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Reader Note:  We won't be posting a Saturday report this week due to our "Camping IN" exercise Saturday.  Results/notes/discoveries for Peoplenomics subscribers on Sunday afternoon... If you're looking for more reading material, try our archives page, with notes going back to 1997..  SATURDAY REPORTS WILL RESUME NEXT WEEKEND

 

Perceptions Versus Realities

I have no idea why the subject of  'perceptions versus realities' popped into my head this morning as an agenda item to discuss with you, but it does have something to do with how the markets operate.  And, since many are closed for Good Friday (click for schedule) this would be a fine time to talk about such matters.

 

Let's begin with a couple of examples:

American Dream

Perception:  Members of Congress  studiously consider all aspects and ramifications of pending legislation then vote just a shade on the conservative side, adhering to the fine principles of the Framers of the Constitution.

 

Reality:  Members hold up both sides of most issues, see where they can get the most money in campaign contributions, voters, and then vote in a manner they hope will maximize their personal power and wealth.

 

Recent Examples: Daylight Savings Time & Lobbying Reform

 

Product Development

Perception: American ingenuity always comes up with the best product at the best price by the application of superior engineering and innovation.

 

Reality:  Most products are less than idea and their 'shortcomings' are relabeled as 'features' by marketing departments that will sell anything including family members.

 

Recent Examples:  The 'non-drip' coffee carafe which poured itself on my foot this morning, and Vista.

I mention all this because after seeing more than half my commodity account value disappear this week, I have to remind myself of the perceptions and realities of the world today:

Commodities Markets

Perception: A series of 'efficient markets' which match the needs of the sellers to the needs of the buyers.

 

Reality: Greed-driven half-crazy traders who try to slice off as big a chunk for themselves as they can without going to jail.  Susceptible to rumors and spin.

 

Recent Examples: See my account balance for one, and see the headline "Commodities Slump As Traders Exchange Rumors Of New Margin Requirements, for another.

Want another one?

Wall St. Firms

Perception:  Extraordinarily well managed firms with adequate margins and eagle-like financial foresight.

 

Reality:  Like commodity traders: Greed-driven half-crazy traders who try to slice off as big a chunk for themselves as they can without going to jail.  Susceptible to rumors and spin.

 

Recent Examples:  Bear Stearns for pennies on the dollar and "Investment Firms Tap Fed for Billions"

This is so much fun, I could go on all morning.

American Dollar

Perception: "Bush says U.S. insists strong dollar policy"

 

Reality: "Why the Fed's little nod to inflation is a 'big deal'"

 

Recent Example:  Decline of the US Dollar purchasing power since the Fed too over in 1913 to about 4.5-cents to the 1913 Dollar.

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All of which gets around, in a half-holiday second cup of coffee mode, to my contention that such perception/reality gaps are nearly universal.  Here's a controversial one for you:

Religions

Perception: Many religionists have insisted that man was created in the image of (fill in your name for IT).

 

Reality: No, it's just the humans that are busily duplicating their limited thinking tin computers while aspiring to a dream of 'artificial intelligence'. IT is probably much grander in a multiplicity of dimensions/planes and a simple human image.

When you look at design patterns in software for a while, is that humans seem to come in the floating point version and the fixed decimal types. 

 

Seems the floating point humans can move the decimal points of life around, recalibrating on the fly and remaining functional over a wide range of inputs. You can think of these as the relativists. 

 

On the side of the human product line is analogous to fixed decimal humans who are disinclined to change their perceptions once embraced, and as a result lives their lives as absolutists. 

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With the markets generally closed today for Good Friday/Semi-Holiday, I( expect some portion of the day will be spent chastising myself for being run over by the latest market reversal in commodities.

 

My account balance this week argues that I seem to be a bit more fixed-decimal in my thinking than would be optimal, since the floating point decimal seems to have moved significantly to the left.  If it was anything more significant than paper, I'd be in trouble.

 

Enough of this philosophical discussion - we have important work to do this weekend:

 

Death of the Dollar

Still, the fixed decimal thinking continues, bolstered by headlines that hint inflation is really being pumped by the world's events and this week will be a launching point, rather than an ultimate capsizing of financial dreams based on inflationary expectations, especially in metals and foods.

 

The time monks were thoughtful to send along the latest evidence leaking out of the headlines that the 'Death of the Dollar' is really going on, despite what Washington insists about "Strong Dollars" - which are as rare, apparently as coffee carafes that don't drip in the real world.

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I don't claim to be a rocket surgeon, but if you look at the reconstructed M-3 chart (courtesy of Trader Bart's site) you can see how a straight line projection of the current trends in monetary growth offer the prospect of a 20% growth rate in [reconstructed] M-3 by mid summer of this year.

