10 Oct 2008

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Reminder: this little blog is simply my tool to remind myself and any readers of my thoughts and anything else I deem important - more extensive charts and/or analysis takes place in the GMR Newsletter. This blog is periodic but usually updated once or twice a week.

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My Market Notes:

• Accumulate gold, silver in physical form - coins, bars, truckloads

• HOLD OFF on all equity buying - markets are extremely volatile and VOID of any valuation logic

• As I predicted, we got the rate cuts from EVERYBODY - Central Banks collude to cut

• Deflationary tendencies to be fought with EVERYTHING in the arsenal - may lead to hyperinflationary spiral; Reflation is now underway

• Confidence in politics, politicians, bankers, paper is lost -- all were "asleep at the wheel"

• US Housing - still further to go

• I reiterate - in this market, single fundamentals have no importance; macro global considerations are more important

• Commodities equities remain not only oversold but are screaming BUYS - but not yet - my BUY nibblings have been slaughtered - better to wait until at least until more is known about what politicians have in store; I fear nothing good

• Impossible to save with negative rates in most Western countries as inflation is raging ... but off the radar screen; the only thing holding value has been gold.

• Winter is approaching - how will the total lack of sunspots affect ?

• BEAR Market: in force; DAX 5.700 , DOW 10.500 next stops; SPOT ON but never expected it this soon - possible target of DOW 8.000 now VERY CLOSE as I had said

• Accumulate: Swiss Francs

• The Central Banks have lost control thus far - this weekend I expect more drastic steps to be announced

• Current Outlook: weakness into 2009; commodity prices likely to be suppressed from equity outlook but may be trumped by stampede of FEAR into oil, gold, etc. Not knowable but things are looking like a complete flight to safety - cash + gold -- forget useless bonds right now.

• Flight to Safety: short term I see no credible asset class for protection ; cash hold; accumulate hard assets on all pullbacks especially gold & silver

The Party is Just Beginning

As the saying goes: "In a ham and eggs breakfast, the hen is involved, but the pig is committed".

By my reckoning, Paulson and Central Banks are the chicken and the world's (stupid) taxpayers are the pig. We have no choice in the matter, and by the way, to get ham, the pigs are always slaughtered.
My current fear is that we may be in near term for continued financial meltdown - something is definitely in the works in Washington D.C. ...

All hell is breaking loose - the DOW closed down 670 points last evening and today asian markets have been battered down again with the NIKKEI losing 10%, most other asian markets are down 7 - 9 %. Oil has corrected down again this week so far as the outlook for world-wide recession is growing while gold and silver are now moving higher. Overnight figures are :

I expect another "Sunday announcement" from officials - the G8 Finance Ministers are meeting today in Washington D.C. and the IMF is deliberating. Likewise, Pres. W. Bush is to give ANOTHER announcement today at 16:25 EST. What will this be about ? There could be a bank moratorium in the pipeline. Or more drastic measures...

The chart above (courtesy of D. Norcini | Tech Lines: R. Buss) shows that in Euro terms, gold is breaking out and making new highs - very interesting indeed. As well, in other currencies, Gold is rocketing to new highs - this is the true currency of last resort as other currencies devalue in purchasing power - this will become more apparent as higher inflation in the pipeline comes...

The prospect of hyperinflation is now becoming a REAL possibility - trillions of dollars are being pumped and nothing is happening in the credit markets - FEAR is enveloping world markets. We now think there may be another concerted effort to engage in socialist methods of the State buying up everything, guaranteeing loans, etc. as in Iceland, UK, etc. Welcome to October 2008. We would not be surprised to see more civil unrest as people realize they have been cheated out of their lifetime savings and pensions.

If you ever thought to be invested in gold and silver and hard assets - NOW is the time. A storm is brewing over the world economy and PAPER MONEY is not helping anything it seems. Caveat: we are also sure that "gold enemies", i.e. Central Banks and their banks, will try to keep the price on gold below $1000 - there is a fight coming - Gold .vs. Paper - do not underestimate this fight - it will be very dirty and it is your government fighting against you and your wealth.

Here are few recent remarks from elected officials in the US government:

• US House of Rep. Speaker Nancy Pelosi: "It's not a bailout, it's a buy-in"

• W. Bush: "We have a sound economy"

• Hank Paulson: "Our underlying financial system is solid"

• Hank Paulson: "The US Dollar is strong"

As an ambitious student of history in all its twisted and convoluted probity, or lack thereof, a thought from my Berlin (a rather appropriate location) office below. The point being, the SPIN is no longer working - the Emperor, or better said, the Empire, has no clothes. He is now laid bare for all to see - now the financial spin doctors are about to foist even more upon us - just wait.

The Big Lie is a propaganda technique. It was defined by Adolf Hitler in his 1925 autobiography Mein Kampf (My Struggle) as a lie so "colossal" that no one would believe that someone "could have the impudence to distort the truth so infamously".

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State."

And here was a response from Joseph Goebbels to Churchill and Co. - also very interesting.

"One should not, as a rule, reveal one's secrets, since one does not know if and when one may need them again. The essential English leadership secret does not depend on particular intelligence. Rather, it depends on a remarkably stupid thick-headedness. The English follow the principle that when one lies, one should lie big, and stick to it. They keep up their lies, even at the risk of looking ridiculous."

Like I have said in the past: Repeat the government's mantra over and over again until you believe it: Strong Dollar, Sound Economy, All is Well, Jobs will not be Lost, Economic Fundamentals are Good.

