Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Gold – The Battle is Already Won

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Warning Slopers… GOLD BUG ALERT!!  😉

This morning's email from gold general Jim Sinclair – under siege yet
again from the troops in the "community" – prompts this morning's post.

Mr. Sinclair often writes with a war mentality pitting the gold
community against the evil bullion banks – and a good chunk of the rest
of the financial world.  Don't get me wrong, I think there is plenty of
evil out there (it seems that on Mondays following a meeting or
conspiracy of the assembled dignitaries in the G20 my investment
accounts take the hit) but apparently a good chunk of the "community"
gets its panties all in a bunch every time gold takes the hard hit.

 That is because nearly 10 years into the secular bull market in the
rebellion against dishonest monetary systems a casino mentality – so
well formed through the previous 20 year secular bull market in paper
assets (stock certificates, bonds, derivatives, etc.) – remains intact. 
This includes a great number of self-described gold bugs in my
opinion.  In other words, the "community" does not tend to believe its
own bullshit on balance.  If they did, they would see opportunity or at
least sit tight during these phases that have been all too common all
the way up since 2001.

There is an opportunity to own value shaping up and I suspect the usual
casino players will fail to capitalize while the minority capitalize
once again.  Missed the last buying opportunity this space identified in euros?  Well, another opportunity is on the way. 
Who will capitalize and who will be immobilized by fear?  Gold in USD
is also presenting an opportunity.  In fact, name me a major developed
society that is not tramping out its currency for the purpose of
manufacturing politically expedient economic growth and I will show you a
society of relative value from an investment standpoint.  There are
those in ascension and it is no coincidence that those are targets for
my investment dollars in the big picture.

For now, gold is a monetary value anchor and in a world of eroding
confidence in politicians and policy makers who use official paper and
digital money, gold represents value; nothing more, nothing less. 
Still, it is always great to exchange confidence paper for value when
value goes on sale.  You do not buy gold when everybody loves
it.  You understand who you are and if you perceive that your personal
situation is in need of this value anchor you buy gold when the public
hates it, when the speculators (ultimate casino patrons) are dumping and
you-know-who is buying or buying to cover.

The battle was won in 2008 when an uber-opportunity presented, most
failed to capitalize (thank you deflation proponents) and then snapped
back faster and better than most other assets and asset classes.  Is a
drop to 950 (on radar for many months in NFTRH) out of the question? 
No, nor is the long term battle line at around 870 for that matter.  Do
you think anyone who has understood what is and is not monetary value
since 2001 is pained by these numbers?  They are just numbers and they
are 150-200% above cost basis in many cases.  And by no means are these
downside targets shoe-ins in my opinion.

So whatever you do, sit tight and realize that what is happening now is
all part of the game and for some it is a time of opportunity as value
goes on sale.  It is really no more complicated than that.

Gold

Chinese Treasury Dump Brings Holdings to One Year Low

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Go here and read the Zero Hedge piece Chinese
Treasury Dump Brings Holdings to 1 Year Low if you have not
already seen it: http://www.biiwii.com/analysis

If
England is allowing us to monetize our debt under some kind of covert
agreement, it is probably not much different than the tools that the US
would use to directly monetize its own debt, given the cozy relationship
with our friends in the UK.

What is next, the seemingly way out
there prospect of Congress directing individuals to hold these treasury
instruments in their IRA's? You hold an IRA, you are in bed with the
government as they extend to you tax benefits in exchange for your
compliance and adherence to convention.

A couple years ago we put
an addition on our house. How'd we fund it? A loan? Ha ha ha…
regular after tax brokerage savings? Are you kidding me, I worked hard
for that 'money' and paid my taxes on it. It's mine. No, I liquidated
funds from the IRA's and paid the penalty and taxes up front.

I
have not contributed squat to the IRA's since my financial awakening.
After a financial adviser lost us 60% of our IRA's in 2000/2001 and I
yanked them away to learn portfolio management on the job, they are up
about 240% – adjusted for withdrawals and what not. This is the NFTRH
"Speculative" (as opposed to "capital preservation") portfolio.

