Week Ending 9/26/08
The question on everyone's mind is whether or not the U.S. is on the edge of the abyss - staring down into the bottomless pit. It is a strange brew that has been concocted by the wizards of Wall Street. We are left with three important issues to consider:
- Are we staring into the abyss?
- If so, how did we get into this mess?
- And how the hell do we get out of hell?
We are staring into an abyss, but perhaps not quite the abyss. In other words, there is more than one kind of beast scavenging the land. Some have referred to an economic abyss, others a financial or credit abyss, and so on and so forth.
Without doubt, critical and important decisions need to be made and to be made correctly, or we could end up in the abyss - the bottomless pit that sucks down all that ventures near. Jumping from the frying pan into the fire is not going to solve anything. Time is of the essence on both sides of the coin: prudence must stand resolute against both haste and waste.
Consequently, this is not the time to panic. This is not the time to rush to judgment. The time is at hand for calm and collected minds to prevail. We must get this right the first time, as a second chance may never come.
Highway to Hell
So, how the hell did we end up in such a mess? Does anyone have the answer? Yes, there are those that have the answer: they are the same visionaries that have been saying for years that this is the final destination that a road of paper money leads a nation down - any nation, even one as great as ours.
Many so-called experts have been spewing forth pabulum to the masses: it's housing, it's real estate, it's subprime, it's too much credit, it's too much debt, it's too many derivatives, it's greed, and on and on. Yes, it is all of these things and more. But what came first? Which is cause and which effect?
What precipitated this journey down the highway to hell is paper fiat money and the Federal Reserve - the buck literally stops with them, as paper fiat money started with them; along with an inept Congress that had no constitutional authority to grant any such powers to the Federal Reserve.
Congressman Ron Paul is a patriot of the highest order that knows where the buck stops, as he questioned Bernanke about it the other day in hearings on the financial crisis, which can be seen here: http://www.youtube.com/watch?v=dv6rQ0U01Yc.
It is a short video and all of it is important, but pay extra attention to the part when Bernanke attempts to answer Congressman Paul's questions, particularly the one on: "where does the Federal Reserve get the constitutional authority to act as they do?"
Bernanke answered by reciting part of the Constitution - the part that says: Congress has the power to coin money. You will hear Ron Paul in the background going coin, coin, coin money, and he is drowned out by being polite enough to let Bernanke continue on with his babbling.
Ron Paul knows, and was trying to explain to Mr. Bernanke that the power to coin money is the power to coin gold and silver coin, as the Constitution mandates - not to print paper fiat money that isn't even backed by gold or silver, let alone is it gold and silver coin. Just so there is no confusion on this point, here is what the Constitution says about money:
"Article I, Section 8, Clause 5: The Congress shall have Power... to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
"Article I, Section 10, Clause 1: No State shall... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt."
The Chairman of the Federal Reserve was being given a lesson in constitutional history and economics by Congressman Ron Paul - a lesson that Congress and the American people should wake up and listen to because it's the truth.
How do we know it's the truth? - Because the Constitution spells it out in black and white for all who care to read it; and for all those that have the forbearance to honor and adhere to it. If further proof is needed check out the dubious positions the U.S. now holds regarding debt: CIA - The World Factbook -- Rank Order - Debt - external and CIA - The World Factbook -- Rank Order - Public debt.
All of which leads into: how the hell do we get out of hell? The answer is: by the regeneration of the system that was destroyed by taking the path that has led us here: by restoring gold and silver coin to its rightful place as money, by abolishing the Federal Reserve, and by disallowing debt to be monetized as the circulating currency. That's why the Constitution says, "No State shall make any Thing but gold and silver Coin a Tender in Payment of Debt."
Obviously, more needs to be done then the above, as consideration must be given to all the imbalances that a paper money system has spawned - the list of the problems the "experts" each pick as "the cause" when they are really effects - the cause being paper fiat debt-money circulating as the currency.
Who should the American public listen to for the "fix" - Ben Bernanke who clearly doesn't understand what he is talking about, as he has been brainwashed and programmed in a false doctrine of Keynesian economics; or to Congressman Ron Paul, who for decades has tried to get Congress to listen to his proposals for sound money, which would do exactly what needs to be done to restore the American dream? Who is the visionary and who is not?
So, that's my two cents on the financial events of the last few weeks and where it has ended up. For those interested, my new book Honest Money has complete details on all this and more. It explains the history of U.S. Gold and Silver Currency and its devolution to paper fiat debt-money. It can be accessed at the bottom of this report. Moving on to this week's report:
Until proven otherwise, the stock market is in a bear market. The main trend is down and all other action is counter-trend action. If the financial community accepts the "bail-out" plan as proposed, a relief rally most likely will occur. Unfortunately, the dotted line will probably be breached before spring.
This is one of many trends versus counter-trends that are occurring, as well as smaller cyclical moves within larger secular moves. These are trying times to say the least. The markets are difficult at this particular stage of the game as unchartered waters have been entered.
The chart below raises the question: is this an anomaly or isolated event, or is it like the financial, banking, and real estate sectors - flashing a series of red light warnings? What does this say about the soundness of our monetary and financial system?
How many times has the Nikkei been said to have hit bottom? It has been in a secular downtrend for 20 years now. What precipitated that perilous path? What was the straw that broke Rome's back?
A nation's future can be found in the strength of its currency - in its power to retain purchasing power or value over time. Since the Fed was created the dollar has lost 95% of its purchasing power. That is a poor testimony.
Continuing on with the theme of long term trends and cyclical moves within larger secular moves are the charts below of the CRB and WTIC - commodities and oil.
Commodities had been in a multi-decade decline until 2002-2003 when the upper trend line was broken above. That is the dominant chart feature. Notice the present correction is well within its rising channel.
Below is West Texas Light Crude well within its decade long rising price channel. Notice how price broke above the channel and was overbought; and now price is adjusting as it should. In 2000-2001 similar action occurred.
Bonds are starting to break down. Perhaps the market is starting to pick up the whiff of deteriorating bond values due to excess supply that will be needed for the coming bailouts.
Rates are on the rise in the chart above, while the chart below shows bond prices tumbling. A change in trend may be occurring and bears close watching.
The chart below continues with the theme of trends versus counter trends and cyclical moves versus secular moves. The recent correction was a counter trend move. Gold is in a secular bull market.
Gold moving back above $850 was very significant as we said in last week's report. Consolidation was expected and is what occurred. If price closes above $900 then a run at the all-time highs will occur sooner as opposed to later.
The market has been volatile and is waiting to see if a bail-out is in order. A deal would be a short term headwind to gold, but long term any such deal involves the issuance of more debt, which means further debasement of the currency, all of which is gold positive.
Silver has run into significant resistance at its first fib retracement level. Volume was up nicely on the rise and has been falling during the consolidation. Histograms are overbought, but RSI is moving sideways and has plenty of room to rise before overbought levels are reached.
Silver has not performed as well as gold, but that is to be expected. Once gold gets going into its next major move up, silver will kick in and make up for lost time as seen in the past. The open gap is inviting.
The weekly chart shows the XAU going back to the start of the gold bull. During the recent correction price dropped below its rising channel, which was not a good event from a long term perspective. This breakdown brought the cyclical bull market into question. In the past two weeks price has regained its rising channel.
Next up is a monthly chart going back to 1995. The cup and handle formation is still in effect as long as the lower trend line is not broken below. Price needs to close above its horizontal trend line for the bull to continue on.
Many commodity and pm stocks have the same chart appearance as KGC and GG above.
Good luck. Good trading. Good health, and that's a wrap.
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