By the way, Gordon Brown, UK Prime Minister, is now seemingly intent upon using Anti-Terror Laws against Iceland for sandbagging UK citizen's accounts in icelandic banks which have been nationalized- no payouts at the moment, if ever. Gordo, why don't you just bomb them? God knows, there can be a case made for the outcast Icelandic Taliban in Iceland's extensive cave systems... briefcases full of Kronor, Russian Rubles* and even a few of the Queen's pounds - this is absolutely hilarious if it were not totally true. (* note: Iceland was turned down by the US, UK and Euroland when submitting for help on a loan bailout for its banks. In the end, it turned to Russia to secure an $8 billion loan - so much for so-called "friends and allies". I suppose Russia will now have secured submarine bases in the North Atlantic)

As I stated above - the "Financial Powers that Be"

• have been meeting and are in close consultation,

• are meeting today in Washington D.C.,(IMF and World Bank)

• will continue to meet on the weekend in Washington D.C.

A final chart: in the last months, hundreds of billions have been literally created and thrown into the financial arena to try and "calm the markets". We should realize that the total amounts of OTC derivatives are on magnitude of 16x the world's entire GDP, or, approximately 650 trillion dollars in June 2008.

If this is the amount of "bad debt" on the books, and which must be cleansed, then I submit we shall soon see complete meltdown of the financial system and of general solid businesses with no access to credit to finance things like payroll, inventory or investment plans - they will collapse.

It is pure folly to hear politicians and news stories of "Are we in a recession?". My answer is beginning to turn - I now say we are entering a Depression - as I have often surmised in my GMR Newsletter. And if things continue on this route, we shall be entering a hyperinflationary depression. Why? Because now the Central Banks are likely to embark upon one of the greatest reflation programs ever witnessed in the modern world.

Hyperinflationary because the world is facing a deflationary menace - that of too many goods in an environment of fear, panic and need to save. Thus those goods will linger and stagnate. No new widgets or gadgets need to be built. The bad debt is coming home to you - now.

It was interesting to read a few reader comments sent to me, which said "Thank god I did not invest in gold" - it has dropped so much". My current thoughts are: those readers shall likely eat their words if things get wholly out of control. In any case, the amount of reflation necessary will be horrendous. Funny, but looking at the gold charts, I see gold in most major currencies has zoomed up (NOT down) - hard to understand those readers. The major stock indices are getting hammered down 30, 40 or even 50 percent while gold has maintained a steady uptrend. That is why gold is STILL in a stealth up move - when and/or if "joe public" realize this, there will be a jump. I expect at that point, gold controls to be enacted. How and When and What I don't know. It all hinges on this ONGOING bailout and how the markets respond - it's no longer the "financial engineers" in control, it's the politicians, the bureaucrats and the state-sponsored hoodlums. I leave the rest to your imagination. And if you're wondering, yes, I am considerably perturbed at these bumbling idiots...

Just to note, as I had predicted, we see Central Banks and their recent statements:

• inflation is coming down; it is no longer a major threat

• the economy is weakening - we have room to cut rates

Are we headed to a full-blown Kondratieff Winter? ... certainly it looks so. Finally, I want to throw in an interesting astrological tidbit - I read and study a lot of this but keep it mostly to myself. We have entered a Pluto-Capricorn cycle having just passed out of the Sagittarius. Capricorn house is for the next 16 years and is indicative of deflation, fear, panic, less freedoms, low returns. Both Kondratieff and Pluto in Capricorn point to investment in commodities, food, and agriculture.

As an investor, I thought you might enjoy reading this short article:

The dozen secrets behind Anthony Bolton's success

By Dylan Lobo | 07:00:00 | 26 September 2008

In a brutal time for fund managers, Fidelity legend Anthony Bolton reveals the 12 secrets to his success.

Bolton shared his tips at an awards ceremony last week in which he picked up a lifetime achievement award. He then went on to provide the audience, which contained the likes of Neil Woodford and John Chatfeild-Roberts, with some solace by saying we are in the final stages of the bear market.

So for all you budding fund managers out there, or those who are getting a little desperate in the dire market conditions, here are the 12 tips from the sage of fund management.

A seeing eye

Bolton says: 'A good fund manager can see further into the gloom than the average fund manager. They can think of the secondary less obvious effects'

Right temperament

'Temperament is just as important as intelligence. A genius with a bad temperament won't be a good fund manager. You must be detached and not too emotional'

Organisation

'There is a lot of information in this business. Knowing what you're interested in and what you're not is important'

Be intellectually curious

'What is the process that leads to the result? A good fund manager wants to know why things are happening to companies'

Be a detailed generalist

'A good fund managers needs to know quite a lot about a lot of different things'

A desire to win

'It's an extremely competitive business and you need to want to win'

Have flexible conviction

'A pig headed fund manager never prepared to change his views is dangerous. You need to be able to change your mind'

Go against the crowd

'Some of the best decisions I have made have been my loneliest. Most people don't like doing that'

Know yourself

'You need to know your strengths and weaknesses'

Integrity

'You need to be honest with yourself'

Experience

'Experience will help guide managers through tough times'

Common sense

'Common sense has always stopped me from doing silly things'

So there you have it, it's not exactly rocket science, but for some reason Bolton is one of a select batch of managers who have been able to master it.

Why do you think fund managers struggle with some of these concepts - Do you have any other bits of advice to help them through this crisis?