Dollar Rally – Iranian Central Bank Dumps Euros, Buys Dollars

June 6, 2010 · Posted in Monetary Economics · Comment

As a corollary effect to the current Dollar rally, Iran Selling 45 Billion Euros of Reserves for Dollars:

Iran’s central bank began the first phase of the 45 billion-euro ($55 billion) sale of some of its reserves for dollars, the state-run Jaam-e-Jam newspaper reported, citing people it didn’t identify.

The bank is selling 15 billion euros in the first of three stages, which will be completed by Sept. 22, the newspaper reported on its website on May 31.

Iran will “substantially” decrease its oil sales in euros, the paper said. It informed Japan and other crude-oil customers of the change, Jaam-e-Jam said. The Persian Gulf country’s euro reserves are 55 percent of the total, and would be reduced to 20 to 25 percent after the sale is complete and after oil sales in euros have been reduced, the paper said.

Iran’s shift out of euros has been prompted by the single currency’s decline, said Jaam-e-Jam, which is owned by the state broadcaster. Other central banks, including those of the Persian Gulf states, also are selling their euro reserves, it said.

The euro was little changed against the dollar, rising 0.1 percent to $1.2241 at 12:45 p.m. in New York.

The euro made up 27.4 percent of global currency reserves at the end of 2009, according to the most recent data available from the International Monetary Fund. While that was down from 27.8 percent in September, it was up from 26.4 percent a year earlier.

Experts in Iran’s central bank have suggested the country buy gold because they forecast the precious metal’s price will increase, Jaam-e-Jam said.

Euro’s Decline

The euro has fallen 15 percent against the dollar this year, reaching a four-year low yesterday, amid concern the debt crisis that started in Greece will spread to other nations and dent economic growth. The slide forced European Union leaders to piece together an almost $1 trillion loan package last month as confidence in the euro’s status as an alternative reserve currency to the dollar faded.

Gold is up 11 percent this year and is headed for a 10th annual gain, the longest rally since at least 1920. The metal reached a record $1,249.40 an ounce on May 14 and traded at $1,223.05 an ounce in London today.

In essence, Iranian central bankers are jumping on the boat of the deflation trade …

I still think that a healthy mix of gold, Dollars, and Treasurys is the right recipe to protect one’s wealth in these turbulent times.

Tags: dollar, dollar rally, gold, iran

The Unstoppable Dollar Rally; Gold & Treasury Snapshot; The Great Depression 2.0 in Full Swing

June 5, 2010 · Posted in Investing · Comment

The Dollar Rally

I will be focusing on the Euro/Dollar, but what I will be saying is not necessarily limited to the Euro, but applies many other currencies (except maybe the Yen).

The Dollar has now reached a 4 year high against the Euro:

Those who kept on talking about a Dollar crash from 2008 on where a bit late in the game. The Dollar crash, that was a result of expansive and inflationary government induced credit and monetary expansion with the naturally ensuing business cycle, has already happened through the 2000s. The Dollar has essentially bottomed out in April 2008.

Since then it has moved up and down, but up on the net. A trading range seems to be emerging that I expect we will continue to stay within for years to come.

Thus, my (and other people’s) predictions of a coming Dollar rally were essentially nothing but an expectation that the fundamental long term trend that began in 2008 will continue:

3% Bullish Sentiment on Dollar – Indication of a Coming Dollar Rally

Has the Dollar Rally Started?

Here is another thing from January this year that I dug up from my Campaign for Liberty inbox, it’s a response I gave to John Dennis who asked me why I expect the Dollar to go up (, and who by the way is running for Congress against Nancy Pelosi in San Francisco this year):

John,

I am sorry I haven’t been checking my C4L inbox regularly. I will follow it more closely now. Keep me posted about upcoming meetings if possible.

