The 80 year cycle in the US.

If you followed Larry Edelson's writings, you are aware of his cycles. The claim is that the price of commodities and stocks follow a cycle (which look like sine waves) and thus become somewhat predictable. Thus, Larry has predicted that unless the price of gold hit around 1,050 and AT THE RIGHT TIME, gold would not rally. This is sheer nonsense, of course, because the FED controls the gold price (via banks) so gold will go up when the FED loses control.

There is another cycle, however, which is about 80 years long. Here is a representation of it by Nick Hodge:

The cycles began in the 1780s. The next one was in 1860 then the 1940 and the current cycle is ending in the 2010's.

So, we are going through a crisis now. Hodge's prediction is that once we are over the crisis, America will come back and establish incredible well-being and progress. I hope he is right. But, before a national awakening can take place, the Country has to overcome the effects of currency failure, a National Debt that is beyond repairment, a Professoriate that is insane (Liberal-Socialist) intent on destroying the foundations of the Country and the many social programs that render progress through capital investment possible.

U. S. Banks: here we go again.

Beside the slowing in manufacturing, the US faces a serious deterioration in the health of its biggest banks. Wells Fargo's mortgage initiation dropped from 112B to 80B in the latest quarter. Bank of America has suffered a $1B drop in its consumer (mortgage) credits and had to lay off 9,000 workers.

Net Interest Margins (the difference between what the bank is charged and what the bank charges for lending) has gone from 4.1% to 3.3%. I know this does not sound all that much, but even the 4.1% margin was near cost of overhead.

Worst of all, the six biggest banks have litigation costs of $100B and growing. Expect bailout talks to begin.

Hyperinflation in upper and middle regions.

We have to give credit to the FED for how it is preventing inflation at the general population level. If you are a wage earner at the mid to lower end of the scale, your wages are stagnant, your taxes are increasing and you do not have a lot of leeway in making ends meet. As long as you refrain from eating meat, you can survive.

For now the FED is buying up Treasuries, keeping gold prices low and having the banks maintain a large reserve. In addition, stock prices are skyrocketing (soaking up a lot of extra currency). Has the FED figured out how to live off printing money?

Not really. Other nations are getting restless as the FED is inflating its holdings. What the FED is doing is trading in the future for propping up the present. If printing money would be a good way to increase a nation's wealth, Zimbabwe would be a rich country.

In fact, the country has entered hyperinflation. So far, this hyperinflation is showing in stock prices and the art works. Prices for the latter have increased over 100% in a year. So, the wealthy are scrambling to protect themselves against a depreciating currency.

There is an ominous undertone to Homeland Security buying ammunition by the ton. They are preparing for the population taking to the street.

Chaos now ready to explode?

Asks one of the posters on KWN.

On the other hand, Larry declares that since gold did not hit on his magic line, it will now be at least till January (after telling us that he did not see how the correction could go into the New Year) till it can drop enough to hit a new low on his squiggles.

Larry also predicted that the US Dollar would rally (and had his subscribers buy UUP, the UP $). Why? Because as the Euro imploded, European  capital would flow into the Dollar and gold.

None of these things have happened. Why? I tell you. I don't know. I suspect that the colossal amount of money printed has overwhelmed normal market forces. WE KNOW that the FED is buying Treasuries, so interest rates stay low - for now. As long as the phony money is accepted as real, the FED will get away with it.

I guess that the big question concerns what the Chinese and the Japanese will do with their hoard of T bills. Will the Chinese carry out the "de-Americanization" they talked about in Xinhua? If they do, the Dollar might be toast and collapse is just around the corner.We have seen the US Dollar tank lately and so the question is; More to come?

End game in progress.

Yahoo News finally published the news we knew for months: China is pushing to make its currency the world's reserve currency.

What does that mean for the US? Well, for one, the international community will no longer accept US Dollars to clear trade accounts. The US Dollar will rapidly lose its value as the FED has to print more and more to pay for the deficit. Prices will skyrocket along with interest rates. The Day of Reckoning is now very near.

The effect of automation.

The Technology Investor has studied the effect of automation and productivity.

First, China's demographic points to a shrinking pool of labor."The effects of demographics on the supply and therefore the cost of labor, the Chinese government has set a target of 13% for annual increases in the minimum wage through 2015. All this suggests that year-over-year increases in China's hourly manufacturing labor costs will continue to be at least as high as the roughly 15% average experienced over the 10-year period of 2003-2012.

Already, export customers are beginning to take notice of the detrimental effects of wage inflation on the cost of Chinese products. What to do? Well, if history is any guide, Chinese manufacturers will automate.