The main point is that I do not regard
IRA's as serious investment accounts (although they are mighty
convenient vehicles up until liquidation) and have been on alert for
years as to stirrings in Washington about policy that may target these
massive repositories in waiting should the inflators become yet more
desperate for treasury buyers. England is a lurch in that direction if
what Zero Hedge speculates is at all near target.

Either way,
this is inflationary. The confidence in the long bond is not what the
chart says it is.

Inflation Impulse?

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Here is an excerpt from NFTRH89 centering on inflation/deflation
dynamics currently in play. You know, humans being intelligent but
herding animals, tend to flock toward one easily understood or
rationalized pole or the other when it comes to the inflation/deflation
debate. But folks, unfortunately this is not a one size fits all
situation. There is inflation by policy and there is deflation by
nature, and there are assets to own and others to avoid.

More
and more I find that my newsletter is a specialty thing and that I do
not speak to anything even resembling a majority of investors. While I
am loath to tout NFTRH with a typical 'try our monthly subscription for
more insightful blah blah blah…' I will say that if you are looking
for something different with a track record of remaining on the right
side of events, check
it out. Some might consider it a good thing that the letter does
not speak to the majority. We are setting up for a great opportunity in
the gold stock sector after all, and for that opportunity to play out, a
counter party must exist.

Inflation
Impulse?

You may have seen my 2005 conversation
about deflation with Rick Ackerman noted on
the blog recently. That was
probably about the time I came up with the term “deflation
impulse”.
It was a way of illustrating the view that systematic and ongoing
inflationary
policies are periodically interrupted by the need of the
economy, markets and financial
system to purge themselves of the
toxins routinely injected by policy makers on a
Keynesian
business-as-usual continuum of diminishing returns.

The
diminishing returns are of course measured in our gold ratios like
Dow-Gold, for
example, in which the Dow has endured a sustained bear
market in ‘real’ terms. Since
the inflationary saturation point in
2000, the anchor to real money – gold – has acted as a
light of truth
shone upon the people who control ‘official’ money and thereby attempt
to
control asset markets. I think I once wrote an article comparing
gold to the kid in 5th
grade who used to sit in the front row, hand
up and ready to give every answer – not to
mention tattle on other
kids for a few more brownie points. That is gold’s role in the
sordid
world of modern money.

Not that it matters much to our analysis,
but when reviewing the long-term monthly chart
of the yield on the
30-year bond, it occurs to me that it is probably more appropriate to view
our often-watched exponential moving average 100 as the deflationary
‘backbone’ that has firmed up Greenspan, Bernanke, Summers and
Geithner over decades of inflationary monetary policy ON demand.

Tyxmo

Each time long-term interest rates have risen toward the EMA 100 –
attended by bouts of
rising inflation fears – they have been repelled
(red arrows), as economies and/or markets
have weakened and talk of
deflation once again hits the media. This is the ‘Prechter
fright
mask’ theme I sometimes have fun with on the blog. This dynamic is
critical to
policy makers’ ability to keep the game going. No stable
T-bond, no ability to monetize
confidence in the bond.

We are
on a deflationary continuum against which monetary policy is eased in
various
ways and with varying degrees of intensity backed by the
confidence implied by the
EMA 100 backbone; there is implied
confidence in the Treasury because each time there
is a bout of
deflationary activity, ‘investors’ run en masse to US Treasuries. Early
subscribers
may remember the ‘Lyin’ Larry’ theme that NFTRH came up with at the end
of
2008 when Mr. Summers very publicly cajoled the fearful masses to buy
the safety of
US Treasury bonds, right into the teeth of an oncoming
inflationary impulse that brought
the yield on the long bond all the
way back to the EMA 100. The fearful lemmings were
summarily blown up
as inflation players once again went full tout.

So is this it,
the final deflation? If so, a world of assets is going to decline hard
and
opportunity is going to present for the ‘D Boys’ to finally buy
all those assets from all
those frightened and naive inflation
believers.

Or are policy heroes preparing a mother of an
inflation yet to come, with the recent
decline in yield from the EMA
100 and the confidence (and mandate to inflate) that
would come with a
continued decline? The chart tunes out the inflation/deflation debate
and
simply states that for now at least, it is business as usual.

