Socio-Economics History Blog

Socio-Economics & History Commentary

Gold and the Impending Market Meltdown

  • I belong to the bear market rally camp. This spectacular rally since early March has all the characteristics of a bear rally. The market was over extended on the downside and needed this rally to blow off some steam. Gold has correspondingly dropped from close to US$1000/ounce to US$ 868/ounce. What remains to be seen: Is this rally over?
  • I think we are close to the top and market should resume its downward slide. Correspondingly, gold should resume its upward move to test and exceed the US$1033/ounce. However, I do not believe the market will behave linearly in an orderly fashion. A major collapse is brewing in the equities market. A financial tsunami is coming by summer. Dow 4000 is reachable. Similarly, I think investors and even the general public will flee to gold. This will be what Martin Armstrong postulates: a ‘phase transition’ event, a parabolic rise in gold price and a cliff dive for equities.
  • Marc Davis writes :
    Yet another analyst of global markets predicts the worst is yet to come for the global economy and a good future for gold investment as a result.
    Something wicked this way comes! So, be afraid. Be very afraid. (Unless you’re a gold bug). The recent rally in American and Canadian equity markets is soon to give way to a gut-wrenching collapse that will push equities to shocking new lows, with gold prices reacting by rallying to new highs.  
    After having correctly anticipated the timing and extent of the March 9th to April 3rd market rally, this is the latest dire warning from Heiko Seibel, a leading German stock market strategist. The Director of Research for Munich-based CM-Equity AG now believes that the U.S. benchmark S&P 500 Index will dramatically drop to an ultimate low of around 450 points in late June or in July. The odds favour him being proven right – that is if his talent for correctly anticipating market moves continues.   
    “Within a few weeks, we will see the stock lows of our lifetimes,” he nonchalantly declares. Indeed, he was right on the money when he told BNW Business Newswire on March 2nd that the S&P 500 Index was about to reverse a pronounced downward trend. He suggested at the time that it would rally to a high of not much more than 850 points during April before it begins an orderly retreat that soon turns into a panic-stricken rout.  
    The S&P 500 closed at 856.56 on April 9th – the culmination of a very impressive five-week gain of 26% over its March 09th low. However, this rebound cannot gloss over the fact that the bellwether index’s had lost 58% of its value by the time it ended its slide in early March. And now the S&P 500 is likely destined to trade in an uninspiring sideways pattern for the balance of the month, Seibel suggests.
    Seibel believes that a growing sense of economic optimism shared by many U.S. investors and the Obama Administration, alike, is completely misplaced. He suggests that the rally during March and early April (with the Dow Jones Industrial Average closing at 8,018 points on April 3rd after enjoying the best four-week run since 1933) is merely a false dawn.   
    Soon enough investors will be seriously rattled yet again – this time by a devastating after-shock to October’s global financial earthquake. One that will see the S&P 500 Index nose-dive up to 40% before it hits rock bottom at around the 450 points level. This bleak scenario contrasts starkly to the S&P’s heady high of over 1,550 points in October of 2007.
    A proponent of quantitative analysis, Seibel says this pending nightmarish sell-off will cause plenty of already shell-shocked investors to relinquish their remaining equity holdings. However, investors in gold bullion and gold-backed Exchange Traded Funds (ETFs) will likely be spared the widespread misery, Seibel believes.  
    “When there is a total loss in confidence in the stock market, then gold will rally. Gold bullion is historically an inverse proxy to the stock market. So, it’s only logical that this will happen,” he says. 
    “We should see a culmination of massive price weakness in stocks within weeks, which will cause gold to reverse its current trend to establish new highs beyond $1,000 early in the third quarter of this year – maybe even testing the $1,200 mark,” he adds. 
    Interestingly, gold equities will not be immune to the market meltdown because investors will engage in “panic selling,” to preserve whatever capital they have left, he predicts. 
    Meanwhile, the catalyst to the stock market’s final capitulation during the coming months will be a combination of the collapse of more landmark U.S. companies, a renewed banking crisis, and other forms of “major economic upheaval,” Seibel explains.
  • The target of US$1200/ounce for gold looks conservative! It should go a lot higher. The possible triggers? A collapse of the USD? US government defaults on its debts?