Reasons why I think the Dollar won’t collapse (against the other major currencies, that is):

The debt load in the US is rather crushing, the general direction of credit is currently a net contraction with upticks from time to time which by no means are changing the general trend

The major Dollar crash HAS ALREADY happened from 2001 through 2008, years of massive credit and money expansion, but now we are on the other side of peak credit

The true money supply growth rate is now coming down in spite of massive and futile attempts to reflate and to destroy the Dollar

The global debt pyramid is one that builds on the dollar, that means that in an environment of global delevaraging, people divest from foreign currencies and need to get back in the dollar before doing anything else

China is inflating to the tune of 30% money supply growth, I believe that were China to depeg the Yuan might crash

Bullish sentiment on the Dollar is at an all time low, I believe a few months ago it was at 3%! Everyone and their mother are predicting a Dollar collapse; this is a strong indicator for a massively oversold asset …

On a side note: All paper currencies move toward zero in the long run when measured against gold, but they fluctuate amongst each other on their way down, the US currency is a bad one, but that doesn’t mean all other currencies are being printed by saints

Time will tell what to expect.

I think is far as politics and this matter are concerned, Libertarians are opening themselves up to attack when they continue to predict a Dollar crash that may not happen anytime soon. On top of that, People can’t relate to the argument that says “what they are doing is destroying the Dollar”. Most people don’t get all the intricacies that are involved and tune out I believe.

We have so many better things to talk about that visibly affect everyone in their day to day lives.

Thanks for the interest.

Regards,

Nima

EconomicsJunkie.com

By the way: Good luck, John! Even though political action is futile, it would sure be nice not to have to see this pompous and terribly arrogant witch in the news anymore. :)

The Gold Rally

Those who predicted a dollar crash, thought it would coincide with a gold and soft commodity rally. And then there were those who said that a strengthening Dollar would make the gold price fall.

I have been saying again and again that I think strength in the Dollar may actually coincide with strength in gold and silver, while soft commodities and stocks will tank. Thus I responded to an article on Minyanville whose author predicted the Dollar rally but also expected gold to fall at the same time:

I agree with his bullishness on the dollar. I don’t necessarily agree with his conclusions on gold. I think gold may actually do OK during a dollar rally. Maybe it will drop a little, maybe rise a little, but it will most definitely outstrip other commodities. In fact, I think a smarter play when betting on a dollar rally would be to short any other commodity BUT gold.

Gold is a money commodity. A dollar rally would be a sign of further delevaraging and deflation. During deflation cash is king. And gold is the king of all cash.

Here’s gold over the past year:

And here is gold VS oil (an example for a soft commodity) since the Dollar rally resumed:

This is important to understand: All fiat currencies move down against gold in the long run. This is completely inevitable. However, they fall at differing rates.

The Treasury Rally

What about Treasury yields?

Flat since Dollar rally resumed. I expect the support to give way sooner or later. The way down is pretty much wide open then. On December 18th 2008 they dropped as low as 2.04% as the reality of Deflation was all to visible to everyone. Since then we have seen numerous efforts to bailout businesses and all the wildly unimaginative interventionist measures that already caused the Great Depression in the 30s.

People have been outdoing each other in calling an end to the recession and bureaucrats and central bankers have been lauding themselves about successfully preventing another depression. The funny irony is that they have in fact beautifully set the stage for The Great Depression 2.0 with all its unsurprising and predictable side effects …

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money. But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

If it was our dear government’s objective to repeat the playbook from the Great Depression one by one, then they have indeed succeeded phenomenally.

And here is Chief Clown Krugman, once again doing his duty in filling the role:

A similar argument is used to justify fiscal austerity. Both textbook economics and experience say that slashing spending when you’re still suffering from high unemployment is a really bad idea — not only does it deepen the slump, but it does little to improve the budget outlook, because much of what governments save by spending less they lose as a weaker economy depresses tax receipts. And the O.E.C.D. predicts that high unemployment will persist for years. Nonetheless, the organization demands both that governments cancel any further plans for economic stimulus and that they begin “fiscal consolidation” next year.

Hmmm, I thought the government has solved the crisis with its heroic spending intervention? Why don’t we all just lean back and let that magic Keynesian multiplier do its work in getting us back on track? Why spend even more when the crisis has been solved, when Big Government has saved us, as Krugman himself proudly pronounced not too long ago?

