Not a single analyst is mentioning the Reversed Head and Shoulders patterns we have for many stock market indexes and a lot of equities. Analysts are so biased they only see Negative chart formations and forget markets ALWAYS climb a wall of worry.

Over the past months Authorities have flooded the financial markets with trillions of freshly created fiat money. Whatever is said, Communicating financial vessels play a major role in today's financial markets and under these conditions a Dow Jones of 30,000 and higher is very plausible. Zimbabwe is a modern example of the potential many stock market indexes have. During the hyperinflation cycle, the Zim stock market index literally exploded in the hundred thousands. The bad part however is that these dramatic upswings are positive only when expressed in Nominal Terms or in Fiat Money. In other words, the rise is and will be the result of inflation and in particular of hyperinflation. Expressed in Real Money or barbaric Gold, the end result is negative.

Western entrepreneurs have over the past years with the invisible assistance of local authorities and misallocation of funds (low interest rates), moved the bulk of the production of consumption goods to the East (China and India).

There were thousands of reasons and hidden incentives for moving the production abroad: cheap labor, lower costs, less taxation, no environmental rules, cheap energy and transportation, the absence of a suffocating legislation. Last but not least, payment could be done using worthless paper money which was subsequently even re-invested in the US and the EU.

Iceland is a live example that it is not possible to control monetary inflation and the resulting price inflation by adjusting the general level of interest rates.

Iceland is known for its (free) geothermal energy. Even this gift of nature was unable to save the country from the decennial of mismanagement by the authorities and banks.

Over the last months the markets have been behaving in an erratic, illogical and volatile way. And yet, as the puzzle falls into place it looks like what we saw was the back stage people preparing the setup for what could be a ‘Huge slide’ and maybe the play (crash) of the century that is to be printed in the history books of our grand-children.

The CDO subprime is about to leave the eye of the storm shortly and start its second act as the backstage actors are impatient to join the play: Credit swaps, Credit card debt, Student loans,…

Gold has suddenly taken many people out of their summer dreams. Not because of the 20% correction of gold expressed in dollars (we have seen similar reactions in the past), but rather because it all happened so swiftly without any consolidation or correction, and because on its way to the 64-week moving average, it simply ignored all technical support zones.

On the PF chart the selling climax is a straight line down. In these volatile financial markets it is good to be stubborn but this kind of event must make one think and reassess the situation if so needed.

Zimbabwe is still the number one "inflation" story of the year; however, Vietnam is starting to write a similar one. It comes as no surprise that another dollar-linked or semi-pegged currency has collapsed vis-à-vis gold. As usual the weaker economies have to give in before the stronger ones do. Which one will be next!? 

Vietnam’s 27 % inflation level has yet to reach the vertiginous levels we see in Zimbabwe, but the country is experiencing every problem that causes a rush into precious metals. Interest rates are over 8% and rising, the stock market was down every day since May, and official unemployment has more than doubled and reached a figure of 5.1% this year (Spain has 10,2% unemployment). The real spending power of household has drastically declined. The Stock market index has collapsed all the way to the base from where the parabolic rise started (200) and Real Estate is coming down in sequence. 

Unemployment is up, banks are going under, the trade deficit for the US looks nasty, the economy is down, inflation is up, investors are licking their wounds, oil has become so expensive airline companies have to park part of their fleet and let planes fly slower, but talking heads try to get the investor back into the stock markets…and yet, we have only seen the tip of the iceberg of the crisis, the credit crunch and the garage sale.

The risk that inflation may push up interest rates in the US this fall is growing by the day. The ECB already hiked the EU interest rates and has planned more before yearend. Europe doesn’t have the current account deficit the USA has and this offers the luxury to fight inflation.

The question never was whether Fannie (FNM) and Freddie (FRE) would be allowed to go bankrupt. It was whether the Fed would nationalize or bail them out. In the end, we see just the same subtle difference as there is between taxation and inflation.  Both inflation and taxation takes the money out of our pockets and nationalization and/or a bailout of the Banks and Financials brings more billions of fiat money created out of nowhere into the system. Or how to keep the flames of (hyper)inflation alive. 

The markets seem to have forgotten that Bear Stearns (BSC) was (bailed out) taken over by JPMorgan (JPM). As of June 1, total borrowings from the Fed have increased to $ 170 billion from $150 billion. Not only were Fannie and Freddie bailed out, but the failed IndyMac has been taken over by Federal Deposit Insurance Corp. and we have probably not seen the end story at Lehman Bros. (LEH). Earlier this month a financial report by Fortis issued a warning that about 6,000 mid sized American banks were also in trouble. 

It occurs to me more and more often that people have not the slightest idea of what inflation and deflation are, and what the consequences are for the investor. Also, few understand the difference between Inflation and what is defined as "hyperinflation".

The definitions of inflation and deflation will be skipped as these have been explained in detail earlier under academics. It is important to remember that these design and excessive growth and decrease in money and credit and NOT rising or falling prices. Price evolution has to bee seen as a possible consequence.