Bottoms up… Or Tops down?

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It’s not a market most of us love. But Murray isn’t most of us. The Slipstream Trader editor stayed back at the office Thursday afternoon while the rest of the office went on a long anticipated bowling excursion. At 3:39 he sent out an update to his subscribers. He issued another warning of an imminent market call and made some short recommendations.

Murray’s been killing it lately (in a good way) for his readers. If you’re not sure what all the fuss is about, you can go have a look at this latest free weekly update. This one’s a bit unusual. He takes a very long-term look at the markets and reaches a very specific conclusion.

We realise charting and technical analysis may seem like a foreign language to a lot of readers. But based on the comments and feedback Murray’s been getting on his videos, he’s making it a lot easier for Australians to use technical analysis to inform their investment strategies. That’s pretty handy.

Meanwhile, both inflation and joblessness increased in the US – something that is impossible in textbook economics. In the world of models, graphs, twisted logic and econometrics, there is a trade-off between employment and inflation. When more people get jobs, that creates inflation. Fewer jobs means less inflation. The relationship is known as the Phillips Curve. And it’s rubbish.

To repeat, inflation, joblessness and other economic ills are on the rise. Many economists are out predicting a recession already.

Dan Denning pointed out on Monday that only Harry Potter and the Communists can save us now. (Presumably not at the same time.)

This editor prefers the helpless resignation of Willy Wonka singing in Charlie and the Chocolate Factory. He doesn’t try and save anyone as the boat goes down a psychedelic gurgler:

There’s no earthly way of knowing which direction we are going.
There’s no knowing where we’re rowing, or which way the river’s flowing.
Is it raining? is it snowing? is a hurricane a-blowing?
Ahh!
Not a speck of light is showing, so the danger must be growing.
Are the fires of hell a-glowing? Is the grisly reaper mowing?
YES! THE DANGER MUST BE GROWING, FOR THE ROWERS KEEP ON ROWING
AND THEY’RE CERTAINLY NOT SHOWING ANY SIGNS THAT THEY ARE SLOWING!
BUUUYYYYY GOOOOLLLLD!

We added the last line. But it fits in well. And everyone who knows what’s going on is buying gold, which just hit another record high. In fact, look at it this way: Find out who is buying gold to figure out who knows what is going on.

The likes of Marc Faber, Peter Schiff and Jim Rogers have been buying gold all along. Many of them buy the same amount of gold each month, no matter the price or the news hype. That’s because their knowledge, outlook and forecast hasn’t really had to change. It’s been confirmed at every turn.

Then there are the recently enlightened gold buyers. They are moving increasingly into gold as the economic news gets worse (and the price goes up).

Most important are the ‘uh oh, we were wrong, better buy some gold’ bunch, which consists largely of central bankers, including those from Mauritius, China and India. They have been stocking up for a few years now.

It’s interesting to see the differences in why these three groups are buying gold. The first, consisting of the long-term steady buyers, see gold as insurance. It’s real money, outside the banking system, nobody’s liability and all that. The second group of buyers still think of their portfolios in terms of Dollars, Pounds or Euros. They hope to sell their gold once it has gone up a lot to buy something with the profit they made. The fact that the prices of all goods will have risen with gold (probably to a lesser extent) escapes them. And after tax, well…

It’s the third group that is really interesting. Will the monetary meddle-o-maniacs turn to gold when paper money turns out to be nothing but paper? After all, paper is no more money than a menu is a meal. They will only figure that out after exhausting all other options, is our guess.

That’s what the Europeans are up to (exhausting all options). Instead of sharing in the liability of all Euro nations by issuing Eurobonds, the German Chancellor apparently agreed to an EU-wide government.

This is like sinking Australia to stop the boat people.

That’s probably what the Greens will accuse Tony Abbott of next: A secret strategy to pollute carbon until Australia is under water (from melting glaciers), thereby ‘stopping the boats’.

