The Unreasoning Antipathy for the Bull Market in Gold Deconstructed as Cognitive Dissonance

"Foolishness is my theme, let satire be my song." George Gordon, Lord Byron

The comments in the news today following the suggestion that the US Dollar is not eternal, and that gold might be rising in price because of increased demand and changing economic climate and taste, might be humorous, if not uproariously comical, if the underlying subject was not of such potentially serious consequence to the savings of many.

For example, a major gold bullion site, that seems to be permanently bearish on gold through its house commentator, has even added a new chart to its main site that purports to show that the rising price of gold is just a dollar doppelganger, not real, and not a bull market. Given that said analyst has been bearish on gold for the last several hundreds of dollars, one has to ask, "Is he talking someone's book, or just feeling sheepish?"

But, trying to accept that these things as genuine and sincere expressions of thoughtful analysis, in the face of overwhelming evidence to the contrary, here is some speculation on why the concept that the dollar might no longer be the focus of Creation, and could be replaced by something that includes gold, proves to be so disturbing to the point of mania in some noted and otherwise presumably public figures in the face of four years of steady price increases and an unmistakable upward trend.

We do not have an issue with someone who thinks that some future outcome might diverge from what we think might happen, since it is all about probabilites. But it is odd when people choose to continually deny what IS happening, and keep rationalizing that it is not happening, cannot be happening, and is merely some illusion because it does not fit in with their firmly held belief. That denial seems a bit irrational, coming from those we suppose are ordinarily rational and otherwise grounded in reality.

Prechter, Shilling, and the Ideologically Predisposed Deflationists

Those who have decided what *should* be happening, and are not pleased that reality is not cooperating with their ideological predispostions. "I reject your reality, and substitute my own." See 'Flat Earth Society'

"An early version of cognitive dissonance theory appeared in Leon Festinger's 1956 book, When Prophecy Fails.

This book gave an inside account of belief persistence in members of a UFO doomsday cult, and documented the increased proselytization they exhibited after the leader's "end of the world" prophecy failed to come true.

The prediction of the Earth's destruction, supposedly sent by aliens to the leader of the group, became a disconfirmed expectancy that caused dissonance between the cognitions, "the world is going to end" and "the world did not end."

Although some members abandoned the group when the prophecy failed, most of the members lessened their dissonance by accepting a new belief, that the planet was spared because of the faith of the group." Wikipedia

Market Analysts and Financial Newspeople Syndrome

Sometimes people who have chosen a particular path, profession, or investment strategy will strenuously reject anything that suggests that their choice might have been incorrect, or threatens their status quo, with sometimes humourous results. Similar to 'pampered child being denied their candy and rejecting that possibility' syndrome.

"In a different type of experiment conducted by Jack Brehm, 225 female students rated a series of common appliances and were then allowed to choose one of two appliances to take home as a gift.

A second round of ratings showed that the participants increased their ratings of the item they chose, and lowered their ratings of the rejected item. This can be explained in terms of cognitive dissonance. When making a difficult decision, there are always aspects of the rejected choice that one finds appealing and these features are dissonant with choosing something else.

In other words, the cognition, "I chose X" is dissonant with the cognition, "There are some things better about Y." More recent research has found similar results in four-year-old children (Bloomberg and CNBC news anchors and commentators) and capuchin monkeys (Several prominent metals analysts and chief market strategists)." Wikipedia

But we would have to admit that at the end of the day:

"No man really becomes a fool until he stops asking questions." Charles Steinmetz

Peak Employment

The Labor Participation Rate is the total number of people employed expressed as a percentage of the total non-institutionalized working force over the age of 16.

It is a good number to watch, because it is harder to play games with it, as the government tends to do with the unemployment rate, making people disappear when their benefits expire.

Granted, it is not perfect, because it does not account for those who are underemployed, working part time or at a minimum wage job far below their aspirations and capabilities.

Nevertheless, we are seeing a flatness in the employment figures that is pronounced.



This might not necessarily be a bad thing, if the average real wage was rising sufficiently so that one might put forward the hypothesis that people are not working because they do not need to work, and their disposable income is sufficient for their needs.

But this is not the case in the USA.

A painful adjustment to free trade and globalization? Sending your working class against nations that are executing aggressive industrial policies is like sending troops marching upright in ordered ranks into heavily entrenched machine gun fire.

Most would feel better if that pain were more equally and equitably distributed. The wealthy elite often like to use a crisis to send a nation to war at times such as these, to create work and control the population. In WWI there was also a vigorous pandemic to help cull the herd as the eugenicists used to say. Good for employment, perception control, and of course profits.

