...our chief [Greenspan] may be a "closet gold bug." Edmond J. Bugos
Finally, another person speaks what i have posted,
"...[Greenspan] has a [gold bug's] plan". DougAK
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"Chance favors the prepared mind." Louis Pasteur
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At some point in your life...to consider an investment program.
... three words "Preservation of Capital".
... Remember, "Investing is not Saving"!
... They don't comment on developing trends until the trend
is obvious to everyone; acting as cheerleaders for the greatest
bull market of the twentieth century.
A cautious and more reasoned approach is needed.
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July 28, 2000
The Golden Bar Report - Please Stand By
... have made it a career mission to develop
my own proficiency at recognizing mainly primary,
but also intermediate market reversal points.....
... it appears that we are so close to an
impending gold market move, that I can smell it.
In fact, the... is perhaps confirmation itself.
More importantly, however, is that the greatest likelihood
of a major market catalyst lies between now and October.
Allow me to qualify that call with two historical facts;
I am notoriously... but I am also often lucky in my timing.
Still, it is "remarkable" that on the eve of what is increasingly
likely to beget the biggest bull market in gold the world has yet
seen, that not a single.....
... Remarkable is exactly what it is. "Remarkable" also happens to be
the word used by Mr. Greenspan most frequently (I am estimating)
in his public testimonies so far this month. It is also the word
that most adequately describes the frequency of Mr. Greenspan's
public appearances lately.....
... but I will say this: I learned a long time ago
how to read between the lines. All you have to do
is discern what hasn't been said. However, for this,
you need to know the topic well.
Despite the clearly evident double (asset) bubbles
in US stock and real estate markets -- and the even more
eye-catching (and probably irreversible) imbalances in the
country's national accounts, aggregate global credit position,
and the now entrenched consumption/savings habits
of its confident consumers... Mr. Greenspan's reference
to these topics has diminished in frequency... they have
been replaced with ambiguous statements.....
What in the heck did he think would happen?
... a dollar biased global monetary policy,
... a national "dependency" on foreign investment inflows.
... inflation in the exchange rate of the international
reserve currency that have access to cheap dollars
... encouraged foreigners to keep their liquidity in Dollars
... have recognized this "bias," and moved to set up
an international infrastructure to accommodate.....
I am glad that Mr. Greenspan has finally noticed
the obviously resulting propensities. Truly remarkable!
On Moral Hazard
Mr. Greenspan also suggested that the public sector's role
in preventing future crises should be limited, in order to avoid
the risk of moral hazard in investment decisions.....
What about the cumulative moral hazard in monetary policy to date?
Perhaps the Fed's role too, ought to be limited,
for there seems to be plenty of it (moral hazard)
around these days. The whole idea behind a gold standard
is to allow the markets to more automatically adjust monetary policy,
without the risk of moral hazard. On the Fed's role, then,
it seems that the Internet/Tech bulls would agree with the gold bugs.
Common ground?
Moreover, our Philosopher King said that,
"Extensive efforts of recent years to bolster
our international financial structure through enhanced
regulatory supervision have too often proved ineffective.
Fortunately, there are good reasons to believe that,
properly structured, the markets themselves can provide
the self-correcting discipline that is so necessary
to financial stability."
You know, if I didn't know any better,
comments like that would otherwise give me a sense
that our chief may be some kind of "closet gold bug."
I just cannot help but think that this very intelligent man has a plan.
Perhaps he has already considered the transition to a gold standard.
If so, he must realize how devastating a blow it would deliver
to the financial world today if he announced such a position.
Perhaps the Washington Agreement was only the first step
in many to come as he makes subtle changes to the
international financial landscape.
Nah, he couldn't be that smart.
Finally, in light of the visibly... not likely to help us
predict the future any better than we ever have.
So Why Now
Because, we are swiftly reaching the conclusion
to a monetary experiment that started nearly thirty years ago.
The conclusion is that freely floating exchange rates,
in the form they (don't) work today,
are incompatible with the ability
of the free market price mechanism
to properly allocate the world's scarce resources,
because they distort trade, accentuate economic imbalances,
and as a result, introduce enormous systemic risk into
the financial infrastructure. Especially when the supply
of the reserve currency is growing a good pace faster
than the world economy.
In short, they are not a stable platform
of monetary "value" for Adam Smith's ideal vision
of true capitalism to work.
Don't believe me?
It is less and less arguable
that the sole reason for the existence
of the massive global derivatives industry
in the first place is to presumably hedge
the risk of volatility away.
Wait just a minute though; volatility isn't the only problem here.
I am not merely suggesting that there is too much volatility,
blah, blah, and blah. What I am saying,
is that free floating exchange rates,
especially when anchored to another fiat currency,
have become part of an ultimately unstable reflexive process
that has helped accentuate enormous, and unfortunately,
irreversible imbalances in the "Dollar" based global monetary experiment.
The only peaceful resolution to this process.....
... would like to conjecture what is likely going to happen
and why we are at the dawn of this monetary revelation.....
The Capital Epicenter of the World
We have seen monetary inflations all over the globe
turn into catastrophe one after the other this decade.
Each catastrophe, from Mexico to Japan to Indonesia to Russia,
had developed into further dollar denominated asset price inflations
as global capital hastily fled.....
Pffffftttttttttt..... The Bubble has Popped
The evidence is overwhelming that real business activity has taken
backstage to the business of financial and real estate speculation.
The new economy really isn't what most investors actually think it is.
In fact, it is a delusion.
I know it is hard to believe, especially when.....
The sad fact of the matter is that much
of this economy is really a function
of an unbridled monetary inflation,
and credit expansion, rather than innovation.
The thrust of technological development,
it is my contention, has actually been
a primary benefactor of these easy money policies,
not a generator of the kind of real wealth investors think.
... an additionally popular misconception.
Anyone who actually thinks that a collapse
in the United States financial system will.....
Conclusion
My hunch is that the tape will begin to boil
in the bullion market before the third quarter ends,
and the catalyst will indeed be Wall Street.
The liquidity parameters are not accommodative enough
to fuel another stock market leg, especially not a broad one.
Never mind credit market spreads.....
... and hence, finally unravel the artificial Dollar exchange rate.
... the Goldilocks theme will soon become fiction, again.
Oh, the circle of life.
"To live in the presence of great truths and eternal laws,
to be led by permanent ideals;
that is what keeps a man patient when the world ignores him
and calm and unspoiled when the world praises him." Balzac.
Edmond J. Bugos
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