Disclaimer – I am not a financial advisor. This is not an advice to buy, sell or hold any stocks or bonds or any precious metals.


April 18, 2009 Posted by | Economics | , , , , , , | 1 Comment

Dollar Hegemony Coming To An End!

  • America has benefited greatly from its USD hegemony. It is able to spend irresponsibly and create bubble after bubble to re-inflate its economy. If it was the currency of another country, it would have collapsed a decade ago. However, like all empires and fiat currencies, an end is close at hand. You can deny gravity exists only so many times. The last denial where you jump off the roof of a 20 story building will be the last. I have no doubt that America has already taken the last leap of denial.
  • The world knows it is coming to an end. David Morgan comments :
    An article on Reuters recently indicated a United Nations panel has decided much of the world would like to move away from the American currency as the world’s reserve currency. This panel wanted to look into a “basket of currencies” or perhaps another entirely different, new currency to replace the U.S. dollar. Additionally, both the Russians and Chinese have indicated similar concerns.
    This event doesn’t surprise me in the least. If we go back a few years, it was only the Austrian school thinkers that stepped forward and said the U.S. dollar, or any fiat currency, was eventually doomed. Now other nations and the U.N. are saying they really don’t trust the U.S. dollar, which is what this amounts to. I wrote about something similar happening many times and one currency that I spoke about years ago was the golden yuan (renminbi). There was a meeting in Southeast Asia years ago, about a gold-backed yuan. I believe any basket of currencies tried will fail, because none of these currencies are tied to real value.
    At some point the world monetary system will probably go back to some sort of a gold standard, but in my view it will not be a true gold standard but some kind of pseudo gold standard. No one really knows the future, and I’ll be the first to admit it, but what we are seeing now is what we see at the end of all great inflations and that’s a distrust of the fiat money system and/or a distrust of the leading currency. Russia is raising its hand and asking, “Why should anyone trust it?” 
    There are so many U.S. dollars in the financial system. In my view it is collapsing, but the reason the system hasn’t completely collapsed yet is because the U.S.’s trading partners, such as China and Japan, are holding on to dollars. So they’re not putting them into circulation, but once that happens or they get scared or try to exchange too many of those U.S. dollars for real goods or services, it could ignite more than an inflation—it could start a currency crisis. 
    Many have asked where this will lead. If you review history and what happened to the Great British Empire when America started coming to the fore, you get a pretty clear picture of where the U.S. is going to go. The pound sterling was the settlement currency on an international basis. It had all the power, all the financial clout; but then here comes America, the up and comer, and they have CAPITAL—which, in the Austrian school of economic thinking, is the means of production. So when the waning of the United Kingdom was going on and the buildup of America began, it was a transition, meaning it was harsh but it was achievable.
    That same scenario is taking place right now, except it’s the U.S. dollar that isn’t being trusted instead of the pound sterling, and Asia is the “capitalistic” society because they have a great deal of the means of production. The Asian countries are producing almost everything. And I think you’re going to see them continue to produce over the next decade or so, and you’ll see a continual decline of the U.S. Empire. It doesn’t mean America is going away but it certainly is not going to be the number one productive nation in the world. It’s going to be the Asian countries, primarily China. 
    Generally speaking, though, I agree with James Howard Kunstler, who said that the average U.S. citizen has become “an overstuffed, overfed clown.” Most Americans have gotten politically lazy and they’re going to pay for that in the future. They don’t read enough, they’re undereducated, and they refuse to get involved in the political system. They basically don’t have the American spirit that once prevailed. They’vejust become dulled down, but I believe—because of this economic “rearrangement,” if you will—that is going to reverse. So I’m very positive in the longer run that the American populace is not only going to wake up but shape up and moveforward. It will be a leaner, meaner, and much more aware American in the next five years. And it’s going to be a tough transition for some and almost impossible for others.
  • David Morgan like many analysts, thinks this will be an Asian century. On the surface, I will agree. But keep in mind that when the British empire ended, the banksters’ minions simply uprooted and moved to America. They created the FedRes and have been in control of America ever since. I seriously doubt these banksters will entertain the loss of their power to control world finance to the Chinese. They will want to control the printing of fiat money worldwide.
  • In this geopolitical finance chess game, the moves are being made by the banksters to checkmate China and bring it under their shadow control. The banksters’ intent is clear: global enslavement to their financial, banking and economic system. I still do not think they will fade quietly into the night. War is planned. Good young Americans are going to lose their lives fighting bogus wars to further the agenda of the banksters. Will there be war between China and USA?


