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Robert Zurrer
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Robert Zurrer started Trading at Merrill Lynch in 1980 and traded commodities for 28 years culminating in winning $25,000 in a US Trading Championship in 2007 with a gain of 77.6% in 60 trading days. He writes for MoneyTalks.net, a website dedicated to finding the finest calibre of independent... More
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  • Gold: A Trader's Warning
      
    Michael Campbell: Mark Leibovit of VRTrader has been a Timer’s Digest long time Timer of the Decade, Timer Digest’s Timer of the year but also gold market timer of the Year. Mark is going to be at the World Outlook Conference February 11th and February 12th in Vancouver and of course you’ll be able to get access to that on the internet.

    Mark, I want to start with gold today because we’ve got some level of correction going on. What is going to happen next?

    Mark Leibovit: The gold market was giving us little warnings the few weeks when it couldn't break out above the December 7th high so the writing was on the wall. Some of the shares were underperforming too, so  I did advise we were heading down in the VR Gold Letter.  But I’m not running for the hills. This is the volatility of the markets and we just have to get used to it. Taking a bigger picture view, gold is cheap. when it crossed $1,000 an ounce. I’ve been saying this for the last couple of years, that was like when the Dow crossed above 1,000 back in 1982. $1,000 is the floor in Gold and the move is still early on.

    All this talk about a bubble is nonsense. Rhis is just the beginning. It’s a big 20 year up cycle with another five-ten years ahead of us and I look at it like a $14 stock that might go back to $12 or $13. This correction s a minor event. We had a bit of a trading top, the volume is a little negative here. There is some positive seasonality still in effect into February so this market could easily turn around and surprise the bears. You’ve got to be a buyer in dips.

    Michael: Mark you’ve made it very clear in your VR Gold Letter that long term you are still very bullish.  On the short term, apart from the Credit Crunch in the Fall of 2008, gold has had trouble making any kind of significant correction on the way up. How do you trade the Gold Market Short Term?

    Mark: I have in putting out these sell signals which are trading signals for those who are fine tuning the market. Still, there is the fear that people are going to unload something that could be worth $2,000-$3,000 an ounce and patience is the best formula.

    It depends what your perspective is. If you keep coins in the vault, keep your core positions and I have a little sell signal, I suggest to wait a little bit until we get a bit more confirmation of a bottom before buying a new position. That’s the value of my trading signals for investors. Maybe there’ll be a bigger shake out this time than we’ve seen, I don’t know. Or it could just stop here. When I see the volume flip flop to the positive then I know that the selling is over and the correction is behind us.

    It you pull up a weekly chart of one of the big ETF's there's no sign of a downtrend. Once a downtrend starts it’s going to be clear and you will have plenty of time to get out of the market. Gold is going back to $700-800 or some ridiculously low level,  I don’t see it at all. I think we correct a little bit here in the next month or so and then we take off again big. Quite frankly, urprises are going to be to the upside and you’ve got to be ready for the upside reversal when it comes.

    Michael: So a bull market until proven otherwise and a very powerful bull market at that. Are you ooking for buying opportunities in the Senior Gold Stocks?

    Mark: Well some of those shares have been giving us some warnings. One of the biggest on of the biggest leaders in the blue-chip and the gold market is Rand Gold, and it  has been underperforming for three months. I’ve be writing in the letters it’s providing some type of negative divergence or warning, and it did but gold still moved higher anyway. Now Rand Gold has come down quite a bit and I’m not quite sure it’s done yet to the downside.

    So I’m watching leaders like that, big names in the blue-chip sector to give us a sense. If I see those names start to generate some strong upside volume that might be a good leading indicator for the metal itself. But my experience over the years Michael,  is to evaluate each item separately.  There could be some special situation affecting that stock perhaps, and then you start reading into too much into the markets because one or two stocks are underperforming.\\

    Michael: What are your parameters for gold on the correction?

    Mark: $1,325 is the next big support number, looking at the Spot price we got down to $1,352, we touched $1,354 on Friday on the Spot so I guess we could possibly go through $1,352.  Your next big number is $1,275 and then down to $1,225-$1,250 area. Now keep in mind I don’t have a projection down there, I just have some negative reversals here off little trading tops telling us that they're still selling here and the buyers haven’t stepped to the plate yet. So it’s an estimate as to what target we’re really going to achieve on the downside or whether we’re going to stop here and suddenly reverse back higher.

