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David Knox Barker is the founder of Market Cycle Dynamics, LLC, and the publisher and editor of The International Market Cycle Dynamics Letter. Barker is one of the world's foremost experts on market cycles and the global economic long wave. He is the author of The K Wave; Profiting from the... More
My company:
Market Cycle Dynamics, LLC
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MCD Weekly Briefing Blog
My book:
The K Wave; Profiting from the Cyclical Booms and Busts in the Global Economy - eBook
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  • Hindenburg Omen Meets the Heisenberg Uncertainty Principle
    Tracking Market Cycles as “Fields” in Price and Time

    The rather ominous sounding Hindenburg Omen was the latest in a long line of one-off indicators said to be heralding an imminent global stock market crash. The basic premise of the Hindenburg Omen is worthy of contemplation. Extreme readings in the number of shares reaching new highs and shares reaching new lows simultaneously are the basic concept behind this signal of imminent market disaster.

    However, what the stark divergences at the heart of the Hindenburg Omen are likely indicating is the difference in large cap global franchise companies that have hitched their wagons and destinies to the great emerging market phenomenon of the 21st century. This compares to enterprises mired in debt, with excess capacity and facing pricing pressures, all classic signs of a Kondratieff long wave winter season that continues blowing cold in developed markets.

    The emerging market phenomenon is real. When the last long wave winter was ending in the 1940s, peripheral markets in the global economy were falling to communism. During this long wave winter season emerging markets are embracing free market capitalism. In fact, in many emerging markets government and business leaders are executing far more effectively than the former great entrepreneurial economic engine of the United States. 
     
    hindenburg[1] 

    When comparing the overhang of debt, excess capacity and unfunded pensions of the unproductive masses trapped in the long wave winter in the developed world, and the youth, hard work, hope and energy in the budding spring season of emerging markets, the opening of The Tale of Two Cities comes to mind. “It was the worst of times, it was the best of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair.” Maybe the Dickens Omen for the radical market divergences between developed and emerging markets is more appropriate than the Hindenburg Omen.

    That fact is that any single indicator, such as the Hindenburg Omen, is only one indicator of the human action that is the result of global market activity. The complexity of markets requires a more comprehensive principle of human action that explains the timing for the rise and fall of markets, the boom and bust. There is likely a global market crash lurking in the future before the developed world discovers the end of a long wave winter and smells the flowers of spring, but there are many more dynamic forces at work than the Hindenburg Omen.  

    The Heisenberg uncertainty principle is actually more helpful for explaining market cycles than the Hindenburg Omen. The application of the Heisenberg principle is not as complicated as it sounds. First, it is important to recognize that the Heisenberg uncertainty principle applies to the field of science known as quantum field theory. Don’t let the quantum stuff put you off. It will all make sense shortly.

    James Maxwell discovered the electromagnetic field. Torrance said this about Maxwell, “He conceived and developed the nature of the field and established the reality of the field as the underlying reality of all spatio-temporal (space-time) phenomena.” Bottom line, Maxwell discovered that anything occurring or existing in space-time is part of a field.

    So what does this have to do with the price of real estate in China? What this means is that the housing market, high frequency trading, the hedge fund industry, Wall Street bonuses, even the management of your investments, and you reading this article, are all occurring as part of a field or fields that are unfolding in space-time. This means that Federal Reserve monetary policy, such as QE2, is also occurring in space-time.

    Now back to the Heisenberg uncertainty principle. What the Heisenberg uncertainly principle says is that certain pairs of properties like position and momentum cannot be know simultaneously or measured to any degree of high precision. In fact, the more accurately you measure one property in a field, the less accurate your measurement of the other is guaranteed to be. Essentially, and I generalize with liberty, when you try and measure something that is happening as part of a greater field your measurement will be affected by other things that are happening in a field that are also impacting the other property. The more closely you measure, the more wide of the mark you will be.   
    Heisenberg Uncertainty

    Now here is the first application. Most market observers are now becoming educated on the fact that the U.S. Federal Reserve System has two mandates; 1) stable prices, and 2) maximum employment. When the Fed lowers rates and tries to get maximum employment then prices are not stable, like housing prices that get out of control in a bubble. When they try and adjust for price stability, maximum employment gets short shrift. The more they measure and then try and manipulate, the more they get it wrong. At a minimum, the Fed must be relieved of their dual mandate, which is making them bipolar when you back up and look at the big picture over multiple business cycles driven by bubble after bubble.  

