The move was reportedly intended to help the housing market by lowering mortgage rates and encourage businesses to start spending the cash they are hoarding, but investors reacted by selling off equities. The FED appears to be running out of bullets and the only true way that they could help the economy is to announce their dissolution.

Inflation vs. Deflation

It has been a while since I’ve commented on the inflation vs. deflation debate. It is a confusing thought to ponder, especially if your goal is to walk away on one side or the other. After all, intelligent minds argue forcefully on both sides. But I believe that we can have both inflation and deflation at the same time.

The massive amounts of stimulus and money printing over the past few years have been undeniably inflationary. There is significantly more fiat paper in existence today than there was in 2008. But the velocity of money has decreased significantly, meaning that cash is not flowing through the economy and exchanging hands at a very fast pace.

In addition, the larger portion of the overall money supply is credit, which has contracted sharply. Banks are not lending to individuals or businesses, while most of the new money created has benefited only a small segment of the population. This creates a scenario where there is some degree of monetary inflation, especially in cash-based markets, (food, energy, stocks, etc.) but very little inflation overall, particularly in credit-based markets such as housing.

With this massive credit contraction, lending has slowed, manufacturing has slowed, unemployment remains high and GDP growth is anemic at best. Economies can not grow when credit markets are frozen and this is the current state of economies across the globe. GDP growth has failed to keep up with debt growth and all of the toxic derivative creation has brought the world economic system to the breaking point.

I believe we will eventually have inflation or even hyperinflation in America, but we are currently in a deflationary dip that has yet to run its course. The final outcome is likely to be stagflation, a period with high inflation and low economic growth. Keynesians may be confused to see both occurring simultaneously, but the real issue is the how difficult stagflation is to overcome.

Why Gold and Silver are Collapsing

Gold is down more than $300 or roughly 16% in the past few weeks. Silver has lost nearly 40% in the same time period and the mining companies have also been hit hard. This decline in precious metals has been driven by funds scrambling for liquidity, the CME hiking margin rates and a stronger U.S. dollar. Many also suspect that the banks helped to manipulate the price lower in order to cover as many of their underwater short positions as possible. JPMorgan and their cohorts control the paper markets and can use their leverage to manipulate the spot price to whatever level they want in the short term. This is done via “stuffing” trades and using a variety of other methods to make the markets believe that there is considerably more selling pressure than actually exists. This is particularly profitable as options expiration is this week and the current smack down will leave most options expiring worthless, in addition to providing an opportunity to exit short positions.

But despite the apparent manipulation, JPMorgan has been woefully unsuccessful at suppressing the price in the long term. After all, gold is still up 25% and silver 40% in the past 12 months!

Parting Shot

Investors have to determine whether we are entering a new deflationary chapter that will result in a prolonged period of depressed prices for gold and silver, or whether this is another short-term correction and buying opportunity. While I am usually quick to view these dips as excellent buying opportunities, any number of events could push the global economic system over the edge. In such a scenario, investors will likely continue to dump precious metals and mining shares, throwing out the baby with the bathwater in a panic. But the monetary metals are likely to bounce back quickly and the downside risk at this point seems rather limited.

If the market does not fall apart quite yet and the Bernank decides to announce another massive stimulus, gold and silver are going to spike to new highs in no time. This is the scenario that most investors have been waiting for, although the electorate has lost their appetite for such bailouts and the political will has all but dried up. Still, more QE and bank bailouts will be necessary to avoid financial collapse in the short term, so my bet is that we will continue to see quantitative easing, even if it isn’t announced officially by such a name.

No matter how our central economic planners decide to deal with this ticking time bomb, I’d rather be holding gold and silver than any other asset class. They have been money for thousands of years, have held their purchasing power under a variety of adverse conditions and have proven to be an effective safe haven asset. Safety should be a growing priority for your investments these days. First Mayor Bloomberg predicted riots would hit the streets of America and now Geithner has hinted at the possibility of bank runs:

“The threat of cascading default, bank runs, and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally,” the Treasury chief said. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe.”

I suppose you could follow Buffett’s advice and be greedy now while others are fearful, but I’m not sure that old adage will prove profitable this time around. I am going to avoid most equities, opting only to hold quality miners at this point. And while cash might be king during uncertain times, the only form of money that I am holding is the precious type. If you have been waiting for an opportunity to buy precious metals and mining stocks on a dip, I think this will prove to be an excellent entry point. With the world aflame and protests finally spreading to America, this is a good time to get positioned and prepared for uncertain times ahead.

