Do They Know Something We Don’t?

Reading time: 3 pages, 1,027 words, 3 to 4 minutes.

There’s an old stock market adage, “Sell in May and go away”. Summer doldrums usually cause weakness and sideways movement in stock prices. Long term investors often wait it out while short term investors may sell and wait for the end of summer.

Lately, many analysts have been predicting a stock market crash. As usual they’re wrong although at some point there WILL BE a correction and eventually I expect another major crash. The only certainty in the our manipulated corrupt markets is volatility. The last few years have shown us that. After bottoming in March, 2009, markets staged a tremendous recovery aided by central bank. As I’ve mentioned numerous times, the stock markets are propped up by the Fed and other central banks printing vast amounts of money out of thin air to lend to their stooge banksters for speculating in the markets.

James Howard Kunstler says, “They’re driving up the stock markets for cosmetic purposes, to make it appear that an economic recovery is going on … the Fed and their auditors on Wall Street and in government, are jacking up the stock markets in the hopes of stirring up “animal spirits,” as the financial psychologists say, to put over the story that it equals a vibrant economy — which is nonsense, of course, to anyone who shoots a casual glance at the economic wreckage all around them.”

The lesson is simple: don’t fight the Fed (or other central banks). There could still be some upside and a few months’ climb to new (nominal) record levels before the inevitable correction. Look at the chart below to see the ‘Megaphone’ pattern the S&P 500 stocks have made resulting from increased volatility.

SP 500 Megaphone

And, at some point, as volatility increases there WILL be another major stock market crash but not for a while yet. Before the crash, there will be corrections. However, you have to be ready to bail out when the market turns or else hang on for the ride of your life and DON’T sell at the bottom. After correcting and shaking out the dumb money in the near term, markets will stage another come-back and reach new record highs by the end of the year or early next. There will be corrections, but a major crash may still be a year or more in the future.

The front cover of the latest issue of Macleans magazine says “BUY”. NO, you don’t buy at the top or close to the top. When the shoeshine boy and the Main Stream Media are telling you to buy stocks; that’s the time to get ready to sell. I’ve been doing some selling into strength but I’m not ready to bail out entirely yet.

Admittedly, most stock markets are frothy but there’s still room to run. Apparently, insider selling is 9.2 where they are selling more than nine times as many of their own company’s stocks than they’re buying. Do they know something that we don’t?

Google announced that Executive Chairman Eric Schmidt will sell 3.2 million of his Google shares after he already sold 1.8 million shares last year for a total of 53% of his holdings. Does he know something that we don’t?

Bucyrus just announced they are selling their road building division to Bomag. Last year Bucyrus sold their mining division to Caterpillar. Why are they divesting themselves of assets? Do they know something that we don’t?

You’ve no doubt heard that the Pope announced his resignation. The conspiracy theorists and those who still cling to outdated prophecies fulfilled long ago will no doubt have a field day with this news. Some say the child sex abuse scandals are getting closer to the Vatican. However, the Pope is too new and hasn’t been in office long enough for this mud to stick. Some say the Vatican banking scandal is forcing him out. However, the Vatican has weathered far worse scandals and the Vatican bank is no more corrupt than most other corrupt banks. Still, every Pope for the last 600 years has died in office regardless how tired and decrepit they were at the end of their lives. The Vatican is set up to carry and cover for them in decrepitude so his official reason doesn’t wash. Does he know something that we don’t?

A new bubble is forming. It’s called UNCERTAINTY. Things are getting out of control but, we have to keep dancing while the music is playing. When it stops, no one knows until it stops. And then everyone will try to rush through the exit at once. The unprepared won’t make it.

I haven’t posted any financial commentary for months. It’s not because friendly aliens have landed and solved all our problems but because there’s little new to report. ALL the problems I’ve outlined over the past five years still exist with the exception of the U.S. housing bubble bursting and bottom bouncing. Everything I stated in my last two major posts last fall is still current. Rather than repeat myself, see Collapse Update – Autumn 2012 from last October and Massive Worldwide Downturn Alert from November.

On another note, there’s much commentary about deflation being more of a problem than inflation. That’s utter bullshit. Aside from governments’ cooking the CPI numbers which I’ve mentioned numerous times, we are seeing more cases of ‘Stealth Inflation’. Manufacturers are reducing package sizes or cheapening ingredients and sometimes they are doing both.

Horsemeat is being found in so-called ‘beef’ in Europe. Biotech ‘Franken-salmon’ is on its way to your supermarket and many Subway’s foot long sandwiches are less than 12 inches. Even high-end Maker’s Mark bourbon distilled in Kentucky is reducing its alcohol content by 3%.

The U.S. inflation graph below is almost identical in most other countries globally.

US-CPI-inflation-mega-trend-nov-2012

Even McDonalds has removed one slice of cheese from its burger. And, you can see for yourself when you go shopping that package sizes are getting smaller in order to avoid raising prices. This is how Stealth Inflation masks real inflation and why your money runs out before the month does.

Gerold
February 12, 2013

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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13 Responses to Do They Know Something We Don’t?

  1. Gerold says:

    I don’t know how one would “invest” in currencies. All currencies are trying to devalue against all others so it’s just a race to the bottom where no one wins except volatility short-term traders and most lose money trading. Currency ETFs are speculative and currency commodities are highly leveraged.