    So I’m cautious short and I’m not getting the upside volume, and we’ll just have to watch the support levels and if we get a clear sign of a reversal I’ll put out a bulletin and then I guess we’ll jump back in for the traders.

    Michael: And let me just quickly throw silver at you.

    Mark: Silver, the $26 area is what I was hoping for as a pull back considering the negative volume patterns we’re having. If that takes out$26 you’re probably looking at the $22-$23 range as your next big number. I can't imagine it going any much further than that in the worst case scenario.

    Part of my comments are related to that big correction we saw in 2008 where we dropped from $20 down to $9,  a $10-$11 correction. So for silver to go from $31 back to $21-$22 is within the parameters I would think of a pretty significant and important correction. And outside of that I just don't see it going beyond that. But famous last words: you go with the market and the market tells you, if it ever gets down there and the volume remains negative then of course I’d have to stay cautious. $26, maybe $22-$23, that’s about it as far as I see it.

    Michael: But what you’ve just said is a real key and people have to understand this about the investment markets and methodology: good analysts follow their methodology you have an opinion, but you let the market tell you what's going on. You do that by your own proprietary measures, and you have a brand new book coming out talking about some of those measures. 

    Mark: Absolutely. Volume supersedes price. All I want to know is we’re the buyers and sellers are. We get technical patterns and then we figure out the reasons for it. So when I get positive volume reversals coming back to the upside, and there's a clear sign of a bottom here in the silver and the gold. we’ll act accordingly.

    But it’s a little frustrating too in a sense because you’re seeing other metals act well, I guess you noticed that palladium hit a new bull market high on Thursday at $828, and platinum hit a new mini bull market high on Thursday of $1,835. So you’re watching other markets of metals doing well and you’re scratching your head a little bit that silver and gold are diverging. Copper except for a week ago was really strong, uranium keeps moving up to new higher highs in the cash market. So the wind is still at the back of the commodities in my opinion even if we’re getting this correction there's still a lot of interest in the basic commodities. This is very encouraging from alonger term view to see that kind of action.

    Michael: Well as they say it’s going to be, the next three of four weeks are going to be fascinating. I think this couldn’t happen at a better time. We’re doing the World Outlook Conference February 11th and 12th, Mark Leibovit will be there. Mark I look forward to seeing you up there, it’s going to be terrific.

    Mark: I’m looking forward to it. I love coming to Vancouver you know that Michael. Thank you for having me.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 25 5:43 PM | Link | Comment!
  • "A Compelling Read": "$5000 Gold is VERY CONSERVATIVE"
    Michael Campbell on Martin Armstrong:

    Martin has proven to have an uncanny ability to predict major changes in not just the markets, but society as a whole. For example, in 1986 he published his prediction that the Nikkei Index would peak for over a generation AND that the Soviet Union would collapse in December, 1989. He was correct on both counts. In fact, he predicted the precise day that the Nikkei topped out. 

    There are so many other examples that I don't have time to list but all that changed in 1999 when he was arrested for securities violations, where upon he became the longest held prisoner without trial in American history.  You note I did not use the phrase "American Justice" because in Mr. Armstrong's case there was none but more on that at a later date. 

    In the last two years Mr. Armstrong has taken to writing from prison and below we present his latest work. He is without computer or his extensive personal research library but still his thoughts make for compelling reading - and as usual a fascinating perspective 
    - Michael Campbell from Hawaii 
    01/13/11


    Martin Armstrong On The Fed, QE2, Bernanke, Buffett & Goldman Sachs

     

    EVERY ONCE IN A WHILE, we end up with a catastrophic event I call a PANIC CYCLE. The silver thread that ties all economies and markets together; the Pandora's Box of economic contagion. Nothing, but nothing can ever be analyzed in isolation. Everything is interlinked to everything else. Only once you see the world in such a light, will you see the face of this amazing process. Like looking at the clouds when suddenly you see the face that the sum of the patterns combine to form.

    I have been conservative in what is possible for the years ahead. I have given a number of $5,000 gold that is VERY CONSERVATIVE. If we take the USA gold reserve 262 million ounces and we divide that into the national debt at $14 trillion, that yields a staggering price of $53,639 per ounce. Even taking the whole world official gold reserves and dividing that into the US National Debt of  $14 trillion, we still end up with $15,873 per ounce. If gold matched the Dow Industrial gain from 1,000 in 1980 to 14,000  we come up with the number $12,250 per ounce. So why are we trading at $1,400? As always, it is a matter of both time and perception. We are on the verge of watching Western Civilization crumble into dust because the politicians will not listen and the bankers are too greedy to save the nation while licking their lips at going short government bonds.