The Technical picture then took on a life of its own, with support level and resistance points gaining total credibility. The damage changed the attitudes of developed world investors cutting down the involvement in highly risky positions, all but eliminating the fly-by-the-seat-of-his-pants investors. An investment ‘soberness’ kicked in. During the years since 2008, financial markets have taken a different view of risk and such over-leveraged positions have been curtailed. Futures and options markets have raised margins quicker and more decisively than before, limiting such catastrophic losses to a large extent. That does not mean it won’t happen; it will, but to a much lesser extent.
Investor Recovery

In 2008 it took nearly 18 months for precious metal prices to rise to new highs. Equity markets recovered but have simply regained former levels at best.

With far greater restraint in the markets now, investor recovery will be faster and more conservative, guarding against holding risky positions for too long. Speculators and Traders will be far faster in closing and opening positions, moving with the market more rather than fighting to make it move. This does not eliminate volatility but it does speed it up and shorten market reactions. In fact, expect greater volatility!

So we ask how long will it take for investors to recover from their losses and re-enter the markets again. That’s impossible to say. In the case of the precious metal markets, the question should be, ‘how long will it take for the markets to realize the dangers facing the global economy will make the wealth-preserving nature of gold and silver visible to the bulk of global investors.” The answer to that question has changed somewhat since 2008.

Since then the emergence of the Chinese and other precious metals investor has jumped significantly as the growth of their middle classes has climbed exponentially. These people are savers of up to 40% of their income and of the total income invest around 7% into gold or silver. This fundamental demand facet is new since 2008.

In the developed world, the concept of silver and gold as counters against both inflation and deflation have become more accepted.

Non-leveraged investors make up the vast bulk of global investors and recognize the signals given by the markets we now see around us. After their strategy meetings, such risks are factored in and portfolio adjustments made. In the current investment climate, such adjustments are quicker to realize the benefits of precious metals and a larger proportion of the portfolios assigned to precious metals. Heavy falls then give their dealers ideal entry points.

Once the traders and speculators have enjoyed the froth in the markets, they will back off in the face of real demand. This will allow the prices to ‘floor’.

Combine all these factors and you can see that compared to 2008 the time for investment recovery in gold first, then silver, will be a far shorter process than it was in 2008.
Gold Bought in Deflation, by Central Banks

What is more apparent since 2008 is that precious metals are a haven in deflationary days. Gold is both an asset and cash, around the entire globe. In this global environment with worldwide, web-like, banking systems, gold is the one international item that is an asset to all, free from governments. Gold has moved back to the center of the world’s monetary system where banks who are finding it difficult to raise loans at reasonable prices, are using gold as collateral to facilitate. Gold is now a viable, monetary asset and no longer a barbarous relic. The demand from emerging nation’s central banks in the last two years has confirmed that. Their buying on the dips, when there are fair quantities to be bought, testify to that. This sort of buying is price insensitive, persistent, and likely to be very much alive with a gold price in these regions.

As the “Gold” waters receded, the diehard deflationists have run out onto the bare sea bed to whoop and holler that the sea of Dollar Inflation is ending. They currently hop about the nearby sea floor waving their arms in victory as they envision a catastrophic deflationary depression that will wreck the financial market back to the Stone Age, and the price of the Precious Metals along with it. Unfortunately, they fail to understand the wave cycle at work as the waters are sucked away from the shore only to strengthen the Gold tsunami wave that grows in the distance For the great Gold tsunami wave is being bolstered as the economy deteriorates, thereby necessitating a continued parabolic growth of printing of paper currencies worldwide. Where the first little parabolic rise in Gold merely caught the attention of the public, the growing strength of that wave as it reaches shore will leave everyone running for the hills of Gold and Silver.
The Fed Shows Inflation When They Want To and Deflation When They Want To

Last week, the Fed met for a special two-day meeting that ended with a dull thud as they announced “The Twist” that sounds a bit like a dance from the 60s. They also stated that the economy was weakening – economic weakness that has motivated them to aggressively inflate the US Dollar for 10 years, now. Yet, market expectations were for the Fed to announce another round of Dollar Inflation via QE3 at the special 2 day meeting so the markets sold off in response to the failure of the Fed’s announcement.

What occurred in the Precious Metals markets seems a bit absurd as Gold and Silver were pounded aggressively lower in price though the Fed often leads rounds of Dollar Inflation with suggestive hints of deflationary pressures. To some extent it defines the need for their move, and it probably intends to show that they are in control of something that they cannot control. The massive deflationary backdrop of debt demands that they either “inflate or die.”

