Friday, January 30, 2009

Golden Opportunity in Depression

After a brief hiatus, I thought I would post a quick update on gold and the state of our depression.

The Depression:

It deepens. All sectors of the economy are under siege from currency starvation. Government safety nets are beyond exhausted and there will be little to no help for the millions-per-month of new destitute. The bankers remain in complete command, securing financing of massive new treadmill programs at vicious interest rates. Congress continues to push and stuff and shove trillions of dollars into the bursting pockets of the world's richest men--in exchange for piddly campaign contributions.


Gold has flailed sideways to upward as of late. This is not a bull market push. I maintain the short position I established when I called the gold market top at $985 ($40 too early) and I am adding to my short position in gold on the bumps as gold stumbles up the ladder for the inevitable belly flop. Gold has become routinely prominent in the MSSM (main stream sales media) which, as all long time gold traders know, is a certain sign that the end of the counter rally is near. My near term (several months) target remains mid 5 to 6 hundreds.


  1. I agree. I just established a short position in gold.

  2. Glad to hear you are still here - had visions of black helicopters and agents scurrying you off in the dark of night - what do you suppose of the 3 month Treasury flirting with the market?

  3. Hello FDR, I have bookmarked your blog because I find your stuff informative.

    Apropos gold: I would sell what I have while it's up if I thought I could get more of the hard stuff when it's down. Only problem is, when I want to buy it it's never cheap.

  4. I still maintain that the two RISKIEST things to be right now are long long-term treasuries (ther is just not much room to the upside) and short gold (too much currency uncertainty).

    Why take chances on these things when there are much better plays to be made? Jayhawk1

    (I have small positions in DGP and CEF, but do have physical PMs. Am also small postioned in TBT)

  5. "Why take chances on these things when there are much better plays to be made? Jayhawk1"

    Hi Jayhawk1,

    Out of curiosity, why do you think 100% cash is risky? Granted, if you left your cash in a bank that would be high risk, because the bank is high risk.

  6. ...and, because the FDIC only provides fractional coverage using private, third party insurance with implied government backing.

    That is not the same quality of promise as a Treasury, as the unnaturally high Fannie "government-backed" 10 year bond yield proves.

  7. FDR, I followed you here from MW, where I'm known as DarnLibrul (DL.) I find your blog to be great food for thought, and I check it daily. Thank you for your efforts, and I truly appreciate your perspective.

    If you would indulge me, though, I have a concern about the scope of your financial analysis. Namely, you seem to confine yourself only to the U.S. fiscal/monetary dynamics -- as if it were a closed system. But what about the rest of the world? The Eurozone has 50% more population, and about the same GDP as U.S. Then there's Asia, Middle East, Latin America... The world is pretty big, in other words.

    So what I'm getting at, is the dependence of our currency and indeed our entire financial system upon the goodwill of the world. The Chinese buy our Treasuries, OPEC obligingly values oil in dollars, the Chinese peg their currency to keep our price of imports low...

    What if the world lost faith in the full credit of our government, because of all the incessant borrowing and spending? What if they stopped buying our bonds? That would cause a crash in the bond market. Being long T-Bills wouldn't then seem such a great strategy. At the same time, all those dollars they used to buy to exchange for our bonds, they wouldn't be buying any more. That would crash our currency. What if our Depression reached such a crescendo, and our imports crashed so catastrophically, that we became a less important customer for the Chinese than their Asian neighbors or the EU or basically the rest of the world, leading them to tell us, "screw you", and to unpeg their currency while dumping the T-Bills they are already holding?

    In one of your prior posts, you argued that the Fed can't print its way out of a Deflation. Your argument makes sense. However, another way to "print" an end to Depression, is to simply ensure that the Dollar is made worthless in the eyes of the world. Could the recent rebound in gold prices be reflecting the beginnings of a global loss in confidence toward the various fiat currencies? I'm still not convinced that our currency isn't headed in the direction of Argentina or Iceland in a not-too-distant future...

  8. FDR - First would like to say I always followed your posts on MW and think you are one very astute guy. If I had followed your guidance on commodities I would have saved a bunch of money.

    That said, the answer to your question was better expressed by DL. My anxiety with cash holdings (or Treasuries) is what happens with increased US deficits in the trillions when foreign invastors decide to throw in the towel and stop subsidizing our profligate spending. Doesn't the dollar decline in value?

  9. Above posted Jayhawk1

  10. FDR,

    I continue to be 90% cash / 10% short. Throughout 2008 this allocation served me well and I see no need to alter that strategy.

    Great job on the blog!


  11. I know I am in the minority, but I was almost minority of one in mid-2007 calling for a severe depression that lasts for decades, if not longer, so with that in mind...

    (and I will post on this later)

    Since the US is a debt based money system, a loss of confidence in the dollar sharply increases the dollar's value, because if people don't want them, they must pay them pack.

    This goes for every $ in circulation, there isn't one penny in the economy that isn't a receipt for bank debt.

    As for Europe and Asia, they are in the same boat, so yes they count, they add to the crises of plunging global prices. Deflation is happening everywhere at once.

    Imagine a global bonfire where everyone brings their paper notes and throw them in. All the remaining paper is up-valued, because it becomes more rare.

    We already have a very loosely organized one-world government, economically. Keeping political boundaries might be more profitable than erasing them.

  12. FDR. You were one of the best posters on MW and I miss your insights as they related to the topics of "the day". I do enjoy your blog and follow it. Thank you.

    I don't quite understand what you are saying here. When you say if people don't want them they have to pay them back!

    Maybe I'm missing something. Since its a debt based currency, everyone holding USD$'s is a holder of debt. I'm not used to looking at my paycheck that way for example. curvecrazy

  13. Hi curvecrazy ,

    Our currency is nothing but interest bearing debt receipts leveraged on top of interest bearing debt receipts, every penny of it.

    Banks counterfeit these receipts to make their living, from the Fed on down. In other words, they don't have deposits to back the ones they issue, they just pretend that they they do. They issue 10-40 receipts for every dollar they possess, this is their Fed imposed "counterfeiting limit" or the fraction they must have in reserve.

    So every time a bank loan goes bad, or is paid off by someone who no longer wants the debt, that currency once counterfeited and circulating simply disappears.

    If most people say, ah, these dollars really stink and I don't want them anymore, they go back to the bank and all those dollars simply disappear (and no more interest is paid to the banker).

    There is no such animal as hyperinflation in a debt based monetary system, especially when paper is issued at 2.5% fractional reserve.

    You want to hold debt receipts (cash) because so many counterfeit ones are being torn up by bankrupt bankers. Each time, there are fewer left in circulation, so there is less bidding competition for goods, so prices fall, so your cash grows in buying power.

    That is why cash stuffed in the mattress yielded a 100% return in 2008 (i.e. stock and real estate and retail prices roughly halved).

    It will do so again, and again, and again.

  14. FDR - isn't the US Treasury debt basically a giant Ponzi scheme? More T-bills are sold to service more and more debt, but if no new investors are found to pay earlier Treasury bond interest and principal, and taxpayers can't service the extra deficits either, doesn't it eventually have to implode under its own weight. What are your thoughts?

  15. FDR,

    "All those dollars disappear."

    Now I get it! I've been trying to grasp the concept of currency "going away". It's the same as when you pay off a note at the bank...there is no longer a loan, and the note is now worthless.


The USA's political-economc system is best described as:

On Nov 2, 2010, I plan to vote (FOR or AGAINST) my incumbent congressman

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