The Great Financial Pox
Part 1
Inflation: Friend or Foe?
This is going to be joint effort Between Sol Palha from www.Tacticalinvestor.com and I John Tyler from the www.infognome.com
This is the first of a four part series. Sorry, you'll have to read Part II to read why we call inflation "The Great Financial Pox". We don't want to scare you in Part I.
Treasurers and Fed Chairman alike develop a new tone of reverence in their voice when they mention the dreaded "I.." word, inflation. Like a child saying, "I'm not scared of the dark", the "I" word, we are told is nothing to be scared of - for the moment any way.
Even these venerable gentlemen know that inflation has many benefits AS IT STARTS.
What's more, it's a happy time. Deflation is only grim, but who can't crack a smile when the true cost of repaying their debt tumbles? Who doesn't feel happy when the value of their home has gone up 20% without having to lift a finger? Sales increase, and even the stock market perform well in inflations early stages. Even the sour old Infognome manages to produce something that has the shape of a smile, although it is really a grimace.
Over the next few newsletters I will explain to you why it should be a concern, and why The Infognome views his aging years with a little intrepidation for the next generation of ankle- biters.
Inflation is a disease of the human condition. It is incurable and has a long incubation period based on monetary excess. Once its appearance is obvious, it is too late to stop major damage to the lifeblood of the nation: faith in a monetary system. History will show how this disease strikes in varying forms, with the most rabid form being hyperinflation. Secondary diseases such as back strain accompany this from lugging sacks of money around. A truckload of notes would be needed to exchange for a low value gold coin. A more recent Argentinean outbreak meant the funds from selling a residence would hardly fill the grocery trolley two years later.
There's a lot we need to do to fight this disease. I'm talking personal salvation here, because the nothing can be done for a nation in its grip before havoc is created!
The International Bank Credit Analyst notes the robust nature of the global economy. Because "Inflation" is such a dirty word, they say, " stay with reflationary trades". Really brave members of the establishment eg. Australia's Treasurer, Peter Costello, mention the dirty "I" word When hosing down concern about the recent rate rise, he said inflation was not a danger.
Inflation in the traditional sense is not here, but the evidence is mounting that the scene is set and will start its inevitable work in the coming few years. In future letters, we'll revisit this issue, and discuss how we can protect ourselves and families.
Sol Palha From the Tactical Investor comments
First of all I would like to add that this project was John Tyler's idea and even though I thought about it many times I kept procrastinating, however a sharp nudge from john and off I went to put my thoughts onto paper.
I fully agree with John inflation is a disease, it is one of the worst diseases that can't afflict man kind, because it is created by greedy selfish filthy rotten scoundrels who wear a suite and tie and hide behind a friendly smile. These individuals are none other than the central bankers, who have taken this world from a safe and decent place and turned it into a filthy rotten stinking pit of misery, where innocent people are forced to chase worthless pieces of paper that are produced by the wave of a wand.
Inflation does have its benefits but only for those who are inflicting this plague upon mankind, if you are a working person, or someone who has a small business, then you have no way of winning this game (unless you use the ultimate weapon, more on this later). Every year they deflate your earning, by producing more and more paper. Yes the initial benefits might be great, Property prices doubling or tripling, the cost of servicing your debt dropping, however your earnings have just dropped to ( so has the cost of servicing your debt really dropped or is it just another illusion.) In the end the only way to have guard against this plague is through taking the ultimate financial Insurance policy and that is buying Gold And Silver bullion.
We will explore the evils of inflation in more detail in the next report.
Part II
Last week we considered inflation as a disease of the human condition, and that once it starts, the course it runs is unstoppable.
The disease analogy is appropriate to continue, and will be more specific and name it as "The great financial pox". The "Great Pox" was not small pox as you may imagine, but syphilis. While The Black Death devastated the population of Europe, the "Great Pox" brought a different horror: instead of killing its victims over years, causing pain, disfigurement, and ultimately an agonizing death.
For a disease that was born is pleasure, the penalty was high. Such is the case with "The Great Financial Pox." Other than a few more similarities, such as "The Great Pox" being called "The French Disease", I will show you how a disease evolves, and how this model will help us understand the current presentation of "The Great Financial Pox".
