China: Continued Boom or Bursting Bubble?
By James Quinn, Casey Research
In a recent article, How China Ate America’s Lunch, Clif Carothers described what China has accomplished in the last thirty years:
In thirty short years, China was able to accelerate her GDP from $216 billion to $6 trillion. She amassed reserve capital of $3 trillion. She reversed America’s fortunes from the greatest creditor nation to the greatest debtor nation. She gutted America’s factories while creating the world’s largest manufacturing base in her own country. A measure of output that highly correlates to GDP is energy consumption. In June of this year, 2011, China surpassed the United States as the largest consumer of energy on the planet. While the US consumes 19% of the world’s energy, China consumes 20.3%.
While China was growing their economy by a phenomenal 2,800%, the US GDP grew from $2.3 trillion to $15 trillion – a mere 650% increase, of which 420% was due to inflation. There is no question that China’s progress has been remarkable. The question is whether that growth is sustainable and built upon a solid foundation. Continue reading
Inflation Forecast
Forecasting Inflation
Our primary Inflation forecaster is our proprietary “Moore Inflation Predictor” (MIP)… as a matter of fact it is the reason we began publishing the Financial Trend Forecaster as a paper newsletter. Prior to that James Moore published an economics based newsletter called “Your Window into the Future” and that is where he developed the “Moore Inflation Predictor.” We took over publication of the MIP when he passed away back in 1995. So how accurate are MIP forecasts?
Real Inflation compared to the MIP’s Inflation Forecast
Below you can see the MIP chart we published in April 2010 (with March inflation data). I’ve added the actual numbers (in Blue) since then and you can see that inflation has consistently fallen on the low side… almost exactly tracking the forecast “Likely Low” or “Extreme Low” line.
But you have to remember at the time this forecast was created everyone was convinced that the Trillion dollar stimulus would cause hyperinflation. But my article Velocity of Money and Money Multiplier – Why Deflation is Possible showed another possibility for negative economic growth.
The Coming Currency Crisis
This essay from the July 2006 International Speculator captures the essence of Bud Conrad’s forward-looking, contrarian analysis… almost eerily so as we appear to be on the brink of the economic precipice described herein.
By Bud Conrad, Casey Research
Poor Ben Bernanke. The greatest financial train wreck in history is going to happen on his watch, and it will be mostly his predecessor’s doing. But not the work of Alan Greenspan alone. The Washington elite and their compulsively clever counterparts around the world have set the US (and global) economy up for a currency crisis of gargantuan proportions.
When?
Soon.
To explain why this seems inevitable and unavoidable, let’s look at the data. First, there are the deficits. They’re big, and they’re three. Continue reading
When Buying Gold Becomes a Life-or-Death Question
By Jeff Clark, Editor BIG GOLD, Casey Research
I was recently asked in an interview if I thought gold was going to $5,000 an ounce. “No,” I said bluntly. “I think it’s going higher.”
“You’re that optimistic?”
“No,” I replied. “I’m that pessimistic.”
Imagine the condition of our world if gold reached $5,000 an ounce – and kept soaring. We’ll likely be in a mania if that happens – but what kind of mania will it be? There’ll be some greed to be sure, but I think there’s a good chance a deeper reason will be at play. And it’s the same reason that will drive you to keep buying gold at $2,000 an ounce.
You’ll have to. Continue reading
How to Preserve Your Capital in a Depression
In this article Doug Casey presents the case that we are in the early stages of an inflationary depression, commodities are soaring and next will be retail prices. In an inflationary depression financial assets aren’t worth the paper they are printed on and currently they are precious few bargains available in paper assets anyway. So what can you do to protect yourself? In this excellent analysis Doug shows what we can do now… before it’s too late. Tim McMahon, editor
Keeping Capital in a Depression
By Doug Casey, The Casey Report
Nothing is cheap in today’s investment world. Because of the trillions of currency units that governments all over the world have created – and are continuing to create – financial assets are grossly overpriced. Stocks, bonds, property, commodities and cash are no bargains. Meanwhile, real wages are slipping rapidly among those who are working, and a large portion of the population is unemployed or underemployed.
The next chapter in this sad drama will include a rapid rise in consumer prices. At the beginning of this year, we saw the grains – wheat, corn, soybeans and oats – go up an average of 36% within one month. In the same time frame, hogs were up 30.7%. Copper was up 29.1%. Oil was up 14%. Cotton was up 118%. Raw commodities are the first things to move in an inflationary boom, largely because they’re essential to everything. Retail prices are generally the last to move, partly because Continue reading
Later Is Now: Profiting from Rising Interest Rates
By Terry Coxon, The Casey Report
In the fall of 2008, the Federal Reserve responded to the Lehman bankruptcy by igniting a rapid expansion in the U.S. money supply. It did so because, by its lights, the immediate and obvious menace to the economy was a deflationary collapse, with one giant bankruptcy breeding another. And it went about the task without compromise; the monetary base more than doubled in less than a year, and the public’s M1 money supply (checkable deposits plus hand-to-hand currency) jumped by 20%.