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

One might object that this all makes perfect sense since Krugman is actually not an economist, but rather a propagandistic, dishonest, and filthy mouthpiece for any Democratic agenda you throw at him. But that’s not a very nice thing to say about this poor fellow so I would never go down that path … oh wait, I just did it, damn, sorry Paul! It’s just … could you maybe try to be a bit less predictable??

And yes I know I know, he goes on in there talking about how the situation remains terrible and how we must remain careful and bla bla bla, but that nonsense just doesn’t matter. He did lead his readers to believe that “big government saved the day”! He did say that we’re NOT going to have another Great Depression. That’s the essence of his message.

Here is a good discussion about it on yahoo:

The truth is, we’re seeing precisely the expected scenario in action, the Japanese model:

From 1989 on, the Japanese government has launched one stimulus after another to no avail, leaving Japanese taxpayers with the largest public debt per capita of all industrialized nations.

A burden that the US government seems to be more than willing to have its taxpayers shoulder over the years to come unless someone picks up a history book and tries not to feverishly repeat mistakes others made in the past.

Thus the long term outlook for the US economy is the fate Japan took: A long lasting correction supercycle with one failing “stimulus” program after another, and with on and off periods where the economy slips out of and back into recessions from time to time.

Reality is kicking in again. We’re slipping out of a small break we took from recession, and back onto the inevitable path. As a result of foolish government intervention we are now, once again, in worse shape than we were at them time the real correction was supposed to occur. And this is rather likely to be reflected in consumer behavior, and by extension also in Treasury yields.

China

An interesting side effect of the Dollar rally is what’s happening to Chinese exports. Since its currency is pegged to the US Dollar, the Yuan is strengthening against the Euro which is hurting the powerful Chinese export lobbyists.

This is yet another case for a coming Yuan devaluation against the Dollar, that I already talked about almost 1 year ago:

The stabilization of the Dollar against the Yuan has almost coincided the reversal of the Dollar’s fall against other major currencies. It thus appears as if, since mid 2008, the Yuan/Dollar peg has been reinstated and continues to be in place as these lines are written. What is also noteworthy is that the US current account deficit has been declining sharply since then.

A first look at the above chart leads one to believe that Chinese and US authorities aimed at putting an end to the fall of the Dollar, and thus intervened accordingly. However, another possibility which I would like to propose is that the Dollar had fundamentally and truly begun to stabilize at the level of RMB 6.83 at that point and was actually in for a major revaluation upwards. Thus the current intervention by Chinese authorities could actually be aiming at a stabilization of its own currency at a higher level than the market would mandate.

Some points fundamentally support the thesis that the dollar should gain in value against the major currencies:

- Global deleveraging is driving investors from other currencies back to the Dollar
- Deflation hitting the US first, and other countries only later
- Imports into the US are falling rapidly
- Significant domestic spending sprees by the Chinese government

All this may indicate that if the Chinese government were to let the Yuan float freely at some point, it may actually drop significantly against the US Dollar. Such an event could possibly be the ignition for a significant Dollar rally in the years to come.

Bottom line: The supposed Yuan devaluation everyone seems to be expecting, were the Yuan to be freely floated, is simply not gonna happen!

That’s all I have to say for now. Have a good weekend everyone!

Tags: dollar, euro, gold

Market Meltdown – Deflation Trade is Back

May 6, 2010 · Posted in Investing · Comment

Many things are being said about today’s market plunge by over 1000 points at some point. I won’t delve into that, just how today’s action beautifully shows the general idea behind my long term view.

Dollar

I have been writing for a while now about my expectation of mid to long term strength in the Dollar:

August 2nd 2009 – US Dollar Looks Bullish Fundamentally & Technically

August 13th 2009 – 3% Bullish Sentiment on Dollar – Indication of a Coming Dollar Rally

December 9th 2009 – Has The Dollar Rally Started?

Here is the Dollar over the past months through today:

This Dollar rally is best explicable as a symptom of global de-leveraging alongside deflation in the US. As investments the world over are being unwound, a flight into the world’s reserve currency is inevitable.

