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Sunday, March 04, 2007

Market SellOff and coming Slump: Gold, Silver and Commodities Meditation. CS

Important legal disclosure: all these ideas are Non science Fiction and author of this Blog is not connected to any of them should you decide that they are offensive in any way: he loves his country, believes in God, eats in MD and likes to listen to Bernanke (For his loyalty could you give a hint when helicopters are due?). Now when we have some spare time we can think using our secret weapon Common Sense (can I get trademark on this one?) about recent developments in the markets and remind to ourselves some Rules of Work or even Existence in this Game. Take some time and read some previous streaming consciousness. For me it is most important things written on this Blog. We must check the tires: it is going to be Formula 1 and any mistake could easily put us out of the game. Here we will listen to Professionals, not those guys selling to you shares at SOAP prices (Stupidly Overpriced Actively Promoted) and who are living at your expense but those who know how to manage Risk. Schumacher is teaching: when you suddenly see that you going to hit the WALL (I was screaming about it for ages, but you know it is always Sudden (even for me) you hit Brakes at once, because every second you start to think like maybe it is not wall, or maybe it is rather small wall you are losing precious seconds of your life. Situation is getting worse if Bernanke is speaking on your Stereo. You get totally lost and distracted, only thing you see is that Big Wall hit you and you can have a thought how on Earth it can reach you if you were thinking you were behind the wheel and wall supposed to be standing still and built for some time enough to be noticed? But we are not as bad and plain stupid - we must be in better shape then Average Joe who has some money to spend and decided that he is next to Warren. If you are going into the Game with this attitude you will do exactly this thing: money will be spent without the trace. Nothing wrong, racial or any disrespect to the Guy, this Breed is specially selected, nurtured with healthy dose of saturated fat in MD and well educated by Bubble Media for use as customers of Mutual Funds, Investments banks and other Financial Advisers. This is just plain simple observation of such people in Existence and of cause I hope that name "Average Joe" is not in somebody's Driving Licence and I am not making any personal assault. (Any chance that I am wrong please give me a buzz, our publishing house will give you a small price (subject to restrictions and conditions applied in such a way that better do not try) Now we can talk about the Game: it is all about Money and Power. Before Bernanke disclosed State Secret that money are not given by God and could be easily printed and brought by helicopters (wise guys like me even have prepared landing spot in the garden), people thought that money are restricted in its nature and there is not enough for everybody. Slow thinking ancients even link it to Gold or Silver so that money supply will be tightened and Value of Currency contained. Poor guys their brain power without healthy dose of saturated fat was not enough even to find out elegant way of borrowing One Value and return Back Another One which is much smaller because of Inflation, what they were thinking about - take One Measure of Gold and return the same measure of Gold back with small piece above it? Where is the Business? How can you get more money in those Dark Days: you have to take it from somebody and go to War because usually in the Past people were not given their money away without a fight (it was before IPO and Google). Civilisation made one more step next: if you have beaten them and took their Gold and Wives, why spoil the goods - let them work for nothing: difference between natural yield in the fields and cost of goods planted plus expenses on food for Slaves will be your margin and could be Traded for Gold again. Plain simple: no EBITDA, GAAP-ShmAAP and ProForma staff, what they were thinking about? How to meet the numbers? Should be 200 bushels of wheat, 20 slaves have eaten, 5 was suppose to be given to Managing Guy how could you explain that you have only 150? (If Managing Guy would disclose that he has stolen another 25 those barbarians will torn his head away, from one way - no more headache, but to live without Options which could be not Expensed or even Backdated is really tough). When Democracy spreaded, sorry... typo, Monarchy all across Europe, just to go to War and take others Gold and Slaves became difficult: it is not cool to go and hit on the head your own Cousin - it is called old fashioned Moral, you should have really good reason for it - it is called Justification. Here it is important not to slip and bring any Uneducated parallels to the recent past: we all have been told in plain simple English that Iraq is about Democracy, OIL is just happen to be there, here be careful with you fast conclusions. You know: "nobody is restricting your own ideas, if you would like to be wrong it is up to you". So back in medieval, while you were figuring out with your advisers the Reason for War and thinking who will be hit on the Head just your Cousin or maybe you as well, you have to do something - Trade comes to mind. Here it is important not slip again into any parallels: you know with this thinking from Cold War Times when you found the Reason but can not do nothing: their Nukes will hit you as well. How that Guy which is so close to New Democracy in the making, can not get it (actually he is so close that could be fortunate enough to be liberalised next)? We have all check ups in place, we are the best, we know what is really best for you and/or your country - relax, sell oil and enjoy your wives. Others are fine and our Citibank has very stable shareholder base. The problem here is that the Guy could be really bad and wrong and need some democracy infusion (one more on the