"The 2nd Big Lie you've been told about Gold"
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Big Lie #2 -- "Helicopter Ben"
...of Mice, Men & Myths
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From Jim Sinclair (mice) and his now neurotic and incessant rants and cartoons about "Helicopter Ben"...to the mindless inaccurate drivel from gold bugs about Bernanke flooding the world with dollars (myths)...
...here's a couple doses of reality from none other than commodity mega-bull Don Coxe & the respected Dr. Mark Skousen (men):
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Basic Points
July 11, 2006
Will Illiquidity Force Markets
To Take A Bath?
- Don Coxe
bmocm.com
["The long, Amazonian flow of liquidity into global capital markets threatens to dwindle to a mere trickle. Shocked market participants call on the financial climatologists to tell them when the next rainy season will come.
No one knows.
Liquidity levels had been receding gradually from the flood conditions of 2002-4, as the Fed, ECB, and almost all other central banks switched from ease to restraint. In March, the holdout—the Bank of Japan—suddenly made the tightening unanimous, effecting the most dramatic collapse of a major Monetary Base in modern history—slashing monetary reserves by 20 trillion yen (roughly $175 billion) in less than
11 weeks.
This was a tripartite declaration: Deflation was dead, the Bank was reaffirming its independence (in the face of considerable political pressure to leave liquidity and
rates alone), and was ready to resume membership in the Basel Club as a normal central bank—that charges interest on its loans.
The Japanese reserve contraction was felt most acutely in the euroyen market, the supplier of absurdly cheap capital to hedge funds and the trading departments of investment banks. Global markets were roiled, and there was talk that some high rollers might go down.
We have long believed that liquidity-driven stock markets would roll over when global liquidity switched from growth to shrinkage.
The financial world now faces a drought of unknown intensity and duration.
...The economy, and the prices of stocks, bonds—and even houses—float on liquidity. They rise and sink in response to the liquidity beneath them.
That is the basic physics of the markets.
...The global financial system could actually be as safe as it has been since the dollar first began to lose its luster and need protection during the Kennedy Administration.
...Therefore, if the BOJ were to suddenly reverse its liquidity expansion, it would be good for the US. First, it would produce a flight into the dollar as speculators unwound yen-backed bets on the foreign markets. Secondly, it would produce huge selloffs in the inflation-hedge assets, giving the Fed breathing room. Bernanke believed that the two years of tightening, plus the huge increase in energy prices, would cool off the US economy, so inflation in the "real economy" would soon peak and decline.
...We think it possible that one reason Mr. Bernanke once used the word "pause" in reference to the Fed's consistent quarter point fed funds increases was that he expected that the BOJ's swings of the monetary samurai would decapitate the most conspicuous inflation bets and revive volatility from its
Sleeping Beauty trance with Fear's First Kick:
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"The most dramatic monetary tightening of our lifetime."
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...This would be the most dramatic monetary tightening of our lifetime, so the yen should have gone up sharply in value. Instead it rallied briefly, then fell, showing the scale of unwinding by hedge funds and investment banks as they were forced to close out their yen borrowing positions.
With gold soaring through $700, Barron's responded to the outbreak of gold and inflation fever by running an interview with a self-professed gold expert, who projected gold could run to $8,000 an ounce. Day after day, the media informed us that gold was at its highest price in more than 25 years.
Inflation was obviously back on Page One."
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"Can you say -- Paradigm Shift?"
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Neither the interviewer nor the gold bug knew that Governor Toshihiko Fukui and friends had already unleashed their attacks on the inflation virus.
$175 billion worth of paper money was being vaporized.
[remember -- "Trillions Trump Billions"]
The Bank of Japan has rejoined the worldwide club of central bankers. Having been the sole nonconformist, the Governor of the BOJ must now be ranked as the High Priest of the worldwide communion of Certified Inflation Fighters.
We believe the central banks will once again triumph over inflation.
And Coxe even had a reality check for the oilpatch permabulls:
"Looking to the winter and spring demand for oil, with almost every central bank on earth in tightening mode, and oil at $74 a barrel, the surprise would be if global growth—and global oil demand—were to live up to consensus expectations.
Based on that historical pattern, we think oil prices have a 50/50 chance of trading down to the fifties next year."
.....Whodathunkit?
Oh...and Coxe also had a comment vis a vis bonds as well:
"... an excellent low-cost hedge is long-term zero coupon bonds. They will be the asset class of choice when the economy begins to show unmistakable signs of weakening."
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Another respected economist & analyst, Dr. Mark Skousen has debunked much of the myth of Helicopter Ben as well:
From Jim Puplava's -- "Financial Sense" site:
financialsense.com
Tight Money and An Inverted Yield Curve
by Dr. Mark Skousen
Chairman, Investment U
First, what's the cause of this financial crash? For one thing, Ben Bernanke has slammed on the brakes with a tight-money policy. He has followed his predecessor, Alan Greenspan, by raising rates further; but even more importantly, he has slowed the growth of the money supply (M2) down to a crawl.
A year ago, M2 was growing at a healthy 6% rate. Now, it's down to 1.2%. This topping out of the money supply is a clear indication that the Fed is serious about fighting inflation.
Moreover, there's talk that the Fed will raise rates by 50 basis points to 5.5%, creating an inverted yield curve (meaning short-term rates will rise above 5%, the long bond rate). The last time that happened was in early 2000, and the stock market fell out of bed.
The impact could be felt in the next few months, creating a slowdown in the economy from 5% to under 3%, maybe 2%... a drop in corporate profits... a fall in stocks, gold, and perhaps even oil. The bottom line: trouble on Wall Street.
For all those gold bug pundits who said that Bernanke was soft on inflation, remember that he made his reputation as an economist for his work on "inflation targeting." Every country that has adopted this "inflation targeting" rule has seen a slowing down of inflation.
Ben's reputation as "Helicopter Ben" - from his eagerness to seemingly print and drop dollar bills from the sky - was made in the context of a fear of another Japanese-style deflation in the U.S. Clearly, this fear is no longer present. Inflation, not deflation, is the prime concern.
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Next week -- "Big Lie #3"
...and another bone:
"Can you say -- formaldehyde?
SOTB
PS: For the permabull gold bugs: Do NOT under-estimate either the determination, or the ability of Central Bankers to stop inflation...nor their desire to remove speculation and excess liquidity from this market....or, the weapons at their disposal in which to do so.
...and what is REALLY different this time -- is that global central bankers are on the same page. |
