Financial Terror

“The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators was probably the prime cause of the revolution.” ~ Benjamin Franklin

“And Jefferson said… hey! We left this England place because it was bogus. And if we don’t get some cool rules of our own, pronto, we’ll just be bogus too.” ~ Jeff Spicoli (1982)

Many American’s might want to take time to revisit our history of the Republic and the challenges faced by generations of our forefathers. This is no easy task today as many of the battles fought in the past against tyranny may not be accurately depicted in today’s history books, academic “institutions” much less a corporate media owned by six multinational corporations. As a young man growing up in Western Massachusetts, I remember reading about the true origins of financial fraud and tyranny when reading the real history of events like Shay’s Rebellion. [1]

One could make a case that psychology and public sentiment is almost easier to control in our current “information age.” Despite the proliferation of technological achievements improving the ability of people to communicate instantaneously worldwide we see most American’s (including many in the investment community) still visualize retirement as a possibility. The investment theses brought to us by many financial institutions reveal the ultimate goal of usury; turning the average citizen of this country into a debt slave. A quick look at today’s world reveals the top 1-2% of the people own over half the assets in the world where the average citizen is being converted to a usurious pawn paying interest on public and personal debts. How did this happen?

1. “Educational conditioning” starts in our youth. I highly recommend the following book “The Deliberate Dumbing Down of America.” A free online version can be found online by a very respectable author. [2]
2.  Continual media spin of fear and may confuse even the most intelligent people.
3. Public complacency and ego. People think “It can’t happen here.”

I’m in no way implying I am an economic genius. I am simply suggesting that one might want to seriously consider the implications of the over levered financial western world compared to growing emerging market economies which did not exist some 30 years ago. As Wil Rogers said, “It's not what you know that hurts you, It's what you know that just ain't so."

These are truly historic times. Is your favorite internet program via your iPhone documenting the record numbers of laws and executive orders passed over the past 10 years restricting your civil liberties? Does CNBC broadcasted in airports, the gym or your home note the record fiat currency “reflation” (massive money printing which would make John Law in 16th century France look like an amateur)?

“Truth goes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.” ~ -Arthur Schopenhauer (1788 - 1860)

Remember 2003? Everyone was waiting for another economic crash. The deflation salesmen had gold going back down below $300 an ounce and crude oil was rising above $20 a barrel because of “The Iraq War Premium.” Do you remember the former Chairman of the central bank (Alan Greenspan) artificially setting short term interest rates down to 1% to promote financial speculation, punish savers and promoting interest only loans where a mortgage holder assumes all interest rate risk?

Times are good in Washington, DC. Somehow Wall Street and the U.S. Government have convinced the world to finance the 10 year Treasury Bond at less than 3% per year. The U.S. Government is so indebted to the central banks financing its existence that it has been willing to expand into the daily lives of its citizens (serfdom). Fortunately, the volatility in prices of anything real or equitable has kept the general public terrorized and willing to hold currency and bonds at 30 year record prices with virtually no income.

Investors seeking some type of truth may find themselves reading the “trade everything all the time” newsletter with the usual mantra: “I’m bullish on gold in the long run but short term bearish.” Great! This way the financial market casino expert is correct either way! Admittedly, there are some great expert newsletter writers but short term calls are usually best left to looking at sentiment.

What is an investor to do? First one needs to understand that today’s equity, debt, commodity and currency markets have become the new battleground. World War III could be an undeclared war with no borders. The enemy is not visible but the winning and losing tactics are buried in disinformation, invisible to the average person not willing to educate themselves about the real problems and solutions.

“There are a thousand hacking at the branches of evil to one who is striking at the root.” ~ Henry David Thoreau

High frequency “algorithmic” trading [3] aids in terrorizing the “more informed” investors sitting at home watching their portfolios real time on the internet. The volatility aids the debt (fixed income) predators who don’t worry about credit risk, currency (inflation) risk or interest rate risks. This could be why annuity and bond salesmen wear such conservative clothing to give the illusion of safety of principal as they pass highly toxic debt on to their clients.