    One avenue is investing in real goods in another country i.e. U.S. real estate but that too is speculative. What would you do with it other than moving there and living in it? Absentee landlords need a contractor to manage it. The real estate market is not coming back in my lifetime and probably not yours. Boomers are bailing out, younger generations don’t have the money or the numbers and the recent U.S. housing crash left too bad a taste to create another boom for several generations.

    Although it’s wise to be leery of anything having to do with government, I’m not sure I understand your hatred of RRSP’s (yes, I’m Canadian). RRSP’s being registered simply means they’re eligible for certain tax treatment i.e. they reduce tax when paying in but are taxable when paying out.

    They’re not registered to the government. They are deposited in a financial vehicle of your choice whether it’s a broker, bank, credit union or any type of financial institution. They can be transferred between institutions as long as they’re registered as RRSP’s. You can withdraw part or all of them whenever you want if you think finances are getting shaky or the government is getting desperate or greedy but withdrawals will be treated as taxable income.

    What can the government do? Tax them? They’re already taxable upon withdrawal. Confiscate them? That’s a possibility but they can confiscate your non-registered bank savings account if they get real desperate. Whether they’re registered or not makes no difference.

    Having said that, in Amerika, there’s already talk by the Fed and Treasury about “confiscating” absconding transferring people’s 401k’s to government run facilities where they would be invested in Treasury bonds. They would still be in the individual’s name but now the government decides what instruments to invest them.

    The bullshit reason they’re giving is to “preserve the safety” of people’s pensions. Supposedly, most people aren’t sophisticated enough to look after their own investments. The real reason is to prop up the government’s ever increasing debt (treasury bonds are debt) because the Chinese have reduced buying T-bonds leaving the Federal Reserve as the major buyer. In other words the Fed and Treasury are swapping worthless IOU’s between each other. Apparently 70% of all new bond issuance is purchased by the Fed although you won’t hear the ass media reporting that.

    Still, the jig is up; many blogs are talking about it. If I were an Amerikan I’d cash out my 401k’s, pay the tax and keep the money out of the government’s hands. Bonds are the next bubble to burst and the banksters and corrupt politicians know it so they want to unload them onto an ignorant and docile public.

    However – and this is the point – what’s to stop the government coming after your non-registered saving account next or your insurance or your company pension plan if you’re one of the few who have one? Nothing is really secure. It’s all a matter of degree. Some things are safer than others but ultimately there is NO SAFETY. You could put your money into real estate or land but that could be taxed to death or confiscated. You could stockpile food, necessities, guns and ammo and the uniformed goons could break down your door, accuse you of “hoarding” and confiscate everything.

    About the only thing you can safely invest in is yourself. In fact, I highly recommend people invest in themselves before investing in anything else. There are many ways to do this – too numerous to list but here’s a few ideas:

    a) Education – knowledge is power but don’t go into debt to get it. The best way to deal with trouble is avoid it in the first place. I don’t mean ignore it but get out of harm’s way so you don’t get into trouble.

    b) Learn more about current affairs by ignoring the ass media and reading blogs. The more you do this the better you get at separating the crap from the useful stuff.

    c) Improve your outdoor survival skills – camping, fishing, hunting, fire starting, etc.

    d) Improve your life survival skills – First Aid, motor repair, gunsmithing, carpentry, knife sharpening, hunting, butchering, gardening, preserving food – there are numerous skills that can be bartered for necessities.

    e) Acquire and learn to use survival tools – fishing gear, firearms, tent, axe, packsack, hiking boots, cold weather clothing, canoeing, etc.

    f) Improve your self-protection skills – martial arts, firearms, etc.

    g) Good family relations – group protection increases survival odds better than being a loner.

    h) Neighborliness – helping out, volunteering – more group protection.

    i) Health – cut the processed food, proper sleep, get more exercise, get in shape, etc. No point having gold stored if you drop dead from a heart attack.

    j) Discipline and will power – none of us are born with them but we can learn them through practice.

    k) Attitude – probably NUMBER ONE! I’ve taken several survival courses plus a winter survival course. One of the most crucial elements common to all of them is the importance of attitude. All the skills and all the gear in the world are totally useless if you don’t have a good attitude. If you give up, you’re as good as dead.

    None of this is easy but none of it is impossible. I’ve done 99% of the above plus a few more I won’t mention. If I can do it, anyone can.

    There’s so much we can do to avoid becoming a victim but we’re running out of time. There’s no better time to start than now. Once the SHTF, it’s too late.

    – Gerold

    • GBV says:

      “All currencies are trying to devalue against all others so it’s just a race to the bottom where no one wins except volatility short-term traders and most lose money trading.”

      I would suggest that the USD won the race to the bottom (to the point of still maintaining trust within the globalized system of trade) – it’s all other currencies that have much further to fall by virtue of the fact they are not the reserve currency of the world and they maintain their positions within the US empire by the sales of exports.

      Even if the US were to physically start printing more money (slightly different than QE, which everyone wrongly sums up as “printing money” – debt is not the same as printed money, though I do recognize the liquidity that QE pumps into the banks may eventually be spent on commodities/goods, raising prices), I still think people would hoard USD because it’s the best looking horse in the glue factory.

