Domestic Myopic Excuses – The Worst is yet to Come

To try to explain the markets and how there can be a rising stock market with rising bonds, analysts characterize this weird trend as a US monetary experiment of the past four years, which has been caused by the Fed’s endless monetary injections (and pent up inflation expectations) while the bond rally has been due to a quality collateral mismatch and scarcity with the shadow banking system funding via reserve currency “deposit-like” instruments such as TSYs. If this were true, then why is gold declining?

This is the typical domestic explanation that is so far off base and can be reduced to simply opinion. Where is the proof? If it were a closed system, it would be impossible to increase the money supply with rising stocks and bonds. It just would be impossible. There could be NO pent up inflation with ALL commodities declining.

I have warned that the extremely low interest rates have forced capital to seek a return in equities. With dividends at 5-7% in good stocks, 0.5% is not very appealing for pension funds or investors.

1923 Jesse Livermore Turns Bullish

LivermoreThe same thing took place in 1923. Jesse Livermore turned bullish the week of November 12th, 1923. The Wall Street Journal was bearish and accused Jesse of trying to influence the Presidential elections because they said he was friends with the President. When the Wall Street Journal was proved dead wrong, they refused to ever quote Jesse again.

Time Magazine reported November 12, 1923:

“Then came the turn. Late one afternoon, U .S. Steel revealed a fine quarterly statement, declared an extra dividend of 1/4. Next morning, by curious coincidence if it was a coincidence the redoubtable Jesse L. Livermore announced, apropos of nothing in particular, that he had turned bullish, that with agricultural recovery and a European settlement near at hand profits lay on the buying side, and that next year should be prosperous without becoming a boom.”

Indeed, stocks were undervalued and you could earn more in dividends than in the bank. This has nothing to do with the Fed’s monetization since the bulk of QE1 and QE2 went overseas and the Euro is collapsing sending capital to the USA. Even China lowered their Euro exposure to below 7%. The dollar is being absorbed internationally as the last viable currency so the money supply must be seen globally. Those stuck in domestic analysis cannot see anything beyond the one-dimensional domestic cause and effect.

CentralBank Balance Sheet


Sorry once again, but the US is by no means way out of line. Despite all the claimed monetization, it is the LOWEST as a % of GDP! All this talk, talk, talk, about Fed monetization and pent up inflation that has not materialized, has other explanations when you look at the world as a single entity. It’s a GLOBAL economy – HELLO! Time to wake up and smell the roses!

We may yet see a bubble in the US into 2015.75 if we in fact see the dollar RISE as did the yen going into 1989. A rising dollar will increase the profits for foreign investors and draw in even more capital globally creating massive capital concentration and global civil unrest. The Fed will go nuts and be forced to raise interest rates fearing a bubble and that will blow out the deficits and the entire system will collapse 2016-2020. So hold on to your socks. This is likely to be a wild ride.

August 7th – ECM


The August 7th turning point is starting to be picked up on our weekly models in many markets. The bounce so far out of the week of 5/20 is flat so far. This tends to warn what will not bounce reverses hard. So we may still be looking at new lows in the metals for June and new highs in the Dow as European politicians still are doing everything possible but look in the mirror. These people are destroying Western Civilization with their old ideas that no longer apply.

As we move closer, we will update on these markets as they begin to line up like duckling following their mother.


Freedom to Travel in Europe Shutting Down

Euro-Symbol - 5

The freedom to travel in the European Union that was to be the cornerstone of the whole issue behind the Euro is now being shut-down. The EU Member States are now allowed to reintroduce border controls at will. This is all the result of what I have reported that apartments in Germany were almost all sold out as Spanish headed to Germany for relief payments. Again, because there was no consolidation of the debt the Eurozone is crumbling. They claim this will increase the security and stability, largely because they fear rising civil unrest this summer.

This is what a Sovereign Debt Crisis is all about. We lose all our rights and government clings to power becoming more draconian day by day. They are strangling the world economy beyond belief. Without major structural reform there will be nothing left. We have to blink – we just have to.