    Bernanke has been given impossible multiple tasks. At minimum one of the mandates must be removed. No one could achieve the two mandates, not even Einstein, and he knew a few things about quantum fields. The German’s were all over this basic concept way ahead of the U.S., why do you think the ECB only has one mandate, which is price stability. The U.S. needs to follow the German/EU lead on central bank mandates.

    The Federal Reserve policy, including QE2 and interest rates, as well as housing, CPI, taxes, fiscal policy, wages, copper prices, lumber prices, gold production, unemployment, death rates, etc., and we could go on and on infinitum, they are all essentially properties occurring in incredibly complex fields occurring in space-time in the global economy and financial markets. In fact, the Hindenburg Omen is just one property that is occurring in the great field of human action in markets. Investors may observe this so-called omen and make an investment decision based on it, but it is just one of many properties at work.  

    Where this line of reasoning really gets interesting is when you recognize that all of the economic and financial activity mentioned above is occurring in space-time, by definition it is therefore part of a field. You are likely one-step ahead of me at this point and realizing that all of the economic and financial activity listed above, plus a few million other aspects of global human activity, are also the properties in a business cycle. Of course business cycles are reflected in stock markets cycles. This suggests that stock market cycles are fields of human activity occurring in space-time. If this reasoning is correct, the implications are rather far reaching.
    The Federal Reserve can affect the cycle, but they cannot stop it. They are only manipulating certain elements of the cycle. They pump in QE2 in the U.S., stocks go up in Brazil, Turkey and Peru, Grandmother Barker 95 and needing income gets a lower interest rate on her savings account, and vegetable prices rise in China.

    What in fact occurs is that Federal Reserve policy exacerbates global business cycles and makes them worse than they otherwise would be in the end. They may also inadvertently shift excesses to the next larger cycle or field. They can soften the decline of a Wall cycle (20-week cycle) a few times and expand the cycle, then the larger business cycle expands and has a bigger bust, and the Kondratieff long wave winter season longer and deeper than it has to be.  
     
    Heisenberg Image 

    This notion of cycles “fields” expanding and contracting brings up the fact that theoretical quantum physicists have discovered that fields appear to be directed by some sort of external degrees of freedom, independent of the field. This suggests it may be possible to estimate your position and momentum in the field of a stock market cycle, by recognizing it is a field guided by degrees of freedom.

    Being a financial market analyst and not a theoretical physicist the first thing that came to mind when I came across the possibility of degrees of freedom in cycles were Fibonacci ratios. Fibonacci ratios appear to be some sort of degree of freedom at work in all manner of natural phenomenon, tree rings, seashells, galaxy spirals, etc. It seemed reasonable to apply them to cycles in price and time. When I applied Fibonacci ratios in time to various cycle lengths looking for ideal cycle “field” lengths a major discovery was made. In short, ideal cycle lengths were discovered in stock market cycles that appear to have degrees of freedom in Fibonacci ratios.

    Our favorite cycle is what we call the Wall cycle, aka the 20-week cycle. Using the Long Wave Dynamics (LWD) approach to stock market cycle analysis subscribers were looking for a possible Wall cycle “field” top in price and time with the key price target of 1228 in the S&P 500 and the date target of November 8, 2010, based on the LWD cycle top forecaster. Mr. Market nailed this target in price and time, as we shared in an article last week.
     
    Wall Cycles

    LWD provides both cycle top forecasters and cycle bottom forecasters to subscribers. The Wall cycle and Quarter Wall cycle bottom forecasters also indicated December 16 as a possible low. Caution, this target is not expected to be the low of the Wall cycle.

