Gary's Note: A little historical parallel never hurt anybody. Today Dan Denning has us cast our gaze to Rome and back a couple of thousand years in search of a metaphor. Read on below. And send your comments and questions to gary@whiskeyandgunpowder.com. Whiskey & Gunpowder
It's been a tough market to trade. There's no real momentum. No one really knows what's going on. One day, you're up three percent. The next, down four. Who knows why these things happen. The story making the rounds in the papers is that traders "cheered" the news that Tim Geithner, President of the New York Fed, would be Barrack Obama's new Treasury Secretary. He'd replace "Bazooka" Hank Paulson. ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Take Control of Your Retirement Today We're still offering our Emergency Retirement Recovery webinar exclusively to Agora Readers… But the offer ends tonight. Don't miss out. It's free and there is no obligation of any sort. Just click here to find out more. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ No word on Geithner is as good for Goldman as Paulson. But he has been one of the three big wheels behind the various bailout plans engineered by the Wall Street/Treasury Axis. He's a known known, as Donald Rumsfeld might say. And since we're going with the Roman metaphor, we'd say Geithner has been Caesar to Ben Bernanke's Pompey and Paulson's Crassus. Of course the first Triumvirate coincided with the beginning of the end of the Roman Republic. It was never official. Just three men calling the shots from behind the scenes. But it certainly marked the beginning of the Empire and dictatorship. Crassus was one of Rome's richest men. He'd put down the slave rebellion led by Spartacus in 74 BC (still one of Kirk Douglass' best performances, if you ask us). But he died fighting the Parthians at the edge of Empire at the Battle of Carrahae in 53 BC. Pompey lasted longer. He gained fame in Rome after defeating pirates in the Mediterranean in 67 BC. He formed an alliance with Julius Caesar in 59 BC and cemented in by marrying Caesar's daughter Julia. But when Caesar famously crossed the Rubicon in 49 BC and brought his armies into Italy for Civil War, he put Pompey on the run. Caesar chased Pompey all over Italy for a bit, eventually defeating him in battle and driving him to Egypt, where he was promptly assassinated by his own friends and beheaded. Tough place, ancient Rome. But back to the modern world. There are no financial Rubicons left to cross that we can see. They've all been crossed already. And we believe they all lead to inflation in 2009. The New York Times reports that Senator Charles Schumer wants the new stimulus plan to be around U.S. $700 billion. That would match the TARP, providing some classical symmetry. Gold must've noticed. It was up forty-three bucks last Sunday. In the spot market, gold's back over $800. By the way, Australian gold production fell by 8% in the third quarter, according to Bloomberg. Australia is the world's third largest gold producer. But high production costs are biting. In the bigger picture, gold traders and investors realize that the Great Fiscal Stimulation of 2009 is being prepared as we speak. President-elect Obama is conversing with his fiscal and monetary generals. He is marshalling his armies of inflation to go forth and multiply the money supply. If gold investors are right (and we think they are), the upcoming war on deflation should unleash the epic inflation we've all (except for Bob Prechter and Marty Weiss) expected. ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Closed to New Investors for the Last 6 Years — Now Open Again... In 2002, the same royalty "paycheck program" that paid out $50 for every $1 invested...decided to shut the door to new "members." In 2008, that door is open again...and it just got easier than ever to "make money while you sleep"... But that door closes again tonight at midnight, so check it out before it's too late… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Obama and his Consuls Geithner, Summers, and Bernanke are preparing the public for operation GFS 2009. "We now risk falling into a deflationary spiral that could increase our massive debt even further," the President-elect told Americans in a speech this weekend. He's right. The rising value of cash (in a deflation) makes debt harder to pay back (especially when you plan on adding so much more). That's why all governments everywhere prefer the policy of soft, slow-motion inflation. Obama does not represent change here. Just more of the same borrowing and spending we've had for years. Inflation gradually erodes the value of accumulated debts by allowing you to pay them off in an increasingly weaker currency. If you're having trouble with that idea, think about this way. Say you borrowed $1,000 twenty years ago. Twenty years ago, $1,000 had more purchasing power than it does today. If you inflate steadily enough, it gets easier to pay back