The Cyprus Crisis evolved into permanent currency controls. You can still only take out 300 euros. Any purchases need approval and verification of invoices. Businesses in Cyprus are now opening accounts in Switzerland, Luxembourg, and Lichtenstein diverting foreign payments themselves. The banking industry was destroyed. All that was left is tourism and Russians stopped going there. Tourism so far is off by about 40%. If they lose that, Cyprus has absolutely nothing left. Just for the record – Cyprus collapsed NOT because of its own problems, derivatives, or debt. Their banks were defaulted on by the Greek Sovereign Debt default. That was the problem with the failure to create a single debt. All state members debt became reserves. The EU promised there would be no defaults. They lied. That wiped out the banks and hence the depositors.

There are still diehard Euro fans that just hate the dollar. So as long as they exist, there is hope for a major crisis and we see the collapse that will spark a dollar rally, upset the US economy turning it down, and then perhaps we will get real political reform when there is enough blood in the streets. Not exactly sure how the Euro is the greatest advance in monetary systems other than being the catalyst to create the economic collapse of Marxism. But hey – to each his own.

“You don’t see what I see. The Euro is a better currency for being seperated from the states, finally governments are responsible for their own debts, no central bank to bail them out. What will that lead to? Smaller government of course (the ECB continually says they will not support government deficits, nor insolvent banks, and their actions prove this). You recently bemoaned the way the Fed has gone, yet you cannot see that the Euro and the dollar, the Fed and the ECB, they are polar opposites.

You are welcome to ask me questions, no man knows it all, but time will prove the Euro is the biggest advance in mankind’s development since the industrial revolution, as big as the internet. One day all currencies will be built this way, and the world will be a better place.” 

When Genius Fails – The Underbelly of Markets

Long-Term Capital Managment

The Long-Term Capital Management (LTCM) collapse in 1998 has been often referred to as When Genius Failed. The collapse of LTCM was instigated by the collapse of Russia. Everyone and their 5th ex-wife was long Russian bonds as bribes were paid to people in the IMF to ensure the loans would keep flowing to Russia so they could earn huge guaranteed interest payments on Russian debt.

1998 LTCM Crash

The collapse of LTCM illustrated the problem that I have been warning about – everything is connected. The collapse came within weeks of the turning point on the ECM – July 20th, 1998. The US share market peaked precisely that day. The crisis in LTCM was in fact that they were at least traders. They had positions in everything, Once Russia collapsed, they needed cash and this they start to sell other positions that had nothing to do with Russia just to get liquidity. This is why you cannot forecast ANYTHING in isolation or look at a simple one-dimensional cause and effect. It is far more complicated than that.

On top of this, we have the problem with the “Club of NY Untouchables”. They are the cause of rising taxation, increased aggressiveness on the part of government against our rights, all because they have convinced the government if they fail, governments will fail because they will be unable to sell their debt. Why do you think Obama was trying to get rid of guns when there are plenty of laws concerning drugs, crime, and guns pretending background checks are necessary when guns are sold on the street everyday. Why is homeland security buying 1.6 billion bullets and tanks and there are civil unrest exercises? This is all because government fears the day when they cannot sell their debt and will default on their obligations thanks to the bankers.

Because the “Club of the NY Untouchables” think if they rig the game, risk management is not necessary and that is why they blow up all the time and turn to government. When they lose, hell it was a Rogue Trader the board had no idea he lost $8.3 billion dollars? HSBC bought Republic bank for $10 billion. Come on. If banks do not know their people have that kind of risk, then their internal controls are worthless. Are they that incompetent when they claim to be the smartest ever and that is how they make money? Something is not right and just because a trader confesses means nothing for he can be compensated to do so to save the bank.

