James Seaberg

Burst Bubble? Commodities' Long-Term Story Remains Intact

Answer to User 42142 as of Mar 21, 11:50 AM with is question “If one uses these replies as a contrarian guide, what would one do?”

A contrarian is not always a contrarian. He follows the crowd for long periods and lets the profits run. Only before major turning points does he become a contrarian. For example when gold reaches the manic phase at around $15,000 to $20,000 and having the DOW also around $20,000 as an assumption, then he will start selling whilst most everybody else expects that gold goes to $ 30,000 or even $ 100,000.
This is not a time to stop following the early adopters of gold and the crowd that will soon come in. Yes, there is deleveraging. A lower money supply means recession a much lower money supply means depression. The Fed will stem this tide. If it doesn’t succeed, the US empire is over, done, toast. The Fed will buy, if necessary, your mortgages, your houses and your dogs and cats. He has that power. There are several executive orders in the #12,000 to #13,000 range where this power was given to the Fed shortly before Y2K (year 2000 date computer problem).

Whoever thinks that the Fed will be powerless after having reduced interest rates to 0.25% which I expect that it will do, is mistaken. In “open market operations” it can theoretically buy up each and every asset in the US and flood the country with dollars. Bernancke will not only use helicopters but also railroads to get the money to a rail station near you.

So, the smart action would be to use this pullback in gold to buy it, now. Next, I would buy down oil USO (UNITED STATES OIL FUND, LP (AMEX)) with buy-limits set at $75, 70, 65, 60. Later, when the dust has settled, I plan to buy the foods, DBA or RJA.

(Disclaimer: this is not financial advice, only my opinion. Talk to your personal advisor).

Burst Bubble? Commodities' Long-Term Story Remains Intact

This is a good assessment of Davy. We need also to understand that the US central bank needed to do something about price inflation. To lower interest rates and pump money into the economy (= monetary inflation) is very price-inflationary and hurts the dollar. Strangely enough starting 2:30 on Tuesday, the 18th of March, the opposite occurred. The dollar rose and commodities fell.

The fall in commodities was also a concerted action by the Fed and its banking and brokerage minions. Foreign central banks had to buy dollars and the US banks and brokers were told to raise the margins on commodity accounts and go short. Most of the mmargins have now risen to 90% from formerly 25%! In such a way nobody could blame the Fed to have increased price inflation, even though they increased tremendously money inflation. Price inflation usually follows monetary inflation with a certain time lag. But all this money will still creep into the economy and create in the US and worldwide further price inflation. That means the bull market in precious metals and the food complex is by far not over.

In my opinion, we have seen the lows at least in gold. I doubt it will go to 880$ as forecast by some analysts. These prices are buying opportunities. So why not buy today some and next week more.