cold side comes to mind), but there again happen to be OIL and GAS and all your good intentions could be burred under stupid suspicions by Brainiacs, you know, those who think before they say and are not talking from the heart. But here I got too much into Power and should refer you to Machiavelli , so lets get back to Money and talk about the Trade. You can Trade the goods produced by slaves or you can trade derivatives of the free trade - slaves itself. For these you need to organise few things: something like recent WTO where you can try to impose your rules, just because you know things better or maybe because you need to sell all those Useless Things when nobody can borrow more at home in order to buy them. It can help you for a while not to allow everybody put some Trade Barriers in the form of Tariffs and Export Quotas on the way of Bubble Gum, but at the same time with the same intelligent smile not to let those bastards to bring their Dirty Steel here and ruin our manufacturing sector. I will stop talking about dangerous possibilities of loosing the truth which is sad from the heart with all these thinking about double standards, because you know for a quick buck we can move our jobs to India overnight and WTO is not the problem there, everything for our corpora..typo, country's interests. (Slavery is not in fashion any more, we are talking about Globalisation and Mobile Workforce with lower paycheck here). I must say with time life got more and more complicated, that is why we are electing every four years the Guy who can take away all these controversy in Constitution and other Laws and apply them properly for our own good depending on the circumstances. Could you imaging that this Moral Thing became like a Rock on the way to Progress and he has even to find a Reason here at home to pursue our own fox, to send their kids to fight for others Democracy. After so many words and connecting so many dots you can get the picture - we come back to the Market. It was started by Industrial Revolution, after you can not sale slaves any more you have to produce something to sell it later, for this you need three things: Commodities or Raw materials from which Things will be created, educated Labor to run machines and Capital which will allow you to finance all your enterprise. First you could start with your Savings from slave trade, but then in order to be competitive on cost side you will need Economy of Scale and Expansion will cost you additional Capital which you will have to raise. You can try banks and your friends Capitalists (do Sharks have friends? I will give it a thought later), but when they can not lend you any more or just do not believe in your enterprise you have to go to the Market which is ideal place for crazy staff. By creation it is suppose to absorb excess of the capital from one guys called themselves investors and put it where it is needed (pockets of the founders and managers). In theory if you bought some shares of the Enterprise you are Owing it, but give it a try call to Sergey and get him to the account. In our Common Sense Secret Method we are using very simple plain English approach (we do know that it is not very good due to its foreign nature to us) without all esoteric slang things are getting Clear. If you run a windmill and have some excess capital, you can decide that you can get better return from shoe maker rather then expanding your own business. Here are few important assumptions for the Health of the Market: you must be very Dumb in shoe making (remember your expertise is in windmill business (any Tech will do for Average Joe), you must think that people there are not so Rotten as in your industry (you will never invest in your neighbours windmill, they are all crooks) people in General are subject to Authority, so guys who will prepack IPO of shoe maker will put guy from Harvard in charge. And you must have other Market participants like analysts with Buy recommendation (who work for the bank which is selling IPO or have some position in shares and need to sell) and People managing Other's People Money. This is very special breed -your difference with them is that you are losing your Capital, they could lose their job in worst case scenario. Usually they are fine if the value of the Fund plunge together with Market, it is called Benchmarking. Also now you have bring in the picture Black Boxes or Hedge Funds called so because nobody have a hint what they are doing. Created in Thousands you know about Ten still alive and can feel when one is busted when Goldies and Commodities are hit again - somebody is liquidated. Why it is so Cynical Picture, because if one can be so cynical about Evolution, only then you can hope to have some success in the Market or simply stay alive here, it is Machiavelli at its best with polished and legalised system of departing Fool and his money, it is called Zero Sum Game. The whole idea is that in order for someone to gain some money someone else must lose, inflation and currency depreciation are very helpful here. You can get 5% return on your bonds but if Real Value of bonds will drop by Real Inflation of 8.5% you "will receive Negative Rate Of Return" of 3.5% Uncle Sam have gained on you 3.5% and you lost it. "The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite." --Thomas Jefferson. Call it Old Boys Circle, Masons or What Ever, just remember you are at the very bottom of pyramid: all information is at the top and you are fed by what is decided necessary for you to know. Business Founders, Managers and their Bankers together with Black Boxes have much more clues about what is going on in Shoe Making Shop and if they are selling and you are still buying you have not deserve your money: Universal Justice has been performed. Their power and Level of Moral in Free Economy - just look at Google's closing prices on options expiration days. Now we have the Race Drivers profile and you understand why it is the Game. Still Expecting Fair Play? You are playing against Government with