Today's quote

"A bull market's job is to throw you off and your job is to hang on"

Listening to opposing viewpoints

Have the courage to expose yourself to counterarguments no matter how strong the temptation to only bombard yourself with commentary that falls in line with your own personal view. To be able to debate and counter the opposing viewpoint is the true test of one's conviction in an investment, or any belief for that matter.

Heads I win, Tails you lose!

Watch the charts. Turn off the financial news because it is only unnecessary noise. Financial media's attempts to rationalize price action is akin to a new born trying to explain the meaning of life. How else can you explain some sort of rationalization they try to make of every micro move in price action everyday? If the dollar strengthens, it is because of a strengthening economy because "investors have confidence in the US". If the dollar weakens the next day, it is also a sign of strength in the US economy because people are choosing "to embrace risk assets". It is absolute rubbish and it is dumbfounding that this game of "heads I win, tails you lose" can go on like this.

Jim Sinclair said it best when he coined the acronym "MOPE" - Management of Perspective Economics.

Martin Armstrong on smart money

Have gotten hooked onto the writings on "#1 political prisoner" Martin Armstrong. I have always wondered why people point to a rising gold price as a "warning signal". The reason for this, as laid out by Armstrong, is that smart money always forms the primary trend through its very acute sense of forecasting what is to come. It piles into 'quality' assets that will ultimately be the most appropriate investment for what is to come. So the argument goes that gold is rising because it is foretelling a major crisis ahead of us.

Then what, one might ask, can we discern from gold rising right before it peaks? If the economy were the start rebuilding right after gold peaks, are we to assume that the last parabolic phase in gold failed to foretell this in spite of a rising gold price? No! The reason for the last phase of gold's rise is the dumb money. They are the last to arrive and the first to get slaughtered. Their piling in will help drive the price to the moon, but it is too late, for the smart money, that got in and started the trend when gold begun its rise from $250, was the original and early forecaster of what was to come.

Interesting times

To say we live in interesting times is an understatement. With US politicians and mainstream economists refusing to give up their blind optimism about the 'hope and change' that is coming in the economy, the economy continues its decent into the abyss. The below video about the '99ers'- those millions of Americans whose unemployment checks will soon dry up after the fast approaching 99th week - is truly eye opening. The people in the video are a representation of the great "American Dream" that Alan Greenspan, the Fed in general, and past US administrations have given the American people. It is a result of flawed economic theory and a lack of responsibility on the part of policy makers, whose sole purpose is to get reelected and live for the moment by keeping the party going for as long as it can (ie. kicking the debt can down the road).

Link to 60 minutes video- The 99ers

Unemployment is currently closer to 20%, far higher than the government's 10% figure that they would rather have you believe. The same goes for the rate of inflation. In spite of helicopter Ben Bernanke's repeatedly using the "low inflation" as an excuse to stimulate and print trillions in more money, the cost of everything from food to health insurance to transportation costs continues to rise- all this in the midst of a collapsing economy, ever rising unemployment, and stagnant wages.

This is clearly a depression. And gold- the only hedge against government insanity and mismanagement- continues to be shunned by the general public and financial managers. The wall street-government complex has so far been successful in brainwashing the people into believing a bottom in the economy is just around the corner. But the smart money currently moving into gold tells a different story.

What the Dow/Gold ratio means for the stock market and gold

Dow/Gold ratio will ultimately reach 1:1. Dow is currently around 10,000. Gold is around $1200.
This would mean either:
1) if gold goes no where from here, an ultimate collapse in the Dow by 90%
OR
2) if the Dow goes nowhere from here, an ultimate rise in the price of gold by 900%.

Clearly, gold would be the preferable asset class in whichever scenario unfolds in the future.

Obama's debt commission warns of fiscal 'cancer'

From http://www.washingtonpost.com/wp-dyn/content/article/2010/07/11/AR2010071101956.html

Obama's debt commission warns of fiscal 'cancer'
By Dan Balz
Washington Post Staff Writer
Monday, July 12, 2010; A02
BOSTON -- The co-chairmen of President Obama's debt and deficit commission offered an ominous assessment of the nation's fiscal future here Sunday, calling current budgetary trends a cancer "that will destroy the country from within" unless checked by tough action in Washington.

The two leaders -- former Republican senator Alan Simpson of Wyoming and Erskine Bowles, White House chief of staff under President Bill Clinton -- sought to build support for the work of the commission, whose recommendations due later this year are likely to spark a fierce debate in Congress.

"There are many who hope we fail," Simpson said at the closing session of the National Governors Association annual meeting. He called the 18-member commission "good people with deep, deep differences" who know the odds of success "are rather harrowing."

(Graphic: President Obama's proposed 2011 budget explained)
Bowles said that unlike the current economic crisis, which was largely unforeseen before it hit in fall 2008, the coming fiscal calamity is staring the country in the face. "This one is as clear as a bell," he said. "This debt is like a cancer."

The commission leaders said that, at present, federal revenue is fully consumed by three programs: Social Security, Medicare and Medicaid. "The rest of the federal government, including fighting two wars, homeland security, education, art, culture, you name it, veterans -- the whole rest of the discretionary budget is being financed by China and other countries," Simpson said.

"We can't grow our way out of this," Bowles said. "We could have decades of double-digit growth and not grow our way out of this enormous debt problem. We can't tax our way out. . . . The reality is we've got to do exactly what you all do every day as governors. We've got to cut spending or increase revenues or do some combination of that."

Bowles pointed to steps taken recently by the new coalition government in Britain, which also faces an acute budgetary problem, as a guide to what the commission might use in its recommendations. That would mean about three-quarters of the deficit reduction would be accomplished through spending cuts, and the remainder with additional revenue.

Most Republicans in Congress are opposed to any tax increases, which has made the work of the commission far more difficult. Bowles and Simpson appealed for support to the governors, who have been forced by their states' constitutions to balance their budgets with deep spending cuts and, in many cases, tax increases.

Bowles and Simpson said the commission would have had a stronger hand politically had it been created by Congress, rather than through an executive order. Simpson was pointed in his criticism of seven Republicans who once co-sponsored such a measure but who helped block it in the Senate.

"As far as I can discern, it was to stick it to the president," Simpson said. "That's where we are in Washington." He later added that all seven "have now come to us to say, 'We're ready to help.' "

The presentation by Simpson and Bowles, which included repeated statements of determination to produce a bipartisan set of recommendations, drew praise from the governors.

"I don't know that I've every heard a gloomier picture painted that created more hope for me," said Arkansas Gov. Mike Beebe (D).

Washington Gov. Chris Gregoire (D) said that many governors fear that the commission's recommendations will result in more demands on the states.

Bowles, who noted that the 1997 balanced-budget agreement between the Clinton White House and the Republican-controlled Congress included many provisions that put more burdens on the states, said that wasn't likely.

"I don't think you're going to see a lot of devolution coming from us because the states are all broke," he said.
Simpson also warned that the November elections could add another wild card to the work of the commission. "I have no idea what's going to happen on Election Day but it's going to be disruptive . . .," he said. "It's going to be a big wake-up call around the whole United States. I have no idea where it's going, but thank heaven we have a month then to work through the wreckage."