Using robot density (industrial robots in use per 10,000 manufacturing employees) as a proxy for overall industrial automation, we can see in the table below that once Japan, Korea, and Taiwan achieved baseline densities of 5 to 10 (similar to China's current density of 7), compounded annual growth was a torrid 26% to 45% for the next 5 years, and 20% to 33% for the next 10 years.

Productivity then will increase. It is a matter of creating new occupations.

Gold and the end game.

William Kay tells us that there is no question but that we are in the 'end game.'

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/10/15_There_Is_No_Question_That_We_Are_Now_In_The_End_Game.html

What is precisely the end game?

The nearest definition  I can give is this: the economic end game is a sum of events (processes) that occurs as market forces reassert themselves and the US Dollar is de-throned as a reserve currency.

The events that are included are: 1. the rise in interest rates on T-bills and in general; 2. the rise in price inflation; 3. the end of the US Dollar as a reserve currency and 4. the rise in gold and silver prices.

While, it is relatively easy to see what will comprise the end game, the resultant consequences are more difficult to see. First, because there are quite a few players and forces involved and second, because the relationship between the various factors is complicated and not necessarily subject to simple equations (though some are). Thus, forecasting the consequences of the 'end game' is more like focusing light on the hills that protrude from the forests below.

Key to understanding the end game is that it is about financials and money. Another important point is that it is a loser game. No nation has ever pulled itself out of a slump by printing more money. Thus, some of the consequences are as clear as they are unavoidable. It is the timing that is an issue. In fact, we need to view the FED's latest action as something that happens in the end game. The FED is telling the banks to cease and desist from buying commodities, which is not aimed at stopping the banks from buying oil or aluminum, but to stop buying gold and silver.  I have discussed why the FED wants to keep gold and silver prices low (it allows the illusion of low inflation and low interest rates) and how the rising interest rates will increase the deficit. An increase in the gold price will weaken the Dollar, increase interest rates and the deficit will skyrocket, which in turn will necessitate more printing, which will increase inflation and ...Once we get into the self-reinforcing and vicious circle, there is no way out until the currency is destroyed..

The graphic shows how the Roman Empire destroyed its currency vs the destruction of the US Dollar:

 The trend is reinforced by the drop in foreigners buying Treasuries;

How does the govt explain this?

Will manufacturing disappear?

That is the question that one asks after reading Mr Cho's article:

http://seekingalpha.com/article/1738042-my-80-year-prediction-on-3d-printing-and-robotics?source=email_the_daily_dispatch&ifp=0

Cho's prediction can be summarized as such: Parts will be manufactured increasingly by 3D printers and put together by robots. Thus, there will be less and less need for low-skilled workers. Cho's prescription? To get better education.

Apart from the fact that education delivers less for more cost, not everyone is capable of absorbing higher education, let alone gain a skill for employment. Inasmuch as our universities specialize in Sex, Drugs and Subversion, it is highly questionable that universities impart useful skills.

It is much more likely that we will see a strong resurgence of the Luddite movement. We already have examples: the anti genetic modification of plants, the "organic food" movement (which is inferior product at higher prices) and the 'lower your standards' (hippy) movement championed by the followers of Gov Jerry(Moonbeam) Brown.

I am not unsympathetic to the Luddites. To find out that not only your skills, but you, yourself are no longer employable is a horrific thing. No doubt that our Marxist Party (the Democrats) will insist that people be put to work on building infrastructure. Unfortunately, there is no longer money to provide for govt subsidies for people. That fatted calf had been killed and eaten already.

What is the solution then?

Historically, when the cost of manufacturing drops, living standards improve and all sorts of new jobs spring up, along with new occupations. It will not be smooth, but if the govt will provide the "fix," it will be bloody difficult.

In the meantime, 3D printer stocks are expensive, with a P/E of over 100.

Gold and its role in the end game.

We have a number of financial developments going on.

1. First and foremost is the drive by China to become a superpower financially and militarily. They are aided in this quest by the West that is selling them the gold at low prices.

2. The whole world is printing money and the West is the worst culprit. This should have driven up inflation. But it didn't. Why not?

3. The FED discovered that the endgame can be postponed (though not avoided eventually) by artificially keeping the Dollar up. And the Dollar's value is kept up by periodically crashing the Gold Market. There have been at least five TAKEDOWNS when a large amount of sell orders come in within just a few minutes. The SELL orders are referred to as paper gold. It is highly leveraged and is basically paper money.

4. The PAPER GOLD MARKET is ten times the size of the METAL GOLD MARKET. Accounts are squared by paying off paper trades, though not all trades can be squared. Some gold must be fed in to keep the scam going and that gold goes to the East. The latest report is that 250 tons of gold passed through Shanghai in a month which is many times what these numbers used to be.