its own Agenda and FIAT currency in Play. They are making Statistics, funding PPT and manipulating Markets. Stakes are very high, almost life or death if not in physical sense then in political one for sure. People in Charge are ready to Sacrify...your freedom, pension and wealth for their survival. PPT is Plunge Protection Team created after Bust in 1987. You can see their footprint in Futures market when Suddenly market is turning on a dime. They could manipulate Google, Gold and Silver markets, affect market of Oil, and make some noise in Forex Trade. Frightened? You should not be if you are still here. This Grip is weakening, Markets can not be manipulated forever, structural changes are getting worse when cosmetics are applied. The main Idea is that USA is no longer Superpower on its own chosen role of World's Policemen, its cost is too much and it is not respected any more. We have Empire of Debt. Read the book. It could be your best investment this year. The chosen Reserve Currency of Choice US Dollar is No More Good. Local Elites have grown up and would like their Cut, they do not like to do what they told. Power is shifting from Overburden with Debt, stretched in Wars Empire to the new and young Players. While USA was shifting into the Abyss of financial Economy new Tigers were building factories, Consumer in the West is so tired with consumption of Not Needed Things that you have to produce it in China, bring it back, give them money to buy it and then give them to switch to another credit card in order not to pay the interest for a while. Housing Bubble has helped a lot, Home ATM kept juice running all these years, but not any more. We are in Recession yield curve is inverted for months now, Housing Bubble is Bursting, WEB 2.0 Bubble is next. What to do PPT: first to kill the Gold, it is important that USD will still be considered as "Safe Heaven" and money will flow into the Bond market to finance credit account deficit otherwise gold will be 1000 and Death to USD by Thousand Cuts. Second is make Plunge into Orderly Decline, not to make a Snowball effect devastating. What will happen next? The truth is Orderly Decline in USD is in the interest of USA it is the only way to inflate the Debts out. I think it is very vivid imagination to expect any interest rise, some more "orderly decline" in the market and they will need to be cut just to keep things together. Consumer can not help any more: Housing Bubble killed its ability to spend: more and more people are moving into the Negative Equity and Negative Savings territory. Do not believe its is well contained, do you remember Alan? And his fragmented housing market subject to local valuations, why is Subprime mortgage market is busting and he start to use sacred word Recession (possible, probable - respect the confused old man and tell him someone it is already happen). How far the pain has spread if "Goldman, Merrill Almost `Junk,' Their Own Traders Say". With Nominal Rates moving Down and Real Rates moving Up (because of inflation and your need to finance current account deficit you have to give discount on your IOU - higher rates) we will be back in Negative rate territory like in 2002 and Gold and Silver will blossom again. That is why Gold is The Enemy of the State: one look at the price and you can get the idea about inflation and real economy and political health. You can try manipulate it but you can not Outlaw it: Russian are buying it, Chinese are buying, even Arab friends are counting their beans separately. We can expect deep in the Goldies which has already happen with the General Market and then powerful move up from oversold condition and it could happen at any time with Video Game in Persian Gulf. What about Commodities, we are fortunate enough that Earth will not stop spinning around with USA in recession, I do not thing that somebody will put the World into the World War for Resources but there is some risk. Check the number of people on our planet, from 1960 to 1999 Earth's population Doubled! Most of these people are living in emerging markets. Do you remember law of Diminishing Marginal Value it is when your satisfaction feelings of change of a cam with 8 mega pixels to 9 mega pixels can not get even close to the excitement of the sound of First Flushed Toilet in your life in China. If you are building hundreds airports across the country, moving people from the coast into 40 newly build 10 million people each cities you do not need first credit cards, SEO marketing games or Search - you need Cu for your wires, Oil for your engines and Uranium for your Electricity needs. And you need to diversify your 1 Trillion Reserve from Orderly falling USD. And Very important thing: IT IS NOT FREE Market at all! Do not get me wrong China is Great but Markets are still better regulated here. That is why I do not invest in the Dragon but in its food which is made buy Western Standard (for example Tenke Mining). Here is the advantage: if communist China decided to build 40 cities and hundreds airports they will be build, punishment is not bonus taken back, but life spent in prison. Fear is much stronger motivation then Greed. That is why Sell Offs are more sharp and sudden then the moves up. Back to Schumaher: it was Sudden, but you have been prepared, you have hit the Brake: sold all speculative positions which could be affected by Tech Slump, No Margin - PTT could be Nasty: Margin will kill you, profit taken from Calls on Goldies hopefully which was overbought and Some Uranium Juniors which were flying too high, with cool head you did some profit on the first Plunge. Will be perfect to make some money on PUTs on Tech in order to invest Profit later in your beloved Juniors when they will be on sale, but it is not for everyone you have to Play Value and Time is against you. You are not selling your Core Juniors positions: it could be stupid, but you know how it is difficult to chase them with tiny markets when they are Rocketing Away.

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