Empire of Dunces


Fertilizer, meet ventilator….

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On Zero Hedge recently, Tyler Durden, I believe, coined the term ‘clusterflock of black swans’, which is just an absolutely lovely way to put this particular period right now. Revolutions, war, earthquakes, tsunamis, meltdowns, sovereign debt crises, spiking inflation, etc. And yet, through it all, the markets in most countries have been remarkably resilient. How come? In a word, liquidity.

Why has the stock market been rising so steadily? I have said this before, but it bears repeating – one of the best performing stock markets of the last few years was Zimbabwe. Anybody would like to have been invested there? This is the normal course of an economy and stock market on the road to hyperinflation. There is a boatload of money floating around right now, and it has to go somewhere. Wages will also be rising quite nicely. Just as they did in Zimbabwe. Only, it did not help then. Because the wage increases never did keep up with the price increases. And it will not help now either.

The Continuous Commodity Index CCI has tripled since 2002 and doubled since 2009. This index is comprised mostly of food. And these increases are what revolutions are made of. What is going on in North Africa and the Middle East right now is only the beginning. And it has in fact little to do with a desire for democracy, as our MSM are trying to tell us. This is about the desire to EAT. In the western world we will feel this as somewhat unpleasant cutting back on going out maybe. Maybe a bit more purchasing from wholesale supermarkets, instead of buying Argentinean steaks and South African ostrich. But in the poorer parts of the world, where food costs already make up more than half of all monthly income, increases like this mean starvation. What most people do not realize, is that those pitiful pictures of starving children in Ethiopia during the 80s, where not on account of a lack of food. There was more than enough food produced even within the country itself during that time. The problem was one of distribution and pricing interference by the government. Today now, we still have enough food, at least internationally speaking, and despite this insane, tree-hugger driven push to convert much of our food production capacity into biofuels. Already, the majority of the corn fields of the United States has been converted to biofuel production. Because the government subsidizes that. Now add onto that the fact that Bernanke has been going completely insane with money creation, and you have a situation where things can only get worse. Prices are going up GLOBALLY. Not just in the US. You can thank the continuing reserve status of the US Dollar for that. As well as the fact that most governments in the world are following the same policy recipes as Bernanke and Obama. Deficit spending, bank bailouts, no accountability, and no choice in actually getting a different government. The faces may change, but the policies remain the same. At least until economic reality sets in. It already has in the Middle East. And it is busy setting in, in the rest of the world.

Things are coming to a head right now. At least it feels like it. The USD seems to me to be at a breaking point. It simply cannot keep going like this for much longer. Remember that I have been investing for you in gold and silver and oil for a while now. But you should still buy physical gold and silver as well. And not to keep in a bank vault, but to bury in your back garden, or to keep it on your private yacht or something along those lines. These personally held precious metals are not so much an investment,as an alternative currency, for use when things get really bad. As far as trading the precious metals goes, this is a rather complicated and dangerous time. Commodities have historically declined between May and October, almost like clockwork. Additionally, QE2 is scheduled to run out in June, which would draw a lot of liquidity from the markets. Especially the price increases in silver lately, have been fueled to a very large degree by quantitative easing. The combination of those two factors might very well add up to a difficult period for gold and silver over the summer. If you are speculating there, be careful. The stock markets are also going to take a major hit, if Bernanke actually stops QE for a while. He will of course start it up again, all the way to QE infinity. There will be some trading opportunities here, but this is something that could literally change from one minute to the next.

Is Japan a worthwhile place for investments now? In a word – NO. I harbor great admiration for the Japanese people in general. And the way in which they have comported themselves during this latest trial, only strengthens my admiration. But the fact is that, first of all, the catastrophe has not been priced in fully at all yet. And that secondly, the structural problems of the country were already insurmountable, before this latest crisis. Having to finance the reconstruction now, on top of the highest budget deficit in the developed world, all amid severe economic contraction, is going to break the system. Now add in the fact that the population is aging rapidly, without being replaced by anything even remotely approaching proper population replacement growth, or actual immigration (which is severely restricted), and you have a situation that spells doom for the country. There are going to be opportunities for profit there of course. But as far as foreign direct investment goes, I would very much advise against it.


Written by gloege

March 25, 2011 at 15:16

Posted in Uncategorized

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