5. Then there is the question of "where is the gold?" At the end of WWII the US had 24,000 tons of gold. Now we are said to have 8,000 tons left. Where did it go? There is no AUDIT, no accounting. Is the gold at Fort Knox real, or merely tungsten covered with gold? Germany is waiting to have its gold returned to her. It might be a long wait.

6. What will the end game be like? It will start in earnest when the FED loses control of the Gold Market, the Dollar will plunge and inflation will take off.

7. We have seen this play out in the Weimar Republic.

No default looms.

Jack Lew and all the Liberals are telling Republicans that if they do not raise the debt ceiling the Country will default on its payments.

The Liberals are peddling a lie.

The taxes rolling into the Treasury far exceed the amount of money that must be paid to retire some Treasuries coming due and the interest on the debt. Just as with the shutdown, default will only happen if Obama and the Democrats engineer it.

GM subprime loans: here we go again.

The Washington Free Beacon reports that GM is in desperate straights again. First, it tries to maintain its market share by issuing subprime loans then bundling them and selling them as Asset Secured Securities. Ninety six percent of GM  loans are subpar, i.e. made to customers with credit rating of 660 or below.

Will the US Dollar be destroyed?

It is difficult to be a Stock Market Pundit nowadays. I do not consider myself such, but I am talking about Larry. The poor sap thinks that commodities and stocks are traded freely and that there is no manipulation of the Markets. That's why he keeps missing with his predictions. Like the one about the US Dollar.

According to Larry, the US Dollar will skyrocket as the Euro craters. Except that the Euro is not cratering, thanks to the efforts of the ECB to prop it up. And neither is the US Dollar skyrocketing. So, do I think that the FED is doing a good job holding the Dollar steady? Definitely NOT. What the FED is doing is manipulating the price of gold and the value of the Dollar. It is objectionable because the very act of manipulation puts the Dollar at risk.

And here comes the story of the Chinese warning us about our finances. They hold $1.3T in Treasuries and if they dump them...But, the Market does not worry. After all the POTUS has told us that if the Republicans fund ObamaCare and raise the debt limit then he will negotiate. It isn't clear just what they will negotiate.

Poker End Game, JP Morgan, FED, US Treasury, China and Gold.

This is the title of a post by Robert Fitzwilson on KWN. Fitzwilson strings together a lot of facts and considers a theory. He sounds surprisingly like me.

Fitzwilson starts with the fact that JP Morgan is heavily engaged in trading precious metal and its derivatives. JP Morgan maintains that it does not trade for itself, but for clients. What clients?

Fitzwilson proposes that the clients of JP Morgan are the FED and China. Here are their deduced motivations:

1. China wants the Yuan to become the world's reserve currency and acquire the privileges that go along with that status.

2.  In order to have the Yuan become the reserve currency, China needs 10,000 tons of gold as backing.

3. China owns $1.4T worth of US Treasuries and also US Dollars.

4. China is allowed to trade paper gold sales, while buying physical gold and methodically emptying COMEX vaults of gold. At the same time, China is compensated for the drop in the Dollar. The US Census Bureau's Foreign Trade Division has acknowledged a shipment of $1B worth of gold bouillon to China this year.

5. Why do the Chinese agreed to this deal? For sure it is in their advantage to buy gold cheap and pocket the proceeds of the naked shorts. Chinese law allows the repudiation of contracts that were based on fraudulent premises.

6. Why does the FED go along with this? The Chinese apparently agreed to keep and not dump their Treasury notes and US Dollars. This allows the FED to maintain the value of the Dollar and keep interest rates low. The FED bought time to resurrect the US economy.

7. How long will this go on? As long as the Chinese can expect to syphon away more gold. The report is that it won't be long before China concludes that it is not in their interest to continue.

The Stock Market signals a disaster brewing. It is shown by the "megaphone formation" shown below:

 

The formation forecasts the DOW to reach 16,500 then plunge to 6,000. This goes along with the political situation. We are led by a President who was raised in Indonesia and who considered himself a foreign student (his transcripts are sealed and hidden). His chief advisor is Valerie Jarret whose origin is Iran.

In Spain: Still raining trouble.

Spain is still hemorrhaging from its deficit. Govt forecasts this year's deficit to be 243B Euros, falling slightly to 215-239B next year. If all goes well and there is a recovery. So, the national debt of Spain is expected to rise to 99.8% of GDP. Following the intervention of the ECB, Spanish interest paid on 10 yr bonds has fallen all the way to 4.36%.