Once the "Great Pox" swept Europe, populations developed resistance, and although the disease still struck, the presentation was different. Indeed syphilis became known as "the great masquerader" and was more difficult to detect. The eventual outcome was the same, death, and radical treatment was required. Prior to the advent of penicillin, arsenic was the only treatment available. This wasn't until 1909, after Ehrlich and Hata tested over 900 compounds, but eventually found that number 606 worked on mice, guinea pigs, and then rabbits with syphilis. They achieved complete cures within three weeks, with no dead animals. In 1910 the drug was released, called Salvarsan, or sometimes just 606. It was a foundation for Germany to become a leader in chemical and drug production. And it made syphilis a curable disease.
Germany features prominently also in our story of "The Great Financial Pox", as inflation presented in its virulent form as hyperinflation. We have also seen this form present in Asia and South America, where in its virulent form, it is easy to recognize.
How has "Great Financial Pox" of inflation mutated?
Let's start with the symptoms. We start looking at prices, and see that food is still affordable, car prices are low, and wage pressure is not apparent. These will all manifest in the last years of the process, for this has a multi-year incubation period. There is the "China factor" where a tidal wave of goods is able to overwhelm western markets. This will hold many prices down until "The Great Financial Pox" starts to run its course amongst the Chinese.
Food prices are kept artificially low by financial infusion to the financial sector, this occurs in Japan, Europe and the USA, where even nurse Greenspan knows that the patient is becoming waterlogged. We are seeing tightening in the metals markets, and this will soon be reflected in higher prices for farm equipment.
Once we start looking at wage pressure and energy costs, the rural sector will have to raise prices to survive. This has been absorbed to date in many countries, such as Australia, by changes in the rural economy, with conglomeration of family enterprises to large corporations. Previously, this sector had wage pressure resilience, as the family just worked for less, or nothing. With a farming corporation, even the most menial tasks have to be paid for.
The corporate sector has a louder voice in government. Net result: higher food prices and "the Great Financial Pox" grows even stronger in overtaking its latest victim.
To diagnose this disease in its early stages, we need to know what to look for. It is not rising prices. Price is determined by supply and demand. If you increase supply, such as Chinese goods, price will be held down. When prices rise despite an increase in supply, that is inflation, but by then it is a large stage of "The Great Financial Pox".
The underlying cause of the disease is the loss of value of money.
How do we detect this? How do we measure the value of money? The answer is gold of course, but we need to delve a little further. Sol at www.tacticalinvestor.com has been looking at gold in terms of the South African Rand. My own studies include the gold price in Australian Dollar terms.
When gold starts to rise in terms of multiple currencies, and not just the $US, we have the early signs of "The Great Financial Pox"
Dear readers, this is happening now.
Sol Palha from the Tactical Investor Comments on the Inflation issue
The initial stages of inflation are not easy to detect, the untrained eye will simply miss them. Most consumers will only think of inflation when the cost of basic staple goods starts to skyrocket. However if one looks at the situation now, one is fooled into believing we are entering a deflationary spiral. The truth of the matter is that we have a paradox type situation; we have both deflationary and inflationary pressures co existing peacefully together.
China is the Powerhouse when it comes to exporting deflationary forces, they have driven the cost of manufactured goods to rock bottom prices and this can be seen in the nose-bleeding fall in the prices of consumer electronics. This pressure will be maintained for a substantial period of time as China has a huge untapped labour market and is desperately seeking to raise its standard of living. However the other part of the story is that these good need a steady supply of raw materials in order to be made. The price of raw materials is steadily increasing, one can see this very easily if takes a q quick look at commodity prices. Prices of copper, aluminium, nickel, zinc etc are all shooting up. For a time these rising prices can be offset by the lower prices of labour, however there will come a time, when cheap labour will be unable to offset the rising cost in raw materials and that is when we will see a huge and sudden global spike in prices across the board spear headed by Gold and Silver.
What is the best measure of inflation, rising Gold prices and Gold has been rising steadily in terms of the US dollar, and that is because a bunch of crack victims are running this country. We have imbeciles who make the rules and retards that enforce them, a super recipe for a financial melt down. As John has stated Inflation is here, it has always been here, however for a while it was buried because of illegal manipulation of the Gold markets(which is still going on), but now the cat is out of the bag. Protect yourself, Gold and Silver bullion are your saviours.