Today’s gains in the Dollar index were around 1% overall. In particular the Euro took a significant beating over the ongoing monetary insanities perpetrated by the ECB. A Dollar rally is at the same time usually a very bearish sign for stocks. Today’s moves beautifully accentuated this correlation, in particular during the intraday spikes and corrections. The fact that the Dollar has been moving up together with stocks over the past months is to me just a sign of how severe a correction stocks are going to be in for sooner or later.

Gold

Global delevaraging is also bullish for gold. As I have said many times: During deflation cash is king. And gold is the king of all cash. This is counter-intuitive to many people because they throw gold in one bucket with all other soft commodities. But gold is a categorically different commodity. It serves virtually no industrial production, except for some negligible applications. It is a money commodity. Silver has some money characters, but also has quite a lot of industrial uses.

Thus I explained in August of last year when commenting on an article by James Kostohryz at Minianville:

I agree with his bullishness on the dollar. I don’t necessarily agree with his conclusions on gold. I think gold may actually do OK during a dollar rally. Maybe it will drop a little, maybe rise a little, but it will most definitely outstrip other commodities. In fact, I think a smarter play when betting on a dollar rally would be to short any other commodity BUT gold.

And how has gold done throughout the dollar rally? Here it is:

You see? The Dollar has risen to a new 12 months high over the past 6 months, during that time gold dropped for a little while, but has gained back all those losses and is now actually up on the net as flight to safety continues. Meanwhile most other commodities are actually down on the net over that time. That’s what I meant when I said what I said above in my comment.

Today in particular gold was up around 2% while all other commodities got clobbered.

Treasurys

As a corollary of Dollar strength one can expect the prices of Treasury notes, pretty safe claims to Dollars at interest, and bonds to rise and thus their rates to fall. I have been arguing for a while that over time treasury rates will fall, but with quite some noise inbetween, sparked by false inflation fears:

I think Treasurys will continue to act well. There maybe some upward pushes here and there so long as inflation expectations pop up once in a while, but the mid-term trend remains unchanged: It is likely that yields are headed for new lows.

Treasury rates have been moving pretty much up and down and are actually still a bit up from when the rally started, but one thing I just wanted to point out is the strong move today in long term treasury instruments, alongside a strengthening Dollar and strong gold, see Mish:

Yield Curve as of 2010-05-06 3:15PM EST

Bullish Flattening of Yield Curve

That chart shows a bullish flattening of the yield curve as I expected. Those expecting a bearish flattening (yields rising) got their clocks cleaned today as treasury bears were slaughtered.

What’s next?

… we shall see. I certainly expect this global sovereign debt contagion to spread rapidly and exert its effects, among other things. I would be rather surprised if US equities could somehow decouple from this avalanche. Personally I still think that a healthy mix of gold, Dollars, and Treasurys is the right recipe to protect one’s wealth in these turbulent times.

One should not think that I am suggesting that the US is immune against sovereign debt problems. The public debt in this country is crushing as well, I just think that before the US defaults outright on its Treasury bonds many much more serious things would need to happen. One thing you can be sure of: The US government will continue to raise taxes should there ever be doubts about its ability in servicing the public debt, and it will probably do so quite a few more times before the people would be ready and willing to do more than hang a few teabags on their ears, grab signs, and protest before Congress to express their inconsequential anger.

Tags: dollar, gold, treasury yields

Confusion Over Gold and Treasury Yields

October 8, 2009 · Posted in Investing · Comment

The following article from Marketwatch is a perfect example of how confused market participants are about the recent and current action in gold and Treasury yields:

Gold and bonds do not usually go up or down together.

But try telling that to the markets over the last two months.

Since early August, in fact, gold bullion has risen by around 10% and the Treasury’s 10-year yield, which moves inversely with Treasury prices, has fallen by nearly 15%.

These moves are substantial, in other words, and more than just day-to-day noise in the data.

What’s going on?

Consider first why gold is so strong, reaching a new all-time high this week. One explanation is that this has been caused by a weaker U.S. dollar on the foreign exchange markets. This is certainly plausible, since the dollar has been very weak lately.

Another plausible explanation for gold’s strength is that it is discounting higher inflation in coming months and years. And it is indeed hard to imagine that the trillions of dollars that the world’s central banks have injected into the financial system won’t eventually have an impact on the inflation rate.

