Gold Daily and Silver Weekly Charts

So far the support levels are holding well.

Let's see how the rest of the week goes. Overhead resistance is key here.

SP 500 and NDX Futures Daily Charts

The Street was supporting stocks for the LinkedIn IPO which was priced today after the close at the high end of the range. This is supposed to be a bellwether for the social networking IPO market which is a plum for the pigmen to sell at high valuations.

Although LinkedIn is hardly like Facebook, nevertheless it is viewed as important revenue wise for those who run the retail side of Wall Street.

Gold Daily and Silver Weekly Charts - US Debt Currency Has TIC Douloureux

The metals seem almost locked at the hip with equities at this point in the credit crisis.  Its an idle liquidity thing, driven by negative real interest rates on savings and sovereign debt.  The real economy offers few productive outlets and the recovery cannnot obtain traction because the government has not corrected the abuses and distortions that created the problem in the first place.

As one might expect, la Douleur appears to be struggling to break out higher, and avoid falling over a rising wedge. It can go either way.  Lower seems a bit more likely, but in the world of fiat, these things are relative.

Foreign governments, of at least the non-client state kind, appear to be continuing to eschew Treasuries. 

TIC Report Shows China Sold Treasuries Again - WSJ

"China sold U.S. Treasury securities in March, reducing its holdings for the fifth straight month while remaining the largest foreign holder, the Treasury Department said Monday.

Overall, foreigners were net buyers of long-term U.S. financial assets in March, according to the monthly Treasury International Capital report, known as TIC.

China's holdings fell $9.20 billion to $1.145 trillion, following net selling of $600 million in February.

Meanwhile, Japan has been a heavy net buyer in recent months, accumulating Treasurys at record levels. Japan remained the second-largest holder of Treasurys, lifting its holdings ..."

Let's see, the Fed buys Yen, and the BOJ buys Treasuries.

You put your right hand in, you put your right hand out, you put your right hand in, and you shake it all about...  

Looks like DSK isn't the only one doing the hokey pokey.

SP 500 and NDX Futures Daily Charts - Bearish Head Fake for 10,000th Time

Stocks slump on bad economic news, bulls buy dip, film at 11.

Net Asset Value of Certain Precious Metal Trusts and Funds

Gold Daily and Silver Weekly Charts - and Le US Douleur - More Volatility Ahead for Silver

Silver was hit harder as the US equities fell, and gold maintained some resilience.

The intraday moves had the character of bear raids and sharp selling in size, rather than steady liquidation.

Notice that the dollar too was weaker today, although it remains in a short term uptrend.

The number of contracts standing for May delivery of silver ROSE today according to Harvey Organ. The Comex delivered no actual silver, but the trading desks offered plenty of paper, as overall open interest rose again.

Someone asked me what it might be like if the Comex was unable to meet its deliveries, and there was a  cascading effect to the metals encumbered by counterparty risk in the two big ETFs, if they were hit by a wave of redemptions as large shareholders sought to lock in supply.

I did not see their scenario of multiple days of up limits until the market clears, simply because it seems to be a few large members important to the exchange who seem to be 'holding the bag'  in this case.  Market solutions are for the little people and relative outsiders like the Hunt Brothers.

Rather, I would anticipate a declaration of force majeure, and a forced settlement in cash and shares of SLV, which themselves are probably representations of bullion rather than the metal itself.   I do not know what the rationale for this might be, and it is not quite clear to me that they would even need one except for cosmetic purposes. 

When you have power and have learned to use it with ruthless hypocrisy, the only thing you need to respond to is a greater force of power that calls you to accounts. This is one of the great lessons from the recent financial crisis.  When the government and the regulators do not uphold their responsibilities, fraud becomes fashionable.

The Comex has about 32 million ounces of deliverable silver on their books, and they are dragging out the delivery process each month, as virtually no new inventory becomes available to replenish their supply.

I was a little shocked that the parabolic rise in price and  the subsequent calculated smackdown in conjunction with the increased margin requirements shook no new significant inventory loose for the dealers, only more paper profits. Customer withdrawals continue as well, with almost 3.5 million ounces leaving this month.