Part III
Inflation: The Great Financial Pox
Part I considered inflation as a disease of the human condition, and that once it starts, the course it runs is unstoppable, and how in its early stages its a great party. Part II revealed the similarities of inflation to "The Great Pox" of syphilis, and then how it has mutated to present, with different symptoms. Money pumping and cheap goods from China disguise the present epidemic.
We are in the buoyant phase at the moment, with constant reminders that "there is no danger of inflation". We'll hear this more and more, and then a few brave establishment souls will start asking, "Do we have inflation?" Finally, when even our political masters start to get the message, we'll have a respectable economist breaking ranks and saying: "Errrr…..It looks like we have inflation."
It is then that the disease will be starting to enter its terminal phase. The financial spirochaete (Treponema pallidum) will be munching on the economy's nerve centre, and spitting out any motivation to effect a cure.
In the "good 'ol days", if you survived the chancres, and the involvement of about any organ you can think of- heart, kidneys, eyes etc, you went mad. History is littered with examples. It was thought by some that Friedrich Nietzsche had the disease.(Fried rich is not healthy eating ) With him, this terminal phase ( neurosyphilis) mimicked catatonic schitzophrenia. It was thought that Nietzsche 's ideas drove him crazy, but perhaps not.
This stage of syphilis was called "General Paresis of the Insane". This was a plethora of debilitating symptoms including hallucinations, delusions, memory loss, and loss of judgment and insight.
Perhaps this is with us now? We appear to have lost our memory of what expansionary economics will do in the long term, of how all booms will bust. We like to believe what we are told. "Don't worry about borrowing 100% of your new home's value- your wages will go up" or "we'll engineer a soft landing".
What does a financial soft landing look like? I've never seen one after a boom!
The paresis part means you lose the ability to move. Like a rabbit caught in a car's headlights at night, it knows what fate awaits but can't move. Financial paresis is just like this in The Great Financial Pox's terminal phase.
Who wants to save when savings have their value devoured by the pox's ravages? Who wants to work when last week's wages can't buy next week's food? Do you feel like working when you see speculators making easy fortunes?
Next week, Part IV, will be the last in this mini series. We'll look at some specific inflation - busting strategies. It starts with when to leave the party and then a bit on practical personal salvation from The Great financial Pox.
Our national fate is already sealed.
John Tyler,
Aka "The Infognome" www.infognome.com
For low risk radical investment ideas and access to free 6 day index reading course, designed by two traders from different continents John and Sol log onto www.drscoop.com
Sol Palha From the www.Tacticalinvestor.com comments
As I stated before China is able to keep lowering the cost of manufactured good, despite rising commodity prices, because they are able to offset the rise in prices with lower labour costs. This phenomenon will not last forever, I suspect we are at or very close to the maximum point, meaning labour costs cannot be lowered anymore. This can be illustrated by the tightening of their credit standards and also increasing the banks reserve, though paltry it is still a step up. Which all means that sooner than later prices of manufactured goods will start to rise and we will begin to feel that pinch back home.
All this time the consumer has been lead to believe that its deflation that is the problem, because we have imbeciles in the Federal Reserve, I would suggest that they change that number to the Federal Mental Asylum. Their existence is nothing but one that is based on a carnivorous parasitic existence, they suck the blood out of every citizen and their only reward is more pain, they take and take and give nothing back.
How we allow a bunch of mentally challenged individuals to run a country and completely ruin the lives of an entire generation is completely beyond me. To ad insult to Injury the Federal Reserve is not really part of the Government, they really have no one to answer to. Imagine that megalomaniacs with no controls in place to check their drug induced behavioural patterns.
I will talk more about protection and things we can do to put these parasites into their place, in the final part of this series.
Part IV
10 Life Saving Strategies
Part I considered inflation as a disease of the human condition, and that once started, the course is unstoppable. In the early stages, its a great party! Part II revealed the similarities of inflation to "The Great Pox" of syphilis, and Part III likened "General Paresis of the Insane" to financial paralysis.
The longer an inflation lasts, the fewer survive its effects. A prolonged and severe inflation leaves no one unscathed, and we all lose. However this damage can be limited, and if we follow wise strategies, we may even turn this cycle of inflation to our advantage.