April 18, 2009 Posted by | Economics, GeoPolitics, History | , , , , , | Comments Off on Dollar Hegemony Coming To An End!

America: A Superpower No More!

  • The decline of the American empire is faster than most realize. Worse is yet to come. I am in agreement with those who forecast a Summer of Hell for 2009. America is a superpower because of its USD hegemony. It is able to print massive amounts of money out of thin air to finance its military. But the USD’s days are numbered and with it America’s military might. Walter Rodgers comments :
    Two American icons, General Electric and Berkshire Hathaway, lost their triple-A credit ratings. Then China, America’s largest creditor, called for a new global currency to replace the dollar just weeks after it demanded Washington guarantee the safety of Beijing’s nearly $1 trillion debt holdings. And that was just in March.
    These events are the latest warnings that our world is changing far more rapidly and profoundly than we – or our politicians – will admit. America’s own triple-A rating, its superpower status, is being downgraded as rapidly as its economy.
    President Obama’s recent acknowledgement that the US is not winning in Afghanistan is but the most obvious recognition of this jarring new reality. What was the president telling Americans? As Milton Bearden, a former top CIA analyst on Afghanistan, recently put it, “If you aren’t winning, you’re losing.” . The global landscape is littered with evidence that America’s superpower status is fraying.
    Nuclear-armed Pakistan – arguably the world’s most dangerous country – is falling apart, despite billions in US aid and support. In Iraq, despite efforts in Washington to make “the surge” appear to be a stunning US victory, analysts most familiar with the region have already declared Iran the strategic winner of the Bush administration’s war against Saddam Hussein. The Iraq war has greatly empowered Iran, nurturing a new regional superpower that now seems likely to be the major architect of the new Iraq. 
    Washington’s uncritical support of Israel at the expense of Palestinians is perceived by much of the world as egregiously hypocritical. Consequently, America’s collision course with Islam may be irreversible. Muslims believe Islam never lost the moral high ground – and they won’t readily relinquish it for Western secularism.
    Even politically conservative journals such as The National Interest recognize something has gone wrong. In a recent issue, Robert Pape opined: “The self-inflicted wounds of the Iraq war, growing government debt, increasingly negative current-accounts balance, and other economic weaknesses have cost the United States real power in today’s world.… If present trends continue, we will look back at the Bush administration’s years as the death knell of American hegemony.” 
    Now, as a massive retrenchment of the US economy is under way, it is time to shake the mental shackles of the superpower legacy and embrace a more peripheralist agenda. That need not mean isolationism or retreat. It would still require maintaining substantial armed forces with a qualitative edge, but using them only when there is an affordable and persuasive American national interest. Iraq never fitted that description.
    Iran also is achieving serious regional hegemony, without armadas, using proxy guerrilla armies to dominate its near neighbors. Its rebuffs to President Obama’s recent outreach speaks to Tehran’s growing confidence in its ability to manipulate its home-field advantage – stage-managing events from Afghanistan to Lebanon, all the while thumbing its nose at both the American and Israeli “superpowers.”
    Americans need to acknowledge that war, like politics, is the art of the possible, and both have their limits. The Bush administration was unable to deliver its promised democratic remake of the Muslim Middle East. Thus, another unpleasant truth: The Western democratic model has no appeal to much of the Arab world. Nor is democracy an attractive model for huge swaths of the rest of the world, such as Russia and China. 
    It’s time to lower our geopolitical sights and end America’s unrealistic crusade. We shouldn’t expect “them” to want to be like “us.” It took years for the US to recover its moral authority after Vietnam. It will be an even harder comeback this time.


April 18, 2009 Posted by | GeoPolitics, History | , | Comments Off on America: A Superpower No More!