Polluting the politicians into submission is what the ‘Convoys of No Confidence are all about. It’s essentially a bunch of truckies and other anti-government enthusiasts hitting the road at once. By driving to pristine Canberra they hope to make their ‘real voices heard’. Probably in the following way: ‘Honk! Honk!

Hopefully it works.

But in an odd twist, it seems the Greens are the ones standing up for basic property rights. (This is getting really confusing.) The Australian reports:

The bill, to be brought into the Senate in the next fortnight by Greens Queensland senator Larissa Waters, would require the written permission of landholders be obtained before companies could explore for, or extract, coal-seam gas…. [the] bill will… require coal-seam gas corporations to get written permission before entering a farmer’s land.’

We’re not familiar with the current legal state of affairs on this, but it seems The Australian is suggesting that, under current law, coal-seam gas companies can drive their drills through a farmer’s gate and stick a hole in their ground without so much as a ‘by your leave’ from the farmer. As long as they get permission from the government, that is.

That is outrageous.

This would never happen under a truly capitalist system. Property rights are the foundation of capitalism. (Including the fact that you own yourself.)

If you’d like to learn more about how a truly capitalist system works from one of the best in the business at explaining it, why not attend the Sydney Mises Seminar in November?

Special guest Hans Herman Hoppe will be there to tell you all about this type of thing. And do a much better job than your editor at it. That’s why we’ll be in the audience.

To find out more, visit https://mises.org.au/

Then again, you might agree with this plonker at The Age:

Now, the Austrian school of economic ideas is rising. Rightly enough, its notions of creative destruction, capital misallocation and purging the system of excesses each business cycle suddenly makes sense. Except for one small problem: it’s too late.

Better late than never doesn’t apply to economics…

The author seems to misunderstand that Austrian economists explain, they don’t do. At least when it comes to government policy. They certainly keep busy outside of government. That’s why you’ll find very few Austrian Economist politicians (one by our count) and a large number of Austrian enthusiasts in the private sector.

In the same sense, the solutions Austrians advocate are ‘bottom up’, not ‘top down’. As Austrian economist Hayek says in this economics rap song, ‘I don’t wanna do nuthin, there’s plenty to do. The question I ponder is who plans for who? Should I plan for myself, or leave it to you? I want plans by the many, not by the few.

That would mean government getting out of the way in favour of the private sector. As Martin Hutchinson of Prudentbear.com points out, the private sector is doing rather well in the face of the US government’s withdrawal. He cleverly explains that GDP is a poor measure of prosperity, as it encompasses government and private sector spending. Falling government spending obviously reduces GDP, as it is a component of GDP. But if you separate the two, Gross Private Product (GPP) and Gross Government Product (GGP), you get a different conclusion. GPP has been doing well, while Gross Government Product (GGP) has been stalling.

By the GPP measure, 2011’s economy is not so bad, with steady growth in the first two quarters at 1.9%, compared with official GDP growth of 0.8%. Notably, government has been shrinking during this period, with both federal spending and total spending down at a 3.5% annual rate. That suggests that the current economic position is not in fact dire; it also suggests that continuing government shrinkage may encourage further growth.

This is exactly what you want to happen to get out of obscene amounts of public debt. Private sector growth, government sector withdrawal. But the change doesn’t come without turbulence. Whether it’s on the streets of London, or north-east Arnhem Land, people are getting angry about the changing relationship between individual initiative and collectivism. They all seem to have completely opposite opinions and conclusions about exactly the same events.

Some say it was the withdrawal of welfare that caused the London riots. Some blame too much welfare. Others think it was simply opportunism on the back of anti-police sentiment that built up over a very long time.

There’s nothing to argue about though. They are all right. It’s not like every rioter had the same reason…

As always, though, the government is at fault too.

When your editor was in Vancouver, he told newsletter readers from indebted nations around the world that their governments’ stimulus efforts might have been bad, but the Australian stimulus effort killed people. We were referring to the house insulation debacle, where government funding went to burning peoples’ houses down. And sometimes burning the people themselves. So we Aussies may have escaped much of the crippling debt that comes with government stimulus efforts, but the costs remained high.