    In conclusion, individual properties of markets like the Hindenburg Omen may well have implications for market action, but they are limited in information. What is more relevant is that the sum total of all market activity produces market cycles. Market cycles appear to manifest field like characteristics. However, no method of market analysis will ever provide perfect information. Perfect market information does not exist, if it ever does, the Heisenberg uncertainty principle informs us that it will change before you finish your calculation. The Fed has already measured position or momentum, or both, wrong with QE2. Buckle up for the cycle ride.
     
     


    Disclosure: No Positions
    Tags: SDS, QID, SH
    Nov 19 11:42 PM | Link | Comment!
  • Demystifying the S&P 1228 Target that Killed the Rally

    If you were not looking for an important potential market top in the 20-week cycle, that was anticipated to be running long, on November 8, as the market closed in on the S&P 500 target of 1228, you must not be familiar with the Long Wave Dynamics approach to market analysis. The Long Wave Dynamics (LWD) approach recognizes that Fibonacci forces exert powerful but trackable forces on market cycles in both price and time.

    The 20-week cycle is clearly running long from aggressive monetary and fiscal policies. This is what the models say they will do. The November 8 target date was a 38.2% extension of the ideal length of a Wall cycle, as projected by the Wall cycle top forecaster tool on the LWD website. The S&P rallied hard into this target date, trading within about a point of 1228 on the trading days on either side of the target date.

    The 1228 target is the target that marks 76.4% (the inverse of the 23.6% Fibonacci ratio) of the 1982-2007 move in the S&P on an intraday basis. It also happens to be the golden ratio 61.8% target of the entire intraday 2007-2009 crash. That makes 1228 an important target that was guaranteed to produce powerful resistance. In fact, it is unequivocally the most important target since the intraday low on March 6, 2009.

    If your palms weren’t sweating as the market approached November 8 and the 1228 price target, like a close championship game in the final seconds of play, then you simply weren’t paying attention to the most powerful market signals available. The S&P has been falling like a rock every since the buzzer went off at the 1228 target in price and time.

    Below are the Level 1 Fibonacci price grids of the S&P 500 for the entire 1982-2007 move and the 2007-2009 crash. Also included is a 5-year weekly chart of the S&P 500 that should make you truly wonder at the forces at work in the universe, and in the human action that produces financial market activity.   

     

     

    Market cycles always show the courtesy of leaving a crumb trail on a stock chart, which are essentially the printouts of fields of human activity in global markets. The LWD method studies fields “cycles” of human action in global markets, and identifies key market turn targets in price and time. Investors are more interested in the larger cycles and traders focus on the smaller cycles. The smaller cycles are just miniature versions of the larger cycles. Scientists call these fractals, at LWD call them cycles, and we call them as we read them on the stock charts with Fibonacci tools in price and time. We provide subscribers with access to the same Fibonacci tools we used to produce the monthly LWD Letter and the LWD Weekly Update blog on the website.

    The Wall cycle top forecaster, that forecast a top from the prior Wall cycle top on April 26, 2010, and the Level 1 Fibonacci price grid should have had you glued to the market action around 1228 around the November 8 target. However, these big Level 1 targets only roll around every so often, like the bounce off the Level 1 target of 1013 on July 1, 2010. When you combine the cycle top and bottom forecasters, the Fibonacci price grids from Level 1 on down, with the Fibonacci Dynamic Web approach to understanding a Fibonacci price grid, you will step into a whole new dimension of the human action impact on global markets in price and time.


    Drilling down to the Level 2 and Level 3 grids in any market will uncover important intraday turning points in the market. The market will regularly make a turn right down to 1/100 of a point at the 61.8%, 38.2% targets in the Level 2, Level 3 and even Level 4 grids. The method is a traders dream. When a subscriber recently asked for Level 4 Fibonacci grids with four digits to the right of the decimal in the euro index, I knew they were having way too much fun tracking human action in currency markets around the globe.