Nothing
has changed over decades – although the impulsiveness of the 2008
decline can
be read as a warning that things may have become more
unruly in the macro markets.
But even here, this begs the question of
whether that was an initial downward thrust
toward deflationary
resolution or a harbinger of an equal and opposite inflationary
reaction?

As
has been the case since the ‘Hope 09’ rebound got strongly underway, I
am not going
to read too much into either potentiality. Rates have
neither strongly declined nor busted
our EMA 100 ‘back bone’ or
‘inflationary line in the sand’. Until one or the other
presents, we
remain on the business as usual continuum where implied confidence
remains
with our policy makers and they can be expected to do as they have done
throughout
the continuum; they will sell treasury bonds and monetize the debt in
an
attempt to keep business-as-usual intact.

Smart investors
stopped listening to Lyin’ Larry long ago and got off the modern
financial
Ponzi grid. It is really so simple… pay off debt, own insurance in the
form of
gold, have ample cash as long as confidence remains in fiat
currency (don’t fool
yourselves, this confidence remains embedded),
become involved in productive endeavor
whenever possible, and with an
inner smile that comes from knowing you’ve done your
best to get
your house in order, go forth and speculate if you so choose.

To
summarize the NFTRH stance, I would say that the structure of the macro
situation is
that of a deflationary continuum against which free
license is given to policy makers to
continue their regime of
inflation on demand. Every time there is stress in the system
(US
credit contraction in 2008, European one in 2010 for example) inflation –
in the form
of debt-based money supply ramp up – is brought forth.
This cannot continue forever but
it takes a greater thinker than
myself to be able to call it a wrap right here and right now.
Eliminate
debt, own value and pursue productive endeavor.

NFTRH86 Excerpt – Currency (by Biiwii)

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Here is the 'Wrap Up' segment from the
15 page NFTRH86, which went in depth on a range of
relevant issues currently facing financial markets:

Currency

Euro hype to the
upside was expressed for years by touts who had presented a picture that
it was just the big, bad USA alone that had major problems. All along
as a public writer and then in NFTRH I had
presented the euro as just another piece of paper with no real value
backing it. So recent events are somewhat refreshing from the standpoint
of the analysis, which sees major currencies in a race to the bottom
[of the barrel].

It appears that the mania toward the opposite
pole from over-bullish has gone too far however, and the euro can rally
at any time, possibly providing a good relief story for the broad market
to pin its ‘hope’ on once again. Similarly, the US dollar has expressed
itself in ‘too far, too fast’ fashion amid the euro hype.

The
euro just made a weekly close above important support while Uncle Buck
remains below the highs last seen during the worst parts of Armageddon
’08. Again, this is a picture of potential short-term relief for many
markets, first and foremost obviously, the euro. Longer term, these two
debt backed basket cases are featured players in the race to the bottom
in the currency world. All major currencies are contestants in this race
by the way; at least all major paper currencies. That is how pervasive
the ‘debt as economic fuel’ ethic of the current global economic system
has become.

Euro-usd

While on the subject of currencies, let’s have a look at the progress of
gold as measured in a few of them by way of our Gold-Dow,
Gold-Currencies ratio chart. The breakout in Gold-Dow from its Hope ’09
consolidation is very early in its progress. While there can be some
post-breakout chop and grind, the risk vs. reward in gold vs. Dow is
favorable.

In the currency panels we see gold correcting from
over bought in British Pounds and euros after having achieved the rough
upside targets of the Cup ‘n Handle patterns. Further upside is
projected after some corrective consolidation. Gold in Canada dollars
breaks out from the handle but hits resistance at the rim of the cup. It
looks to go higher after dealing with this resistance. Gold-Aussie
dollar was noted previously as not being a cup due to very low right
side, yet was bullish above support. This expressed well in a strong
rise up toward resistance.

Gold-dow

We are in the age of natural economic contraction being fought by policy
makers in the only way they seem to know; leveraging confidence in
their respective currencies into debt creation in a massive, world-wide
funding scheme. How long can this work? Perhaps longer than you or I
could hold out if we take a strong, active stance against it.

