaz for not turning the right monetary knob at the right time. Blame the regulators for not regulating. Some or all of these folks may share some blame, but this process is an outward manifestation of the angst that creates and/or is created by a nasty secular bear market in financial assets.

Sometimes, lately roughly every 40 years, the economy completely stalls and the government's massive pile of cash and credit created out of thin air and rammed into the system fail to produce excess productive economic activity worth the debt incurred. This is when Gold becomes one of the "go to" asset classes. If you are a believer in the Kondratieff cycle or something like it, which I am, then you know that at this point in the cycle (i.e. Winter), Gold is the best asset class along with cash equivalents. We are there. We have further to go. Gold is my preferred form of cash and I think many Europeans would agree with me right now after watching the last 60 days worth of price action in the Euro Gold price.

There will be more anger at Wall Street for letting and/or causing the stock market to go down again, despite the fact that it is a very rational thing to expect stocks to go down right now (at least to me). Any time the stock market doesn't go up, it's just JP Whore-gan and Goldmun Sucks manipulating the market lower (and sometimes it is, so it gets kinda tricky to be rational at the right times). But even the value crowd looking at PE ratios (no, not operating earnings) can tell you we're at least 50% overvalued if we're trying to get to a high single digit PE ratio and dividend yield for the end of this secular general stock bear market.

Benny Bernanke, widdle Timmy Geithner and their global cohorts have their hands full. The recent $1 trillion coordinated "shock and awe" campaign in Europe got only a day's respite in the Euro plunge and 1-3 days respite from the plunge in various European stock markets. Remember when you could spend a trillion and the entire world would snap to attention for weeks or even months on end? It's hard out there for a banksta / apparatchik pimp. I mean, pledging other people's future earnings and savings to "increase stability" is God's work, no? And this evil stability fellow doesn't seem to be responding to our largesse like he did last spring (when the rational panic had already exhausted itself).

The funny thing is, all that money ain't gonna work. It won't help anyone but those being directly bailed out by these policies and the politicians collecting a few more votes and bribes for throwing our collective savings into the black hole of debt. It's sad, really. To see all that supposed money wasted on nothing. Debt is incurred to "stabilize prices" as if artificial control of free markets is an important goal worthy of people's earnings and savings! And the debt won't be paid back - ever. Trust us, though, because we're your government, we're your bankstaz, we're here to help and we know how to run things.

I trust Gold. It's shiny and nice to me while racking up impressive gains year after year. I don't trust our financial and apparatchik kings. They're rude, ignorant, silly and overbearing as a group. Their efforts will fail and what needs to happen to the economy, the stock market and real estate prices will, regardless of what is decreed and/or desired. For now, it's long Gold and short Dow. The people saying Helicopter Ben can stop any decline in the stock market have an awfully short memory of how many bailouts and pledges were made to save the financial universe before the Great Fall Panic of 2008.

"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."

Henry Morgenthau, May 1938, FDR's Treasury Secretary

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