    I recently demonstrated for subscribers using the Fibonacci Dynamic Web price grid methods that gold is trading in a “hot” Level 1 Fibonacci grid with a top target close to $2,300 per ounce. When you drill down into Level 2 and Level 3 of that grid, you find that gold is trading with precision intraday around key targets produced by the Level 3 Fibonacci price grids using a Level 1 price that is still way out in the future. LWD methods will change your view of the potential of market forecasting forever.

    From a fundamental perspective, and at LWD we also love the fundamentals, the dividends on the S&P 500 are paltry. Anyone telling you this market is cheap is likely selling you an investment product. And one other observation that is relevant, the market is likely starting to wonder about the QE2 pump when the U.S. bumps up against the debt ceiling next spring. The freshman class in the House of Representatives is not just going to raise the debt ceiling without a fight. Think long and hard on that one. If Chairman Bernanke starts buying municipal and sewer bonds when U.S. Treasuries go off limits due to the failure of the debt ceiling extension, I’ll bet the Honorable Ron Paul may have a few questions for him up on the Hill.

    Investors and traders need to keep an eye on the Wall and Quarter Wall cycle top and bottom cycle forecasters, in conjunction with the Fibonacci price grids, to identify upcoming turns. The QE2 rocket fuel being poured on the market could allow the market to make one more charge at 1228 into the November 24 target date.

    For investors it will be much safer to wait for the current oversized Wall cycle to put in a bottom. The market may make another charge at new high into 2011. There may be a chance to pick up a few large caps with global franchises that are growing with the emerging markets and sporting a descent yield for a low risk run in the next Wall cycle. However, the oxygen is getting thin, and even grade-schoolers know that more debt does not cure a debt problem.   

    If you think the LWD approach only works for stocks, think again. The Fibonacci grids in bonds, currencies and gold will rock your world. The LWD approach allows you to identify intraday market turning point targets in price and time in virtually any market in the world. One subscriber recently described it succinctly this way after watching the market turn on an exact target, “It’s not fair, to those that are not subscribers to The Long Wave Dynamics Letter.”



    Disclosure: No Postions
    Tags: SDS, QID, SH
    Nov 19 11:34 PM | Link | Comment!
  • Currency Wars, Gresham’s Law and Digital Gold Currency (DGC)
    Introducing the Chronicles of Atticus McShrugg:
     
    Instead of typical article format, I’ve created a fictional character and will chronicle his interaction with the President of the United States during these trying times of global crisis. Atticus McShrugg, a staff member in the National Security Council (NSC), is making his debut in order to speak into the fast-paced developments in the international political economy and global financial markets.
     
    A brief conversation from the first week of the President’s term is in order to introduce McShrugg. The President was reviewing the roster of the National Security Council staff and saw a name he did not recognize; Atticus McShrugg, Special Assistant to the President, Director for Global Financial Market Stability. McShrugg’s job responsibilities are to include being the NSC liaison regarding matters of global financial market stability with the National Security Agency’s (NSA) Office of Systemic Risk Analysis (OSRA), the CIA, the Department of Defense (DOD), the Federal Reserve, the Treasury, including the Treasury’s Plunge Protection Team (PPT), and the Office of Homeland Security (OHS).

     
     
    The President picked up the phone and dialed the line of Admiral Al Clark in the Eisenhower Building; Clark serves as Deputy Assistant to the President and Deputy National Security Advisor for International Economic Affairs, National Security Council (NSC). Admiral Clark came to the NSC during the prior administration, after a stint at the National Security Agency (NSA).
     
     
     
    Admiral Clark: Hello Mr. President, what can I do for you?  
     
    The President: Good morning Admiral, I was reviewing the latest NSC roster and I had just one question for you.
     
    Admiral Clark: Fire away Mr. President. 
     
    The President: Who is Atticus McShrugg? 
     