Then there was Madoff and his $60 billion fraud the bankers claimed they had no idea! Right! The degree of due diligence just to open and account is outrageous. Even Madoff from Prison said the banks knew. Lets get real. Anyone who claims the banks did not know what Madoff was doing are paid off by the banks. I personally spoke to Isabel Ring  of the NY Post who interviewed me and asked if I thought Republic was illegally trading in our accounts laundering money for the Russian mafia and Colombian drug cartel “as they were doing in Madoff?” I said I had no idea. I just knew they were illegally trading but had no idea what they were doing with my collateral Fannie Maes other than they disappeared. She knew something, but that interview never appeared. Somebody squashed that one. Wonder who? And if you think banks do not launder money, look at HSBC. They are accused of additional money laundering in Argentina. They always rush to settle to make sure it goes away.

The banks ALWAYS blow up because they try to get the guaranteed trade. They pretend to be traders – it is just a front


UK taken to court by EU for not paying non-Brits Social Services

The Eu is like a guy in drag. All dressed up as a woman, but when you look under the dress you get more than a surprise in a Crackerjack Box. On the one hand they created a single currency, laws that allowed freedom of movement, and the right to receive social benefits from all countries if you moved. They were all dressed up, but underneath was the old Europe with barriers and the refusal to consolidate debts that prevent the Euro from being a serious reserve currency. Institutions investing buy the dollar through federal bonds parking reserves there. In Europe, they have to look at the credit rating of every state. That is no different than investing in state bonds in the USA. Yes a single currency, but are Texas and Louisiana  bonds the same? You cannot make state bonds serve as reserves for the banks in the USA without risk and chaos. That is what Europe created, the old Europe merely in drag. They should have consolidated all the debts of members as did Hamilton making that the national debt of Europe, and then each member thereafter would be on their own like the states are in the USA. Failing to do so left the banks holding debt from varied members putting the banking industry at risk.

No the EU is taking the UK to court for not paying EU citizens in the UK benefits. Here is where the tensions start to rise. One debt – there would not have been an issue. Failure to do that forcing other states to bailout yet others, and you have chaos.

Understanding Cycles – the Two Extremes – Why We must Crash & Burn


Understanding that everything in nature moves in a cyclical manner is vital to comprehending the world around us. This is how energy moves. The waves in the ocean give the impression the water is moving when in fact if you throw a bottle that floats into the water you will notice that the bottle rises and falls but does not move with the waves that pass below. WHY? Because the wave is just energy moving THROUGH the water, not the water itself moving. Water movement is the current that takes place separate and distinct from the wave movement.

Once you wake up and begin to see that energy moves THROUGH the medium be it space, the air, or crowds of people causing collective behavior we call panic, then you can begin to see the world in a whole new light. This fall, we will see more chaos in weather.


We are headed into a period of wild weather that will be marked by extreme swings in both directions. The deadliest tornado was the Tri-State Tornado of March 18, 1925 that killed the most and the most destruction was the St. Louis-East St. Louis Tornado of May 27, 1896. The recent outbreak of tornadoes from a cyclical perspective is a bull market. We are building in intensity that many have tried to usurp calling it global warming claiming man has caused this. The data shows before automobiles there were cyclical weather patterns that we have not yet reached – but will insofar as intensity.

Our correlation models indicate that whenever we get a cold spring then we move to a violent storm like hurricanes in the fall. It is like a pendulum. The more you swing to the extreme on one side the more you will move to the extreme in the opposite side. Markets function in the same identical manner.


Here is a photo of starlings flying. Not only do they comply with the cyclical movement patterns, but the group is neatly formed that even complies with the science of chaos. Look at this illustration of the Chaos formation of weather data. There are boundaries that confine all movement at the extremes. Chaos was discovered by weather. What on the surface appeared to be random, actually contained hidden order.

Edward Norton Lorenz (1917–2008) was an American mathematician and meteorologist, and a pioneer of chaos theory. He discovered the strange attractor notion and coined the term butterfly effect. His strange attractor illustrated that within what appeared to be random chaos, there was actually incredible hidden order. His discovery has illustrated that predicting the future is highly complicated because (1) we are dealing with a massive amount of variables not a single cause and effect, and (2) this complexity constitutes a nonlinear system that produces the unpredictability yet within defined outer parameters.