    Comparison like these are what gave birth to the absurd "Efficient Market Theory". The Theory upon which the SEC and others went around criminally charging people for defrauding the markets by either overpricing or under-pricing some stock. These types of prosecutions are no different than the Witch Trials at Salem. 

    I investigated the markets manipulated by the NY Bankers very closely. It became clear that they were able to accelerate the trend in motion but they could not turn a bear market into a bull market. They could get a rally, tell everyone silver would rise to $10, and then dump it at $7 as the buyers came in. There was the silver manipulation where Warren Buffet came out and admitted he bought $1 billion worth of silver, yet it still fell to new lows.

    When we look at gold, we are truly looking at just one facet of the whole diamond. It is not a single market in isolation. It is connected to everything else. The symbol of Chaos Theory was if a butterfly flapped its wings at the right time in Asia, he could set in motion a combination of events that culminated in a hurricane that smashes the East Coast of the USA. It may be an extreme example, but what it is trying to reveal is that tiny subtle changes in one market can filter through the silver thread that binds everything together. 

    During the 1980s and 1990s, the amount of gold sold by Central Banks was 4,500 metric tonnes (144.6 million troy ounces). This helped to make the 1999 low in gold 19 years after the intraday high at $875 on January 21, 1980. Those days are now gone. The central banks do not have enough gold to create a bear market.

    China deregulated gold in 2008 and that opened another vast consumer market. The gold reserves of China have risen from 17 tonnes in 2008 to 143 tonnes in 2010. If China were smart, it should take half of its Foreign Exchange Reserves of $2.4 trillion and buy gold IN NEW YORK! This would help them in two ways.

    (1)   It would reduce their trade surplus helping to politically sterilize criticism

    (2)   It would help transform China into the new financial capital of the world.

     CHINA:   THIS   IS   YOUR   TIME

     

    The way I helped the Japanese ease trade friction with the USA, was to advise them to buy gold. It does not matter what you buy, the current account  tracks dollars, not the object. China buying gold in NYC will then reduce the trade surplus and the American politicians will be so proud that they had lowered the trade surplus they will be pounding their chests and yelling - SEE! VOTE FOR ME! I BEAT CHINA!

    Unfortunately, all governments die by their own hand aside from those who fall by invasion. The best way to collapse a government is to let it run its course. Without fail, the structure of government is so bad that the self interest for WEALTH and POWER leads to the inability to function in any rational manner ensuring it dies by suicide. This was true of Communism, for centralized planning will NEVER allow any government to respond in a coherent manner to the evolutionary process of its society and economy.

    Adam Smith is hated by socialist's because he warned that governments are always the greatest spendthrifts. That they should leave private people alone. The socialist claims he can manipulate the economy into anything he desires, and hates the idea of any free market theory. That means the socialist can no more manipulate the economy than the NY Bankers can perpetually turn a bear market into a bull market. The free markets will prevent both from succeeding.

    Government wants to believe that by occupying an office of power, it gives them the power to regulate everything, no matter what. THEY ARE DEAD WRONG!

    Everything is collapsing, Europe is in turmoil. In the United States, we suddenly see a debt commission recommending:

    • $100 billion cut in defense
    • A raise in the gas tax
    • A raise social security to age 69
    • Lowering the corporate tax rate to encourage hiring
    • A repeal the alternative minimum tax
    • Eliminating the deductions on mortgages over $500,000
    • A cut in farm subsidies by $3 bil
    • And a cut the federal work force by 10%!

    By the time my children retire, social security would probably be available starting at age 90.

     

    The collapse of SOCIALISM is widely felt everywhere. The view of US debt by others is taking on the mantle of junk bonds. Many world governments see and feel the CONTAGION effect from the USA because it is the world RESERVE currency. This means that whatever the USA does to further its domestic policy, it will effect all other nations.

    The Fed buying back government debt on the premise that they will stimulate the economy is ABSOLUTELY DEAD WRONG! The Fed has lost control of the economy BECAUSE THEY NEVER HAD CONTROL! The bond markets have defied the Fed and its harebrained idea of stimulating. The brilliant idea of buying government debt, putting cash into the system to try to inflate the economy just as ROOSEVELT did by devaluing the dollar, confiscating gold, FORCED INFLATION.

