Tuesday, November 17, 2009

The Real Economic Truth

What is the real Economic Truth?

Granted, one data point does not reflect the state of the world or a trend. But today's GDP number, coming in negative, should affirm that the fear of deflation is real. Many talk about it but they are currently in the minority. We can see it in the price of gold. Is this a sign of deflation? Of course not. There are strong voices on both sides. Some say gold will hit $2,000 an ounce while others feel that we are in deflationary times and the asset rallies are nothing more than Fed engineered bubbles.

Have you Ever Heard About the Kondrotieff Wave?

Odes to poor Nikolai Kodratiev, a soviet economist in the early 1920s who postulated that economies move in long waves. Poor guy got executed for his capitalistic beliefs but the theory is still out there. These cycles last about 60 years and in agrarian times, I suppose that the cycle worked. Having been looking for this downturn in the economy - and not just the economy - but real deflation, back in the late 80s and early 90s, over time, I began to dismiss the theory, believing that perhaps it worked in agrarian times but no longer.

Perhaps, a good question to pose to Alan Greenspan or Ben Bernanke is "are you aware of the long waves and have you been actively trying to fend them off?" There is no doubt that the Fed and the government have been trying to manipulate the economy and eliminate natural business cycles. But it can't be done. And perhaps we are starting to see the beginning of the end. Well, it shouldn't be the end as these cycles have persisted for centuries. There are those who are attuned to them. One is Bob Prechter of the Elliot Wave Theorist. As far as I know, he is the only one who is proclaiming the deflation story. I'm sure there are others. Dear reader, inform me. The world can read these blogs. I invite you to contribute your thoughts and ideas.

Just days ago, I spoke of the TBT on the verge of a breakout. The TBT (as I call it) is an ETF that moves inversely to interest rates at 2Xs. Since the near break out, the TBT has fallen 5%. Bond yields have fallen swiftly. Yet even though the economy appears to be extremely weak, stocks continue to rise. We are again in this land of irrationality where everything is going up. Again, FED POLICY is the culprit. Is it not evident that they are out to destroy us? And yet many fight for the independence of the Fed, the President wants Ben B. to continue at the helm and no one looks at how the Fed and it's owners are scarfing up all of the US mortgages and federal debt. We worry some about China, but what about the owners of the Federal Reserve????


For sure, inflation is the key to success for the bankers. As long as inflation persists, their scam can continue forever. But what happens when deflation hits? The bankers cannot allow this but in the realm of the infinite, they cannot prevent the inevitable cycles from occurring. For years they have done their best to continue to inflate the economy. How many times now have they brought interest rates down to nothing???? And what economic catastrophes has it brought upon us? But they can't continue to keep playing this game. They can't continue to inflate the economy any longer. It has run out of steam.


I can't deny that I was one focusing hard on TBT and rising interest rates. I AM NOT GOING TO ABANDON SHIP! But over the short term, I wonder if I shouldn't be long bonds, short gold and pretty much SHORT THE WORLD?


Do you have an opinion? Let me hear it!

No comments:

Post a Comment