Thoughts on Markets

Wednesday, July 14, 2010

There are no FREE MARKETS - only intervention. Dollar Reserve Currency will be replaced.

The boyz came in today in spades. They took action to raise and then almost immediately drastically drop the prices. The action is the same in gold and silver. This is without a doubt intervention in the worst way. No market will normally act like this. They likely moved the dollar as well.

Below, see the longer term gold graph. Notice the green trend line. Two have been placed on the graph. The second one to the right shows the steeper climb of the price of gold over more recent months.

Richard Russell (DOW Theory Letter) predicts that gold is likely to move farther upward soon establishing a still steeper trend line. At some point in the rise, the gold rush is likely. In spite of the potential deflation/depression we are facing, there will be a mass move to the precious metals for safety of wealth that remains. A lack of trust in the unbacked paper currencies will result in this.

It is almost certain that the dollar will be replaced as the reserve currency for the world. I expect this to be a progression. The first move will be to replace it with a basket of currencies. This will be an evolving basket which will be tweeted over time to place stronger emphasis upon stronger currencies. Then it is likely to be replaced by the first currency that is backed by gold.

Some have suggested that one big reason for China's affinity for gold, and to a lessor extent silver is to position itself for the Reminbi to become the reserve currency of the world. China moves ever closer to its goal of becoming a major, in fact, the major player in international markets.

In any discussion of restoring America to its position of dominance in international matters, one must remember that our manufacturing capability has been decimated to the extent that it is obsolete and the skilled workers have been idle so long that most manufacturing skills have been lost. Thus, there is great inertia in reestablishing our manufacturing base which will take decades, if it is ever accomplished.

In contrast to this lack of capability, China has vast manufacturing  capability. This is mostly new and very well advanced. The skilled, industrious workers are plentiful and are beginning to enjoy the benefits of new found wealth which had not existed in China for centuries. Of course, there is some excess of capability now, but the vast Chinese internal market is expanding and filling in much of the gap left when American consumers ran out of credit with which to buy. Euro has become the largest importer of Chinese goods at present.

Folks, we are rapidly moving into a time when we will enjoy a lower standard of living and we are being forced into it by the actions of our government and the Federal Reserve System. No amount of stimuli or flooding of ever worth less dollars will stave off this inevitable consequence.

When left our God  (the One who providentially created and sustained our nation) as individuals, families, and churches, He has given us over to our own devices and we now stand under His judgment. Only a national repentance can reverse this process. It must begin with individuals, families, churches, and work its way up from local communities who will move away from the government trough and stand on their own. Pray for that day!

Best to each, Doug


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