However it transpires, if it does, it will be memorable.   I am looking at the supply and demand as the numbers are published, and not at anything esoteric or private.  So I would imagine that the CFTC and the least sophisticated traders in the market can see the same things unfolding.  I hear things from time to time about back room discussions about the resolution of all this, and have to work to separate them from the tide disinformation, of which there is quite a bit more than you might imagine.  People are very concerned about a potential shock to the credibility of the system.  Of course, they may be utterly out of touch with current reality.  Trust is in short supply, and the natives are growing restless.

Rumours, and disparaging talk, and theoretical discussions are well and good, but as they say, show me the money, or in this case, the bullion. 

Where is it, how much of there is it, and what are they going to do when and if the supply of silver bullion drops below 30 million ounces deliverable, which is really a pittance given the size of the market? A silver futures contract on Comex is 5,000 ounces, and so that represents a mere 6,000 contracts.  There are a total of 123,000 contracts open today.  Last Friday the volume was an eye popping 126,000 contracts!  This at times seems less a market, and more a game of musical chairs, or a shell game.  And if the allegations are true about the LBMA,  and their leverage, then what we have here may be a recipe for a severe market dislocation.

And this is why I expect the silver market to remain highly volatile, with some amazing moves ahead, both up and down. And stretchers perhaps, to carry out some players from the pits, as they get caught offside in high frequency moves, and an increasingly disorderly trade. And this due to the failure to reform the financial system.

And for us, the smaller investors, caution is advised.

SP 500 and NDX Futures Daily Charts

Another weak day on stocks.

They are pressing on the pivots, wherein this starts changing from a correction to a new downtrend.

The techs were leading the way down today, followed by consumer discretionaries.

The markets were shocked a bit today by the startling events in NYC, as IMF chief Dominique Strauss-Kahn was arrested on very serious sexual assault charges. DSK was one of the leading candidates for French political office, and was in the midst of critical meetings at the IMF on global currency and European solvency issues.

Strauss-Kahn's position at the IMF will be filled for the time being by John Lipsky.

John Lipsky assumed the position of First Deputy Managing Director of the International Monetary Fund on September 1, 2006. Before coming to the Fund, Mr. Lipsky was Vice Chairman of the JPMorgan Investment Bank. Previously, Mr. Lipsky served as JPMorgan's Chief Economist, and as Chase Manhattan Bank's Chief Economist and Director of Research. He served as Chief Economist of Salomon Brothers, Inc. from 1992 until 1997. From 1989 to 1992, Mr. Lipsky was based in London, where he directed Salomon Brothers' European Economic and Market Analysis Group.

Gold, Silver, and Dollar Daily Charts with Long Term Trends and Fibonacci Retracements

Here is some general knowledge on Fibonacci Retracements

The placement of the pattern on the chart is given to some subjectivity. I prefer to do it according to the patterns I am attempting to analyze. Obvoiusly there are other ways of doing it.

This is by way of saying that these are my own calculations. There are others.

The Anglo-American banking cartel will resist change with increasing determination, and at times bitter opposition.

US Monetary Aggregates

It is easy to be misled by short term trending in money supply charts, especially those showing year over year growth as a percentage.  Money supply changes are seasonal and often very volatile, but nevermoreso during a credit collapse and quantitative easing.

A look at the longer term trends is most useful. And if necessary a review of Money Supply: A Primer.

The last chart is an index where 100 equals the M2 supply around the end of 2007, and the onset of the credit crisis. Since then it has grown almost twenty percent. 

Has GDP or the population grown 20 percent? So money per capita or per unit of productive effort is growing.   All one has to do is look at some reality based metric of money supply growth and negative real interest rates to understand the ten year bull market in gold and silver, and commodities in terms of US dollars. 

I understand people like to look at the various independent M3 estimates, but since the Fed no longer reports Eurodollars I have not seen what I could consider a credible recent estimate. And I doubt VERY much that M3 is underrunning M2 given the dollars that the Fed has been spreading around the world's banks.

Can the Fed keep this QE up? Will deflation set in, finally? It is a policy decision in a purely fiat currency. That could change, and I will know what to look for when it does. The Fed could be subjected to some external force, either from foreign creditors or domestic politics.   I expect that foreign shock to be inflationary rather than deflationary however.  As for the domestic forces, a choice for third world status is always an option.

