Wednesday, November 18, 2009

Hemingway's Proverbial "Bell" Is Tolling For the U.S. Dollar

I said to friends, family and colleagues way back in 2003 that the Federal Reserve and the Government were going to loot the public's wealth until there was no wealth left to loot (folks, this includes your retirement accounts).  We saw a major chunk of wealth ($700 billion) hijacked by Henry Paulson and transferred to the big banks via AIG.  Many of these other "TARP/TALF/SCREWME" Fed programs are backed by Treasury guaranantees and will ultimately end up with trillions in wealth transferred from the Taxpayers to the big banks and the people running the big banks, who are getting paid 10's millions to do "God's work,"  as per Lloyd Blankfein, CEO Goldman Sachs.

I mention this in the context of pulling some key quotes out of Stewart Thomson's latest freebie commentary (here's the link, the quotes below are from this article:  LINK).  The key point in this commentary (aside from his excellent analysis on the price action in gold), is that the Fed is in the process of massively devaluing the US dollar, which is an insidious and subtle way for them to confiscate your dollar-based wealth, including your IRA, 401k. any cash-equivalent investments like Treasury bonds, muni bonds, defeased munis AND bank savings and CD accounts.

Here is the key comment from Thomson's commentary with regard to wealth confiscation via dollar devaluation: 
The most important news item of the past few weeks is Dr. Ben Bernanke's statement yesterday.  He says he sees no overvaluation, let alone bubble-action, in the "asset markets". His number 2 man Kohn backed him up. This is a very powerful statement from the Fed. Note that he spoke of valuation more than price, and correlated the rise in commodity assets against the 64% rise in the stock market...Dr. Bernanke is laying out is that he doesn't care about $80 oil against a Dow at 10,000. He doesn't care what your food costs [are]. He's pretending prices are low and giving the green light to dollar devaluation.
The key point here is that the massive dollar devaluation going on right now is going to lead to a much higher dollar-based cost of living for everyone, especially as it translates into higher prices for imported goods, which make up a large portion of U.S. consumption.  The inflationary price effects of Bernanke's systematic devaluation of the dollar may not be obvious right now, but it will be in the next couple of years - and believe me, he is well aware of this fact.

In the meantime, as pointed out by Mr. Thomson, the entire financial media apparatus is trying to convince everyone that a massive, short-squeeze dollar rally is on the way - that the whole world is too bearish on the dollar and that will lead to a huge move up. Well, who do you think is taking the other side of this trade?  We know every huge institution and Central Bank that is participating in the dollar carry trade is feeding the market with a steady supply of dollars.  Furthermore, we are seeing most large-country Central Banks (and some small ones) using billions of dollar reserves to buy gold.  This is flooding the market with dollars as well.  Those are not exactly the conditions under which we would expect a big move up in the dollar.

Mr. Thomson notes:  The US dollar monthly chart is in a horrific situation. It shows many of the major indicators on sell signals. This is a disaster in the making, and Ben Bernanke has better chartists in the world at his beck and call. He knows the score, and the score is: Thumbs Down On The US Dollar.

In other words, despite the common view being propogated by the usual bourgeois-worshipped idiots (see Prechter, CNBC, Gartman) about an imminent move higher in the dollar, if you "follow the money," the money trail and the statements from Bernanke point to a continued depreciation in the value of the dollar.

All this is to say that you may think that you are being "safe" by keeping your money in dubious "higher quality" fixed income investment (bonds, CDS, money markets, etc), but the fact of the matter is that these are nothing more than stagnant cesspools of paper, the value of which is being confiscated by the Fed/Government thru the process of massive dollar devaluation AND the massive transfer of your taxpayer wealth from the Treasury to the big banks.  To ignore this ongoing process is to suffer the consequences of my warning back in 2003. 

The ONLY way to protect yourself against this devaluation is to move your money into precious metals and perhaps some investments based on hard commodities, like oil, natural gas and agricultural products.  And for those of you who think the mad rush by the public to sell gold to these cash 4 gold schemes is a sign of the gold bubble topping out, who the hell do you think is on the other side of that trade?  Smart money and Central Banks.  To emphasize this point, I will conclude with another key quote from Mr. Thomson's article:
Ben Bernanke and the US Treasury are going to revalue gold against the dollar. The mechanism is the US dollar carry trade, not a confiscation of gold. Joe Public doesn't have any gold, he sold his 2 carat ring to the pawnshop months ago.
Got gold?  How about silver, which is even better?