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On the other hand,  the latest Federal Reserve Consumer Debt report (they call it Consumer Credit so you won't go out and jump off the nearest high object when you see how we're all swimming in debt), you can see that the growth in consumer debt has only been running at a 3.3% annualized growth rate.

 

So, as we stare into the coffee grounds this morning, one of the questions to be resolved is: If digi-dollars are growing at 18%, but consumer spending is growing at only 3.3% annualized, where is all the rest of the money going?

 

Silver Shortages and Lower Prices

Yep, what's going on flies in the face of supply and demand I was taught in school...

 

Answer:  Bankster's pockets!  You know why Visa's offering this week was the biggest ever U.S. IPO (initial public offering) right?  Because they are working the spread between consumer debt interest charges (over 30% if you don't watch your payments) and digidebt from the Fed which is nearly free money now.  I haven't seen any rate reduction notices in the mail with my Visa statement, have you?

 

Holiday Ponderings

Say, if we really have a separation of Church and State in America, and the Feds are working, why are so many government offices closed today?  Not being critical, just a ponder...bills will be showing up today...parking meters will vary by jurisdiction.

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Hey!  If Congress spun off the Post Office, how come they have a 'dot com' web address and the money guys at the Fed have a 'dot gov' web address?

 

The Runs: Nonevents of the Day

Bill Richardson endorses Obama. 

McCain suspends an aid.

Obama says Hillary supported NAFTA (duh, PTB's right?)

 

You still awake?  OK, then here's the real deal:

"Presidential candidates pull in $790-million" so far.  Which I suppose gets us back to the point I made at the top of this morning's report about how the law-buying process really works in America under corporate rule, formerly Constitutional rule.  Checkbook corptocracy - You gotta love it...

 

Just Ahead: War Drums

Now that we're seeing headlines pandering the idea that the financial crisis has been averted and it's now full steam ahead, we're picking up an almost daily drone of Iran War drumbeats.  "Iran a Nuclear Threat, Bush Insists"

 

"Hello Dalai" Department

It's Nancy Pelosi face time.

 

And then on to Beijing.

 

Incredible Fish Story

An "Eagle ray leaps, kills boater in Florida."

 

Saturn's Moons

OK, here we go:  direct consumer action time.  The headline is that "Water-Ammonia Ocean May Exist Beneath Saturnian Moon's Surface."

 

Now here's the point:  I think we should all start sending in emails and letters to CONgress that they rename Saturn's moon Titan WINDEX!

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Speaking of oddities and odysseys, Arthur C. Clarke has passed on.

 

A lot of people didn't get the subtle genius of Clarke.  Example: The HAL 9000 computer in 2001 which said "Is that you Dave?" was purportedly named by moving one letter prior in the alphabet from IBM.  Clarke denied it, though.  Clever, and subtle or urban legend?  A fine minds, indeed...

 

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Coping: Encounters with Scarcity Meme

(er....so to speak...) In yesterday's report I wondered in a whimsical moment whether we could send a pipe to that distant planet 369-trillion miles away that had methane on it.  A reader quips back: "At a buck a foot we still have it covered with derivatives."

 

Stored Oils

Here's a practical thought:

"Store oil? Hunt geese, or raise them. Grow peanuts and sunflowers. Freeze bacon. Change your eating pattern (now, while you're still comfy) so that you get all your necessary dietary fat from your food, rather than having to add it to your food in some way. RDA fat =~ 20 grams/day, and there are 19 grams in one goose egg.

Personally I'd really rather eat long-term-stored stuff if I was going to absolutely starve to death if I didn't; and then only eat just enough to tide me over till I could find fresh. Jeez, are these people stocking up for a ten-year interstellar voyage or something?"

Send snip and save ideas - anything you have found that makes living sanely in an unsane world more achievable   to george@ure.net.

 

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This week for Subscribers to Peoplenomics:

Camping In: A Personal "Disaster Test" Plan

A lot of non-subscribers ask me "George, how will I know if my family is really ready, and what will the problems coming be like?"  While there's no way to know for sure what will happen in October (5th-8th) when we get another 9/11 sized  or maybe larger, shift coming through lifespace, there is a simple way to find out how it will 'feel': Hold a personal disaster readiness test next Saturday. But, don't tell your friends - they'll think you're a survivalist nut.  Instead, tell them you're trying "Camping In" - a 'don't-have-to-go-anywhere' version of  'camping out'.  No camping gear to buy - just shut off your water, power, gas, and communications for 12-hours (or longer) and you're there.  No camp site fees required.