The
last year of euphoric bullish activity tells us something, and that is
that the masses are not yet ready to accept that the Fed, Treasury and
their counterparts around the world cannot ultimately control financial
events. So by definition, a confidence scheme runs as long as its one
underpinning – confidence – remains intact.

Biiwii.com
Biiwii.blogspot.com
Notes From the Rabbit
Hole

“Sell Gold, Buy Oil: The Numbers Are Clear” Oh Really? (by Gary)

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A website called Chart Facts
has an article on SeekingAlpha called Sell Gold, Buy Oil: The Numbers Are Clear.
While attempting to restrain some of the sarcastic tone I sometimes
exhibit, I would like to critique this article point for point.

"Gold has witnessed a meteoric rise over
the last 10 years. At $1,193 per troy ounce today, it is now up over
300% (15%/year) since the start of 2000. By comparison, the S&P 500
is down 24% over that same period. Oil is up over 170% (10%/year)."

A
secular change occurred in 2000. This new era has seen ever more
intense monetary policy being used as THE
primary economic fundamental underpinning; in other words, the age of
inflate-or-die is upon us as economies begin to wheeze and lock up in
the absence of liquidity that feeds them (as opposed to the productivity
traditional growth economies once used). As blog readers know, the
Copper-Gold ratio has been used to illustrate the inflate-or-die dynamic
as well as indicate a recent bearish divergence to asset markets.


Cgr1

"While gold may continue to trade up
for some period of time, history predicts that the when the gold run
ends, it will end badly. That is to say that the fall could be fast and
far. Since Nixon took the country off the gold standard in 1971, there
has been only one other gold rally on the order of the current one. It
began in Aug 1976 and peaked in Jan 1980. Gold increased over 700% in
less than three and one half years to $825. Unfortunately for those who
bought on the way up, gold proceeded to shed 64% of its value over the
next two and one half years. Worse, for those who thought “it will
come back,” it took almost 28 years for gold to eclipse its Jan 1980
high in Dec 2007. On an inflation adjusted basis, even the enormous
recent run has only brought gold back to just over half of its Jan 1980
peak."

Thank you
Paul Volcker. Anybody see any policy makers out there with Volcker's
combination of guts and available policy tools? Articles that implore
you to beware the 'gold bubble' (which has not even gotten started yet, I
might add) often highlight how badly gold underperformed in the 20 year
post-Volcker period during which Alan Greenspan, the financial services
leviathan, and an overall ethic of greed sucked the life out of the
wellspring of financial resources the former Fed chairman had injected
directly into the productive economy thanks to his stern monetary policy
and resulting rates of interest.

Yes gold under-performed as I
suppose, it should have. But the gold-bearish articles always seem to
ignore the other side of the coin; it has a lot of catching up to do,
still, at $1100+ an ounce.

"So,
how does one determine when the end of the current gold bull market is
near? No one knows. Many are buying gold as a hedge against
anticipated inflation. But, inflation is nowhere near where it was in
the late 1970s. Specifically, on an unadjusted basis, year-over-year
inflation in April was 2.2%. That was largely in line with an average
reading over the last 25 years and a long way below 8% to 14% readings
being registered during gold’s last spike. While future inflation may be
in the cards, it would have to increase an awful lot from current
levels to justify the recent run in gold. And, it likely has an uphill
battle against high unemployment and a Fed that is at least saying the
right things."

Here comes the convolution; if inflation
were busting out (our monthly EMA 100 'line in the sand' on inflation
fears remains intact) this would indeed signal the coming of an era to
consider the potential of oil, industrial metals, agricultural
commodities and many other resources to keep up with, and perhaps in
some cases outperform, gold. Although, depending on what said
inflationary spike does to economic growth, that is no given.

The
current system operates on a series of liquidity draw-downs, which pump
life into the primary economic funding system; namely, confidence in
the US treasury market. Here is the chart I did months ago to
illustrate. It is updated to current status and shows that the 'line in
the sand' has held and funding may continue.

Usb1

The monthly EMA 100 represents a continuum during which all crises have
been met with debt-fueled funding. The problem since 2000 has been
illustrated well by various ratio charts often posted here; things like
the Dow-Gold and Copper-Gold ratios have shown clearly that growth over
the last decade has been hugely dependent on monetary policy born of
debt creation (monetary policy to which gold is very sensitive) vs.
productivity.

