Worldwide Turmoil, Financial Upheaval and Cataclysm

When the Global Financial Crisis (GFC) of 2008 occurred, many including myself were shocked enough to start doing further investigation into the nuts and bolts of our modern financial system. My at-the-time-research led me to be long gold and short sydney property - in 2011. Here we are in 2015 and the result of that is pretty (painfully) clear to me. It's not just my timeframes which were screwy, it became obvious that most of the narrative I had collected was incorrect. Recently I've been exploring this dichotomy, but today I want to bring some definition to something that comes up in a lot of discussion - the idea that the GFC was simply just a dress researsal for something much bigger.

Giving this supposed event a name allows us to study it better, so I'm proposing the term 'Worldwide Turmoil, Financial Upheaval and Cataclysm' or WTFUC for short. We have a new poll running at the right hand side of the page here - I encourage you to vote in it because it's kind of unique - the poll will run for 20 years finishing in 2035 and (fingers crossed) I hope to be around to write a synopsis on the final results. If the blogger platform remains constant then you should always be able to change your vote over time, although it won't let me change the options. The poll allows you to nominate your expected timing for the WTFUC and the hope is that this helps us discuss our beliefs and expectations in a practical fashion (even as they may change over time).

Correlation does not always mean....correlation.

Just a quick post.
I read a lot of stuff, mostly financial, and I'm always interested in others' views. However, I read everything with a critical mindset, especially when there's a paid service being touted. Nevertheless, sometimes 'free' content can highlight some interesting facts about the 'expert' analysis.
I just read this post and noticed something that I decided to share, merely because it is so obvious, it made me smile.
There's a chart within the post which shows the KBW Bank Index plotted against the gold price over the last couple of years. The writer makes the point that the two have been negatively correlated for a long while, and has placed some arrows on the two charts to illustrate this point, with green up arrows on the bank index, and red down arrows on the gold chart. Very easy to follow for the simple souls that might be seeking 'expert' views. (Disclaimer: I am colour blind, but the arrows do look red/green to me).
Trouble is, the arrows don't align at all! Ok, well to be fair, one pair of arrows does align, but two pairs don't align at all, in fact they show that the two charts are positively correlated on those two occasions. Weird eh? Here's the chart with my vertical lines added:
What's most interesting about this little slip up is that the writer often criticises sloppy analysis elsewhere, but isn't immune to it himself. No one is perfect of course (perhaps his ruler slipped), but some are more sanctimonious than others.
Good luck.

Sunday PM pre-game, 5/17/2015

 Greetings, friends!

There's been a rally in gold and silver since last we spoke, and my educated guess is that it has provoked and inspired a lot of chatter on the net that the tide has turned, gold is finally headed to $2000, etc.

Now, regarding the online chatter from the usual suspects, that's only a guess, since I haven't been online recently. Truth be told, I don't have a computer. Can't afford one. I'm currently at the public library next to the Beckley, West Virginia Hooters. (Speaking of which, I love hearing the laughter of children, but not when I'm eating French fries at Hooters. I might have to start looking elsewhere to dine.)

Anyway, the next long term bull cycle in the PM market is not here yet, but I'm seeing this August as a legitimate candidate for a final bottom. You heard it here first. But since that's still months away, here are some charts to keep you guys busy. I'm gonna get right to it here, as my hour at the public library is just about up.

The situation in gold hasn't changed since my last post. Outlook bearish until $1250 can be cleared. But there are so many different lines and curves of resistance there, I don't see it happening. For example, here's a chart I haven't pulled out in a while: the 89-week (Fib) moving average (green), the breaking of which augured the April 2013 crash


Here's a similar chart to the one from my last post. Like the 2-year MA, the 21-month (Fib) MA is right at $1250 too ...
 


The "yields in silver" chart is snaking towards the wedge....




Note GDXJ has popped out of its 3-sigma bollinger band for the first time since its inception. We see that a lot - fairly obvious short covering rally. Yet- it's barely gone up 5%

Reinventing the Democratic Process in Australia

Recently in Australia, the Labor party joined hands with the Liberals to pass a bill on Data Retention, showing the primary distinctions between the two duopolist parties: i.e. no difference at all. With this incident, the political term 'opposition' gets relegated to 'sad joke' status and squarely demonstrates Australia's tepid leadership. While our bureaucratic overlords seem to think this is a great game, I pondered whether the bill would have had any support from the general public; in PROTEST I have designed an overhaul of the entire Australian electoral system, which I present for review. Those of you who are advanced in Political Science can set me straight on which elements are impractical, but please consider every part in total first:

Goals:
  • - Take advantage of modern technological advancements (but is not in itself E-Democracy), to generally increase the security, quality and speed of electoral results.
  • - Maximize the satisfaction levels of all participants (individuals or collectives), with the view this enables efficiency and empowerment.
  • - Reduce waste by limiting size and power of government.
  • - Bring more transparency to positions of influence in the voting process.
  • - Use free market mechanisms to reward honesty and punish bad political behaviour.
  • - Produce the most accurate map of the wishes of the voting public.
Constraints:
  • - Zero political-will to change the current system.
  • - One hundred years of bloated, bureaucratic legacy.
  • - Weak leadership with vested interests.