    However, Bernanke may not be stating why he is inflating.  He is a limited student of the Great Depression, and he does understand the US reaction at that time.  Yet he may not see the bigger picture that today it is China in the same role as the USA was in 1932. The inflation move worked back then marginally and only for one cycle into 1937. The economy collapsed again and fell right back into 1942. It was World War II that did more than INFLATE, it distracted Americans and helped to shift the glut of unemployed from agriculture into the army and then into a skilled work force. These conditions do not exist today. The reason stimulation will fail is because the problem is debt and you cannot buy back what you desperately need to sell more to keep the game afloat.

    IT IS THE DEBT THAT HAS TO GO!

     

    The one thing that is true in every economic collapse, the bond holders lose ABSOLUTELY EVERYTHING! Just as government workers are on the alert that the new Republicans are going to attack their dreams of milk & honey.  There is far too much resistance that exists and we are going to go down with the ship. Nobody will yield. The government unions will  fight. They were promised pensions that are now far more lucrative than anyone's in the private sector. We will see protests rise in the USA just as we saw in Greece, France and England. This is all typical of the collapse, and in fact causes the collapse because people want what they were promised.


    Be very careful about the advice that now bubbles-up from New York. Did you notice that Goldman Sachs predicted $2 trillion in buy backs of the 30yr? Then Goldman was offering to the RETAIL PUBLIC 50 year bonds. Well, the buy back came out at $600 billion and it would be short-term, not long-term. Was Goldman that WRONG? Or was Goldman talking its own book to fool the public again into buying Goldman paper for 50 years when in fact no Investment Bank has ever lasted that long. If Goldman is around to pay-off those bonds, it would be defying the laws of nature.

    DO NOT TRUST what comes out of NYC right now. They are not stupid. They can smell the blood waiting to gush forth from this debt bubble. Whatever they say, you will see it is designed to talk up the bonds to create a sucker rally so they can sell precisely as they did in real estate. There is no difference. It may have once been beware of Greeks bearing gifts, today it is beware of New Yorkers offering bonds! They blew up the country selling foreign debt to the retail public so when the debt crisis of 1931 hit they succeeded in wiping out everyone who was missed by the stock market.

    Insofar as Bernanke is trying to inflate the way out of this mess, he has has said "I grasp the mantle of Milton Friedman."  I spoke with Milton and he believed in the Free Markets FIRST, and he would NEVER have advocated massive debt. Bernanke has no power over anything important. He cannot cut the debt. For whatever he buys back, Congress will just replace.

    In truth, the Fed has no clothes. It is a pumpkin hollowed out, its face carved to make it look like something it is not -  a defender of the economy. The Fed did not regulate AIG nor Bear Stearns, so Obama's financial reform in July extended the Fed's reach to cover all important financial institutions, not just big banks. We are so far away from what the Fed was in fact designed to do, to replace J.P. Morgan's efforts to stave-off the Panic of 1907. Instead of Morgan mustering bankers to save the industry as a whole, the Fed was intended to play that role, yet it failed in 1930-1933.

    The Fed was politically controlled by the Executive until 1951, since then its role has been turned-upside-down. When it began, it stimulated by purchasing CORPORATE PAPER - not government bonds. Because of World War II AND the inflation policies of Roosevelt, the Fed was directed to buy US government bonds to support them at par while abandoning the entire design of supporting the economy.

    We then have the Monetarist Theory that inflation is created by an increase in the money supply. Therefore, Congress put two and two together and came up with THREE!  If inflation was caused by a rise in money supply, it was the Fed's problem so they were then expected to sterilize the deficit spending of Congress despite having no such direct control mechanism.

    The Fed was incapable of preventing what was perceived as the Vietnam War era inflation into 1969. Yet they did not see the global effect of creating more money in the promised land of gold backing. The Vietnam War became the visible inflation agent, but in fact it was accumulative from the start of Roosevelt and his then artificial suppression of the bond market until 1951. Vietnam was the stimulus that broke the camel's back but it was NOT the sole agent of doom. This culminated in the closing of the gold window in 1971 and the birth of the floating exchange rate system.