I agree with 'Chart Facts' that inflation has been
muted, at least its effects
(that's important) have thus far been so. But this is an era of
'deflation impulse always met by inflation policy'. Look at how poorly
oil performed vs. gold during the first real deflationary episode of the
'inflate-or-die' era. So yes, I am in agreement that inflation is
muted (from the perspective of its 'effects'), which is precisely the
environment for gold as policy makers will feel ever-more empowered to
meet economic contraction with new inflationary policies after being
given the green light by the Treasury market; you see?

Gold1

"Maybe the better question to ask
about gold is whether, given its performance, there are better
investments at the moment. On the corporate side, an ounce of gold will
again buy the S&P 500. Before the recent run, that had not been
the case since Feb 1991. And, with corporate earnings after tax (also
plotted on the chart below) showing recent traction, there are good
reasons to believe that the S&P is not overvalued. Addressing the
inflation concern, stocks generally provide a good inflation hedge over
the long-term. The risk right now, however, is that the European
issues could put pressure on the corporate earnings which support the
S&P."

I saw this advice at gold 350, gold 420, gold
600 and so on and so forth. Here's the SPX-Gold ratio from well before
stocks topped out in secular fashion in ratio to gold. The nominal
price of gold is shown as well. All the way up we have seen this type
of analysis by gold bears. Gold has made up a significant portion of
the value gap, but in light of the inflation policy baked into the
system (and reflected by $Trillions in unpayable – save for devaluation –
debt) and considering that secular trends often run around 20 years
(just like the previous one in paper assets), there is a long way
further to go in gold's outperformance vs. the broad stock market.

Spx-gold1

As for corporate earnings "showing recent traction", I think it is
better to be forward-looking, don't you? Copper, oil, China… the
tools of the inflationary growth trade beg to differ with this analysis.

"Taking it all the way down to the consumer
level, an ounce of gold will currently buy you about one year’s worth
of gasoline here in the US. Specifically, it will purchase almost 430
gallons at Monday's $2.86/gallon. With data available back to the early
1990s, that had not happened prior to the last two years. A very
quick, very informal survey of non-money managers who live near me
failed to turn up any people who found an ounce of gold more valuable
than one year’s worth of gas for their cars."

The very
same money managers who did not see the 2008 crash coming despite at
least four years of clues. Next…

"Translating that to oil, a commodity easier to invest in than
retail gasoline, an ounce of gold will currently purchase 17.1 barrels
of crude oil (Cushing, OK). Since the start of 2000, that number has
averaged 10.8. (Interestingly, it average 18.6 from 1983 to 2000, but
that was before China and others made themselves felt as growing global
consumers of oil.) More importantly, oil is a key consumable of the
growing global economy. Unlike gold, it is easy to point to fundamental
economic activities that are likely to continue to drive demand and
price for oil up regardless of market vagaries."

If there is real and
sustained economic growth you are right sir, gold will underperform; as
it should. Is there real and sustained economic growth? Again, see
China, see copper, see oil (all of which will rebound and decline within
an overall deceleration of economic activity before the next
inflationary growth spurt.

"One
strange correlation that has crept up in the last 15 years that might
continue to support gold prices is the relationship between the
direction of gold prices and the direction of US debt to GDP. US debt
to GDP peaked in 1995-1996. When it began to turn down after that, gold
prices headed down as well. When debt to GDP bottomed in 2001 and
began to trend back up, gold turned as well. Both have been on a steady
march up since then. Unfortunately, the Obama 2011 budget has debt to
GDP steadily increasing over each of the next 10 years.

Nonetheless, with a growing global economy
and current relative prices, oil is likely to be a better returning
investment over the medium to long-term."

A lucid and
sane paragraph is followed by more convolution. A "growing global
economy" owing to $Trillions in unpayable – short of default/devaluation
– debt will contribute to the sustainable economic growth that things
like oil, industrial metals and the stock market will need to outperform
gold?

I have heard this all before; at 350, 420, 600…

biiwii.com
biiwii.blogspot.com
Notes From the
Rabbit Hole