Credible as these explanations are, however, they are hard to square with strength in U.S. Treasury securities. A weaker dollar, of course, puts more pressure on the Federal Reserve to raise rates, which would in turn cause Treasury prices to fall, not rise. The same outcome would presumably result from higher inflation, too.

We reach a similar impasse when we consider why Treasury prices have been so strong. The standard explanation is that they are discounting a weaker-than-expected economy and/or deflation, which will cause rates to stay low. But those are hardly the preconditions of a gold bull market.

Either way you look at it, then, we come to the same conclusion: Recent trends are unsustainable. Something’s got to give.

Which will it be?

Several factors are pointing to the bond market as being the more vulnerable right now:

The stock market has also performed well of late, and equities would not thrive if the economy were weaker than expected or if deflation were a bigger-than-expected threat. So, in essence, the stock market is betting that gold is right and bonds are wrong.

Bond market sentiment is at near-record levels of bullishness right now, and (according to contrarians) the consensus is rarely right. ( Read my September 15 column on bond market sentiment.)

Sentiment among gold timers is remarkably restrained, if not outright gloomy, suggesting that there is a strong “wall of worry” for a bull market in gold to continue climbing. ( Read my October 6 column on gold market sentiment.)

The bottom line?

Don’t be surprised if the bond market over the next several months is markedly weaker than gold.

All this confusion regarding gold stems from one false pretense: that gold is an inflation hedge. It is not. Gold and Treasury Notes/Bonds are, as opposed to almost all other assets, up from October 07 levels for the exact opposite reason, deflation.

Read what I have written before, for example in Gold, Silver, Treasurys – A Snapshot.

Monetary commodities, such as gold and silver should act well during a deflation. Why? Because during deflation cash is king. And gold is the king of all cash.
…

Treasury Notes and Bonds are the ultimate deflation investment. Why? Because during deflation cash is king. And Treasury securities are the safest possible claim to cash at interest. Why? Because the government can always (and will) tax and loot the people to the hill to pay off its debts if it needs to.

Read the whole article, look at the predictions I made in there and look where we are today in terms of gold, silver, and Treasury yields. Market data can only be interpreted, understood, and predicted, when you have a sound economic footing to stand on.

I would like to ask the author: What if in addition to falling yields and rising gold prices, the dollar were to start rallying? How confused would he be then?

Tags: gold, treasury yields

Gold Breaking Out – Ready to Reach for New Highs?

September 2, 2009 · Posted in Investing · Comment

Action in Gold

There was some noticeable action in gold today. Some say it is just another irrelevant noise, others are calling for new highs.

I have been saying for quite a while that I think gold will do well as soon as people return to the world of reality, and deflation, deleveraging, and credit contraction show their impacts on the markets once again. Whether we are headed that way now or later is still open, but I happen to believe that we are approaching a turnaround.

The action in GLD today makes a breakout a possibility:

Click on image to enlarge.

The HUI index continues to hold the line, the upward move I expected in July did occur, and it also happens to have initiated a breakout out of a triangle now:

Click on image to enlarge.

If the stock market rally is over, and stocks and other commodities are headed for new lows, I expect gold and gold mining to do well. If it is not that time yet, then today’s action may indeed just have been irrelevant noise.

Treasurys

… and what is a well thought out deflation trade without considering Treasury Notes/Bonds. I have been following the trading range in Treasurys for quite a while now and everything has played out as expected so far.

Back in November 08 I called for significantly lower Treasury Yields between 2% amd 2.5%. They then fell from 3.09% to just below 2.5% in January 09. I then expected for technical reasons that they will move higher to the upper end of the range which would be around 3.3%. They actually overshot and went as high as 3.99%. I then said that Treasurys are a good call again. Yields have since then fallen to around 3.30%:

Click on image to enlarge.

I think Treasurys will continue to act well. There maybe some upward pushes here and there so long as inflation expectations pop up once in a while, but the mid-term trend remains unchanged: It is likely that yields are headed for new lows.

Today’s action in gold was beautifully complemented by corresponding action in Treasury yields which dropped by 8 basis points to close at 3.29%, a recent July low. If it breaks, the way down is more or less open:

Click on image to enlarge.