      “Although it’s wise to be leery of anything having to do with government, I’m not sure I understand your hatred of RRSP’s … They’re not registered to the government.”

      True, but with a flick of the pen the government can change the rules to restrict your access to those funds, or change the fee structure to what you have to pay to access them (easy as increasing income tax laws).

      “You can withdraw part or all of them whenever you want if you think finances are getting shaky or the government is getting desperate or greedy but withdrawals will be treated as taxable income.”

      If you need the money at a moment’s notice, I’m fairly certain there’s a “holding tax” of 30% (assuming you’re taking out a sizeable amount) already in place, as I had a family member who encountered this issue when trying to cash out their retirement savings.

      “That’s a possibility but they can confiscate your non-registered bank savings account if they get real desperate. Whether they’re registered or not makes no difference.”

      Exactly. Which is why I’m not even comfortable keeping my money in the bank, though few other good options exist. As far as registered or not, I think the only difference would be that they would restrict/confiscate registered accounts before taking what’s in your daily savings account – collapse usually occurs as an escalation, not all at once.

      I recognize most will view this as “tin foil hat” talk.

      “Still, the jig is up”

      Bingo. As goes America (Amerika), so goes the world. Canada may talk a big game, but we’re arguably worse off than the US… saved ourselves in 2008 with more debt so the next time around will be an absolute catastrophe.

      “Nothing is really secure.”

      Bingo yet again. Everything is a degree of safety based on perception. Most people are operating today without all the facts, thus things look safe. When the facts eventually expose themselves, I think people will start getting nervous and will start pulling out whatever they can – better to take their chances with their cash in the mattress than a soon-to-collapse financial system.

      “About the only thing you can safely invest in is yourself.”

      Agree 100%.
      I know I could be doing more of the items you’ve listed above, but generally this is where I focus most of my energies as every investment in myself should pay off in spades up until the point of my death. Improving yourself and your knowledge also allows you to impart those skills/wisdom on others, so even more benefits there.

      Too bad most people would rather sit in front of the TV and watch reality shows or the misinformation circulated by the news rather than pick up a book or get outside and get back into shape.

      Cheers,
      -GBV

      • gerold says:

        Submitted on 2013/02/26 at 6:31 pm

        You’re making it real difficult to disagree with anything you’ve said.

        Yes, the U.S. dollar is winning the race to the bottom by virtue of it still being the world’s reserve currency. However, more and more global transactions are being done in non-U.S. currency by countries that Amerika cannot bully such as Russia, China and Brazil. It’s safe to say there will need to be a new reserve currency someday likely consisting of a basket of other currencies including gold to give it some respectability. Then too, keep an eye on the Japanese Yen which they are furiously trying to devalue and being allowed to do so (note the recent G-20 silence on Japan’s weakening their Yen).

        You’re right about savings confiscation: they’ll go after registered plans before regular savings accounts. The U.S. is already running it up the flag pole with Roth IRA and 401k’s. And, right too about RRSP withholding tax on large withdrawals but that’s adjusted on subsequent tax returns and also depends on what instruments it’s transferred to i.e. annuities, etc. which are also taxable when paid and also subject to confiscation.

        Good point about self-improvement benefiting others as well; I hadn’t considered that. Shows the importance of teamwork; something I learned in 6 Sigma training & projects.

        “Too bad most people would rather sit in front of the TV…” Agreed, but life itself does Triage as most boob-tubers will discover some day. I cringe to think I’ll have to listen to their whining and not say I told them so. Being a recovering TV-holic since 1988 (I can’t believe it’s been 25 years since I threw away my idiot box!) I gag when I’m away and catch an occasional glimpse. I wonder if I’m becoming more sensitized or can TV possibly get any stupider? One has to be away from it for a while to marvel at its mindlessness.

        And, yes you’re right about Kanada not escaping the next downturn; the government having shot its wad to cushion the last recession. Rather than admit our housing bubble is bursting, CBC radio reported yesterday that “housing is becoming more affordable”. Gotta love the propaganda-spewing Kanadian Broadcorping Castration.

        When some brainless talking head tried to sucker Meredith Whitney into commenting on the so-called U.S. housing recovery, she evaded the issue by simply saying, “I rent”. Thankfully, so do I.

        – Gerold

  2. GBV says:

    “For instance he hates (Canadian) Registered Retirement Savings Plans (RRSP) which reduces tax when contributing but are taxable on withdrawal.”

    I have to admit, I hate them too and see them as a giant scam whether they were first created with good intentions or not – though that’s probably because I tend to don my tinfoil hat and have become untrustworthy of most things government.

    I worry that, since it’s registered and I can’t touch it, there might be a time when the banks go bust and tell me they can’t give me what’s mine, or the government gobbles up my money to use to pay off the debts of the country.

    I’m a big fan of the saying “one in the hand is worth two in the bush”, so I tend to favour non-registered ways of hiding my money and rather than trying to get rich off compound interest, save my money for when asset prices implode and everyone goes rushing for cash. Or in other words, I’ll take my chances getting eaten by creeping inflation rather than try to “play the game” and risk putting all my capital in play and having no dry powder for a rainy day.

    Speaking of which, I believe you are a Canadian as well, yes?