    Volker went nuts going into 1981 with the harebrained idea that interest rates can effect demand. He raised the discount rate to 17% and SLEW the inflation dragon. At the huge cost of altering the usury laws and setting in motion the multiplying factor of the national debt. Issuing bonds at such high rates of interest succeeded in raising the growth rate in the debt from 245% between 1970 and 1980 to 356% between 1980 and 1990. Since Volker could in no way isolate the US government, he also forced the Treasury to pay higher rates of interest which escalated the national debt much more rapidly. Thus, today, 68% of the total national debt is accumulated interest. This is why we have nothing to show for anything and we are exporting about 40% of interest paid to other lands. This has become the GREATEST transfer of wealth that should have gotten the Marxist/Socialists mad as hell. Alas, they don't understand it!

    The track record of the Fed is dismal at best. It failed to save the many banks between 1930 and 1933. The NY Fed was too wrapped up in trying to play ball with the Europeans. It may be true that the Fed's mandate is to stimulate inflation in order to try and  bring down unemployment, but that is a concept devised by Congress, not the reality of the markets.

    For the conspiracy theorists who see this as one giant scheme to dominate the world, sorry, but they give these people far too much credit for understanding what they are doing. In truth, there will be no ONE WORLD GOVERNMENT because they can't agree in Congress no less the rest of the world. Even if they did create such a monster, its life span would be only a few years. There is too many cultures and ideas to ever reach agreement.

    These are people who want to play king of the hill and boss everyone else around. But they will not be capable of doing anything for they don't have anymore understanding of the economy than the communists did. Central planning DOES NOT WORK! These people have destroyed our future. To those who think the mortgage crisis could have been avoided had the Fed had more power, you had better change the pipe you are smoking. When Robert Rubin broke down the walls between insurance, stocks, and banking he returned everything to where it was prior to the big crash in 1929. He also opened the door for his beloved Goldman Sachs and wiped out the economy. He became an advisor to Citibank, and that worked out just as well for them. This is NEVER about doing the right thing. It is about grabbing what you can for as long as you can and to hell with the country. To Hell with the world for that matter. It is that moment of ecstasy where they will say anything to reach their immediate goals. The morning after? Well that's a different story for a new day.

    If the Fed truly wanted to stimulate the economy BUY CORPORATE PAPER NOT GOVERNMENT, for the government paper may be owned by foreign investors and the money is just exported. Buying CORPORATE paper would be a direct stimulus to restart the economy.

    We do everything indirectly and clearly ass-backwards. We pour money into the banks and expect that they will lend to corporate clients rather than speculate. The banks have always gotten us into a mess for centuries. The bankers in Ireland have wiped out national savings. Their losses exceed the staggering amount of $50,000 per household. Did they lend that much money into the real domestic economy? ABSOLUTELY NO WAY! They bought what they thought was a quick buck with no risk. They wiped out the country.

    We still try to influence demand with raising and lowering interest rates. That assumes the banks will pass on the effect and we are again back to INDIRECT stimulation. The bankers are speculators and we cannot place our country in the hands of the banks for all we will get is pain and suffering in return. If not war. STOP the indirect stimulus. Buying back government bonds expecting to increase the supply of money is a system that is porous! There is NO guarantee that the money will stay in the country. There is no guarantee that the banks will lend that money rather than speculate with it. So the Fed has absolutely no control over any thing whatsoever.

    I come not from academic nor from the commercial banking sector, but from the real world of international corporate advisory and finance. I have had a front row seat for decades to watch what really takes place. What is believed is simply DEAD WRONG!

    We NEED DIRECT management, not INDIRECT. I would not have given 10¢ to the bankers. I would have gathered the deposits and then ensure 100% would be returned, but let the bankers fail. To let those high-flying banks dig their way out of a hole with public money while  leaving the economy behind, was something you would expect from dumb and dummer.

    This is the problem when the banks run government. They look out for themselves at the expense of the nation. Stimulating only by direct means, securing actual deposits and not the leveraged derivative profits would have been the prudent way. You buy corporate paper as the Fed was supposed to do originally, NOT BANK PAPER that fuels speculations. The non-trading banks who are the core of traditional commercial banking are the only banks worth saving. Those who want to be high-flying hedge funds should have failed with bad trades. That is part of trading. You learn from your mistakes. But the NY Bankers want to rig the game so they keep all the profits and share the losses with the people.

    Buying corporate paper would also have been the first step in attacking unemployment directly. Then again, that is why the government keeps me where I am (In prison-ED) to stop rocking the boat. Sorry! The boat has holes and the captain is naked.

    We stand at the end of a long and dark road. All that remains is a cliff before us. Keep interest rates down, help the banks now become trillionares, and pray for divine in tervention. Because that's all you have left!