Reader Note:  There will not be a daily update of the www.urbansurvival.com Saturday March 22.  There won't be any power here at the ranch during the test.  In order to make this as real as possible, it is suggested that subscribers don't even read the rest of this week's report until after stores have closed Friday night in order to get the most benefit from the test... I mean 'camping in' adventure.

 

               More for Subscribers      Subscription Information

 

Tell Your Friends

If you know anyone who is interested in preserving the Constitution, fighting usury from banksters, and shaking off consumer hypnosis, tell them about this site.  Click here to send 'em an invite...

 

No Incumbents Bumper Stickers

To get your "No Incumbents in 2008" click here.  They're just $5.  And no, that would not keep Ron Paul from running for the White House  he is not an incumbent for that office  having never held that job before, you see.  And the CONgressional folks?  Don't even get me started... Primaries this week in Texas and Ohio, to name just a few - eyes wide shut?

 

Savvy Savings

There are lots of ways to save money on food, shelter, transportation, and such.  It just takes a little reading and one source of good ideas is  our handy ebook "How to Live on $10,000 a year or less.  Still just $10.

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Last week's report is here.    If for back issues of this site, click here.  (Goes back to 1997!)

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I promised Elaine that I would unload some of my equipment, so if you're looking for ham gear, especially the older tube-type (EMP resistant) type, send me a note and I will send out the list of what I'm selling off when I get it together.    Click here to  Put Me On Ham Gear List

 

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Thursday March 20, 2008

Where'd The Glitter Go?

"How low do you think it will go?"  "Why are the precious metals sinking?"  "What about the linguistics?"  All damn fine questions, as the price of precious metals continues to drop amidst what seems to be a major change of the economic sea state.  So what's behind it?

 

Even the headlines aren't making sense.  Take this one for example:  "Gold dive pulls everything down:  Dollar, commodities from corn to crude descend as fear of U.S. slowdown sparks a sell-off."  That one doesn't sound right to me because the fears of a U.S. recession have been around for months - presactly the same period of time when gold was busy hitting new highs.  I'll toss that one on the 'also-ran' pile.

 

Here's another:  "Gold sinks 6 percent as hot money exits commods market"

 

But what's this?  "Gold falls to 1-month lows as funds cash in".  Friend, I think we have us a winner, and maybe even some insight into what could be ahead next week or so for the PM's.  Remember what happens to 10,000 hedge funds worldwide at the end of the month?  They have to mark to market on a lot of securities (liar's paper) and if they don't have sufficient liquid assets, they have to sell off whatever they can that's liquid (commodities like gold, wheat, silver, etc.) in order to raise cash.  They could be in an almost "sell-at-any-price" mode because it seems so many are on the verge of margin calls, that there's nowhere else to go.

 

My expectation/hope is that they will come back, as I expect a further commodity run going into summer and the positions I was caught out in have turned into concrete shoes with an extra measure of anchor chain around the neck for good measure.

 

My highly leveraged (and previously hot performing) commodity account has managed to blow off percentage-wise, enough to inflict serious pain.  What was previously about $36,000 a week or so back has been reduced to about $15,000 before the further drop in the commodities this morning.  About a 60% drop in my commodity account in a week.  Easy come, easy go. I could say: It is, in the end, just paper.  BS: It's $21-thousand bucks!

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Wheat options that had been 57, down to 29, silver options at 80 down to 34, coffee options from 1.75 down to 1.40 - although the relative strength there is promising.

 

So now comes the judgment question:  Should I sell off everything remaining, go to cash, accept that my account is only up 300% for 9-months of trading and go away happy with that, OR should I sit tight, wait for the reality of next month come along when it seems we're headed to war, extremely high food prices, and all the rest?

 

While the headline "US Wheat Review: Falls 90-cent limit on Broad Sell-Off" sounds like an invitation to flee the exchange and just put my money in a bank somewhere, to await the return of economic sanity, even that has become a nearly impossible task:  I have no clue which banks will be able to Bear what's coming during the rest of the year.

 

My track is to turn paper into things of future value as quickly as I can except for a little 'play money' which is what's in the commodity account. 

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At some point, I return to the fundamentals and try to take the longer view only though on some of my options I've only got about 60-trading days to run.

 

Take wheat:  The Jamaica Gleaner has a John Rapley piece in it today  titled "The looming global food shortage"  No doubt about it, the rising incomes in Asia and elsewhere are going to drive up food prices.  And Farmer's Weekly out of the UK reports disease threats are very high as "Take-all threatens second wheats".

 

It's reports like these, along with headlines in Namibia that "Fungus devastates wheat " that cause me not to sell the wheat options.  I realize their value could decline, but would it be wise to sell into the panic?  I don't think so.

