Thoughts on Markets

Saturday, October 11, 2008

Something Rotten in Denmark

Another big drop in the price of gold at the end of the week. Such drops do not occur in free markets. They can only happen when the powers that be intervene in the market place.

I am surprised that many folks are blaming the world financial melt down upon capitalism. This is a totally misplaced blame constructed by either the liberals or elected officials who are wildly searching for a scape goat for their meddling in what remained in our somewhat free markets. However, it is important to realize that we have not had free or capitalistic markets for well over 150 years or so.

Historically, the Federal Government grabbed a tremendous amount of power at the close of the War for Southern Independence. Citizens of states were made citizens of the United States of America. The role of states to interposition themselves between the citizens of the state and Federal Government was eliminated in one fell swoop. The creation of the Federal Reserve, whether legal or not, has served to debase our currency from day one. With each succeeding president and congress more centralized control has been taken. The last three have significantly seized more power than all before them had done. Over the centuries of the existence of the United States, the Constitution has been emasculated to the extend that it now exists only on paper. Rather that "A nation under law" as the founders created it, we have become a nation under men. The former gave us a standard based upon the law of God which does not change. The later gave us an ever evolving law which no man can understand completely and which is subject to the whims of man.

No where is the corruption more evident than in the market place. We do not have a capitalistic free market, we only have intervention. Government and central bank intervention is the root cause of the financial debacle faced today. The problems have become greater and more evident through the years until the whole financial system is on the verge of collapse.

We must thank the Sovereign God of all that He has held us up for so long and given us a standard of living never before seen in the history of the world. Now as we have left Him for other gods of greed, easy living, etc. promised by politicians to cover us from the cradle to the grave, He seems to be leaving us to our own devises as is promised in the second half of Romans Chapter One. I am certain that He sits in Heaven and laughs at our folly.

The following from Casey's Resource Daily Plus speaks to the issue of intervention into the market place:

The Hightower Report wrote of the day’s action in the gold market: “Perhaps some longs we're simply inclined to bank profits ahead of the weekend or perhaps seeing the US Dollar give off the impression of finishing the week strong discouraged some players. As suggested in the midday coverage just saying discussions of a stock trading holiday in some foreign markets would seem to leave high anxiety in place into next week. Certainly the G7 will attempt to shore up confidence with weekend actions and that could be another reason why some gold longs decided to bank profits around the highs of today.”

Panic elsewhere is also playing in as Friday’s selling clearly indicates “some fund liquidation desperate to raise cash,” said Peter Spina, president of “The true gold market price is nothing close to the current paper gold price.” Spina added that, “The disconnect between paper gold price and the physical gold price will not last.”

If it does, there is surely something rotten in the state of Denmark (and everywhere else).

Meanwhile, President Bush went on TV to try to reassure a nervous public that things are not as bad as they seem, even as high level talks began in Washington to deal with things that are every bit as bad as they seem.

Wrote “Finance ministers and central bankers from the Group of Seven nations meeting Friday in Washington are expected to begin hammering out a round of coordinated, uniform measures designed to salvage the financial sector and encourage banks to resume providing loans to each other.”

Concurrently, Bloomberg reported that "Italian Prime Minister Silvio Berlusconi said political leaders are discussing the idea of closing the world's financial markets while they 'rewrite the rules of international finance.'

"Berlusconi didn't give any details about what kind of rules leaders were looking to change, except to say that leaders are 'talking about a new Bretton Woods'."

The Prudent Bear wonders if there truly is any hope for the central banks and governments to solve the problems:

"Hoping There's Hope:

This is the first all-encompassing global dislocation of contemporary finance, impacting virtually all economies, markets and asset classes. The media is now all over the “Wall Street” and “banking” crisis. I am of the view, however, that the collapse of the hedge fund industry has moved to the forefront – that it is now at the epicenter of global market upheaval. To watch silver lose more than 20% of its value today in intraday trading; to see the collapse in energy prices; to see the entire commodities complex absolutely routed; to view global currency markets in complete disarray, with double-digit intraday drops in the Brazilian real and Mexican peso; to witness major currencies such as the Australian and Canadian dollars suffer precipitous declines; for benchmark Fannie Mae MBS yields to surge 62 bps in three days; to see Brazilian dollar bond yields jump almost 200 bps in four sessions; for global equities indices to suffer rapid double-digit drops throughout both the developed and “emerging” markets; to witness a 1,000 point intraday swing in the DJIA. All the favorite trades are blowing up, and the leveraged speculating community is in a panic de-leveraging.

