Financial Sense Blog

While 2009 is the year of the Ox according to the Chinese calendar, it would seem that renaming it to the “year of fat tails” would be more appropriate. We have witnessed many events this year that one does not typically see on a day to day basis. For example, how many times does one witness the S&P 500 losing more than half its market cap? There have been times in the past where the S&P 500 will lose 50% of its value, though a decline of that magnitude typically takes place over years. The sell off that occurred in 2008 and into 2009 was truly a generational decline, not only in terms of its magnitude but also its ferocity.

Investors the world over are constantly evaluating the leverage, risk and potential rewards of their investment decisions. Whether you are an individual investor or an analyst for a large mutual fund, leverage, risk and the pot of gold at the end of the rainbow are always factors to be considered.

At the end of a good movie, oftentimes apparently unrelated events are woven together and it becomes clear how and why things happened. If, today, it feels as if we are at the end of an era, it is because we are; and, just like the movies, only at the end do certain events and the reasons for them become clear.

We all live in two worlds. One is the real world, the objective world, and the other world is inside of us: the world where sensory data is received and processed, where experiences are sorted, where thoughts and dreams swirl, where imagination reigns and reality is interpretted. While we are drawn by our senses to what is real, we are drawn by hopes and desires to what is imaginary.

For most of this year gold has been navigating a symmetrical triangle, mostly above 900. Recently it broke out of that triangle and is challenging the resistance at the all-time closing high of 1005.5. For any breakout above that level to be "decisive" -- not likely to fail -- gold would have to reach at least 1036.

With all the problems in the U.S. economy - high unemployment, rising foreclosures, surging bank failures - one would think that Congress would focus on resolving these crises. Perhaps the legislators believe the “green shoots” spin, because they have started major new initiatives, like the cap-and-trade bill, and now health care reform.

At economic, monetary and fiscal extremes like the present, there is little or no remaining flexibility in the global system. When or if gold and oil prices break out to highs beyond present levels, little credibility will remain for hopes of a sustained, robust and non-inflationary global economic recovery.

The above quote comes from Mark Twain, the pen name for American author and humorist Samuel Clemens. While it is true that no point in time is exactly the same as another, there can be some uncanny resemblances that, as Mr. Twain pointed out, appear to mimic the past.

In a letter to Bishop Mandell Creighton in 1887, Lord Acton wrote: "Power tends to corrupt, and absolute power corrupts absolutely." We typically think of kings and military dictators when reading these words. But legislative assemblies are also centers of power, and hubs of corruption. Infused with a special arrogance all their own, legislators see themselves as representatives of the people...

When I wrote for you last I was preparing to embark on a speaking tour to the Southwest of the United States. I duly commenced that trip with visits to San Francisco, Redding CA, Omaha and Colorado Springs CO. The final leg of my planned trip was scheduled to finish in San Diego where I was looking forward to meeting many of you, giving a Danielcode Seminar and culminating in a spot of sailing with Jim Puplava on San Diego Bay.