Sadly, both the goals and constraints are simultaneously the reasons why change will never be put into place - even as I write this article, the current government are proposing new laws to limit the influence of micro-parties. My ideas first got rolling when I was reading about the recent iVoting in the NSW election, where a team of independent researchers found a flaw in the voting website. I considered penning an article on that alone from my tech background (suffice to say security is purely a question of quality), but was more interested in the surrounding discussion where someone highlighted the conundrum: 'with internet-voting it is impossible to design a system which ensures the person voting cannot sell their vote'. So I started a thought experiment 'if selling your vote were allowed, would that help things and what would change?' It led to an interesting design, here are the primary elements of my proposal:

Martin Armstrong's Tense

Hello again.
I read Martin Armstrong's blog every day. Much as I grimace at his spelling and grammar standards, I do enjoy his insights and his passion about the world's troubles and what lies ahead. I recognise that he's running a business, and has some 'product' to sell, so a pinch of salt is sometimes required, but in my view he's forgotten more about the markets, the world and its history, and cycles, than most of us will ever know, and that includes all of the so-called experts and amateurs that write at length online these days.
So, I was interested in a paragraph he wrote very recently regarding one of my favourite assets: gold.
Here's the paragraph to which I refer:
Gold has been turning back down as it has lost much of its luster among broader base investors. In fact, there are people now starting to say gold is dead since it has declined in the face of monetization by the Fed and the ECB. The wider view is the gold rally was all hype and it will never rally. This too is what I warned MUST take place BEFORE you get the low. We had to “shake the tree” and get them all out.
Mr Armstrong has been vociferous in recent years in his criticisms of the 'gold promoters' out there, who fail to appreciate how the gold price moves in line with short and longer-term cycles. He produced a timing report on the precious metals last year (I think) and sold this to anyone interested, and it contained his system's key turning points for prices, and he made it clear that lower prices were ahead for much of the past few years. A good call for sure. More recently he has appeared to soften his tone towards gold somewhat.
I happened to notice one key word in the section I have copied above:
'This too is what I warned MUST take place BEFORE you get the low. We had to “shake the tree” and get them all out.'
Unusually, he has switched from using the present or future tense to using the past tense in relation to ridding the market of the short-term bull players and allowing a bottom in price to form (now do you see what a great play on words this blog title is?).
So, I wonder, is the gold price past its lows? Are we in a new stealth bull market already, but no one has noticed? Time will tell, but like many of you reading this who have bought more gold recently, I reckon the past 2 years will turn out to have been one of the great buying opportunities we shall ever see for any asset class during our lifetimes.
If the long-term interest rate and inflation cycles turn in due course (next year or two, after a deflationary scare), then another gold-related asset (its miners) could also be set for a spectacular 20 years or so. Have a look at this long-term Barron's Gold Mining Index chart, which I have split into (fairly rough) sections. Sadly the BGMI chart doesn't go back quite as far as I would like, so we have to make do with what we have, but it would seem that for the period following the Great Depression, right through until inflation/recessions started to appear in the mid 1960s, the gold miners did very little. Then from 1965 until 1982, the miners had a huge run, along with gold, both up by around 2400%.
It seems inevitable to me that the 32 year interest rate cycle will turn within a couple of years, and we'll be back in a period much like the 1970s, with rolling currency crises, very little real growth, and a lack of faith in central banks or governments to do much about it (at last). So, interest rates will rise, asset prices will rise as money seeks something real as a hedge, and as we saw in the 70s, gold and its miners could be the best investment to hold for the long run. If gold rises to c. $2,500 through the end of the current cycle, and then does another 2400% run in the following 16-18 years, you'd be looking at a gold price of $60,000 an ounce. And of course a very similar rise in the share price of its miners, just like in the 65-82 period. Then, in 2034, it would perhaps be time to move away from gold? Ah, who cares, I'll be an old man by then, we'll review it all again nearer the time.
In closing, I had an interesting chat last year whilst on holiday with a geologist who works for a multi-billion dollar family office (brewing wealth), and they'd just completed on a tiny £100 million deal to buy a gold mine in Africa (I forget the country). I asked her what would be the likely situation with the mine if the gold price were to experience a sustained and significant price increase over a number of years, were they worried about the local government repossessing the mine? She explained that these days most mining deals have a profit-sharing clause to take care of that, so everyone gains on the upside, but the capital risk is solely with the investor if prices fall. The deal, interestingly, was part-funded by Kuwaiti investors.
Good luck.
Edit (24/5/15)
I had an email from Nick Laird (Sharelynx.com) today. He has kindly put together a longer-term version of his BGMI chart shown above. The chart below uses Homestake Mining from 1890 through to 1925 & then Homestake & Dome through to 1938, when it joins the BGMI index until 1945, when it then joins the SP Gold index. Thanks Nick.
Here's the chart:
The chart proved my earlier guess, that after the 1933 dollar devaluation against gold, the miners entered a long period of consolidation, from 1933 through to 1965. But they delivered a quick 1000% gain from around 1925 through to 1933.
It is apparent that the 'gold recapitalisation' period was twice as long in the 60s-70s, with a gain in gold and its miners that was more than twice as large as in the 30s. Does that offer any clues for what lies ahead in the 2020s-2030s? The world's debt bubble hasn't got any smaller has it? We will see in due course.

Why Does The Price of Silver Matter?

Those of us even tangentially interested in silver will no doubt be aware of Ted Butler’s incessant allegations that JP Morgan is the major manipulator of its price on the COMEX future’s market, which it purportedly accomplishes by selling huge amounts of short contracts while simultaneously, but often covertly, accumulating massive amounts of the physical metal in various forms.  In a recently published article on SilverSeek, http://www.silverseek.com/commentary/unavoidable-comparison-14284, he alleges that the bank took on that role at the behest of the US Government back in 2008 when Bear Sterns went under, being rewarded by the tidy profits they routinely make in the futures market and the immense gains they stand to make if/when they unload their silver hoard at significantly higher prices.