The top five percent of Americans hold by far most of the country's wealth. And deflation may be in their short term interests, as in the case in the UK which seems to be going down that path. These policy decisions bring up a different set of considerations, many of which will stress the social fabric to the breaking point.  But a people grown coarse by war and ideology have done much odder things before. 
But for now the trend has not changed, and it would probably take a global economic collapse to change it. That is possible. And in such an event everything will get sold, for a time, as they were in the market crash of 2008.

Those who have been betting on deflation for the past five or ten years have been wrong. They could be right some time in the future. But one can be wrong on a mistaken principle for a very long, long time.

US Bonds have been in a long term disinflationary rally. There seem to be a number of 'name' people now looking for a trend change. That is the crux of Bernanke's short term focus, and the target of QE^n.

Notes From a Good Ol' Friend in Louisiana On the Rising Waters, Cotton and Sugar

Here is a human face on the flooding in Louisiana and some economic implications. I have edited out the personal references and details of his mail order business.

Here in Louisiana, there is palpable concern about the flood. I am 68 miles away from Vicksburg, due West on I-20. My effort to continue on working is one amongst many. But in the background there is the bated breath of trepidation for the economy as a whole, and for our own situation in particular.

Vicksburg crests May 19. The levees are expected to hold, but then Pemberton assured Davis he could hold Vicksburg. If I delay one week I will know for sure as the crisis should have passed. I don't want to find myself surrounded by flood waters which could reach more than two and maybe four feet here in Monroe. The lip of the Mississippi Delta is about 15 miles East of here. An extremis situation could be devastating.

Then downstream, south of here, when they open the Morganza Spillway much suffering will happen. Of course, their hope is to avoid wiping out no less than nine refineries, a plugged port facility, and the movement of commerce upriver.

What's the point of all this? No matter what, much sugar, cotton, etc will be wiped out, and already has been by the rain, floods, and now the intentional man made act of opening the spillway.

Sugar is about a twenty four month cycle. When they cover the thousands of hectares of cane a significant percentage of the years crop will vanish. Next year will be a recovery year with a more stable situation in sugar not before 2013. So much for the knock on effects of opening the spillway.

Not being reported much is the fact there are three nuclear power plants threatened by the rising waters. This poses some threat to compound the situation. Of course we aren't Japan, we're better and all that happy delusion. Of course, the same people built these reactors, so who's to say what may be?

I am suggesting the optimistic outcome, after a stiff market reaction. By late summer, maybe July, we'll all be taking a long sigh of relief. Meantime, the rails and trucks should be straining at their capacity to replace the disrupted flow of commerce caused by the stoppage of river traffic.

Even now, when you cross the bridge at Vicksburg, one can read the headlines of the newspaper the Northbound barge pilot is reading as he barely clears the undercarriage of the bridge. Whatever they're paying him, he should get a raise.

I don't even try to play these things. I am simply shedding some light on a situation for your consideration. Me, Imagonna get me some likker, maybe a gal named Sookie, and hope for the best.

I would be careful about playing these things. There is the market, and then there is the paper market in the States. And the paper market is dominated by a few financial monstrosities and a ravening pack of hedgehogs.

Gold Daily and Silver Weekly Charts - Shanghai Reduces Silver Margins

"This isn't just a matter of a few seedy guys stealing a few bucks. This is America: Corporate stealing is practically the national pastime, and Goldman Sachs is far from the only company to get away with doing it. But the prominence of this bank and the high-profile nature of its confrontation with a powerful Senate committee makes this a political story as well.

If the Justice Department fails to give the American people a chance to judge this case — if Goldman skates without so much as a trial — it will confirm once and for all the embarrassing truth: that the law in America is subjective, and crime is defined not by what you did, but by who you are." Matt Taibbi, The People v. Goldman Sachs

The weekly range in silver was remarkable, but notice that it ended the week fairly close to where it left off last week.

The banks are desperate, and facing a large amount of potential demand in the June contracts. They do not seem to be able to find supply, so they are struggling to dampen demand and obtain corollary trading profits in the miners and related sectors.

A very unsettled set of markets indeed, with the BRICs buying heavily, and the Anglo-American financial cartel fighting it every step of the way.

Shanghai Metals Exchange Reduces Silver Margins

This is going to be interesting.