The right wing argument explaining the London riots blames excessive welfare. If you agree, take a look closer to home. Just ask Galarrwuy Yunupingu who was interviewed by The Australian:

With his heartfelt plea for an end to welfare handouts in the remote indigenous domain, Galarrwuy Yunupingu has thrown down the gauntlet.

The northeast Arnhem Land clan leader is insisting that the entire political and bureaucratic class confront the failure of the passive welfare paradigm in remote Australia.

He wants no more tinkering around the fringes of the vast network of social support projects now in place but instead the abolition of welfare payments to his people — and for the simplest of reasons: “It’s a killer.”

After subsidised insulation killed people, Australian politicians decided to subsidise solar power panels. A large proportion of those turned out to be dangerously installed too. Based on this, you can expect more welfare for Aboriginal Australians.

On a slightly more positive note, the younger politicians seem to be catching on. The Australian representative at the Girls 20 summit in Paris, a mock G20 meeting for young women that focuses on women’s issues, sounds promising: ‘I think far too often people try and make policy for people they don’t understand,‘ she said.

If only someone had pointed that out to everyone discussed above. The monetary meddle-o-maniacs, the EU politicians, the carbon taxers, the climate changers, the detention centre builders, the coal-seam gas trespassers, the stimulators, the statist-ticians, the welfarists, the counterfeiters and many more that didn’t make it into today’s Daily Reckoning (notably the war mongers).

We have a message for all of them:

You kill people.

In London, Arnhem Land, detention centres, foreign countries and in newly insulated homes, you kill people.

And telling us we were right in our warnings, but ‘it’s too late’ to see the errors of your ways isn’t good enough.

Give the politicians in Canberra a ‘Honk! Honk!’ for me.

Until next week,

Nick Hubble
Daily Reckoning Australia Weekend

Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.
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Comments

  1. The aspiration deficit is responsible for the riots. A rational allocation of responsibility for the aspiration deficit in descending order :

    1. job prospects 1 in 50
    2. income prospects to cover rent and food if you get that job
    3. welfare culture

    Those lead the charge and jump to point 3 do so to cover their complicity in creating the conditions in points 1 and 2.

    Those that follow those leading that charge with glaring eyes and flaring nostrils are among the employed middle classes that own property and are about to go upside down in a mortgage if it is marked to market and are otherwise fearful for their personal safety).

    Those that speak of only 1 and 2 are employees of the state or leveraged into activity generated by 3.

    Britain is a shocker. It needs a William Wilberforce and a truth commission but it is going to take alot of violence and a reckoning perpetrated upon the middle classes to get there.

    If you look at the sentences being handed down you can see the tyranny of the jurist upper classes.

    http://www.guardian.co.uk/news/datablog/2011/aug/11/uk-riots-magistrates-court-list?INTCMP=ILCNETTXT3487

    For every kid gaoled for riot and nicking stuff the liklihood is more rather than less that they will come out a hardened criminal connected to criminal society as never they were in the past. In this case they will have learned and burned into their consciousness a reinvigorated political class grievance along the way.

    Reply
  2. For the riots, bankers taking risks, politicians being corrupt etc. you only need to know that Behaviour is a Function of its Consequences.

    Reply
  3. Well done.Forgive me. Because gold is not a limited resource where production is at growing record highs at present – for instance is there not a case for a gold bubble too? Is this the right choice then for those in-the-know?

    outside observer
    August 20, 2011
    Reply
  4. It sure is a sad situation Ross. Like you are alluding there probably is no nice way out of the mess now it is created.
    Galarrwuy has his heart in the right place.

    Reply
  5. Enjoyed your piece again Nickolai. I’m just not sure how a society gets to a truly capitalist state from the current position without collapsing completely first. Anyhow what will be will be, whatever that is.