    Check out what happened to the Canadian dollar vs. the US dollar during mid-2008 to early 2009 when world credit markets were tightening up; a 20% fall in the value of the CDN. Now might be a good time to divest from Canuck-bucks and pick up some greenbacks to later re-convert into CDN should the rest of the world have clued into all of Canada’s dirty little secrets and started thinking about dumping our currency themselves (or if Canada finally considers monetary policies that would devalue its currency to make our manufacturing & natural resource sectors more competitive as international exporters).

    “The time will come when people will be telling you what you told them. Be prepared to bite your tongue and say thanks.”

    This is excellent advice. Pride comes before the fall, and I know my pride is my weakness (that, and my out-of-shape body, addiction to horrible food, general anti-social views, the list goes on…).
    Something for me to work on for sure.

    Cheers,
    -GBV

  3. Gerold says:

    Still more food for thought.

    Your skepticism restores my confidence in 30-somethings which I admit was beginning to wane somewhat although the younger 20-somethings strike me as a very level-headed bunch.

    As for nature VS nurture, I’m always suspicious of either/or arguments. Often the truth lies somewhere else. I suspect learning and life experience (not necessarily nurture as I see that as upbringing) plays a large part. Both my parents are gullible yet I consider myself an über-skeptic as is my younger brother so neither genes nor upbringing had much to do with it.

    I share your suspicions of Garth Turner. Yes, his real estate analysis is excellent but beyond that he doesn’t know jack-shit. For instance he hates (Canadian) Registered Retirement Savings Plans (RRSP) which reduces tax when contributing but are taxable on withdrawal. He loves Tax Free Savings Accounts (TFSA) which are tax free when withdrawing but contrbutions are made with after-tax money.

    He doesn’t realize one size does NOT fit all. Everyone is different and has different financial situations. Granted TFSA’s are great if your retirement income is greater than your pre-retirement working income, but how many people (other than millionaires) fall into that category? Most people will earn less income in retirement so the advantage of RRSP’s is tax reduction during higher income pre-retirement and who cares that withdrawals are taxable during retirement if you’re in a lower tax bracket? As well, he completely overlooks the magic of compound interest on pre-retirement RRSP investments.

    I also agree with your criticism of his economic analysis. The so-called U.S. housing recovery is a dead cat bounce and, as you say, still being manipulated and corrupted by the banksters. He does have a myopic view of Canada as if we can defy the laws of economics. Speaking of dead cat bounces; have you seen the BDI lately? It’s still bottom bouncing.
    http://investmenttools.com/futures/bdi_baltic_dry_index.htm

    Do continue being helpful to family and friends by offering advice and guidance. You ARE making a difference but it’s incremental. It’s easy to get discouraged with their resistance. However, human nature is a funny thing. Many times I’ll be met with resistance; I’ll let the discussion drop rather than antagonize them and then some time later they’re telling me what I told them. The hard part then is biting my tongue and not saying I told them so. Our mission is to enlighten and guide, not get brownie points.

    In a similar vein, I learned long ago the importance of keeping lines of communication open. I never say, “I know” when someone tells me something I already know. That snubs them and may jeopardize future communication. I bite me tongue and say, “Thank you.”

    You paraphrase Nicole Foss, “one of the best reasons to save isn’t so that we can live like kings later, but so that we’ll have the resources to invest in our communities after a collapse.” Oh, so true! The same applies to stockpiling food and other necessities. I can envision sharing with friends and neighbors and if “bugging out” becomes necessary it’ll leave something for looters.

    You also say, “it’s sad to think that so few can be saved, and at such a great cost to all the wondrous things humanity has accomplished over the past 80 – 100 years.” We are going through a great Re-Set which will be painful (change always is) but again human nature although resistant to sudden change is very malleable and able to change over time. The time will come when people will be telling you what you told them. Be prepared to bite your tongue and say thanks.

    – Gerold

  4. GBV says:

    “Despite educators touting critical thinking in the public education system, what they teach is a joke. They talk about it but don’t actually teach it. They describe it in class but don’t allow student to practice it.”

    I often wonder how I became so untrusting of the system and started to seek out fringe-blogs and alternative ideas. As a 30’s-something myself, I don’t meet many like me within my peer group so I assume it wasn’t my educational background that made me the person I am today (though I did make it a point to take as many non-business courses as possible while I was in university, and had the pleasure of dabbling in political science, psychology, film and ancient greek/roman history… something most of my business/engineering contemporaries did not experience).

    Anyways, whether by nature or nuture, I find it fairly fascinating that there is a small subset of humanity who does contemplate the things discussed on this blog and recognizes the dangers is presents to all of us.

    “This means, I will continue as you say, “writing fringe-blogs and generally being dismissed/ignored by the masses.” If my blog ever went viral, I’d know I was heading in the wrong direction.”

    This (and a few other reasons) is what eventually made me suspicious of Garth Turner. The man writes very well and provides a great deal of entertainment; I think he will be proved right on many of his Canadian housing market views, much to the amusement of his cult-like followers of his blog.

    That being said, he’s also a false prophet. He suggests we’ll never see another 2008 (he would be right, but only because the next time we see a 2008 it will be so much more severe) and he constantly suggests the US housing market is recovering despite the abundance of analysis from sources like Zerohedge that points to the contrary due to shadow inventories, bank manipulations to slow down/stop foreclosures, returns to lending practices that caused the sub-prime meltdown.