To some investors, including many of the editors at Casey Research, this policy seemed to guarantee price inflation sooner or later – which, when it came, would mean higher interest rates and falling prices for long-term bonds, including Treasuries. Or, as a speculator would put it, when the time comes, a lot of money can made by shorting T-bonds.
But “sooner or later” is a nearly useless foresight. So far, as Treasury bonds were concerned, the fear brought on by the bursting of the housing bubble, tumbling stock prices, the near-death experiences of large financial institutions, and the well-publicized bailouts of public companies trumped any concerns about inflation somewhere in the future. The compelling desire, especially among institutional investors, was to escape default risk, and that meant buying Treasuries. Inflation was a hypothetical event that could be dealt with later. Continue reading
Why Europe Should Pay Attention to Algeria
By Marin Katusa, Chief Energy Strategist, Casey Research
Tunisia’s uprising has democracy watchers wondering if the instability will spill over into neighboring North African countries, but really that instability is already there. In the first week of the year, Algeria experienced violent protests after the government hiked prices for staple foods like milk, sugar, oil, and flour. Some 800 people were injured in several days of rioting, prompting President Abdelaziz Bouteflika to cut costs on some foods and lower import duties on others. The rioters went home, but odds are they will return to the streets when prices rise again.
Those rioters are not just angry about high food prices. Unemployment in Algeria is officially at 11%, but estimates from outside of the government run much higher, along the lines of 25%. Inflation keeps creeping up, and the country’s impoverished population, who has very little freedom, has grown distrustful of the government. A massive boycott rendered the results of the last presidential election, where Bouteflika won with 92% of the vote, almost meaningless. Continue reading
Growing Battle Between Gold Inflationists and Deflationists
Life has a funny way of reminding a person that he is not really in control of what is going on around him. While he may be proficient in a few specific areas, his overall knowledge is limited. Last night my hot water heater decided to go on vacation and I thought I’d try to be a real man and fix it. I have a general knowledge of how a hot water heater works, but it dawned on me that knowing how it works and fixing it are two totally separate things.
I immediately realized that I was in over my head and made arrangements to have a repair man come and fix my hot water heater. He arrived first thing this morning and I asked if I could watch not only out of curiosity, but to understand how my hot water heater worked and to learn about the man that was fixing it. He was gracious and took the time to explain my issue thoroughly and as I am writing this he is replacing my heating elements.
The interesting thing about this whole chain of events is that he brought up investments with me. Not because he wanted to talk to me or thought I knew anything, but simply because he knew I worked in that field. When you live in a relatively small town and people knew what you do for a living, they are generally quick to ask questions. He told me what he was doing with his retirement accounts and his plans for retirement in great detail.
I immediately respected him for his general knowledge and it was apparent he had done his own homework. He had made wise decisions, saved money, and invested wisely. Clearly the man working on my hot water heater was planning for a quality retirement lifestyle and it sounded as though his planning was going to pay off. He brought up that he had purchased the copper ETF $JJC when he noticed that copper pipe was becoming more difficult to acquire and he was paying more for it.
Then the conversation changed dramatically as he explained to me that he had recently bought gold coins and the gold ETF GLD. Immediately my ears perked up as I follow gold and oil quite closely as regular readers are aware. He wanted to know if I thought he should buy more on dips and if he had purchased gold at a good price. He told me he thought he had bought around the $1,200 an ounce price level. I replied that I was not qualified to offer investment advice, but that I expected gold was likely going to go through a mild pullback in coming days and weeks.
He did not really ask any questions, but he said he was planning on adding to his position in GLD as he indicated that acquiring physical gold today is quite difficult. I told him that longer term I think gold will be an outstanding asset class to own, but I would be patient and wait to buy when the weakest gold bulls bow out. This conversation went on for about 15 or 20 minutes and eventually he got back to his work and I got back to my screens. I immediately looked at the GLD chart and this is what I saw this morning.
My previous article, A Correction in Gold is an Option discussed the overwhelming bullishness that gold and silver were garnering with the retail crowd. After publishing that article last week I received more than a dozen emails that I would classify as hate mail. I was called names, I was sent a poorly written manifesto of the future collapse of fiat currency, and finally my favorite email which was just two words in the subject line, mother ($#$$@# – I’ll let your imagination try to figure out that one). I have written about a variety of asset classes and none of them have the near vigilante bullishness associated with gold.