    Admiral Clark (chuckling): McShrugg is the latest edition to the NSC staff Mr. President, and if I may speak plainly, you are lucky to have him. McShrugg is a West Point man, top of his class, with a degree in international finance. McShrugg spent eight years in the service, reaching the rank of Major, Army Rangers for four years then Delta Force for four years. He was highly decorated. His service record is exemplary, but mostly highly classified; you can have the details if you are interested, but I would advise against it.
     
    The President: Does he have any private sector experience?
     
    Admiral Clark: After leaving the service, McShrugg spent two and a half years as a global financial market analyst at a top Wall Street firm. Evidently, McShrugg wasn’t pleased with the state of affairs on Wall Street. When word came that McShrugg was interested in making a change, the CIA and NSA recruited him hard, as well as other top competitor firms on Wall Street, but McShrugg wanted to work in national security in the executive branch, saying you were going to require someone that would pull no punches. He could be making seven figures, and probably a lot more, but he appears to have walked away from Wall Street without a second thought, in order to come to Washington to work for you.
     
    The President: So what are McShrugg’s politics?
     
    Admiral Clark: As you are aware Mr. President, the NSC does not typically use a political litmus test in our staff selection, but since you asked, McShrugg has a strong bent toward human liberty, freedom and individual responsibility. You really can’t pigeonhole McShrugg’s politics. He doesn’t fit any Democratic or Republican mold. You could call him an independent thinker.
     
    The President: That’s just great, you are sticking a free market commando on the NSC staff.
     
    Admiral Clark: Mr. President, I assure you McShrugg will prove to be the utmost professional, and will excel in his role at the NSC. We expect him to take required information gathering to a new level at the NSC.
     
    The President: Yes, I’m aware we are beefing up NSC skills in the area of information gathering, but can you control him?
     
    Admiral Clark (hedging): McShrugg has a reputation for executing his orders flawlessly.
     
    The President: So what are McShrugg’s hobbies?
     
    Admiral Clark: He will be working for you Mr. President. He will have no time for hobbies, but he will likely get in a little running and on the job reading. McShrugg also collects books, old and new. He has an excellent book collection. McShrugg has a penchant for obscure financial and economic theory, as well as an interest in philosophy, theology and theoretical physics.
     
    The President: So essentially, he is a free market Delta Force bookworm coming to Washington by way of Wall Street.
     
    Admiral Clark: You could say that Mr. President.
     
    The President: That’s an odd mix Admiral.
     
    Admiral Clark: And he played basketball at West Point. They say he still has some game, but I should warn you Mr. President that McShrugg is much younger than you, so be careful if you drag him out on the new White House court.  
     
    The President: OK, now we are getting somewhere.
     
    Admiral Clark: There is something else you should know about McShrugg Mr. President.
     
    The President: What’s that?
     
    Admiral Clark: You are aware of the required Secret Service psychological profile test for any staff with access to you.
     
    The President: Of course.
     
    Admiral Clark: McShrugg outscored every member of your Secret Service security detail on protective instincts and skills. Those instincts apply to you and the entire First Family. Mr. President, Major McShrugg would take a bullet for you, the First Lady, or the kids in a nanosecond. God have pity on the fool that threatens any of you in his presence. Since he will be traveling with you occasionally, he is one of the few on your staff cleared by the Secret Service to be armed at all times. McShrugg will effectively serve as Secret Service backup when he is with you. He has gone through additional training for this special role.  
     
    The President: OK, you’ve won me over Admiral, I’ll give McShrugg a shot.
     
    Admiral Clark: One more thing Mr. President.
     
    The President: Go ahead Admiral.
     
    Admiral Clark (hesitating): McShrugg’s protective instincts for his country were just as high as they were for you and the First Family. He has already demonstrated his unwavering tenacity in this regard with the Rangers and Delta Force.
     
    The President: McShrugg sounds like a keeper Admiral.
     
     

    Now dear reader, let’s fast forward to a beautiful fall morning in 2010. The regular 9:00 am NSC briefing of the president on global market stability has just ended, with a global currency war sweeping the globe. The President has recognized that McShrugg has a knack for explaining to him matters of international finance, where others fall short, and occasionally asks him to stay for a few minutes of additional discussion.
     