Lurking below the daily talk about the financial economy on CNBC is the 700 Trillion Dollar financial derivative trade still on the books of major banking institutions combined with US Government forward expenditures which can only be funded by massive currency creation (Quantitative Easing). What does this mean?

• The sheer US forward obligations had a Fed Governor use the term Zimbabwe in a speech in 2008 (hyperinflation – currency collapsing in value) required to finance the burden.

• How do you close a $700 Trillion Dollar trade in a $15 Trillion a year economy? Answer? You do not. The loser either collapses or is backed by Trillions of new stimuli (currency creation). Therefore all cash holders worldwide are now part of this trade.

We know there have been numerous worldwide economic crises in the past 20 years resulting in currency depreciation. Some were severe and greatly changed public sentiment towards gold, silver and anything real after such events. This may explain why gold is so popular in emerging market economies but thought of as a speculation in the financial western world. The sheer amount of disinformation published on the internet (some intended from unethical institutions and others who may not understand the “big picture”) is overwhelming. The “trade everything all the time” broker is the new breed, a far cry from the hard core intrinsic value (Graham-Dodd Investor).

“The pessimist sees difficulty in every opportunity. The optimist sees the opportunity in every difficulty.” ~ Winston Churchill

If I were a government greatly indebted to banks my first concern would be a growing middle class of wealthy, intelligent and independent individuals. This would be a threat to the banks as (before 1933) “whenever the people became disturbed over Federal spending, they could go to the banks, redeem their paper currency in gold, and wait for common sense to return to Washington.” [4] This would obviously be a threat to the power of the state and banking institutions (what irony that this lecture came from Warren Buffett’s father).

This essay is the first of many to try and help you create a strategy to empower yourself and not only your financial well being but also in the fight for economic and personal liberty. There is much good free information on the internet and, as I had stated earlier, much nonsense.

Big Picture ~

• Increased world currency supply relative to real things is price positive.

• Select investors are recognizing all US States are much like countries within the Euro.

• US indebted states will be bailed out through further expansions of credit.

• Mining companies are displaying profitability unlike 5 years ago.

• Investors can’t seek outdated portfolio strategies in a zero interest rate world.

• Select investors may determine what is of real intrinsic value (anything equitable) soon.

The chart below is the relative price of real things to the S&P 500. This may explain why it is so popular for young people to move to financial centers rather than seek a future in what could be the greatest transfer of wealth in the world. Savvy institutional investors such as John Paulson have “announced he was starting a gold fund focused on gold mining stocks and gold-related investments.” [5] My guess is John is looking at intrinsic value not momentum trades from “financial expert newsletter “gurus” on his Blackberry.

The reason it is important to price the Raw Industrials Index in the S&P 500 is because the fiat currencies worldwide (including the US Federal Reserve Note – Dollar) have been so inflated that it is becoming increasingly difficult to price true value in currency. The bankers know this and use it as a weapon against pure technical traders (chart guys) who may not see things through the eyes of something priced in Euros, the Brazilian Real much less gold.

I have much respect for technical analysis (chart research) but also respect the “boots on the ground” fundamental research. The American financial advisor may not understand the mentality of the rapidly growing emerging market investor who sees the Western Financial Media as something analogous to latest horror show.

I would look at this summer’s volatility as a time to review the fundamental supply/demand for an asset like silver and review your investment thesis. Materials currently only make up 3.4% of the S&P 500 stock index [6].

During the stock mania in the 1990’s the allocation for Information Technology neared 40%. Good luck to all. Remember, the establishment will need a safe haven. Think real hard about intrinsic value, the importance of understanding true supply and demand as well as political risk.

Best ~ Christopher

[1] http://en.wikipedia.org/wiki/Shays%27_Rebellion#Mounting_financial_crisis

[2] http://www.deliberatedumbingdown.com/

[3] http://en.wikipedia.org/wiki/Algorithmic_trading

[4] http://www.fame.org/PDF/buffet3.pdf

[5] http://www.opalesque.com/55924/john%20paulson/Launches_Fund_manager185.html

[6] http://www2.standardandpoors.com/spf/pdf/index/SP_500_Factsheet.pdf