    Keep track of Martin Armstrong's writings HERE



    Disclosure: I am long GLD, SLV.
    Jan 25 5:30 PM | Link | Comment!
  • How to Protect Yourself from a Resumption of Trouble
     Institutional Advisors Bob Hoye has made Brilliant Calls; At the MoneyTalks Conference in Nov. 2007, Bob warned that a contraction of credit would reap havoc with all financial assets. Bob Hoye warned again at the Money Talks World Outlook Conference on Feb. 2008 when he said, "We are experiencing the beginning of the greatest train wreck in the history of credit."

    Later at the World Outlook Conference in February 2009 he said we are close to a recovery and sure enough we got a recovery a less than a month later on march 9th. Obviously Brilliant Calls. 


    Michael Campbell: Bob, what are your thoughts generally on the markets right now from a historical perspective? 

    Bob Hoye: First of all on the rebound out of the crash, which was a 1929 type of crash indexes rallied with great enthusiasm and made about a 40% retracement. Well it continued on and the retracement is now something like 64%. It just reflects the great stimulus that was put into the market place to fix things that needing fixing which of course went into the banks to find its way into Wall Street driving stock prices further. Nevertheless we should look at where we stand in history and that boom that concluded in 2007 had all the features of a great financial mania and it was number six on the list with the South Sea Bubble of 1720 being the first 1929 the fifth. One of the things that’s happened is that the moment the stock market rollsed over the business cycle did as well. As you know the stock market’s a leading indicator and when it heads down business continues up for a year afterward. So the economy started to slow in December ’07 the stock market high was April 2 that’s very close.

    Despite the vigor of the rebound we maintain we are still in a post bubble contraction. And in that world you become a trader since there’s no such thing as a long term position in stocks, bonds or in commodities. You've got to be a trader. So this is where we stand,  and at the moment Mike there’s a terrific opportunity here because we have a proprietary indicator called the peak momentum forecaster. And this has over the last 30 years called the big events like the high for commodities in ’73 and the high for gold and precious metals in 1980.  When this gets up and gives a signal you’re within one to two months of the high and since his indicator is now at 127 when being above 121 is danger zone. So our advice to our subscribers now is to watch for concluding action in the stock markets. A you know, we call it the all one market and if the street’s going to bid up stocks, corporate bonds and commodities the US dollar will go down. On the other hand if we get some liquidation going on in overly speculated stocks, bonds and commodities then the dollar will go up. As it happens we now are in an up trend for the dollar which is not going to be too friendly to a lot of highly leveraged speculators out there.

    Michael: What’s difficult is for individuals is as you say it is one Global Market and the movement has been so prominent. Can you go into a couple of those markets and get some comments on them from you. For example you have been recommending keeping a core position in gold since 2001/2002. Is it time for gold to take a little rest do you think?

    Bob: There has been some very, very outstanding action in gold and silver will always outperform gold. One of the indicators when that play is getting ready to turn is that silver begins to tire first. That scenario was reached a few weeks ago when we called a consolidation zone for gold and a correction zone for silver that could continue continue into January.  So that’s a warning on the sector, though on the long term we remain very bullish on the gold sector because on all previous post bubble contraptions the gold sector has done very well. As for the stock market, outside of our peak indicator we’ve got two models that are suggesting that we are in a trading range for the stock market into January. Then the probability is that it then take a serious downturn.

    Michael: I guess the worry is you said the 1929 crash. Are we going to repeat that kind of price action in terms of the markets?

    Bob: Yes. You know during the rebound out of the 1929 crash Barrons wrote that the urge to speculate was just as speculative as it ever was. Further that it would be very difficult to check the enthusiasms now that was the top of the rebound in 1930. Now we are at the top of a terrific rebound and the daily sentiment figures are at the really high end of enthusiasm. Indicators at the most extreme levels since 1965 and 1958 so we are off the map as far as sentiment goes.

    Michael: Where do you see it all ending? What does this look like 10 years out or 20 years out?