    The President: McShrugg, could you stick around for a minute. I’d like some clarification on a few points from your footnotes in today’s global market stability report.  
     
    McShrugg: Certainly Mr. President.
     
    The President’s Assistant: You have the Chinese Finance Minister Xie and the Treasury Secretary in five minutes Mr. President.
     
    The President: You lost me on one item McShrugg. On the subject of the global currency war, in today’s report you referred to Gresham’s Law working in reverse. You concluded that it may help explain how the escalating currency war is driving the rally in gold, and that it may produce a paradigm shift in global currency markets. McShrugg, I need you to help me get my mind around Gresham’s law working in reverse in this particular case.
     
    McShrugg: My pleasure Mr. President. The basics of Gresham’s Law are that when you have two forms of commodity money, the bad one will chase the good one out of circulation, since anyone making a purchase will keep the good money in their pocket and spend the bad money. Of course, we don’t have commodity money today, and Gresham’s law only works if both forms of money are legal tender, so keep that in mind.
     
    The President: McShrugg, I understand Gresham’s law. I was more interested in your observation regarding Gresham’s Law working in reverse, and it being triggered by the dawning age of digital gold currency. You also mentioned other forms of electronic gold, such as ETFs. You noted that a new emerging DGC paradigm might be responsible for triggering the rising price of gold and falling dollar. No one else has brought this up to me. 
     
    McShrugg: OK, I will dispense with the Gresham’s Law background and go straight to the new DGC forces in play. The rise of digital gold currency (DGC), gold held in storage for the owner but with digital access, appears to be creating a new paradigm that central banks, the IMF, supranational corporations and global investors have not fully recognized.
     
    The President: Chairman Bernanke says he cannot explain the price action of gold.
     
    McShrugg: In fairness to Bernanke, he is being asked to deliver prosperity and jobs through monetary policy when fiscal policy is an absolute train wreck. You have to expect him to obfuscate a bit Mr. President. Bernanke clearly understands more than he is letting on regarding the price of gold. How can he deliver $1.7 trillion in QE1 and lead the market to believe there are trillions more where that came from for QE2, and not expect to have an impact on the price of gold.
     
    The President: You are getting off topic McShrugg, and the ambassador is waiting, let’s drop Bernanke’s inability to understand the price of gold for now.  
     
    McShrugg: Gresham’s Law addressed two forms of money in a single national economy. DGC has a unique place in the history of “good” money because it has created an environment with the ability to immediately convert any currency from anywhere in the world into physical gold in an account in vaults in London, Zurich, Hong Kong or elsewhere over the Internet. Third parties audit the accounts, and Lloyds of London or another reputable insurance company may insure the accounts.
     
    The President: So a merchant anywhere in the world can take in a given currency today and have it stored in the form of gold in a vault in Zurich this evening, or at least within a few days.
     
    McShrugg: Precisely Mr. President and the implications are far reaching, creating a new global digital gold currency paradigm that is not yet recognized.   
     
    The President: OK, so how does this trigger Gresham’s Law working in reverse, through what you called an emerging two-tier currency system?
     
    McShrugg: The analogy is not perfect Mr. President, but obviously, if Gresham’s Law is working in reverse then “good” money is driving out the “bad” money. During the Weimar hyperinflation in Germany, farmers and others refused to accept the legal tender and began to horde food. There was sufficient fear that the legal tender money would become worthless and that it was no longer accepted. Money that was backed by something, especially gold, was accepted. However, this was before the Internet and DGC accounts. This is just one of the reasons why Germany is choosing austerity instead of Keynesianism now.
     
    The President: McShrugg, I don’t have time for a German history lesson. You are getting off topic.
     
    McShrugg: Today there is a growing number of merchants and investors that accept and operate with the legal tender currencies in their particular country, only because it can immediately be converted to global DGC, before it falls further in value.
     
