Thoughts on Markets

Wednesday, July 30, 2008

We Have No Markets, Only Intervention


As has been said, "We no longer have markets, only intervention." That is a major reason that it is so difficult to understand the direction of so-called, "markets." Never in history have people been "treated" to such intervention.

The intervention is coming from many sources; such as the autonomous Federal Reserve, the out of control Federal Government, bullion banks, hedge funds, and the Sovereign Wealth Funds of the governments around the world.

The ability to create unbacked FIAT currencies at the click of a computer mouse and the dollar holdings of foreigners has generated a flood of dollars which is seeking places to go. The debasing and depreciation of the dollar has made property in These United States of America cheap for the dollar sloshing about the world. It is no wonder that many of our assets are being bought by foreign government Sovereign Wealth Funds.

While the dollar value of gold should be in the range of $1500 to $2000 in relation to the long term depreciation of dollar purchasing power, gold languishes below $900 as this is written. That is absolutely ridiculous and is solely due to the distortion of the market by continuous intervention.

Gold could be manipulated as low as $850 if the boyz and their friends wanted it. We are the victims of their pleasure. The price today ($897.20) tells me that there are still a great number of shorts by the big boyz overhanging the market. Likely, they did not buy back all of the shorts last week and on Monday at the expiration of options. They still are holding future short options which must be covered, so they push the prices down.

Long term, it is obvious that the central banks, and in particular, our Federal Reserve will create as many dollars as necessary to bail out the failing banks. This will continue to lower the purchasing power of the dollar for the foreseeable future. We are in for inflation of the paper dollar which will give us more price inflation in everything we purchase.

It may well be that we are to continue to "muddle through" with higher prices and with stable and/or lower wages. This is the "stagflation" which is currently prevalent. We are experiencing a slight bit of relief as the price of filling the gas guzzlers has decreased a bit. As you fill the tanks, it is no great task to remember when gasoline was just around $1. Isn't it a shame that the dollar has depreciated so much as to give us cause to rejoice when we can find gasoline at less the $4.00? Wow, such a deal! That is one of the great benefits of living with a government and central bank that manipulate markets at will.

Silver is now 17.08 and gold 898.60. The precious metals are the only way that we can preserve purchasing power for ourselves in the inflationary environment we are facing.

Let us continually rest in the grace and mercy of King Jesus as He works His will upon all the world. Nothing can separate us from the love of the Father which is guaranteed to us by His Only Begotten Son: Jesus Christ, our Lord. Be still and know that He is the King of kings and Lord of lords. Praise Him daily.

Best to each, Doug

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