SP 500 and NDX Futures Daily Charts

Major US equities are very obviously coiling for a move. Which direction they will break cannot be determined yet. But the longer they coil, the stronger the subsequent move will be.

No doubt it has to do with the Fed's plans for liquidity.

Blogger Is Now Back Online

The Google 'Blogger' facility has been down since early yesterday afternoon New York time. From what I could tell they had made a system change earlier in the week, and it led to a system crash, that took some time and archive retrievals in order to restore.

These things do happen. At one time I managed portions of a major communications network that stretched across the US and to over fifty countries. Major software upgrades were always the sort of thing that spoke to the quality of one's processes and system testing. And even then, things do happen.

Regular updates tonight.

Net Asset Value of Certain Precious Metal Trusts and Funds

An extra 'gut check' for the over eager dip buyer perhaps, and a sign of things to come as the battle intensifies over the June futures and deliveries.

I let my hedges go when the SP futures dropped to support around 1334. I could put some back on but not yet. I was buying a few things that looked to be getting down to reasonable valuations, but the word is 'lightly' and with 'agility.'

Rajaratnam Guilty On All 14 Counts of Insider Trading - Faces 19+ Years In Prison

"The tapes show he didn't believe the rules applied to him. Cheating became part of his business model."

"He" is a microcosm of a financial system in which the currency of fraud drives out honest price discovery and displaces productive activity, and large institutions game the markets on a daily basis with near impunity, while the public underwrites their steady gains and occasional but spectacular losses.

Sentencing will be on July 29.

AP
Hedge fund founder convicted in inside-trade case
May 11, 2011

NEW YORK (AP) — A former Wall Street titan was convicted Wednesday of making a fortune by coaxing a crew of corporate tipsters to give him an illegal edge on blockbuster trades in technology and other stocks — what prosecutors called the largest insider trading case ever involving hedge funds.

Raj Rajaratnam was convicted of five conspiracy counts and nine securities fraud charges at the closely watched trial in federal court in Manhattan. The jury had deliberated since April 25, and at one point was forced to start over again when one juror dropped out due to illness.

Prosecutors had alleged the 53-year-old Rajaratnam made profits and avoided losses totaling more than $60 million from illegal tips. His Galleon Group funds, they said, became a multibillion-dollar success at the expense of ordinary stock investors who didn't have advance notice of the earnings of public companies and of mergers and acquisitions.

Rajaratnam will remain free on bail, though now with electronic monitoring, at least until his July 29 sentencing.

The verdict came after seven weeks of testimony showcasing wiretaps of Rajaratnam wheeling and dealing behind the scenes with corrupt executives and consultants. Some of the people on the other end of the line pleaded guilty and agreed to take the witness stand against the Sri Lanka-born defendant.

Authorities said the 45 tapes used in the case represented the most extensive use to date of wiretaps — common in organized crimes and drug cases — in a white-collar case.

The defense had fought hard in pretrial hearings to keep the avalanche of audio evidence out of the trial by arguing the FBI obtained it with a faulty warrant. Once a judge allowed them in, prosecutors put the recordings to maximum use by repeatedly playing them for jurors.

"You heard the defendant commit his crimes time and time again in his own words," Assistant U.S. Attorney Reed Brodsky said in closing arguments.

"The tapes show he didn't believe the rules applied to him," the prosecutor added. "Cheating became part of his business model."

In one July 29, 2008, call, Rajaratnam could be heard grilling former Goldman Sachs board member Rajat Gupta...."

Gold Daily and Silver Weekly Charts - The Architect and Her Nemesis

"Our sales of physical metal yesterday were the second-highest so far this year. Considering where gold is trading, the strength of this demand was surprising. Without necessarily expecting this very high pace of buying to continue, we nonetheless would look for Indian demand to continue at above-average levels, given how willing these buyers have lately been at prices in excess of $1500. Physical demand elsewhere remains subdued. Scrap supply is underwhelming at these price levels." UBS

A nice bounce, but now follow through is everything, for both the metals and the equity markets.

Short term market movements are indeed highly correlated to changes in liquidity if they are present, as even a casual observers knows.

And I would hope that most by now realize that the 'efficient markets hypothesis' is a dead duck, a propaganda piece put forward by the banksters and their demimonde.