    Reply
  6. I have just watched a must-watch interview, for those who haven’t seen it this is the link to the page that it maybe downloaded from http://www.newsmax.com/Newsfront/Aftershock-book-predicts-economic/2011/07/25/id/404782

    Robert Wiedemer predicts inflation, interest rate rises and asset price deflation he doesn’t mention general deflation, which FW believes will occur when the interest rates start to bite.

    Coming across this interview was timely as I have been updating a couple of articles today; and the time line and events are somewhat similar to Future Watch’s.

    (I hope that this link is not old news as I have not been reading the comment section, except for a couple of instances, since the new format).

    In the last post, after posting it, I had realized that I had used S&P 500 data with Dow Jones analysis. This was the reason that I updated my site, also the financial side of Future Watch has been negelected for its main focus Bible Prophecy, of late.

    From “1973-1981 and 2007-201?”

    In the chart above, between the beamarket low of 1974 and the market top of 1981, there were, for all intents and purposes, two cyclical bull markets and one cyclical bear market, with one recession (the mild Carter recession of 1980). In the period from the bear market low of 2009 there has only been one cyclical bull, as of August 21, 2011).

    While not necessary, a bear market decline and a recession would rhyme with 1974-81, before the last major rally of 2009-2013.

    Some rhymes

    The Dow valuation high of 1966 = 2000;

    or alternatively

    The Dow and ‘glamour’ stock high of 1968 = The Dow and ‘dotcom’ stock high of 2000 – Presidential election years.

    Valuation highs in Democratic administration second-terms in 1966 and 2000.

    The 1966 (1968) decline of 36% to May 1970 = The 2000 decline of 38% to October 2002.

    Mild recessions in Republican administration first terms in 1969/70 and 2001.

    Nominal Dow highs in Republican administrations in 1973 and 2007.

    Valuation high 1966 to nominal high 1973 – just short of seven years.

    Valuation hign 2000 to nominal high 2007 – just over seven years and eight months.

    The Dow declined 45.08% from 1973 to 1974;

    The Dow declined 53.7% from the 2007 to 2009.

    (The bear market percentage decline of 2007-2009 is greater than all others except 1930-32).

    The bear market low of 1974, below the 1970 low = The bear market low of 2009, below the 2002 low.

    Dow up 75.69% in the bear market rally 1974-76.

    Dow up 95.66% in the bearmarket rally of 2009-11 (so far).

    The bear market rally high of 1976 lower than the nominal high of 1973 = the bear market rally high of 2011, lower than the nominal high of 2007 (so far).

    [In comparing October 2007 – January 2013 – the time from the Dow Jones nominal high to the end of the first [and only?] term of the Obama Administration, a period of 5 years and three months – with January 1973 to January 1981 – the time from the Dow Jones nominal high to the end of the first and only one term of Jimmy Carter, a period of 8 years, there is a time difference of two years and nine months].

    Bear market 1966 – 1982 (16 years) = Bear market 2000 – 2016?

    The next severe recession, to rhyme with 1981-82, will most likely be severer that the Hoover recession of the Great Depression of 1929-1933.

    (But then history rhymes until it doesn’t),

    Reply
  7. Polluting the politicians into submission is what the ‘Convoys of No Confidence’ are all about. It’s essentially a bunch of truckies and other anti-government enthusiasts hitting the road at once. By driving to pristine Canberra they hope to make their ‘real voices heard’. Probably in the following way: ‘Honk! Honk!’

    Hopefully it works.

    I suspect you may have pinned your flag to the wrong mast Nick.
    From the output from this ‘rally’ and the claims from some of the participants, they really do not have a clue.

    Anyone driving across Australia to protest has surely spent far more in effort and capital than any the Carbon Tax will hit them in a year, any year. And this was the ‘primary’ reason for their effort. The fact that they’ve now thrown in all manner of protesting reason just belies the fact they weren’t too convinced of their original reasons and so are now collectively over-reaching due to lack of self conviction on their original cause.

    Beggars belief. And Abbott thinks he will win recognition for siding with these idiots.

    Reply

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