There is no doubt that markets are in the midst of an unprecedented liquidation of positions across virtually all asset classes and a vicious unwind of a multitude of investment and trading strategies. The Massive Pool of Global Speculative Finance is being drained. Investors and speculators alike are desperate to flee risk. Having watched the ballooning of the hedge fund industry over the past few years in absolute awe, I can say today that an industry collapse would entail the sale (voluntary and forced by the margin clerk) and unwind of literally Trillions of positions. It has been history’s most spectacular speculative Bubble and, especially over the past few years, it became very much global in nature and infiltrated virtually all asset classes. This Bubble is in a full-fledged collapse – entailing unprecedented liquidations - and it’s taking global markets down with it.

The situation is dire, as is now commonly recognized. The media is in a tizzy, and Wall Street makes for an easy and generally deserving villain. I fear the rapidly mounting anger. But I guess for this evening there is something about coming home after a distressing week and spending time with my little four month old baby. My wife and I gave our smiling and laughing little guy a bath and I just kissed them goodnight. I just don’t have it in me right now to analyze and to write gloom. I’d rather Hope there is Hope.

Perhaps things will stabilize once the hedge fund liquidations run their course. Treasury (TARP) purchases will commence soon. Fannie and Freddie will be aggressively expanding their market purchases. The Fed is now buying commercial paper, and the Fed and Treasury are working to resolve the dislocation in the “repo” market. Across the globe, governments are in full crisis management mode. There appears universal resolve to bolster financial sectors and stem the collapse. And there were actually some positive indications of stabilization in our Credit system late in the week.

I also hold out Hope that the Trillions of reserves held by global central bankers will provide some buffer to stem financial system collapse. In particular, I am Hoping that China, India, Russia, Brazil and the Middle East have today sufficient reserves to somehow avoid a ‘90s style financial and economic meltdown. I am Hoping that demand from China, India, Asia and Latin America will help offset inevitable economic downturns in the U.S. and Britain and, hopefully to a lesser extent, Europe. I am hoping that the collapse in energy and commodities prices is more a reflection of acute financial market dislocation rather than a harbinger of synchronized global economic upheaval. I am hoping there is more substance to the dollar’s rally than simply an unwind of bearish dollar bets. And I am hoping that with large capital infusions our deeply impaired banking system will retain the capacity to finance a much less robust but at least functioning U.S. economy. I really Hope everything is not as dire as it appears."

Read Doug Nolan's the comprehensive report HERE

The Jim Turk article speaks about the problems of getting precious metals when there are severe shortages as reported by GATA:

Gold Money's James Turk reports on getting real metal

9:30p ET Friday, October 10, 2008

Dear Friend of GATA and Gold:

As the market for actual gold and silver separates from the market for paper gold and silver, people are wondering how a major purchaser like is obtaining its metal. GoldMoney founder and GATA consultant James Turk provided an explanation in GATA Chairman Bill Murphy's "Midas" commentary tonight at, and it's appended here.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

Read Turk's article HERE

Impending U.S. Economic Collapse And Death Of Democracy

Politicians worship money and power. Every politician worth his salt secretly aspires to be a dictator, although they dare not admit this as it is not exactly politically correct. The ultimate goal of the consummate politician is to have absolute power, and be able to boss everyone else about, to have unlimited access to public funds for the purposes of profligate personal consumption and more importantly self aggrandizement, as well as to bribe and reward supporters, and to kill or otherwise neutralize anyone who disagrees or creates any opposition.

Read this article from The Market Oracle from the UK HERE

Of course These United States of America were originally founded as a republican form of government with representatives who were elected for office upon the basis of there beliefs and morals. Then they were sent to office to vote their conscience. We have made quantum changes in their duties to our disgrace and destruction.

As DeToqueville said in Democracy in America knowing full well that America was not a democracy. He addressed the democratic spirit of America which he said would fail when (1) the majority learned that they could obtain whatever they wanted at the expense of the minority or (2) when elected officials learned that they could buy all the advantages of political office by paying off constituents with tax collected from productive citizens. Wow was he correct and he foresaw this as he traveled about America and wrote in the early 1800s! Another observation which was startling to him was an amazement of the lack of government officials constantly asking, "Show me your papers." As a Frenchman, he knew of the prevalence of officials in his own country. Here he reported that the only evidence of government was a mail man every now and then busy delivering mail or an occasional police man on a corner directing traffic. Can you imagine that in these days when government involvement in daily activities has become so evident?

Folks, we need a change. But it begins with us. We must turn back to the God who ruled and guided the spirit of foundation of our great nation. We must humble ourselves before Him, repent and turn from our evil ways back to His law, and live to His glory. Then we will enjoy Him forever and He will again bless our nation. Until this is done by His people, do not expect any change for the better.

Best to each, Doug


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