This is the theory that the exchanges are naturally fair and neutral parties, perfectly capable of self-regulating themselves so that a level playing field exists for all participants, big and small, insider or not, without any need for regulatory oversight from an official public body. And that participants do not use extra-legal means to gain advantages, paricularly over the non-professional investor. The exchange is like a vending machine, merely taking a small fee for their efforts, and their members would never engage in any trading advantaged by their superior positioning and access to power and money.

The events of the past few years have tossed this canard on the rubbish heap of discredited whimsy where it belongs, although some still reflexively reach for it under duress.

And so when someone appeals to this theory, even if indirectly, to rationalize the recent action in the silver market in which the exchange increased margin requirements five times, in conjunction with bear raids well timed to the off hours, with some of their largest members and customers trapped in massive short positions, you will just have to wonder at the substance and integrity of such an argument.

Most fundamental arguments that appeal to short term market movements as proofs are dodgy in and of themselves.

But let's see what happens. Blythe is not out of money by a long shot, but as the levels of the Comex seem to attest, they remain steadily trending lower on the amounts of silver at their disposal for delivery. Perhaps they can find fresh supplies, but it is unlikely that it will be at lower prices. And so they continue their campaign to discourage and dampen demand.

Volatility comes with wars, even currency wars, and some items are more on the front lines than others.

Therefore I have taken my short term trading profits, and added hedges short the indices to cover what remains. I wish to see if this bounce continues, or if the Street continues to game the markets to perpetuate their perfect trading records.

The Architect and Her Nemesis

SP 500 and NDX Futures Daily Charts - Self-Consuming Capitalism

“And the British political economist Fred Hirsch generalized the point:  once a social system, such as capitalism, convinces everyone that it can dispense with morality and public spirit, the universal pursuit of self-interest being all that is needed for satisfactory performance, the system will undermine its own viability, which is in fact premised on civic behaviour and on the respect of certain moral norms to a far greater extent than capitalism’s official ideology avows.”

Rival Views of Market Society and Other Recent Essays, pg 156

Gold Daily and Silver Weekly Charts - EuroDebt - Le Dolour

"All paper will burn. Come, sit by me. We shall watch the bonfire together." - paraphrase of Another

SP 500 and NDX Futures Daily Charts

Everything was bouncing today, at least those things that had sold during the margin squeeze precipitated by the CME and the CFTC which affected most asset classes except bonds.

Of course they had to relent. Crashing the stock market is probably too high a price to pay in order to save a small clique of traders who are trapped in the silver pits.

But I would not count these fellows out of the game yet. Goldman and their ilk helped to crash an economy in order to loot AIG and the mortage markets.  Their perfidy has few bounds.

Gold Daily and Silver Weekly Charts

"Our government...teaches the whole people by its example. If the government becomes the lawbreaker, it breeds contempt for law; it invites every man to become a law unto himself; it invites anarchy." Supreme Court Justice Louis D. Brandeis

This morning I added a lengthy intraday commentary here.

A fifth margin increase in silver is baked into the cake for Monday May 9th. Let it not be said that the CME does not care about its biggest customers.

There was a bounce today, and sighs of relief from the beleaguered metals bulls. My own portfolio was exhibiting some fairly impressive G forces today, that made up for the faux pas of coming back in a day early. Adjustments have been made, and thank God for hedges.

So what next. Nothing goes straight up or down, and silver certainly had gotten far ahead of itself. But as noted yesterday, I do not think that we are seeing an analog of the 1980 Hunt Brothers market corner rally which was fairly specific.

But who can say what will happen? Certainly not most of the commentators whom I have read, or the people who took the time to write in and tell me what a dope I am, and how silver is going to $22.

I cannot say it enough. It is not about predicting and making one way bets. It is all about managing risk in the short term, and paying attention to the market. I signalled my own sell within a day of the top, and came back in a day and a half before the bounce, for a trade.  I would have preferred to have waited longer, but the CME surprised me with the extra margin requirements.  And so I adjusted my strategy and came out without taking 'the big hit.' 

I think what bothers some people who write in is that I am still a long term holder of the metals. They send the oddest messages, feigning personal omniscience, and assuming some sort of undeserved pride in finally not being as wrong as they have been for a long time.

Well, sorry, but until the fundamentals change I don't change that long term portfolio, and certainly not in response to big moves either down or up, that are here and gone like flashes in the pan.  That is for the short term trading portfolio.