    He also seems to completely disregard all the other economic information that would suggest the US is not recovering, but is in the crapper, and is fond of suggesting “we’re not different here in Canada” but then goes on to say it won’t be as bad for us as it was in the US (despite a much higher proportion of our GDP being tied to the housing market and its subsidiary markets) – basically suggesting we are, in fact, somehow different.

    But the worst is how he is a total shill for the investment industry. He bad-mouths those who would buy homes due to their inability to see the potential risk of falling asset prices, but then turns around and goads people into dumping their earnings into a highly manipulated and risky investment market.

    If Brad Lamb is the (Canadian) king of condos, I sometimes think Garth Turner might be the (Canadian) king of ETFs. Both are selling their books while pretending to be a hero of their respective investment communities (read: ghettos).

    I’ve tried (nicely) to point out Garth’s biases/flawed logic as well as tried to question him on his potentially self-serving advice given his connections to investment firms on his blog, but he always prevents my comments from being posted – obviously, as why would he want to let someone intellectually question their motivations on their own site?

    It is, after all, a place for him to bask in the (somewhat pathetic) adoration of his “blog dogs”, not a place where he feels he needs to justify his views – thus he’s ever the clever politician (read: snake oil salesman), even in exile.

    “I help those who CAN be helped and they’re usually the ones who are willing to help themselves, who admit they have a problem and just need some guidance or a shoulder to lean on.”

    I once thought I was being helpful, but I found it more honest/genuine when I came to the conclusion that my “help” wasn’t due to the fact I’m some sort of benevolent saint, but because the well-being of my friends & family in the time of a social collapse are in my best interests & happiness. Helping them to make good choices sets them to up to have more to help/share with me after we move from the Time of Plenty to the Time of Little.

    Even setting them in the right direction to save a bit for themselves would mean they would not come to me in dire times, as which point I’m not 100% sure I could turn them away empty handed. So once again I have to be honest with myself and see that that advice I give isn’t totally “help”, but a way to try to lessen the pressures I thnk will affect me in the future (despite the fact I’d like to think I make good choices to avoid those painful outcomes that so many will experience in a Greater Depression).

    Nicole Foss may have it right though – she suggestes one of the best reasons (for those who see the writing on the wall) to save isn’t so that we can live like kings later, but so that we’ll have the resources to invest in our communities after a collapse. The amount of “social capital” one can build by simply investing in one’s own community when the need is strong enough can be quite amazing.

    “I mention this because you, too, will need to judge when it’s time to stop pestering your friends, hold your tongue and fade into the woodwork as a matter of your survival.”

    I fear I may have already reached this point. There is only so many ways you can tell a person how the world is f*cked and how all the options we have left are “bad” ones – we cannot transfer risk for much longer, and the time to mitigate the risks we face is quickly disappearing. Soon we will find ourselves left with only the option – to accept the risks we face – at which point having a blog talking about the perversion/collapse of society or sending emails to your friends to warn them about a housing market collapse will be of little value – everyone will know the jig is up, and the discussion (if there even is much discussion) will be around “what do we do NOW?”.

    It makes me feel cowardly/defeatist to admit this, but my strategy is shifting to that of fading into the shadows and trying to just help my immediate family & loved ones survive when the world gets to the point that it’s ready to eat itself alive. I just don’t feel that I can make a difference anymore, save for perhaps in the lives of a few of those who are close to me (and even then, usually with great difficulty and effort).

    I guess that goes back to your triage comments. But it’s sad to think that so few can be saved, and at such a great cost to all the wonderous things humanity has accomplished over the past 80 – 100 years.

    Cheers,
    GBV

  5. GBV says:

    “Question: what happens when velocity bottoms out which it surely must at some time? Velocity can’t fall forever.”

    Absolutely agree. But what if money velocity is a leading indicator for inflation/deflation? Everyone loves to look to prices, but I think they might be lagging indicators (i.e. the money is already in / has left the system by the time its reflected in prices).

    “Slightly different question: does this not illustrate the utter failure of our debt based economy?”

    Again, in agreement. Though I’m not sure if its completely fair to say its the failure of the system – perhaps its a failure on all of our parts not to be more aware of our global financial/trade systems, how they operate, and how they’ve been corrupted (arguably by people who are just trying to stay in power by giving us what we want when they can; thus each of us is the culprit in a way?).

    “Central banks are justifiably scared shitless of deflation. Their justification is why would consumers buy today if the price is lower tomorrow? They ignore what you allude to; falling wages and asset values would quickly overcome that mindset.”

    I think the Central Banks are also working to protect the interests of the uber-wealthy. I would hazard a guess that many of the wealthiest people in the world not only own a great deal of assets (gold, silver, houses, stocks, cars, art, etc.), but they also own the debts that we the little people carry on our overvalued assets which we bought with credit. Were deflation to strike hard, I think their net worth would be hit pretty badly as the little people would start defaulting on their debts and the value of the assets they hold would be reduced – a sort of “double whammy” on the rich.

    The only way they could avoid this outcome would be to liquidate now and get into cash so that they might buy back all their assets at much lower prices at some point in the future (“buy low, sell high”) – interestingly, this ties back to the title of your article… “Do They Know Something We Don’t?”.