Commentators noted that the exaggerated fall in Gold, Silver, and in the PM stocks resulted from margin calls “where investors sell what they have to sell.” Yet, the extent of the weekly fall in the DJIA was rather small compared to the 2 week fall back in early August – a time when Gold, Silver, and the PM Stocks moved higher. A more likely cause for the fall in the PM sector lies in the Fed’s failure to announce QE3 as it pointed to economic weakness, combined with this coming Tuesday’s Gold and Silver options expiration date – a monthly bashing that generally sees Gold and Silver whacked to lower levels. Further downside pressure on the PM sector probably stems from big trading firms reversing their “long Gold/ short PM stock ratio trade.” The large swings in the Gold price over the last 30 days provided the volume they needed to sell paper gold, and to cover and accumulate the Gold and Silver shares. Given the timing one has to wonder whether these large traders are the same firms who trade for the Market Stabilization Fund, and if they knew in advance that the Fed would tip its comments to deflation this week.
The Gold Chart

The following Gold Chart shows that the cyclical tendency since early 2009 has been for Gold to bottom at the green arrows with Gold correcting down to and through the dotted Bollinger Band (BB) mid-line to hit the 34 week exponential moving average while the RSI Indicator approaches the 50 line. Gold fell to the BB mid-line on Friday as the RSI approached the 50 line. Black rays off of the 2008 top show that Gold has been bottoming at each black line extended over the “last top.” Gold reached that juncture on Friday. We might see Gold weakness early next week, but we expect the basic relationship to hold. Near this point in the 70′s Gold Chart, an imminent bottom produced a sharp rise.

REVIEW OF OUR EXPECTATIONS
A major bottom for the PM stock indices is now in place as we laid out for subscribers (see HERE for subscription details) early in the week of August 8th based on the fractal relationship to 1979.
Price and the technical Indicator readings for the PM Stock Indices continue to track the 1970′s with much higher prices expected in the intermediate-term. Per the 70′s PM Stock Model we expect this run to be the first, and smallest, of 3 momentum runs to come for the PM stock indices over the next few years. The mid-900s appear to be a realistic target for the HUI Index into year-end, or into early 2012.
We have reached the point in the cycle where leverage returns to the PM stocks with a vengeance per the late 1970s charts.
The fundamentals for Gold, Silver, and the PM Stocks could never be better. In fact, the Fed’s announcement this week was read as “deflationary”, where in reality it screamed, “We must launch an accelerated program of Dollar Inflation, and soon!”
Gold has now corrected in a very similar time sequence to the late 70′s, though the depth of the correction has been deeper over the last 2 days. Current Gold price relationships to the Bollinger Band mid-line and 34 EMA line suggest that an intermediate-term bottom is likely due this coming week. Such a bottom would fit the 70′s model nicely.
The US cannot pay its “regular bills” and interest on its debt, based on its current cash flow, much less cover other important needs that are growing astronomically. We now depend on the Fed printing an accelerating number of Dollars. This is what QE is – pure debt monetization that devalues the US Dollar aggressively. For the U.S. economy, it is either “print or die.” We expect that the Fed will print while acting like they have some choice in the matter other than a total Deflationary Depression. This fact has been true since early last decade.
The Fed generally appears to prefer to see the prices of Gold, Silver, and the Commodities correct to create overhead resistance on the charts before they announce Dollar Inflation moves. That is probably what was intended via the announcement at their special 2-day meeting creating the exaggerated fall in the PM sector this week – coupled with the usual sharp weakness going into Gold and Silver options expiration, next Tuesday.
With the big funds ending the long Gold/ short PM stock ratio trade, the PM stocks should be heavily supported after this bottom is complete.
The long-term PM Stock Model from the 70′s suggests that we will be entering the “sweet spot” of a 3rd Wave advance as soon as this correction is over.
Our upside targets for Silver for this run into late 2011/ early 2012 of $52 to $56should be achievable for silver, with $58 to $62 as real possibilities.
We still expect all of our intermediate upside price objectives for Gold to be reached by late this year, or early next. We expect the next run in Gold to reach the $2250 level and $2500 level before a higher run takes us up to $3,000 Gold, or higher.
The recent exaggerated decline in the PM sector will likely act like pulling and letting go of a huge rubber band in terms of how the PM sector will advance after this correction ends.
An end of the aggressive and accelerating course of US Dollar Inflation at this time by the Fed would create a deflationary depression that would dwarf that of the 1929 era yet the Fed has gained the right from Congress to inflate to infinity if necessary. That right is the major difference between today and 2008 when nobody could foresee the Fed moving to aggressive Dollar Inflation via debt monetization after they blew out the banking multiplier loan system of Dollar Inflation. Debt monetization, QE, is a more permanent form of Dollar Inflation that cannot easily be reversed, thus the Dollar Devaluation via QE will be mostly permanent leaving a more permanent high price of Gold when it is all over.
We believe that we lie at a “load the boat moment” in this historic Gold and Silver bull for Gold, Silver, and the PM stocks.
Summary
The mid-900s appear to be arealistic target for the HUI Index into year-end, or into early 2012.
$52 to $56 should be achievable for silver, with $58 to $62 as real possibilities, by late 2011/ early 2012
The next run upward in Gold to the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, is now on the radar screen for late this year