It bothers me a bit that the Comex does not seem to be addressing the very low levels of deliverable silver in their warehouse, and the incredibly large short position held by a few of the TBTF banks who are playing with public monies as far as I can tell.  That remains a potential problem even if they raise margins to 100%. And lower prices through rules changes do not help supply problems, the last time I checked.  It tends to dampen supply and make the problems even worse given enough time.

I have a bias to gold, I admit. But if you want to flee a manipulated market, I am not so sure that gold is so much different than silver, but certainly quite a bit less volatile, and more widely held as a a form of wealth by sovereign nations. 

I still cannot get over the fellow blogger who claimed that gold cannot be money because its value fluctuates, and some people hold it using leverage. I don't suppose the forex market is familiar territory to someone who could say this.  Everything is subject to speculation.  The crux of the matter is counter party risk and the ability, or lack thereof to manipulate supply in the long term.

Bart Chilton has indicated that the CFTC should look into the recent market action. To what end? They never release any of the pertinent data, and certainly don't do anything about it. And I suspect they won't until the aftermath of this latest banking fraud, after something breaks and a crisis ensues. I like Bart, and think he wants to do the right thing. I have also been in management situations that I think are similar to the one he is in now, so he has all my sympathy and good feelings as a lonely voice for truth, a pillar in the stream.

Greece is threatening to leave the EU, and I am sure that many of ther others in the EU will say, "Well let them." And yet it is not quite that simple, because the reason for leaving would be to default on their debts. Perhaps of benefit for Greece, but very bad for their creditors.

Would this extinction of euro debt result in a stronger euro as in the model of the monetary deflationists? Sometimes it is instructive to take your assumptions and apply them to someone else, to see if they are self-serving.

Greece's euro debts are held to a large degree by German banks. And a Greek default would encourage Ireland to do the same, and its debt is largely held by English banks. And in turn these banks are highly interconnected to the multinational banks. The financial market is still a mine field of counter party risk, and the Anglo-Americans and the rest are in a currency war.

The banks and their servants in office are fighting and gutting regulation every day, and there is little doubt in my mind that there will be a new financial crisis, worse than the last, that will shake the dollar denominated debt to its very foundations. But that's just my opinion, and I cannot tell what the time frames might be. However, I think I know what to look for. I also still believe that the UK will lead the way in the downward spiral of the western financial oligarchy.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustained recovery.

"The extreme volatility seen in the price of silver—exacerbated by tightened margin requirements—and the la large swings in the price of gold, price of oil and in certain U.S. dollar exchange rates, do not in any way change the long-term outlooks for the U.S. dollar or for the long-term hedges against a collapse in U.S. dollar purchasing power. The current markets leave open the potential for near-term jawboning (official or through market intermediaries) and government intervention (overt or covert) to encourage relative U.S. dollar strength.

Despite whatever volatility there may be, the U.S. dollar remains on track for an eventual complete collapse in a hyperinflation, and the roots of that hyperinflation remain embedded in the system. The primary hedge against losing U.S. dollar purchasing power remains physical gold (and silver), with some funds outside the U.S. dollar. As discussed in the Hyperinflation Special Report (2011), I still like the Swiss franc, Canadian dollar and Australian dollar."

John Williams, 6 May 2011

SP 500 and NDX Futures Daily Charts

Hardly an auspicious day for the equity bulls as the rally from the Non-Farm Payrolls reported faded hard into the weekend close.

The NFP report came in on the high side of estimates. I looked over all the usual aspects to the number, and it appears that the usual suspects like Birth-Death and Seasonality are in line. And as a reminder, one should never substract the Birth Death imaginary jobs directly from the headline number. It goes into the unadjusted gross number which is then subject to seasonal adjustment, which in some months is quite impressively large.

One thing that struck me is that this was, because of the way in which the calendar dates fell, a five week reporting interval rather than four. It was not clear to me that the BLS adjusted properly for this.

On the other hand, there was some thought that agricultural hiring for planting has been late this year because of weather. Well, I cannot speak to that.

No matter, it is the longer term trend that is of more interest and meaning. And it seems to indicate that the US is adding low paying jobs, judging by the very slack median wage. Hardly the stuff of a recovery for Main Street.