    “Don’t forget falling wages and asset values is ALREADY happening when you factor in the REAL rate of inflation as per John Williams Shadow Stats or when measured in REAL money like gold.”

    I see this as my purchasing power being eroded through inflation. As mentioned before, very frustrating to not be able to buy as much and see businesses resorting to “stealth inflation” by shrinking quantities and quality of their products. But until money velocity starts increasing (indication of hyperinflation to come?), I don’t view it as more than an annoying frustration – though to be fair I’m lucky to still be employed and have no serious expenses to impact my cash flows, as well as having amassed a fair amount for a rainy day.

    If money velocity IS a leading indicator, it might be signalling that now is the time to load up on cash – were that debt to disappear (i.e. defaults), the purchasing power of those holding dollars would absolutely skyrocket.

    That being said, I always hold onto gold/silver as a hedge/insurance.

    “I love Zero Hedge and the ubiquitous Tyler Durden and encourage readers to visit his blog.”

    I love Zerohedge too, particularly the sarcastic humour & sardonic wit one can find there. But sometimes I feel that their community view is a bit myopic in that hyperinflation seems to be the only possible outcome, thus making it a bit of an intellectual ghetto for Gold Bugs.

    Not sure if you are familiar with their website, but I highly recommend The Automatic Earth for a different take on the situation – one where deflation strikes first before the onset of massive hyperinflation and possibly an energy crisis the likes of which we’ve never seen (as if massive deflation wasn’t enough…).

    Here’s a link to all their primers for those that are interested:
    http://theautomaticearth.com/Finance/the-world-according-to-the-automatic-earth-a-2013-primer-guide.html

    Cheers,
    -GBV

    • gerold says:

      Again, many thanks for your well thought out comments.

      I agree with you that money velocity is a leading indicator for inflation/deflation. With velocity in free fall it becomes a harbinger for that dreaded asset deflation that central banks are failing to stymy. It reminds me of the stories a friend told me about his grandfather creating the basis for his wealth buying distressed Kenora real estate during the last Great Depression at 10¢ on the dollar.

      You may also be right about prices being a lagging indicator (I hadn’t considered that) and by the time prices change; money’s already in or left the system.

      Speaking of indicators do you know of any reliable LEADING indicators other than the Baltic Dry Index? Have you seen it lately?
      http://investmenttools.com/futures/bdi_baltic_dry_index.htm
      It’s at a frightening low $770 today (falling moving average $954) and still bottom bouncing.

      I agree too, that we are, to a large degree, complicit in our own misfortune. Our willful ignorance (deliberate stupidity?) of global financial/trade systems reminds me of Pogo’s “We have met the enemy and he is us.” The females in my life keep reminding me not to be so hard on everyone. I keep telling them to stop being enablers. That’s the main reason I blog and why I’m sometimes so annoyingly didactic (not everyone understands economic/financial terms so I try to work them into the commentary). It’s to help raise awareness. There’s certainly no money in it for me.

      In the same vein, I’m working on an article based on H.G. Wells “The time Machine”. There are uncanny parallels between the unwitting Eloi (happy-go-lucky ‘cattle) who are ‘kept’ by the Morlocks running the machinery and today’s pizza & beer swilling sports and reality-TV-watchers kept ignorant by the ultra-rich and their ass media propagandists. Oops, there I go being hard on people again.

      Don’t underestimate the debilitating effect of low rates of inflation. Consider that on the basis of 2% inflation a year, the U.S. dollar has lost from 95% to 98% (depending on different analysis) of its purchasing power since the creation of the Fed a century ago in 1913. Back then a cup of coffee was 3¢ whereas today it’s about $1.50.

      Here’s another example closer to home: in late ’05 I diversified some assets that included $10,000 in a long term savings account with my credit union generating a measly 2% a year. They topped it up with an additional $500. Today, seven years, later it’s worth $13,237 , admittedly not a fortune but certainly an example of what Einstein supposedly called the eighth wonder of the world; the miracle of compound interest. 3% inflation might seem small, but again the magic of compound interest increases the pain over time, especially if one’s salary is increasing at less than that or in the case of people on fixed incomes; doesn’t increase at all.

      I appreciate your commentary. It keeps me on my toes. You should consider blogging. Warning; it’s very time consuming. Rule of thumb is one hour of work, researching writing, editing, re-writing and uploading for one minute of reading time. Couldn’t do it if I wasn’t single with no family responsibilities.

      Also, thanks for the link to Automatic Earth. I shall continue perusing it. Wish I’d seen their posts on Fukushima when I was researching my own posts on the subject.

      • GBV says:

        “Speaking of indicators do you know of any reliable LEADING indicators other than the Baltic Dry Index?”

        To my knowledge the BDI is definitely one of the better leading indicators to watch. Glad ZH posts updates on it from time to time, as it keeps me in the know. I don’t watch much mainstream media business news reporting, but the times that I do I find it interesting that nobody talks about the BDI…

        “The females in my life keep reminding me not to be so hard on everyone. I keep telling them to stop being enablers.”

        I’m constantly frustrated by this attitude in people as well. However, I might suggest it goes beyond females – many of my 30-something peers/contemporaries, regardless of sex, seem to espouse this sort of thinking.