  1. Dave,

    Perhaps a bit off topic, but what are your thoughts on the conventional wisdom that the average Joe should simply stay the course and keep putting $100/month into mutual funds which track the stock market? When I look at a very long term chart of the S&P 500, that was probably a good strategy from 1980 to 2007. I'm not so sure about 2007 to 2035. I think this notion that the stock market "always bounces back" might really be tested. I'd like to hear your thoughts. Thanks!

  2. Anon,
    cannot speak for Dave, but dollar cost averaging is a myth. Remember all the millions the average joe with his 30k in a 401k will make on dividends as well!

    I like silver very much!

  3. The Fed and Wall Street Banks, who are puppeteering D.C.'s sickening charade from behind, what amounts to, a sheer curtain, are engaged in a time honored practice known in military circles as "The Pincer Movement".

    There are two sides to the pincer movement, and in this appalling case, one side of the pincer involves what Dave has already referenced, namely the alphabet soup of banker bailout rip-off programs. The other side of the pincer involves some modicum of stealth and focuses on the debasement of the U.S. currency. Both sides of the pincer serve the banker's ends which are to destroy their indebtedness on yours and my back. Their success depends on the complicity of the political class, maintained through well documented carrot and stick actions, MSM misinformation and propaganda, and last, but certainly not least, (drum roll, please) ignorance and cowardice on the part of "We The People."

    The already enacted side of the pincer (TARP, TALF, etc. etc.) amounts to a particularly thuggish robbery perpetrated in public in broad daylight, and the other side of the pincer movement might be likened to the sort of villainy engaged in by a skimming criminal accountant against a too trusting client who wakes up one day only to find that, where their assets are concerned, there is no there there.

    Why are they doing this? Well, let's start with the most obvious answer-but not necessarily a wrong answer for being so obvious- "they" are sociopaths, all genuine gangsters-and, if they are anything, the bank(sters) are that- are sociopaths to a greater or lesser degree. And so, being without a sufficient helping of conscience they have no compunction about ruining millions of lives. The second answer to the question posed, which follows on from the "sociopath thesis" is that they are doing it, because they can.

  4. @Edwardo: spot on in your last paragraph. i've been thinking a lot about how you learn about the corrupt tyrants of history in high school and you think to yourself "thankfully we live in a democracy w/a constitution and that can't happen again." Well, our democracy and constitution are shot and the Paulsons and Blankfeins and Summers are exactly the same psychopathic tyrants that you thought couldn't happnen in the U.S. in the 20th century....

  5. @Anonymous. "The market always bounces back" and "You need to dollar cost average" are the two biggest myths propogated and preached by those who stand to make to most off those concepts: Wall Street brokers and shit birds.

    Case 1: I don't remember the numbers off the top of my head, but if you look at long, long term 100 year chart of stocks, they go up about 3% per year on average over 100 years - AFTER you add in dividend.

    Case 2: I don't have the exact dates and numbers, but if you adjust the Dow for inflation, there was a peak hit in like 1965 and after that it took until the peak in 2007 to get back to the 1965 peak - AFTER the affects of inflation are calculated.

    Case 3: I don't have link handy, but if you look at a chart of the SPX priced in terms of gold going back to 1971, you would be horrified by what that chart looks like...

    And the above cases don't include adjusting equity returns by some measure of risk factor. On a risk-adjusted, inflation-adjusted basis, stocks are really bad investments over the long run - UNLESS YOU CAN PERFECTLY TIME YOUR ENTRY AND EXIT. I don't know anyone who can do that - ask Bill Miller at Legg Mason.

    I agree with gyc, silver is going to be a huge home run.

  6. Dave,

    Great blog. Just posted this on Adam Brochart's blog as well...

    Check out this guy's article from 2004 I just found:

    Absolutely wild how accurate his tome has been AFTER 2004. As they say, "History doesn't repeat, but often rhymes." If so, we *may* be on the cusp of the 3rd stage in next 2-4 years.


  7. Hey Bill. Thanks for the feedback and the link to a blast from the past. I used to subscribe to Hamilton from 2002 -2005.

    My view is that we are in the early innings of Stage 2. The announcement by Greenlight Capital that they converted GLD into physical under their own control and John Paulson's gold fund announcement yesterday are the signals that very smart institutional money are coming into the market.

    We are roughly 8 years into what could be a 20 year run in precious metals, depending on how quickly the world reinstates a gold-backed currency system.