your accumulated debts. $1,000 ain't what it used to be. The United States also enjoys the luxury of paying off its debts in a currency it prints. So inflating the debt away is easier than, say, defaulting on it because you don't have enough of the currency in which the debt is denominated. There is no reason to default, in fact, when you can print the currency in which your debts are owed. This is why we increasingly think inflation is coming. Up until now, the best laid plans of Paulson and his team have been focused on recapitalising banks and keeping the financial system from imploding. Deflating financial assets have chewed up that new capital, and prevented it from becoming new lending in the economy. But the next step is the reflation of household balance sheets. Wall Street got its bailout. Now it's Main Street's turn. Already, Obama's team has indicated it will let the Bush tax cuts expire naturally in 2011, rather than repealing them now. Expect an expanded foreclosure mitigation effort too. And eventually, a new government-backed refinancing plan will be floated to try and put a floor under U.S. house prices. Yep. 2009 is shaping up to be quite the year if you love big spending government with big plans. Yet here in Australia, the government seems scared to follow Obama's lead and go into deficit to "get things going." The unemployment rate will have to go higher, or house prices will have to fall further, before the Australian public demands more rate cuts and deficit spending (rather than resisting the latter). ~~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~~ Just Another Reminder… Just another few hours remain before our exclusive offer ends. Take back your retirement. Chris Mayer explains how…and until midnight tonight it's free and there are no obligations. Just click here to learn more… ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Here are a few problems to think about until next time. First, if you're a large owner of U.S. dollars and a major creditor to the U.S. government, and you see that the U.S. won't default on its debt but instead, inflate it away, what do you? What policy levers can you pull to exert influence on your debtor? Second, what happens to the world's stock of available savings when governments start hoovering it all up to be used as fiscal stimulus? Does it crowd out private investment, leading to fewer new jobs, and a prolonged crisis? In other words, is the big government push to "fight the crisis" actually setting it up to be much longer and more painful than it otherwise might? Regards, Parting Shot: Ut Roma cadit… That last question is a very good one. I wonder…will government intervention help or hurt? Yes, I wonder… And here's an anomaly. The central bank creates a crisis by issuing too much credit. Then in an effort to fight the inevitable credit contraction comeuppance, someone at the central bank wedges a brick onto the printing press gas pedal. Surely there is no historical precedent for this sort of thing. Pure editorial conjecture: this deflation is a head-fake. Expect an inflationary fist to follow. The Whiskey Bar is still getting littered with e-mails about Don Stott's article…and most of it is still full of hearty approval. I get the impression that most of you would love a chance to slap Don on the back and buy him a drink. Some of you have offered to vote for him should his name appear on the Presidential ballot. For every five Shooters who said "amen," however, there was one voice questioning Don's sanity and my judgment. Largely at issue was that Don would have the audacity to categorize certain people as trash. But they are. There is a world of layabouts, ne'er-do-wells, hustlers, stick-up men, pimps and parasites. They take at gunpoint and at the ballot. And their numbers tend to increase till their host organism is dead. To the ant, thou sluggards! The other issue that's came up once or twice was the pointlessness of this sort of rant. I was reminded by a Whiskey Shooter that my job is to provide investment advice. Really? In a free e-letter?? I thought this was a macroeconomic overview with a libertarian and hard money bias. But he has a point. We pride ourselves on telling you how things should be and how they tend to work out…and how you may want to position yourself to benefit as we fluctuate between ought and the continual tragedy of what usually happens. We use history as the precedent and human neurology (human nature) as our compass…and we keep our tongues in our cheeks…but when we do open our mouths, you should expect the occasional harangue to slip out. Actually, if it's helpful specifics you want for free, we have just the thing right here — harangue-free! No cost, no obligation, but supplies won't last forever. In fact, we're ending the offer tonight at midnight. It's exclusive to our loyal and long-suffering Agora readers. I think you'll like it. Till next time, |
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