    The President: You are saying that we are seeing the beginning of a trend where consumers, investors and merchants around the world are willing to use the “bad” money, but only because they can immediately convert the “bad” money to the “good” money, i.e., electronic gold or DGC, thus effectively creating a two-tier global currency system?
     
    McShrugg: Exactly. It is early in the trend. However, the advent of the global Internet and DGC has accelerated the trigger point at which Gresham’s Law begins working in reverse in a high technology two-tier currency system. Technology is compressing time lines in the currency wars, or maybe you could call it a currency revolution with DGC.       
         
    The President: It works both ways I presume. A consumer, merchant or investor could also use this two-tier system by making purchases using a credit card in a “bad” money or currency, and then at the end of the month just convert enough “good” money or DGC required to pay off the “bad” money. OK McShrugg, I can now see how your two-tier currency concept could be driving Gresham’s Law in reverse.
     
    McShrugg: The global currency war, with countries trashing their currencies to increase exports, is just the new name for a trade war, and it is accelerating the shift to global DGC. 
     
    The President: Now I understand your argument McShrugg.
     
    McShrugg: Granted, it is just a theory for now Mr. President, but the next few months should validate the rising force of DGC and its role as the favored global reserve currency.
     
    The President: To summarize, it is your view that the escalating currency war is really just a beggar-thy-neighbor trade war, and is accelerating the rise of the new DGC paradigm, the advent of a high-tech international gold currency. 
     
    McShrugg: Precisely. You have a solid grasp of the issues Mr. President.   
     
    The President: The Fed is fighting deflation with QE2, trying to generate some inflation. It would seem to me Gresham’s Law working in reverse actually helps with that objective.
     
    McShrugg: Yes Mr. President, it would be accurate that accelerating the move to DGC could trigger inflation. However, deflation remains a threat due to debt levels and overcapacity. I’m not sure the Fed can print fast enough. A bout of deflation could initially hit gold.
     
    The President: Bernanke assures me he can print fast enough to stop deflation. And since QE2 makes the dollar the “bad” money, and DGC the “good” money, it should help stop deflation.  
     
    McShrugg: QE2 will definitely accelerate the rush into gold and DGC around the world, but whether he can stop deflation remains to be seen. It might not be as easy as Bernanke thinks.
     
    The President: So how wide spread is the use of this new global digital gold currency or DGC?
     
    McShrugg: A few private banks with gold vaults in Switzerland are out in front at the moment. The gold ETFs are a hybrid form of DGC. However, the Treasury departments in India, China, and Russia are evaluating the DGC option, as well they should. They don’t trust the IMF. They see it as a tool for western domination. They all have large gold holdings. Also the United Arab Emirates are mulling a DGC, or digital golden dinar for the Arab world based in Dubai.
     
    The President: The UAE is considering a DGC system?
     
    McShrugg: If my information is correct. The Saudi’s are also behind it. And of course the ECB has quit selling gold, and the German Treasury has one of the world’s largest stock piles of gold in the world. They could turn that into an advanced DGC system in a heartbeat. It dovetails with their push for austerity. It could give them a major global advantage.    
     
    The President: Let’s not discuss German austerity now, I realize you are a fan McShrugg. Back to DGC. You’re saying we will see sovereign players in the rise of DGC, a global digital gold currency system?
     
    McShrugg: It appears that is the case.  
     
    The President: How about in the United States? The gold in Ft. Knox?
     
    McShrugg: It could actually make sense. The United States has the greatest gold stockpiles in the world, sitting in Ft. Knox and at the New York Fed. Why not consider putting it to work in a sovereign U.S. DGC system, run by the U.S. Treasury. No fractional gold nonsense, it should be a pure DGC system, ounce for ounce, bar for bar, ton for ton. No paper required, just digital gold. Many smaller countries would want to pay for gold vault storage at Ft. Knox. It is arguably the safest place in the world for gold deposits.
     
    The President: Should private DGC in the United States be allowed?
     