Strategy I: A graded response
Every year, several tourists and even the occasional local, are swept to their death off Queensland's beaches. Beneath the shimmering surf lays a dangerous rip, sharks, and during the cold war, Russian submarines. Try swimming against a rip and you're soon exhausted. A strong rip can even grab you in waist deep water. To survive, let the rip carry you out, but gradually swim to its side, and soon it will lose its grip. If you don't become shark food, you can walk out a couple of km. Down the beach.
So don't over-react. You have time now and now is the time to start to act. To start fighting against the massive "inflation rip when it has its grip" will take you down. This is when investors get caught up in a panic response. There will always be "Blood in the streets" predictions, and I see that Bob Precther is getting in the act again. It's all fun reading, but it's a bit like trying to swim against the rip.
So lets apply strategy I to Strategy II!
Strategy II: Turn Savings into TIPS
Strategy I applied says don't sell everything and throw it all into TIPs, but consider these as your prime savings vehicle. Build a nest egg with these inflation-protected vehicles.
With a gradual and graded response, you will have several advantages:
- You don't have to worry about market timing. It's like the "dollar cost averaging" that was popular some years ago with mutuals.
- The easy money that is available in periods of early inflation is put to good work. Most compound the problem by further spending on alluring consumer goods.
- It allows time to work for you, not against you. The compounding effect may be small now, but in the long term you'll be astounded.
Inflation-Indexed Bonds are promissory notes that guarantee they will outpace with inflation if held to maturity. "I-bonds" are backed by the United States government and are indexed semiannually to the Consumer Price Index (CPI), a major inflation indicator.
Inflation-indexed bonds rise in value based on the rate of the Consumer Price Index. Here's how they work. Let's say you have a inflation-indexed bond worth $1,000 and a coupon that pays 3.2 percent. If, after one year, inflation is 3 percent, the bond is worth $1,030, so your interest payment is 3.2 percent of $1,030.
A conventional bond does not take inflation into account, so the value of your investment -- the worth of the bond -- buys less over time if inflation is rising.
This is also a great resource.
I know all the gold bugs out there think the 10 strategies should be gold 1 to 10.It is this "all or none" approach that we need to avoid.
I am keen on gold, but
MORE STRATEGIES NEXT WEEK!
John Tyler " The Infognome" www.infognome.com
For low risk radical investment ideas and access to free 6 day index reading course, designed by two traders from different continents John and Sol log onto www.drscoop.com
Sol Palha www.tacticalinvestor.com
Carrying from my last point, where I stated that the feds were not part of the government but megalomaniacs in charge of the financial welfare of the world. How can we allow this, a organization that is for all purposes private, and in bed with the major banks, an organization that answers to no one, an organization that is illegal and an organization that through its policies has destroyed the lives of more people than all the wars combined.
However we have allowed this so the question is what can we do.
First and foremost make sure you have some silver and Gold bullion, how much should you invest. Well that is something you have to decide for yourself as a guideline I would say you should look to invest 20% of your portfolio in bullion.
Take position in other commodity related stocks to like oil, natural gas etc, they will all benefit from the Feds pumping the printing press action.
If you want to make a slow but serious dent, look to save 50-100 dollars a week and then use that money to buy one gold coin per month, if enough people do this you can take these parasites and finally slowly but surely squash them out of existence. This is money you would throw down the drain anyway. Here are some examples, do your kids really need cell phones, you did not have any when you were growing up and it did not adversely affect you. Go out and eat less often cook at home. Instead of just buying that random vacation, use auction sites like price line and www.skywebauction.com where you can get great deals. Put of buying that new car if your car is fine, etc. It is amazing how much fat you can cut of if you sit down and take the time to look at where your money is going, how about those huge balances you have on your charge cards with interest rates of 15-19%, take a home equity loan and pay them of thus saving anywhere from 10-14% a year. If 10% of the world did this oh boy what a shock we would give these hounds from hell.
In addition you should have your money in several currencies as I know most people still do not want to put it all into gold, so if you are going to diversify, have them in the strongest currencies, Australian dollar, Norwegian krona, Iceland krona, Estonian kroon, South African Rand, etc. Do this on pullbacks, right now they have all had huge run ups so some profit taking action should follow soon.
Bottom line though make sure you have some of your portfolio in Gold and Silver Bullion.
TACTICAL INVESTOR
www.tacticalinvestor.com
December 13, 2003
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