The money printing bonuses for Wall Street continue. This is the set of ingredients one might expect to bake a stagflationary cake.

Have a pleasant weekend.

Year To Date Performance of a Few Dollar Denominated Assets - Currency Wars

The chart below not only shows the Year-to-Date returns, but also very nicely illustrates that concept called volatility, also known as risk.

The management of risk is the number one preoccupation of a successful trader. If you cannot do this, if you do not think of it with your every breath, don't trade.

Trading for the short gain is a thing unto itself. This is why I say that one does not ask traders what to do when shaping their long term public policy, or draw serious economic conclusions from short term market movements. I have to admit that economists themselves, joining the ranks of most politicians and regulators, have a fairly poor track record of late on influencing public policy, but that is a matter for disgraced professions to mull over while they try to talk their way around another financial mess which many of their members actively helped to create.

If you wish, take well thought out long term investments and hold them in a reasonably constructed portfolio appropriate for your objectives. The markets are particularly dangerous now because they are awash with easy money and wilder than the statistics show due to complacent regulation. Everything in this life involves risk. These days things are often not as they appear, and even cash is not without risk. Life is a school of probability.

It is particularly hard to describe currency risk to Americans because most of them have never been outside their country except perhaps for an insulated holiday on the Pax Americana. A surprisingly large number of the Yanks do not own passports, except lately perhaps for purposes of domestic identification. Quite an innovation, to need a passport to go about your business in your own country.

I am not saying that this insularity is a bad thing necessarily, but a phenomenon that subtly but profoundly influences group thinking, the cultural weltanschauung.

And it can be the strength of a nation when it mobilizes to action, but also the weakness, the downside of a relatively isolated and homogenous society, as in the case of an island, ethnic group, or otherwise relatively inward looking society, easier prey for demagogues, and psy ops, and the flattery of frauds. Care for another helping of freedom fries?

But this self-containment is understandable. After all, it is a big and very diverse country, full of natural beauty, much given to the rewards of exploration and travel, a study in itself. And the people are on the whole hospitable, remarkably unpretentious, easy going, and friendly. The country has the gift of virtual self-sufficiency if it were to once again seek it. And it would be the world's loss.

This idea of education and experience is not to say that people need to be geniuses to be people. One of our girls is not quite the sharpest tool in the shed, but she is undoubtedly wise beyond her years, in an almost wonderful way, because she has been gifted with an enormous power of empathy and common sense. Each one can be beautiful in their own ways if you have an eye to see them as they have been created. Every flower has its own enchantments, varieties, and value in God's economy.

But as for a knowledge of money, unless one's profession has exposed them to practical currency exchange situations, they often have only a cartoon like concept of currency fluctuations and relative values as digits on a screen, an intellectual abstraction.

As one of my old professors used to remark, it smells of the lamp, ie hasty and academic without practical understanding. And give them a little power or good luck, and they can quickly become almost unbearable. One of the greatest benefit of an education is that it will teach you what you do not yet know, it will show you the distant horizons.

"And therefore as a stranger give it welcome.
There are more things in heaven and earth, Horatio,
Than are dreamt of in your philosophy." Hamlet Act 1, sc. 5, 159–167

When a reasonably intelligent person remarks that gold cannot be money because its value fluctuates, while their own currency is doing loop de loops to the downside, and their bonds provide negative returns, you have to wonder, until you realize that they are captive to their self-imposed limitations, their limited personal experience, and education and wisdom have not been allowed to lift them out of their deep wells of subjectivity.

educare, Latin from ex ducare, 'to lead out of, to bring forth'

And this I think is the interpretation I prefer for Dürer's Melencolia I. The exhaustion of knowledge, mechanical prowess without humanity or wisdom, which becomes frustrated by its inability to understand life, and to achieve contentment.

Granted, volatility is unusually high in the markets. But we are in a global currency war. Governments are in the markets, which themselves are awash with cheap liquidity and leverage. What else would you expect?

These are big events, and they will not be resolved in a day, a week, or even months.. Try to maintain your equilibrium, and you may wish to stay out of the way of the giants as they contend with one another. That is easier said than done, because the next financial crisis will be of a much greater magnitude, and everyone will be a participant, one way or the other.

US Ten Year Note does not include interest payments.