Gold bugs believe that the world as we know it is going to collapse. They believe that in a few months they will be bartering their gold for food, land, and valuables. Some of them believe the central bankers are working together to create a giant world order. The emails that I have received speak for themselves. There is a growing fear among the retail / middle class investor and the war often discussed between the haves and the have-nots wages on.
When sentiment is running this high and the repair man working on my hot water heater is discussing with me his gold ownership and his desire to own more, it would seem bearish. I have heard and read countless stories about taxi cab drivers talking about the stocks they were trading during the dot-com bubble. I vividly remember having coworkers who had no experience in real estate buying multiple homes to “flip” during the housing boom. Today the man working on my hot water heater is telling me about his gold ownership and how he plans on buying more.
I do not need to remind readers what happened after the technology bubble or the housing bubble, but what if commodities are in bubble? Some have argued they are, others say they are only beginning to rise as hyperinflation is on the way. It seems the real argument in this discussion is more about inflation versus deflation. I for one am not an expert in this field or any other based on my experience last night with my hot water heater, but financial markets tend to operate in the opposite of the herd’s expectations.
The gold trade is full, physical gold is hard to purchase, and the dollar has declined significantly in the past 10 years. There are many expert economists that are screaming inflation is coming and that commodity prices such as precious metals, grains, and energy prices are going to skyrocket. It seems that is the rally cry coming from economists and the herd’s investment habits seemingly back up this notion. I am a contrarian trader and investor as I have struggled to make money following the herd. Is the herd leaning toward inflation right now?
Gold can hold its value during a deflationary period so long as that period of time is relatively short. However, a long term deflationary period could be troublesome for gold bulls. Again, I am not an expert in these matters, but it sure seems as though there is a growing battle between the deflationists and inflationsists and the herd appears to back the inflationists. While that does not necessarily mean that inflation will not rear its head, it just might mean a period of deflation will occur prior to that move. It would appear to me that a mild correction in gold is possible and I intend to use that correction as a buying opportunity. The U.S. Dollar Index futures chart is listed below.
GLD Daily Chart:
With sentiment running this high, retail investors crowding into precious metals, and the dollar receiving no love – this is a perfect contrarian storm. This situation is the very reason that gold could correct deeper and longer than what many investors might expect causing the retail crowd who was buying around the $1,425-$1,450 price level to get nervous and sell, just when price is about to change direction. This seems to be an ongoing situation that inevitably happens in almost every asset class at some point or another.
While I do expect lower prices in gold in the short run, I still remain bullish in the long term. At the end of the day, I have always made more money trading against the herd than trading with it. If my hot water repair man is discussing buying gold, it would make sense that the smart money would be selling into the retail investors and traders during price peaks and buying from them near the intermediate lows. Interestingly enough, the chart below illustrates the heavy volume selloffs that have been taking place in gold.
In closing, I’m sure this article will arouse more gold bugs from their slumber and fill my email inbox with more hate mail. I will shrug it off as I always do, but the real question I have is am I going to have hot water tonight?
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J.W Jones
What Effect Will Ethanol and Corn Have on Inflation?
Unless you have been living under a rock you have probably noticed that the government has mandated that the gasoline you are pumping into your car these days has Ethanol in it now. You have probably also heard that it is good for farmers and the environment but lets look at all those factors and one more…
Is there a link between Ethanol and Inflation?
These days Ethanol is the hot topic in many different circles including conservation, farming, energy, and even in investment circles. Continue reading
A Central Bank’s Toolkit to fight a Depression
By Ted Peroulakis
This investment news is brought to you by Investor’s Daily Edge a free daily investment newsletter that is delivered by email before the market opens. It’s published by Fourth Avenue Financial, a subsidiary of Early To Rise (an affiliate company of Agora Publishing). In each weekday issue you’ll receive practical strategies for protecting your portfolio and multiplying your money. You’ll also learn about undiscovered opportunities in emerging sectors and markets, deeply discounted stocks, recommendations for bonds, cash, commodity and real estate investing, and top ETFs. To view archives or subscribe, visit Investor’s Daily Edge.
I know as you read this, you are aware that America and the world are currently experiencing an economic crisis.
Many economic experts say we could be heading towards a worsening recession or even a depression.
In this article, I have listed a few tools that a government has at its disposal to pull itself out of a recession and even avoid a depression.
It’s good to be aware of the intervention tools governments use to prop up an economy in order to better protect your wealth and purchasing power. Continue reading