And so it is, that the generals, besotted with the favors of industrialists, and the institutionalized thinking of craven staff, are fighting the last war once again, and losing badly.

So Why Is the Stock Market Going HIgher?

Q: But Jesse, if things are so bad, why is the stock market going up?

A: There is no doubt that equity markets, when judged in nominal terms, can do amazing things when the Fed spikes the punch bowl with grain liquor. Especially when market regulation has been weakened by decades of mistaken ideology and corruption.

The German stock market during the Weimar Crack Up Boom showed some remarkable gains, and was actually a lifesaver for many investors, for a time.

Bull markets are generally corrosive of the average intellect. That is why statists with something to hide love them so much. No matter what era, people willingly surrender their common sense to the bubble, if only for pragmatic reasons.

Those actively playing the deflation trade, short stocks and commodities, are getting killed for now. They are obviously early. The real deflation in paper asset prices will eventually come as the bust follows boom, but more selectively than most imagine, except temporarily if there is a genuine crash and not a long slow decline. Some assets will soar even higher as the dollar devaluation gains momementum and not retrace significantly as the dollar collapses in slow motion.

As Ludwig von Mises noted:

"This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to their altered money relation

There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services.

These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy...

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against 'real' goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."

Until then, be aware that the paper chase is on, backed by the full faith and credit, and desperate lies, of some very frightened, but still very powerful and increasingly ruthless, men. There is a good case to be made that the financial sector, led by Wall Street, hijacked the US productive economy and bought off the politicians and has been managing it for their own benefit most notabley since. This is not the first time, and it will most likely not be the last.

Try to stay out of their way as they thrash about, looking for something to fill the hollowness of their being, more fuel for the bonfires of the profane.

Bloodbath Coming in the US Banking Sector

The stock market rallied today because of a slightly better than expected ISM Services number. Considering how much 'stimulus' the government has given to the FIRE sector it should be doing slightly better than the real economy.

Another reason the market rallied in New York today was a bullish call on the banking sector by a Goldman Sachs analyst.

Here is a somewhat different analysis of the situation by Chris Whalen of Institutional Risk Analytics. Chris believes that he sees strong evidence that "the fourth quarter in the banking industry is going to be a bloodbath."

Astounded by Goldman's Upgrade Banks Heading Into Storm Says Whalen

Even if Goldman is wrong, and lots of investors take their advice and get hurt buying into banking stocks before an approaching "bloodbath," they seem to have it covered, at least for themselves, with plenty of derivatives delivering hefty profits into their own pockets should those banks fail.

And they could be right. The government might be preparing fresh tranches of bailout money and there could be more toxic assets coming from off the banks' off-balance-sheets to yours, via the Fed.

Place your bets. Or better yet, save your money, and don't.

Yahoo Finance
The "Real" Economy Is Dying: Q4 "Going to Be a Bloodbath," Whalen Says
by Aaron Task
Oct 05, 2009 01:49pm EDT

Stocks rallied to start the week thanks to a better-than-expected ISM services sector report and a Goldman Sachs upgrade of big banks, including Wells Fargo, Comerica and Capital One.

But all is not right in either the economy or the banking sector, according to Christopher Whalen, managing director at Institutional Risk Analytics. In fact, Whalen says most observers are drawing the wrong economic conclusions from the stock market's robust rally.

"Why is liquidity going into the financial sector? It's because the real economy is dying [and] everyone is fleeing into the stocks and bonds because they're liquid at the moment," Whalen says. "That's not a good sign."

The banking sector's assets shrunk by about $300 billion per quarter in the first half of 2009, a sign of banks hoarding cash in anticipation of additional future losses, according to Whalen. "The real economy is shrinking because of a lack of credit."

The shrinkage will continue into 2010, Whalen predicts, suggesting the banking sector hasn't yet seen the peak in loan losses. Institutional Risk Analytics forecasts the FDIC will ultimately need $300 billion to $400 billion to recoup losses to its bank insurance fund. (In other words, the $45 billion the FDIC sought to raise last week by asking banks to prepay fees is just a drop in the bucket.)

"Investors should think about this because the fourth quarter in the banking industry is going to be a bloodbath," says Whalen, who believes smaller and regional banks like Hudson City Bancorp may come into favor vs. larger peers, which have dramatically outperformed since the March lows.

"When you see the markets rallying when the real economy is shrinking that tells you this [recovery] is not going to be very enduring," Whalen says.

In this regard, Whalen finds himself in philosophical agreement with Nouriel Roubini, George Soros and Meredith Whitney, among other "prophets of the apocalypse" who've once again been raising red flags in recent days.