DAILY REPORT (12/03/08)
Obama is talking about offering a "fiscally prudent" stimulus; talk about a contradiction in terms! If you are the world's largest debtor nation, running the printing press day and night, plan to cut taxes while running large deficits for a minimum of two more years, there can be no such thing as fiscally prudent. What you are saying is that you are simply engaging in business as usual. For as long as I can remember, no one has ever taken their foot off of the monetary accelerator, and certainly no one has ever withdrawn liquidity from the system over a reasonable period of time. In very simple terms Keynes said you grease the wheels with liquidity when things get tough, and withdraw liquidity when things are good. No politician ever bothers to read past the comma in the last sentence! That's how we got to where we are today. Most of the folks in government are well-educated, having attended the best schools, and well nourished so they shouldn't be mentally diminished in any way. Aside from that, they have access to a wealth of information and advisors, so you can understand how perplexed I am when I see them continually run the US economy into the ground. There is no reasonable explanation, so I have to assume it is intentional and that is a disturbing thought.
Most things are an illusion in today's world and the illusion is always designed to make you feel good. We want to be gratified without paying the price; better yet, we want to be gratified and paid for the pleasure as well. This isn't the first time American society has shown signs of decay; the same thing happened back in the roaring 20's. Eat, drink, be merry and buy stocks were the rules of the day. The market would make you rich and you don't even have to give it a thought! Then came the Great Depression and we had a cleansing in every sense of the word: economic, financial, moral, everything but politics. This time around we'll see a cleansing, it's already started, and if we are lucky the politicians will be the first to pay for their sins. Before man started to manipulate markets to the degree that we see now, severe corrections occurred every couple of decades (1876, 1894, 1907, and 1930). Through it all the US still managed to become the greatest industrialized nation, and the largest creditor nation, the world had ever seen. Manipulation has turned the United States into second rate nation. Again, I have to assume it was intentional because these are not stupid people.
The good side of all the excesses is the twenty-five year bull market in stocks intertwined with bubbles in bonds, housing, credit, and com-modities. Excesses were the order of the day, desirable even, as they served to placate the masses. The bubble mania was of course facilitated by the fact that the US dollar was the world's reserve currency, and the US had the only printing press. Of course everything has a price and the dollar
began to pay back in 2001 as it lost value against the rest of the world. Being spin masters, the politicians said a cheap dollar was good for exports and the average American slept through the fact that the trade deficit grew by leaps and bounds every month. That's usually the case when excess rules the roost; you fail to see what's right under your nose.
Now reality is setting in with all the finesse of a mad elephant, and everyone seems shocked. My concern now involves the assignment of blame. Americans live in a world where responsibility is avoided at all costs, so they cannot be responsible for what's going on in the markets. Politicians will form committees to assign blame rather than look in the mirror. My greatest fear is that Americans will close themselves off from the rest of the world, blame some poor innocent bastard in some other country and then all hell will break lose. When they seal themselves off, and they will, they will effectively be telling their creditors to go fly a kite. This money was loaned in good faith, and many creditors will find they were actually defrauded, and conflicts will arise. With the weapons that exist in today's world, it only takes one man to make an error in judgment and the party is over. The genie let out of the bottle at Hiroshima will be loose again and retaliation will then become the order of the day.
There is no real solution to the problems I see; it has occurred before and will eventually occur again. I am not saying it will happen now, but I will
say that the stage is set and all the pieces are in place. What's more there is no one person on the US horizon that commands the respect of the American people, like a Harry Truman or Robert Kennedy, and can lead America away from the brink. What makes me think that things will get really bad? The seven year (and counting) bull market in gold that has driven prices to a new all-time high is telling me so, and this in spite of considerable manipulation. Gold has acted as a trouble barometer for five thousand years and that is the real message behind the rise in price. Yes, there was a correction, but I believe it has run its course and price is now going to work its way much higher. Admittedly, gold is not a panacea but it is the best and perhaps only way to protect yourself. Unfortunately, most people will find that out when it is too late.
[I have to spend a considerable amount of time in the dentist chair tomorrow which normally requires large amounts of drugs so I don't hurt the poor man. If I get out at a decent hour there will be a report. If I am longer than I expect, or in jail for killing a dentist, you will hear from me Thursday morning.]
ebo@dtanalysis.com
Dow Theory Analysis SAC
December 2, 2008
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