Thoughts on Markets

Tuesday, August 12, 2008

There Really is Blood in the Streets!

This "correction" in precious metals and commodities has us bleeding profusely day by day. Gold pushed toward 800 and barely missed going below yesterday. Silver threatened 14, as well. This has been a terrible time for us.

The question confronting us now is, "Is this the last gasp before the big run?" We who remember the almost 40% drop in gold prices before the mania run up from 1971 to 1980 are asking ourselves over and over again. Is this it! Frankly, I do not know.

As we look at the fundamentals around us, we see no way for These United States to pay off our debt without massive increases in the supply of the unbacked paper dollar. Further, we see the government and the Federal Reserve willing to bail out the financial industry as any cost. We see price inflation all around us, except for the present "correction" in the price of petroleum which gives us a break as we fill our SUVs. As yet, there has been no relief in the prices of energy to light, heat, and cool our homes.

We see interest rates at well below market value which is causing our money market funds to be hit by a double whammy: loss of purchasing power and interest too low to even make up for the income tax cost. Thus, each dollar in such funds is a loser for us.

Because of our debt and the ever lower purchasing power of the dollar, our America is being sold at bargain prices to foreigners. What a change this is for us! When the dollar was strong, we shopped the world. Now, it is the rest of the world that is enjoying the bargains here.

What a quantum change this has been and continues to be. As we have borrowed from the world for decades now to enjoy cheap imports, the world has accumulated dollars in never before seen volumes. By the way, we now need about $2,000,000,000,000 per day to finance our spending in support of the War on Terrorism, the War on Drugs, rebuilding our military, and consumer spending binge. This does not cover the needed restoration of our run down infrastructure of roads and bridges. Debt of this magnitude will either be repudiated or paid with additional expansion of the amount of dollars in circulation (inflation).

We now have Sovereign Wealth Funds of governments around the world buying with dollars whatever they see of value. They must use the dollars collected from sale of products and services for something. Certainly, they see the depreciation of the dollar and that is a great incentive to convert it to things of value rather than hang onto the paper. Think of the vast amount of dollars sloshing about the world looking for places to go.

Yes, the economic situation today is vastly different from any we have seen. A major source of this change has been the growth of China and India over the last decade or so. Both have moved toward parity with These United States in international manufacturing and technical service. This they have virtually accomplished at the speed of light while it took us about a century and a half to dominate manufacturing and service to the world. They did it without having the advantage of owning the reserve currency of the world.

Currently, the dollar is enjoying a boost in relation at other world currencies. I believe, as James Turk ( has suggested, that this temporary bullishness is a direct result of the central banks of the world buying dollars to support a higher value. Maybe they are doing this so that they can begin to slowly and in a stealth manner unload more of their dollar reserves and replace them with other currencies at a better price. Could be! After all, many have been quietly moving away from the dollar for some time. These United States are dependent upon the value of the dollar and its benefits from being the reserve currency of the world. Another way to state this is, "As goes the dollar, so go These United States."

Additionally, we have the significant intervention in the precious metals markets by central and bullion banks and a cartel which have been consistently manipulating the value of precious metals for their own gain or other reasons. Without doubt, this has impacted to our disadvantage on prices.

Without a doubt, there will be many more dollars added to international markets. Everything, above, points toward an inflation of our dollar. A detractor remains the foreclosures and bankruptcies which are growing rapidly in numbers year to date. When loans are written off, the supply of dollars is decreased. However, it does not seem that this reduction will be sufficient to off set the necessary increases.

In spite of the present situation, we see the price of precious metals threatening to be further stomped down. This is not free market action. It is intervention and manipulation by those in power by FIAT of government or for personal (cartel) gain at our expense.

Gold is currently at 818.10 and silver at 14.73. The mining stocks have moved upward slightly since yesterday, but are still in price ranges that are screaming buys. Each of us must make our own decisions. We may be at the "sell the farm" place, but I am doubtful as I continue to be amazed at how much manipulation there remains.

It does seem that the cartel will have less reason to intervene for the time being. That has been historically true as we move into the fall and early winter season of year.

I am thankful that my God is in control and I rest in His love for His people. However, each of us and collectively our churches must repent of our sins. We must give highest priority to justice and mercy. We must pray that our nation would once again make justice under God's Law the goal for every court decision. Also, that our elected officials would make this the highest priority in every act of government.

Best to each, Doug


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