Gold’s London AM fix this morning was USD 1,615.00, EUR 1,198.96,and GBP 1,041.87 per ounce.

Yesterday’s AM fix was USD 1,730.00, EUR 1,279.68, and GBP 1,119.81 per ounce.

Gold and silver were caught in the headlights of the “Risk Off” juggernaut last week, the carnage was not helped by a poorly timed margin increase out of the Comex and Shanghai Gold Exchange. Asian markets maintained the bearish slant overnight with the NIKKEI selling of 2%; gold was at one point off by more than $100/oz, trading at $1,550/oz, but has since staged a modest recovery and is trading now at $1,613/oz.

Markets Move to Cash

Why Did Gold Sell Off So Aggressively?

Large liquid asset prices tend to approach efficiency, over time. When new information is ingested by the market the price of securities is adjusted up, down or not at all. Currently markets in general are nervous as they were caught off guard by the Fed statement last week, which outlined a weaker U.S. economic growth forecast. Moreover, the negative sentiment is being compounded by commentary from a host of world leaders and institutions, urging action on Europe and debt problems in general. At times like this leveraged market participants (hedge funds and proprietary trading desks) must assign a fair value for the holdings that they own. Trading desks must adjust books for a slower economic growth forecast, which creates lower corporate earnings and translates into lower stock prices. The Fed comments sparked the sell off.

All this activity feeds off itself and the markets can quickly find themselves in a destructive downward spiral where fairly valued assets are sold off aggressively. Margin holders of assets are forced to sell, active traders, trying to get ahead of the market position themselves to profit from these market moves. Passive market participants, typically the general public, will then look at this market activity and consider selling as they will logically ask themselves, “What is it that the market knows and that they do not?”. Eventually over time a consensus begins to form and the volatility of the markets (the velocity of price change) begins to calm down, until the next quantum shift in market knowledge occurs.

The fundamentals underpinning gold have never been sounder. The correct price for gold is a matter of interpretation but it is fair to say the resent price moves in the metal have nothing to do with a change in the fundamentals. Indeed, the selling activity was a mass liquidation event that affected most asset classes across the board and benefited the U.S. dollar as investors went to ground, hiding in cash.

It is important to note that the underlining problem of debt and the issuing, redemption and/or forgiveness of debt are the questions being tackled by the political classes. The world economy is at a cross roads with many sub-optimal imbalances dragging back growth. Most if not all of these imbalances are the result of parochial and ill-conceived fiscal and monetary policies of powerful countries that refused to take in account the global affects of their actions. Capital markets are increasingly taking their cue from official actions as opposed to the fundamentals of capitalism. Unfortunately for policy makers, the confusion that they are inadvertently sowing, viz-a-vis the weaknesses of their institutions, is in its self eroding confidence and thus restraining consumer spending. Washington and Brussels are attempting to address the problem, but “Do they have the political mandate to effect the necessary changes?” is the question of the hour.

As the “Gold” waters receded, the diehard deflationists have run out onto the bare sea bed to whoop and holler that the sea of Dollar Inflation is ending. They currently hop about the nearby sea floor waving their arms in victory as they envision a catastrophic deflationary depression that will wreck the financial market back to the Stone Age, and the price of the Precious Metals along with it. Unfortunately, they fail to understand the wave cycle at work as the waters are sucked away from the shore only to strengthen the Gold tsunami wave that grows in the distance For the great Gold tsunami wave is being bolstered as the economy deteriorates, thereby necessitating a continued parabolic growth of printing of paper currencies worldwide. Where the first little parabolic rise in Gold merely caught the attention of the public, the growing strength of that wave as it reaches shore will leave everyone running for the hills of Gold and Silver.
The Fed Shows Inflation When They Want To and Deflation When They Want To

Last week, the Fed met for a special two-day meeting that ended with a dull thud as they announced “The Twist” that sounds a bit like a dance from the 60s. They also stated that the economy was weakening – economic weakness that has motivated them to aggressively inflate the US Dollar for 10 years, now. Yet, market expectations were for the Fed to announce another round of Dollar Inflation via QE3 at the special 2 day meeting so the markets sold off in response to the failure of the Fed’s announcement.

