The FED's New Time Bomb

A rising tide lifts all ships. It seems we are seeing something we have already seen before. Gold, stocks, Bonds are all rising in sync with one another as the US dollar takes a bath. The same lax monetary policy that fueled the stock bubble of the late 90s and the housing disaster just recently is in effect once again under the disguise of stimulus. Now with a 0% interest rate policy we have take Japan's place as a funding currency.

How many times can we make the same mistakes. It is inconceivable that a crisis created from too much debt would find a solution to the problem using, yup you guess it, even more debt. This is beyond asinine. Just look at Japan did it work? Absolutely not!

Bernanke has stated that the FED intends to withdraw its 2 Trillion plus dollars of stimulus from the US Bond Markets and MBS markets come October 3, 2010. That is literally D day if they actually follow through on this threat.... Yes I call it a "threat" because thats what it is.

They are filling the void left by the destruction of the shadow bank market and when and if they withdraw this support and if the original structure has not been restored there will be a vacuum created. That sucking sound you will hear will be the last breathe of life being sucked right out of this country's already strained financial system as Mortgage Back Securties and US Bonds tank and rates skyrocket.

What is Natural Gas Telling US?

Natural Gas has not been acting right at all or has it? The persistent weakness in this commodity should be a clear sign of the deflationary pressures I have been speaking about.

It can only really be telling us one of two things.

One: Every asset class out there when looked at in terms of Nat Gas are completely overvalued.

Two: Nat Gas is the buy of the century.

Given analysis of other factors in the economy I would be inclined to go with option number 1. I will say I believe Nat Gas has indeed run too far too fast to the downside, but buying Natural Gas would only be a good idea if you where hedged correctly across the entire commodity complex and other asset classes as well. However I think it would be dangerous, as it has been, to attempt to bottom fish this commodity on pure price speculation.

Predictive Markets Part II

In the first article I was mainly focused on the the stock markets predictive powers according to conventional wisdom. Now lets take a look at GOLD when considering future inflation or deflation.

If you follow the pundits and experts today on mainstream TV you would be led to believe that $900-$1000 GOLD prices must be signaling inflation or hyperinflation going forward. Well lets think about that for a minute. If that was really true then what was $800 an ounce for GOLD signaling 27 years ago when it first happened? Surely it wouldn't have forecast an 18 year decline in the prices of GOLD and disinflation, but that's exactly what we got.

Now with prices high again the pundits are back and so is GOLD fever. I have learned time and time again the crowd never discovers buried treasure together and when everyone and there mothers are starring at that mythical pot of GOLD (excuse the pun) its probably not really there. As we are the counter party to private corporations and the Federal Reserve we are the source from which wealth is transferred from and not too.

If you look at the facts: Diminishing institutional lending capacity, reduced consumer credit, increasing savings rates, massive de-leveraging of the financial system as a whole, increasing reserve requirements, etc,... all of these things are 100% deflationary not inflationary. Although the FED has turned on the money spigot with its Quantitative Easing, it is replacing money in the system that is vanishing at a greater pace than they are creating due to the unwinding leverage in the financial system.

Lower consumption, lower consumer confidence, higher unemployment, low consumer spending, people are hoarding their dollars, combine that with reduce credit facilities and this all will translates into dollar shortage or dollar scarcity. None of the above is considered inflationary. Now the mainstream media is selling us on buying an asset that has risen in price over 300% in the last decade. When was the last time buying something after it rose 300% was a good idea? They usually call that missing the boat!!!

Don't believe there is dollar scarcity yet..... Take a look at California's predicament and tell me, what are they short of right now? They are about to issue IOU's....simply put they are short money.

Deflation vs Inflation (DEBT DOLLARS)

Months ago we spoke about de-leveraging of banks and how dangerous this could be.

Well here it is we are in the Grip of deflation now. Our banks are leverage 9 to 1 as dictated by the Federal Reserve's Fractional Reserve Banking Policy. Meaning a bank can lend 9 times what they actually have on deposit in the bank. The money they lend is actually just digital credits it doesn't exist. This is why now that the FED has started the proverbial elephant down a hill side in its wave of defaults created since the 17 rate hikes its has run over every bank in its path.

Prices are dropping in every market; gas prices, commodities, equities, and currencies all falling in unison. The US dollar recently being the strongest currency out there in the G8 is perceived to be that we are the safest of the G8 to be but this is not true.

This USD strength is a false strength; it is actually a result of deflation or the scarcity of US Dollars in the system that is causing it as the leveraged US debt vanishes from the system. THE FACT IS EVERY DOLLAR WE HAVE IS A DOLLAR CREATED AT INTEREST OR DEBT MONEY.

What happens when the deflation runs its course? There won't be any money left. Gas might be cheaper but you will also have relatively less dollars to work with thereby keeping the benefits of price drops from truly being realized.

Once deflation runs its course then the remaining inflationary pressures of the central banks' money creation will take over. Since we must continue to finance defense, fight on going global conflict/wars with dubious origin and rational, and protect the people that pay the central bank's interest, the citizens of the nations, well enough for them to get their money back from us through government taxation. They will continue to flood the system with this fiat tsunami. This will put us at risk of mirroring the Pre-World War 2 era in Germany when the Mark was pretty much worthless. This is the future we face if the powers that be are left to their own devices.