Again, all this ultimately depends on fundamentals. Just as gold, Treasurys will only continue to rally when stocks fall. In addition to that, the dollar rally I am expecting would need to start playing out in order to complete the deflation trade.

Tags: gld, gold, hui

3% Bullish Sentiment on Dollar – Indication of a Coming Dollar Rally

August 13, 2009 · Posted in Monetary Economics · Comment

Please consider this interview with Robert Prechter:

James Kostohryz recently wrote on Minyanville.com:

3. Dollar to rally.
As I predicted in my article, 9 Post-Earnings Season Predictions, the US dollar is likely to experience a major rally over the course of the next year or so. As I have explained in several of my articles, the US Dollar is the most fundamentally sound of all of the major currencies in the world, and this basic fact will become increasingly evident in the next 12 months as problems in Europe and Asia begin to deepen.

Technically a bottom in the dollar seems to be lining up with the transition in the above-mentioned fundamentals. Although I am not a follower of Elliot Wave Theory I would note that Robert Prechter has come out recently predicting a major bottom for the dollar based on his wave theory.

Aside from the wave count, he has also cited the incredible statistic that the Dollar Sentiment Index is registering only 3% bulls, one of the lowest readings in 20 years. Note that in March of 2008 when the dollar bottomed, the Dollar Sentiment Index registered 5% bulls. This compares to a reading of 93% bulls in March of 2009 when the dollar topped.

Thus, technical and fundamental factors are converging in favor of the US Dollar. Gold will slump in response to a rising dollar for 2 reasons: The first is that the US dollar collapse thesis has been a major underpinning for gold and this thesis will become thoroughly discredited. The second is that a rising dollar means that gold becomes more expensive in the rest of the world and the vast majority of the world’s demand for gold is outside of the US.

I agree with his bullishness on the dollar. I don’t necessarily agree with his conclusions on gold. I think gold may actually do OK during a dollar rally. Maybe it will drop a little, maybe rise a little, but it will most definitely outstrip other commodities. In fact, I think a smarter play when betting on a dollar rally would be to short any other commodity BUT gold.

Gold is a money commodity. A dollar rally would be a sign of further delevaraging and deflation. During deflation cash is king. And gold is the king of all cash.

Tags: dollar, gold, us dollar

Gold, Silver, Treasurys – A Snapshot

July 13, 2009 · Posted in Investing · Comment

Gold & Silver

In December 2008 I called for a bottom in Silver. From then through June it has risen from $10 to almost $16 Dollar per ounce, a 60% gain. Then, on June 7th I advised caution on Silver and recommended to cash in and buy at new lows. Since then it has dropped from near $16 to around $12.50.

Below you can see a summary of my predictions in the chart:

Click on image to enlarge.

I also said in that post from June 7th that gold should do fine. Gold has remained comparatively stable since then. While silver dropped by about 15%, and the S&P500 by about 6% gold fell by only 4%:

Click on image to enlarge.

Monetary commodities, such as gold and silver should act well during a deflation. Why? Because during deflation cash is king. And gold is the king of all cash.

The problem with silver is that it acts like a hybrid between a monetary and an industrial commodity. It is hard to discern how many people are invested in it for the wrong reason, namely inflation. (Yes, I am talking to you Peter Schiff :) ) But in cases when it is so obvious, when false inflation fears scream at you, it is pretty easy to figure it out.

Once those are washed out and people are back in reality mode, silver should continue to act well along with gold. Silver may be an attractive addition to portfolios again at this level. But I would advise caution. For the time being gold remains preferable. In fact, gold has outperformed both the market and silver since October 2007.

As far as gold/silver mining stocks are concerend, the ^HUI index continues to hold the line and another upward wave may be due now:

Treasurys

Treasury Notes and Bonds are the ultimate deflation investment. Why? Because during deflation cash is king. And Treasury securities are the safest possible claim to cash at interest. Why? Because the government can always (and will) tax and loot the people to the hill to pay off its debts if it needs to.