What occurred in the Precious Metals markets seems a bit absurd as Gold and Silver were pounded aggressively lower in price though the Fed often leads rounds of Dollar Inflation with suggestive hints of deflationary pressures. To some extent it defines the need for their move, and it probably intends to show that they are in control of something that they cannot control. The massive deflationary backdrop of debt demands that they either “inflate or die.”

Commentators noted that the exaggerated fall in Gold, Silver, and in the PM stocks resulted from margin calls “where investors sell what they have to sell.” Yet, the extent of the weekly fall in the DJIA was rather small compared to the 2 week fall back in early August – a time when Gold, Silver, and the PM Stocks moved higher. A more likely cause for the fall in the PM sector lies in the Fed’s failure to announce QE3 as it pointed to economic weakness, combined with this coming Tuesday’s Gold and Silver options expiration date – a monthly bashing that generally sees Gold and Silver whacked to lower levels. Further downside pressure on the PM sector probably stems from big trading firms reversing their “long Gold/ short PM stock ratio trade.” The large swings in the Gold price over the last 30 days provided the volume they needed to sell paper gold, and to cover and accumulate the Gold and Silver shares. Given the timing one has to wonder whether these large traders are the same firms who trade for the Market Stabilization Fund, and if they knew in advance that the Fed would tip its comments to deflation this week.
The Gold Chart

The following Gold Chart shows that the cyclical tendency since early 2009 has been for Gold to bottom at the green arrows with Gold correcting down to and through the dotted Bollinger Band (BB) mid-line to hit the 34 week exponential moving average while the RSI Indicator approaches the 50 line. Gold fell to the BB mid-line on Friday as the RSI approached the 50 line. Black rays off of the 2008 top show that Gold has been bottoming at each black line extended over the “last top.” Gold reached that juncture on Friday. We might see Gold weakness early next week, but we expect the basic relationship to hold. Near this point in the 70′s Gold Chart, an imminent bottom produced a sharp rise.

REVIEW OF OUR EXPECTATIONS
A major bottom for the PM stock indices is now in place as we laid out for subscribers (see HERE for subscription details) early in the week of August 8th based on the fractal relationship to 1979.
Price and the technical Indicator readings for the PM Stock Indices continue to track the 1970′s with much higher prices expected in the intermediate-term. Per the 70′s PM Stock Model we expect this run to be the first, and smallest, of 3 momentum runs to come for the PM stock indices over the next few years. The mid-900s appear to be a realistic target for the HUI Index into year-end, or into early 2012.
We have reached the point in the cycle where leverage returns to the PM stocks with a vengeance per the late 1970s charts.
The fundamentals for Gold, Silver, and the PM Stocks could never be better. In fact, the Fed’s announcement this week was read as “deflationary”, where in reality it screamed, “We must launch an accelerated program of Dollar Inflation, and soon!”
Gold has now corrected in a very similar time sequence to the late 70′s, though the depth of the correction has been deeper over the last 2 days. Current Gold price relationships to the Bollinger Band mid-line and 34 EMA line suggest that an intermediate-term bottom is likely due this coming week. Such a bottom would fit the 70′s model nicely.
The US cannot pay its “regular bills” and interest on its debt, based on its current cash flow, much less cover other important needs that are growing astronomically. We now depend on the Fed printing an accelerating number of Dollars. This is what QE is – pure debt monetization that devalues the US Dollar aggressively. For the U.S. economy, it is either “print or die.” We expect that the Fed will print while acting like they have some choice in the matter other than a total Deflationary Depression. This fact has been true since early last decade.
The Fed generally appears to prefer to see the prices of Gold, Silver, and the Commodities correct to create overhead resistance on the charts before they announce Dollar Inflation moves. That is probably what was intended via the announcement at their special 2-day meeting creating the exaggerated fall in the PM sector this week – coupled with the usual sharp weakness going into Gold and Silver options expiration, next Tuesday.
With the big funds ending the long Gold/ short PM stock ratio trade, the PM stocks should be heavily supported after this bottom is complete.
The long-term PM Stock Model from the 70′s suggests that we will be entering the “sweet spot” of a 3rd Wave advance as soon as this correction is over.
Our upside targets for Silver for this run into late 2011/ early 2012 of $52 to $56should be achievable for silver, with $58 to $62 as real possibilities.
We still expect all of our intermediate upside price objectives for Gold to be reached by late this year, or early next. We expect the next run in Gold to reach the $2250 level and $2500 level before a higher run takes us up to $3,000 Gold, or higher.
The recent exaggerated decline in the PM sector will likely act like pulling and letting go of a huge rubber band in terms of how the PM sector will advance after this correction ends.
An end of the aggressive and accelerating course of US Dollar Inflation at this time by the Fed would create a deflationary depression that would dwarf that of the 1929 era yet the Fed has gained the right from Congress to inflate to infinity if necessary. That right is the major difference between today and 2008 when nobody could foresee the Fed moving to aggressive Dollar Inflation via debt monetization after they blew out the banking multiplier loan system of Dollar Inflation. Debt monetization, QE, is a more permanent form of Dollar Inflation that cannot easily be reversed, thus the Dollar Devaluation via QE will be mostly permanent leaving a more permanent high price of Gold when it is all over.
We believe that we lie at a “load the boat moment” in this historic Gold and Silver bull for Gold, Silver, and the PM stocks.
Summary
The mid-900s appear to be arealistic target for the HUI Index into year-end, or into early 2012.
$52 to $56 should be achievable for silver, with $58 to $62 as real possibilities, by late 2011/ early 2012
The next run upward in Gold to the $2250 level followed by $2500 with the potential for $3,000, or a bit higher, is now on the radar screen for late this year, or early next.