    Bob: Euro land is going to break up because the only answer to the differences between Greece and Germany is that you’re going to have to have. hardworking German citizens working until a retirement age of 70 so that Greeks can retire at age 55. That is not going to keep euro land together, so it’s going to blow up. Post bubble crashes do change things extraordinarily. It’s their nature. The fed made tremendous efforts to provide liquidity post 1929 crash but it was all swept under the table. The people intellectually running the fed have to say that it didn’t work in the 1930s because the head of the fed made errors. Now the application and creation of liquidity is so well publicized that when the next phase of the contraction comes in, which we think should be evident in the first quarter, it will say to policy makers that they are failing. That it did not work and you’re all a bunch of a BS'ers.  You also have the Tea Party political movement in the United States that is attempting to take government back from these "experts". The biggest tool that the experts have to try and manage the economy is the ability to depreciate the dollar. So then the Tea Party will take government back into their hands. They will also take money into their hands and they will decide that convertibility is the only way you can constrain the idiots in policy making. So lots of exciting things to come. 

    Michael: What about interest rates here. Are we going to have hyper inflationary style interest rates?  

    Bob: We won't have Hyper inflationary interest rates. It’s going to be that nobody can service the debt so it might get marked down to zero, written off or fail. Again we are in the post bubble contraction and one of those features will be what we call the a bond revulsion. This then started in ’07 with the subprime mortgage bonds. Then in ’08 it was the crash in corporate bonds and more recently it’s the second crash in sovereign debt. Also the crash in municipal bonds in the last four months has been incredible. These changes to Muni Bonds are because tax revenues to cities have disappeared. They can’t service the debt. This is the kind of thing you get in the post bubble. We had our technical got the top of the bond market in late August and the line we used then was bye-bye bonds,   you know goodbye bonds. Now the bonds have fallen from about 137 down to 118½ and we are over sold so…

    Michael: How far this could go?

    Bob: Rirst of all  it’s not the central bankers that have dropped the short dated T-Bill rates down. These are features of post bubble contraction.  Money, the real money that is around heads for the most liquid items. So it it bids interest rates down because US T-Bills are one of your most liquid items. It bids gold up too. So it’s not the policy of the central banks to have short dated rates this low. This just happens and they are trying to look as if it is policy. The main thing is that they have no control of the yield curve so when longer dated rates want to go up as they have been recently they have no control. No control on credit spreads so that when interest rates for lower grade credits such as mortgages and bonds go up they go up. And there’s nothing that these damn fool central bankers can do about it. It’s unfortunate that Canada has been in a bit of a cocoon here because they have this idea that because of resources and commodities they won't be affected. The only thing you can say for the Canadian banking system is it has not been designed by the US congress. So Canada is just as vulnerable. Also we haven’t had a real crash in Canadian residential housing prices yet.

    So the idea that economies are national and can be managed by an inspired bank of Canada is nonsense. These global expansions have been universal. They afflict everything and when the party is on everybody think it’s great and they take on a whole lot of debt. The problem in the contraction is that the economy isn’t big enough to service the debt so then you have to go into the great bond revulsion whereby as I said they’ll get marked down and priced to exceptionally low numbers. Many issues will be will be in default, a feature of a post bubble contraction. The idea that the fed or the bank of Canada can provide a stimulus,  all it is is throwing credit at a credit contraction and hoping that it will go away. I mean these guys are dealing without no empirical evidence whatsoever. They are dealing with theories that have been pulled out of somebody’s imagination.  

    Michael: As for those implications and the level of uncertainty, how can our listeners and readers protect themselves? 

    Bob: Well I think #1 is lock in low interest rates and mortgages now. The other is to save as much money as you can because once this rebound phase is over then money will go back to picking up purchasing power and you can save it. Don’t rely on governments to help as governments are broke. It comes back to the individual, look after your balance sheet as best you can, work as hard as you can and save as much as you can. Also protest your government’s greedy demand for taxes. The tide is shifting away from Government authoritarian initiatives. All the nonsense about stimulus has just been dream world stuff. It’s time that the public then starts to say look you guys are crazy experimenters at the central bank level so just stop experimenting with our future. We have this other very straight forward condition whereby many folks are tightening their belts at home then they look at the extravagance of cities. I saw a study the other day that points out that taxation at the city level is soaring for what reason? So the public is going to say to the cities you tighten your belt as well. Then they’ll look at the provinces and states and say you are not going to live the good life when I’m having to be thrifty. Finally to the federal level. This is very exciting times for the individual as they will discover that they can really run things.

    Michael: Interesting as always Bob. I look forward to our chat at The World Outlook Conference and I appreciate all the time you make for us on Moneytalks.

    Bob: Mike always good to be with you, all the best.


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Jan 03 10:24 AM | Link | Comment!
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