(Remark: Contrary to what some people tell us, the US government can NOT print money to pay off its debts. True, the Fed can print money to buy NEWLY ISSUED government debt that may or may be used to pay off older debts. But that doesn’t make the debt go away. It merely refinances old debt. It is the exact opposite of printing money to pay off debts which is, for example, what happened in Weimar Germany and in Zimbabwe and precipitated hyperinflation. It is crucial to understand this causality. Again, to those who don’t fully understand this yet, I can only recommend reading my post Inflation & Deflation Revisited.)

Back in November 08 I called for significantly lower Treasury Yields between 2% amd 2.5%. They then fell from 3.09% to just below 2.5% in January 09. I then expected for technical reasons that they will move higher to the upper end of the range which would be around 3.3%. They actually overshot and went as high as 3.99%. I then said that Treasurys are a good call again. Yields have since then fallen to around 3.30%:

Click on image to enlarge.

I think Treasurys will continue to act well. There maybe some upward pushes here and there so long as inflation expectations pop up once in a while, but the mid-term trend remains unchanged: It is likely that yields are headed for new lows.

Tags: gold, silver, treasury notes, treasury yields

Campaign For Liberty – Regional Conference – Las Vegas – 07/11/2009

July 11, 2009 · Posted in Politics · Comment

Today the following topics were covered:

The Real Nature of Politics (Mike Rothfeld):

The most interesting things I got out of this:

The American political system is not broken, we should stop whining about it and show more initiative and action
We need MORE confrontation to succeed, less bi-partisanship and compromising
Two theories on how to succeed politically: Education vs. Mobilization/Confrontation
Education alone will accomplish nothing without Mobilization/Confrontation
Only about 60% of the population are eligible to vote. Based on this number, one can narrow down the target group based on factors such as ‘who actually cares’, ‘who is registered’, ‘who can we definitely not won over’ etc.
Ultimately campaigns thus end up focusing on only around 6% of the people living in a district
How to make politicians act:
- Understanding the nature of a politician is crucial: politicians are usually subordinate to their ambition
- “unless you are feared politically, you will not be respected politically”
- “When a politician tells you how politics works, ask yourself: How does the politician and the political class benefit if i believe it?”
When running a grassroots campaign: be careful not to become the politician’s representative to the grassroots, you have to be the opposite

Caucuses, Mass Meetings & Conventions (John Tate):

John basically explained how conventions work and how to succeed in caucuses and primaries.

Sound Money, Sound Economy (Tom Woods):

Tom Woods basically outlined all the things that I explained in The History of Money and The Business Cycle. I may add that he did not talk about the consumption business cycle, but mentioned the production business cycle.

Recruiting and Vetting Candidates (Kirk Shelley):

Click to see Vetting slides.

Keys to Changing Policy (Mike Rothfeld):

Some more information on how to work the political system.

Exhibitors:

Last but not least, I walked around and looked at some of the booths. Some interesting organizations I found out about:

AtlasNetwork.org – An organization that specializes in educating people in other countries about the concepts of liberty and provides means to mobilize people and make political change happen. Currently they are working in Arabic, Azerbaijani, Malay, Chinese, English, French, Hindi, Kurdish, Persian, Portuguese, Russian, Swahili, Urdu
SeaSteading.org – An organization that seeks to establish seasteading projects in international waters
NWrarities.com – A coin dealer that I talked to. He told me something I had not thought about yet: Old pre 1933 gold coins have gained about 20% year on year while regular new bullion issues have pretty much remained stable in price. New bullion issues are not as limited as pre 1933 ones. I think this shows that there is a high demand for gold as money specifically, but not so much for the metal, a typical phenomenon of deflation.

Tags: campaign for liberty, gold, July 11th 2009, regional conference

Inflation Fears vs. Reality

June 7, 2009 · Posted in General Economics · 2 Comments

Markets everywhere are unanimously heralding a return to dollar inflation…

Perceptions:

Inflation expectation is up:

Click on image to enlarge.

Stock markets are up (S&P 500 below):

Click on image to enlarge.

Treasury yields are up (10 year Treasury Note yield below):

Click on image to enlarge.