        I worry that it’s more important in their minds (consciously or subconsciously, I’m not sure which) to be in agreement with societal beliefs than to rock the boat and critically think about issues – possibly because the conclusions they’ll come to are so frightening and would force them to have to reconsider their position on so many of their beliefs/views, and I think many people aren’t comfortable with facing those demons.

        Perhaps it also has something to the illusory world we live in? Everyone has been raised to believe they are all special and they can all be what they want – but there are hard rules which are empirical and cannot be broken. I found Chris Hedge’s book “Empire of Illusion” (http://www.amazon.ca/Empire-Illusion-Literacy-Triumph-Spectacle/dp/0307398471) to be a good read along this line of thinking, though I don’t necessarily agree with all of Hedge’s views.

        “Don’t underestimate the debilitating effect of low rates of inflation”

        You’re right, especially when one considers how inflation is calculated today (compared to the lies we are fed in the form of CPI after hedonics, substitution and weighting). While I still think deflation has a higher likelihood of occurring and has the potential to cause more damage to the system, I shouldn’t dismiss inflation out of hand.

        I have some locked-away retirement funds in the bank I can’t get my hands on; even if I’m worried about a stock market collapse like 2008, I probably should have it invested in at least a GIC to earn minimal interest to somewhat combat the effects of inflation. Perhaps something to look into next week…

        “You should consider blogging”

        My friends have suggested the same… but I think it was a ploy on their part to get me focused on the blog instead of filling their inboxes with ridiculously long & complex emails about economic policy, political chicanery, currency/market manipulation, housing bubbles, unsustainable debt, peak oil and other doom & gloom issues they’d rather avoid 🙂

        Personally I find that stuff fascinating, and feel more empowered the more I learn/understand. Sadly, most of my friends would rather focus on the next sporting event and/or how many beers they can consume in one sitting (not that I don’t like that too from time to time, but I don’t see why discussing the collapse of the Western world over a beer is so painful/unpleasant for so many people? Ah well…).

        Side thought – maybe Plato was onto something with his ideas on the five regimes (http://en.wikipedia.org/wiki/Plato's_five_regimes)? Perhaps aristocracy (at least Plato’s version of it) isn’t as bad as we’ve been led to believe, assuming you actually have benevolent philosopher-kings holding the reigns of power… instead of being relegated to writing fringe-blogs and generally being dismissed/ignored by the masses.

        “Also, thanks for the link to Automatic Earth. I shall continue perusing it.”

        Keep an eye open for the opportunity to see Nicole Foss (“Stoneleigh” is her writing name on The Automatic Earth) should she ever be in your neck of the woods. She’s got this incredible way of speaking that conveys the intimacy of her knowledge about these subjects… not necessarily polished or practiced like a politician or business guru, nor the ‘rambling honesty’ sometimes displayed by Ron Paul during the GOP debates (big Ron Paul fan, but really wished he could articulate his arguments in the debates like he does in his books or in some of his interviews where he is given time to think/elaborate), but like someone who is simply stating the facts as they are.

        I for one appreciate the honesty in her words and have tried to keep my eyes/ears open for more people who speak that way – its so very refreshing to hear ‘truth’ during this otherwise convoluted time of lies in which we exist.

        Cheers,
        -GBV

        • gerold says:

          Thanks, GBV. You’ve again provided me with food for thought.

          I agree that ‘enablers’ are not limited to females. I do find it appalling though, when someone deliberately withholds helping someone in order to preserve their own addiction to nurturing (yes, nurturing can be an addiction just as worrywarts need to worry) – a perverse form of Munchausen by proxy, I suppose.

          What you describe is all too common among too many sheeple taking the path of least resistance by not rocking the boat and worse, NOT thinking at all let alone refusing (or unable) to think critically. And, it’s not limited to 30-somethings. Despite educators touting critical thinking in the public education system, what they teach is a joke. They talk about it but don’t actually teach it. They describe it in class but don’t allow student to practice it. Let’s face it, the powers-that-be want sheeple to acquiesce rather than question them.

          You mention the Empire of Illusion. I haven’t read it but the by-line is fascinating. “The End of Literacy and the Triumph of Spectacle”. Being a recovering TV addict since discarding my boob-tube more than twenty years ago, I am much more aware of the debilitating effects of uncritical absorption of the ass media’s drek whether it is so-called news or so-called reality TV or sports.

          I’ve received many suggestions that I “lighten up” my blog with less text (less “Literacy”) and more pictures (more “Spectacle”). Yeah, right! Sorry, but that’s not the type of person I’m writing for. I write for people who are literate; whose lips don’t move when they read; who can actually think well enough to call me to account.

          I was once approached by Google on a pilot marketing scheme where they would provide technical assistance in exchange for a cut of the revenue. As the discussion developed, it became apparent what they wanted was very “dumbed-down”. I told him the program would probably work because, as HL Mencken wrote, “No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people.” However, I don’t do “dumb” very well. Not surprising, he became quite angry.

          This means, I will continue as you say, “writing fringe-blogs and generally being dismissed/ignored by the masses.” If my blog ever went viral, I’d know I was heading in the wrong direction.

          The medical procedure of Triage was invented in the 1800’s when large armies and advanced weaponry produced more casualties than handful of army doctors could cope with so they learned through experience to divide the wounded into three groups.
          1) Those who would probably die whether they were treated or not.
          2) Those who would probably live whether they were treated or not.
          3) Those who would probably live ONLY if they were they were treated.