 

Similarly on the silver options:  Do I think that the Fed printing up money and bailing out banksters so that they won't feel the same pain as the tent city residents of SoCal, as would have been the case had their firms actually filed bankruptcy, is a permanent solution?  No, not hardly. 

 

Headlines like "Silver Shortage: 19 dealers reported "Sold Out" give me heart as I scan fundamentals.

 

At some point, the country has to clear out gobs of bad debt and there are only two extremes to get there:  a killer bout of deflation which could take 10-years to work though as was the case in the 1930's,. or a solid hyper-inflation which could reduce the pain-time to 24-months or so, but during that time paper assets would sink to the point  where wheel barrows of [paper/fiat] money would be needed for a loaf of bread, as was the Weimar Germany experience of the early 1920's.

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The decline of the precious metals has done a wonderful public service for the thoughtful investor to absorb:  It has given us something to at least tuck away for possible use later in the year.

 

This takes a little explaining, normally the kind of thing I'd save for Peoplenomics subscribers, but because I'm in a little pain this morning (I try to learn something from 60% drops in my account) let's pencil something in here.

 

I notice that the Dow posted an all time (weekly) closing high of 14,093 10/14/2007. and then here last week, the Dow had a weekly close of 11,893.7.  That's a 23-week run from a Dow high to a possible bottom with all the Fed shoveling of money that could be mustered.  21-weeks past the Dow high would have been a dandy time to sell gold; it would have been selling into the final bit of strength before the current drop.

 

Now let me roll forward to this fall.  Linguistically, we're expecting something which will have a large economic component to occur about the end of the first week of October.  Like the Ides of March were a time of panic in the banking industry.

 

So counting back 21 weeks from there puts us into the third week of May.  So I make a mental note to myself:  Sometime between about May 15th and the middle of June (when the next triple witch shows up, along with those nastygrams and voicemails to hedge funds about their positions, I don't see any reason why we could have another pop in the commodities market.

 

The fundamentals are there, supply has a cloud over it, and demand is strong in all the food groups, so why not?

 

About the only question seems to be the purchasing power of the US dollar which shows surprising strength this morning.  A Forbes headline "Forex: Dollar falls in afternoon trade as investors bet on more Fed rate cuts".

 

The way I read that is the Fed seems likely to continue its rate cutting course, and as rates come down and borrowing (or more helicopter drops of billions to banks/street firms in trouble) continues, I can only argue that the Fed seems likely to want to slightly overshoot on the side of inflation rather than risk the policy bummers that come from deflation.

 

My outlook for the commodities markets is probably rosier than even Jim Rogers'.  "Three legs to a bull market" and "Third advances are the largest in commodities" are a couple of tried and [mostly] true axioms around Chicago.

 

I'm good with that - so I'll hold.  But thanks for the timing lesson.  I now have 21-thousand reasons to be out of long positions  before the next triple witching week -- and with that,  a new-found appreciation of how much trouble those 10,000 hedge funds are in.

 

Oh yeah, now you see 21-thousand reasons why I don't offer financial advice...

 

Good Bears?

What's this?  Seems that Bear Stearns execs will forego some bonuses after all - a point brought to my attention by a reader who also noted:

"Not only that, but these people are losing their life’s savings (employees own 30% of the company) and likely their jobs.

I am irate over the deal because the Federal Reserve didn’t step up to the plate and loan them the money to fight off the run on the bank they experienced, and then forced them to give away their business at a fire sale price to fat cat JPM. It looks like they wanted to make an example of Bear, or perhaps it was revenge for Bear not participating the Long Term Capital Management bailout a while back."

Wonder how many execs will be taking salary cuts?

High Rollers Department

If the market's ups and downs aren't enough, there's this new roller coaster opening at Universal Studios Orlando in January of '09...

 

It's a Riot

China has admitted that the rioting over their Tibet occupation has spread to other provinces.

 

US Anti-War Busts

While George Bush is still selling "victory" in Iraq, the US MainStreamMedia (MSM) have been effectively burying the story of how 160 were arrested on Wednesday but it's getting big play globally, despite the corpgov lock on it.

 

Bin Laden's Latest

Terror experts have their eyes on Europe in the wake of the latest Osama bin Laden tape - which warns against publications of cartoons depicting the Prophet.  Meantime, the Vatican says the WOT etc is not a new Crusade as OBL claims...

 

Rain Deaths

If you're keeping score, it's now 134-dead from the rains in the nation's midsection.

 

Starbucks Changes

Now that Howard Schultz is back at the helm at Starbucks, big changes are afoot...