Within any data series if we are talking about weather or markets, to the uninitiated  observer who does not see patterns in charts like the the movement of starlings, they only see trajectories that appear to jump around making hair-pin turns and reversing direction only to swing back and re-reverse without warning. This is the majority who buy or sell because the group in doing so and feel comfort in collective reinforcement.

Nevertheless, their chaotic random appearance of weather or markets with respect to the behavior is like Lorenz’s strange attractor always orbiting within the shape of the system in a orderly manner confined by the outer-boundaries. The strange attractor is the actual map of all the possible states within the system yet conform to the fascinating shape defined by those outer-boundary limitations on all movement.

The entire economy is still a non-linear system that on the surface is massively unpredictable from moment to moment, yet is strangely bound within predetermined confines. This is why I state that you CANNOT predict gold or any market in isolation. Everything is connected and there is a form to this madness.

Every price movement, no matter how alarming in its twists and turns, always collapses and then recovers. This is the energy that creates everything around us – the swings between two extremes like the beating of your heart. Even our economies are a complex system that cannot be manipulated by government and it is why Marxism/Keynesianism have utterly failed. The bureaucrats and the bankers hate my guts because I stand to expose what they do is only aggravating the system and is causing us to move to the extremes of the outer-boundaries on each side. This leads them to seize even more power to put their hands around the neck of the economy and choke it to death so they can retain power. The more they react in this manner, the greater the volatility causing them to chase it even more until they become their own worst enemy. That is why I say big governments always fall by their own hand – it is economic suicide. They become more draconian the more they lose power. This is the fate of all empires, nations, and city-states. They cannot see that their greatest enemy is always themselves.

London Destroyed

The politicians would rather destroy centuries of civilization before rationally ending socialism that does not work. The banks want to be the man with the one-eye in the land of the blind. But rigging the game to create the perfect trade, only results in destroying society. They may become the one-eyed man in the land of the blind counting all their wealth, but there will be nothing left and no place to spend it. At that moment in time, historically even gold has lost all value as was the case after the fall of Rome.

Just before John Maynard Keynes died in 1946, he told Henry Clay, a professor of Social Economics and Adviser to the Bank of England of his hopes that Adam Smith’s Invisible Hand would help Britain out of the economic depression that it is in: “I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.”

Even Paul Volcker in his Rediscovery of the Business Cycle conceded that the idea that government could manage the economy under this age of “New Economics” failed. Nobody in government is willing to hand back power once taken. It is like the conviction rate in New York City – 99%. Citizens cannot ever win anything against the banks of government. Politicians will NEVER admit they are the source of the problem. So it looks like we must simply crash and burn.

When Iron was worth More than Gold


STONE-DBefore the Iron Age, Iron has been found in both the West and the East treated as a precious object that was more valuable than gold. Recently, the debate over whether these rare objects were meteorites has been settled. They are indeed meteorites that fell from the havens and thus were regarded as gifts from the gods and thus more valuable than gold. Pictured here is the famous Stone of Emesa, which is the modern city of Homs in Western Syria. This was a meteorite that fell to earth and they built a temple to it. The Roman Emperor Elagabalus (218-232AD) paraded it around in a chariot and pictured it on his coins.


Throughout history, there has never been a single relationship that ever withstands the test of time and circumstance. This is where there can be no gold standard where you fix the price of gold yet everything else floats. The mere fact that coins were minted of gold and silver does not make it a “standard” for they were free floating in value – never fixed. Diocletian (284-305AD) attempted Wage and Price controls to stop inflation. They too failed.

What we face is a serious issue – the monetary collapse. A medium of change can be anything for it only facilitates barter. In many third world economies, people still barter. You do this and I will do that. Labor and food have served as the medium of exchange more so than anything else.

If we understand this, then we can move forward. The future lies with the elimination of taxes, state borrowing, and term limits. Do those three things and we will restore liberty, justice, and economic freedom to all.