          By concentrating on the third group, the largest number of casualties survived. You can do the math even factoring in a large percentage of grouping errors and still produce the largest number of survivors.

          I do Triage in my personal life as well as my blog. Some people are lost and you could waste your entire life helping them without making a dent. Some people don’t need help. I help those who CAN be helped and they’re usually the ones who are willing to help themselves, who admit they have a problem and just need some guidance or a shoulder to lean on.

          I mention this because there will come a time when I shut this blog down because it will be too dangerous to continue (Triage) and the results no longer worth the effort (survival). As we keep circling the economic drain and as our society continues to deteriorate and becomes increasingly stupid; as the powers-that-be become more brazen and desperate in their theft of our money and freedoms they will look for scapegoats to blame. Anyone disagreeing with the party line will be branded a terrorist and summarily dealt with.

          I mention this because you, too, will need to judge when it’s time to stop pestering your friends, hold your tongue and fade into the woodwork as a matter of your survival. A protruding nail attracts the hammer.

          Thanks, I’ll keep an eye out for Stoneleigh on The Automatic Earth.

  6. GBV says:

    Long-time reader, but first time commenting.

    “On another note, there’s much commentary about deflation being more of a problem than inflation. That’s utter bullshit.”

    Have to disagree with you here.
    While it’s certainly not desirable, a slightly smaller sub, 3% less alcohol in my products, Franken-salmon or other “stealth inflation” thievery isn’t going to make my life that much worse.

    Were inflation to suddenly take off in a hyperbolic fashion (i.e. hyperinflation), then yes, it would be worrisome – but debt, while like money, is not money and it functions differently. All of the extra debt we see being created by the Fed and other central banks would appear to be an attempt to revive money velocity, which continues to fall despite these attempts to intervene:

    http://www.zerohedge.com/news/2013-01-18/guest-post-money-velocity-free-fall-and-federal-deficit-spending

    For the hyperinflationary bogeyman to strike, I think the velocity of money would have to be moving in quite the opposite direction it has been moving. For the to happen, I think you’d have to see massive debt defaults and the Powers that Be cranking up the printing presses to print PHYSICAL cash, issuing it into circulation like a drunken sailor.

    Now consider the opposite – going back to your original comment, I would ask you to consider how bad it could (will?) be if the “inflation mega trend” you’ve identified were to reverse back to its 1980’s levels. Depending on how quickly that reversal takes place, anything asset based (gold included) would most likely see their prices decimated, wages would be dramatically reduced, demand would be eviscerated, businesses would fold and unemployment would skyrocket even higher than it is today. All at the same time that energy/resources are becoming more scarce (which, already is driving hostilities between nations as they make a grab for whatever remaining resources they can get their hands on).

    That doesn’t really sound like “bullshit” to me, but a massive risk that a majority of people continue to deny exists. And the most depressing thing about it is that a deflationary correction seems to be unavoidable.

    Put another way – perhaps we’re already living in near-hyperinflation?
    A bit more, while unpleasant, won’t kill us. But the threat is clearly massive deflation and the seizing up of our global financial system.

    Cheers.

    • gerold says:

      Thank you for a very considered reply. I admit I shouldn’t have called deflation utter bullshit. I was trying to write a short article (unlike me) without getting into a lengthy discussion about an inflationary depression where we will likely see both inflation and deflation i.e. what we owe will cost more and what we own will be worth less.

      You say, “All of the extra debt we see being created by the Fed and other central banks would appear to be an attempt to revive money velocity, which continues to fall despite these attempts to intervene.” You’re right; money velocity (the frequency that money is spent over a period of time, i.e. economic activity) is in free fall despite central banks desperate debt creation.

      Question: what happens when velocity bottoms out which it surely must at some time? Velocity can’t fall forever.

      Slightly different question: does this not illustrate the utter failure of our debt based economy?

      To paraphrase Satyajit Das – governments cannot prevent the collapse; they can only cushion the fall. There’s two way to remove a bandage; slow or fast. Fast is painful, but allows us to rebuild or, more likely build a new, sounder system. Slow, which is what central banks are trying and failing to do (although they enrich their bankster buddies) gets us to the same place but not only prolongs the agony but creates all kinds of unintended consequences just one of which is an entire generation of largely unemployable youth with few job skills.

      Central banks are justifiably scared shitless of deflation. Their justification is why would consumers buy today if the price is lower tomorrow? They ignore what you allude to; falling wages and asset values would quickly overcome that mindset. Don’t forget falling wages and asset values is ALREADY happening when you factor in the REAL rate of inflation as per John Williams Shadow Stats or when measured in REAL money like gold.

      Also, don’t forget the U.S. had deflation throughout most of the 19th century particularly the second half and Amerika grew into a mighty industrial nation. That was before this grand and failed experiment of debt based money, printing money out of thin air and turning a nation into burger flippers and financial servicers which are again being laid off in droves.

      Like you say, “the most depressing thing about it is that a deflationary correction seems to be unavoidable.” Satyajit Das might agree with you. It’s unavoidable because you cannot defy gravity. We can ignore the consequences but we cannot ignore the consequences of ignoring the consequences. Yet, that’s exactly what the idiot central bankers are trying to do. They’ll fail at that too.

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