    McShrugg: No law prevents it currently. However, a Constitutional amendment that grants the right to create private DGC banks and grants a U.S. citizen the right to a DGC account would help it to flourish and create jobs. DGC could be authorized as a legal tender, along with the dollar, but it doesn’t have to be. DGC account holders can just convert from DGC into and out of dollars or other legal tender currencies as required.  
     
    The President: And the Bank of International Settlements in Basel Switzerland will clear this digital gold currency, just like any other currency?
     
    McShrugg: XAU is the currency symbol for gold in ounces. They are doing it now.
     
    The President: Where did you get the information of DGC in play for sovereign states? Especially the UAE?
     
    McShrugg: Do you really want to go there Mr. President?
     
    The President: No need for that McShrugg. You are doing an excellent job. Keep the information coming. And I’d like to say thank you for your sacrifice, for what you are doing for your country. I’m aware you could be making a lot more money elsewhere, and I realize you don’t agree with many of my policies.      
     
    McShrugg: Actually, most of your policies Mr. President, but may I speak bluntly.
     
    The President: Please McShrugg, always.
     
    McShrugg: There was only one man fit to be a sacrifice. I’m not that man. Based on your own words, you know of whom I speak Mr. President. He said, “It is finished.” He was speaking of sacrifice. After that point in history, no additional sacrifice can be required. That is what explains true individual liberty and freedom, the heart and soul of freewill. It is now time to get to work, to find our purpose, our destiny. We delude ourselves into thinking we are making sacrifices, or that anyone has the right to demand a sacrifice.
     
    The President (a thoughtful pause): I’m with you McShrugg. I’m with you.
     
    McShrugg: There may be some hard work, though times, pain and suffering. There may even be a few martyrs required along the way. However, the great things placed in our hearts and minds that we must achieve, and the effort and time they demand, they are not sacrifices. They are purpose Mr. President. Destiny beckons purpose, not sacrifice.
     
    The President: Yes, I see your point McShrugg.
     
    McShrugg: It is an insult to my Army Ranger and Delta Force friends that died in Iraq and Afghanistan by suggesting their lives were sacrifices, they were not. They fulfilled their destiny and they died for purpose. Moreover, they would all do it again, if only they had the chance.  
     
    The President: That is a refreshing perspective McShrugg.
     
    McShrugg: Working for you is what I choose to do Mr. President. It is my purpose for this time. Those rats abandoning you and jumping overboard, they were confused. They mistakenly thought they were making a sacrifice working for you and their country. God’s speed to them, but they were dragging you down Mr. President.
     
    The President: Yes, I’m beginning to realize who I can count on these days. There have been a few disappointments, but also a few pleasant surprises.
     
    McShrugg: You would not be in your position if you were not here for a great purpose Mr. President. However, be aware that life loves to throw us curves. Your purpose will likely prove to be far different from what you originally imagined in the role you have been entrusted. I intend to assist you in fulfilling your true purpose to the best of my ability, but if I ever take a bullet for you Mr. President, remember that it was not a sacrifice, it was my destiny.
     
    The President: Thanks McShrugg, I appreciate that coming from you, but tell me, why are you really working for me?

    McShrugg (pause): As you know Mr. President, I have a respectable record as a global financial analyst. The global financial disaster that most think is now over was just a warm up. The next leg down is only just beginning. Have you read Dante’s Inferno?

    The President: Are we getting off topic again McShrugg?

    McShrugg: Dante’s imagery is apropos. Odds are good that the crisis will be so severe it will threaten the national security of the United States. Civilization itself is coming under siege. Bluntly speaking Mr. President, the world is facing systemic shock. I thought you might benefit from the unique perspective I can bring to the table at this important time in history. In addition, it is an honor to have your back Mr. President.

    The President: The honor is all mine McShrugg.

    The President’s Assistant: Your appointment with the Chinese Finance Minister Xie and the Treasury Secretary Mr. President.
     
     
     
                      


    Disclosure: No Positions
    Tags: GLD, IAU
    Oct 21 3:31 PM | Link | Comment!
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