Spreads between Treasury Inflation Indexed Securities and regular Treasuries have widened significantly:

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The dollar is dropping against major currencies:

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The Federal Reserve, IRS & Legal Tender Laws – A Criminal Racket

May 27, 2009 · Posted in Government, Monetary Economics · Comment

Robert Kahre, standing up for sound money, freedom of choice, and the rule of law, paid his contractors in gold:

Robert Kahre, who owns numerous construction businesses in Las Vegas, is standing trial on 57 counts of income tax evasion, tax fraud and criminal conspiracy. If convicted on most counts, he could live out his life in prison.

But attorney William Cohan paints Kahre as an American “hero” who believes his payroll system helped keep the U.S. monetary system sound, and was also a form of legal tax avoidance.

A self-made entrepreneur, Kahre, 48, paid his workers in gold and silver coin, and said they could go by the coins’ face value — rather than the much higher market value of their precious metal content — for federal tax purposes. He did not withhold taxes from their wages, and he provided the same payroll system to 35 outside clients, which were other local businesses.

Judge David Ezra is presiding over the criminal trial, which began May 19 in U.S. District Court. Joining Kahre as defendants are his longtime girlfriend, a sister who works in his businesses, and a former business assistant.

Three of the four present defendants were among the nine people tried on similar charges two years ago, but no convictions resulted. In the 2007 trial, four others of the nine defendants, including Kahre’s mother, were entirely acquitted. Two individuals were only partially acquitted, but dropped from the indictment that forms the basis for the trial before Ezra.

This time around, the only new defendant is Danille Cline, Kahre’s girlfriend of 19 years, and the stay-at-home mother of his four children. The government claims she obstructed the Internal Revenue Service by allowing Kahre to place several homes in her name, thus attempting to conceal his assets.

Cline’s former brother-in-law, Thomas Browne, also was indicted this time, for his role as broker in some of the real estate transactions, but has since reached a plea bargain. He is expected to testify against the defendants.

“This is a case about money, greed and fraud.” The line appeared on screen in court during the government’s opening statement by Christopher Maietta, a trial lawyer from the Washington, D.C., office of the Department of Justice.

My comment: From the point of view of a dull and uneducated person there exists of course no other way to “describe” this case. I would more appropriately title it a case about freedom, sound money, and legal tender injustice.

It is obvious that the IRS is terrified about this completely legal way to avoid income taxation. Their indoctrination of the public about the immorality of supposed tax evasion has indeed permeated the minds of the clueless masses.

But before they have the right to attempt even the slightest attack on people like Kahre, they themselves should first of all do their best to justify the current US fiat money system.

Now, anybody who is confronted with any of the age old lies regarding the legality of the US fiat money system can politely point the ignorant blabbermouth to some very simple paragraphs in the US constitution.

It is commonly held that Congress rightfully delegated the powers to print fiat money to the Federal Reserve Bank, based upon the following paragraph in Article I, Section 8:

The Congress shall have power…
To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;

The problem here is obviously that this section clearly talks about coining money. There is nothing else that could be read into this. Based on this Congress has no right to create fiat money, be it directly or indirectly.

Now, one could argue that the states independently could be allowed to enforce legal tenders other than gold and silver. But there is one problem: The Constitution states explicitly in Article I, Section 10:

No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit; make anything but gold and silver coin a tender in payment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.

The 10th Amendment clarifies what powers the Federal government does NOT have:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.

Nowhere does the Constitution delegate to the Federal government the power to print paper money and make it legal tender. Not only that. On top of that it even strictly prohibits this practice to the states. How much more obvious did the founders of the United States have to make their unconditional opposition to the use of fiat money?

And they didn’t do it just for the heck of it. They were well aware of the problems caused by fiat money. They had lived through the disasters caused by the Continental Dollar:

With no solid backing and being easily counterfeited, the continentals quickly lost their value, giving voice to the phrase “not worth a continental”.

The painful experience of the runaway inflation and collapse of the Continental dollar prompted the delegates to the Constitutional Convention to include the gold and silver clause into the United States Constitution so that the individual states could not issue bills of credit.

… so long as people are ignorant and forget, history will repeat itself.

Tags: fiat money, gold, gold money, silver, silver money

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