By: LEAP

As anticipated by LEAP/E2020 since November 2010, and often repeated up to June 2011, the second half of 2011 has started with a sudden and major relapse of the crisis. Nearly USD 10 trillion of the USD 15 trillion in ghost assets announced in GEAB N°56 have already gone up in smoke. The rest (and probably much more) will vanish in the fourth quarter of 2011, which will be marked by what our team calls “the implosive fusion of global financial assets”. It’s the two major global financial centers, Wall Street in New York and the City of London, which will be the “preferred reactors” of this fusion. And, as predicted by LEAP/E2020 for several months, it’s the solution to the public debt problems in some Euroland countries which will enable this reaction to reach critical mass, after which nothing is controllable; but the bulk of the fuel that will drive the reaction and turn it into a real global shock (1) is found in the United States. Since July 2011 we have only started on the process that led to this situation: the worst is ahead of us and very close!

In this issue N°57, we have chosen to address, very directly, the great manipulation organized around the Greek crisis and the Euro (2), whilst describing its direct link with the implosive fusion process of financial assets worldwide. Also in this issue, LEAP/E2020 presents its anticipations for the gold market for the period 2012-2014 as well as its analyses on neo-protectionism which will be introduced from the end of 2012. In addition to our monthly recommendations on Switzerland and the Swiss Franc, currencies, real estate and financial markets, we also present our strategic advice to the G20 leaders less than two months from the G20 summit to be held in Cannes.

US economic output index (1974-2011) (grey shading: recessions; broken blue line: recession warning; blue: economic output index and in red, forecast for the 3rd and 4th quarters 2011) – Source: Streetalk/Mauldin, 08/2011

Greek crisis and the Euro: Itemizing the huge manipulation in progress

But let’s come back to Greece and what is beginning to be a “very repetitive old story (3)” which, as we have already explained, returns to the front of the media stage every time Washington and London are in serious difficulties (4). Moreover, coincidentally, the summer has been disastrous for the United States which is now in recession (5), which has seen their credit rating cut (an event deemed unthinkable by all the “experts” only six months ago) and exposed their political system’s state of widespread paralysis (6) to an astonished world, all whilst being incapable of putting any serious measure in place to reduce their deficits (7). At the same time, the United Kingdom is sinking into depression (8) with riots of uncommon violence, an austerity policy that fails to control budget deficits (9) whilst plunging the country into an unprecedented social crisis (10), and a ruling coalition that doesn’t even know why it governs together against the backdrop of the scandal of collusion between political leaders and the Murdoch empire. No doubt, in such a context, everything was ripe for a media relaunch of the Greek crisis and its corollary, the end of the Euro!

If LEAP/E2020 had to summarize the “Hollywood style” or “Fox News” (11) scenario, we would have the following synopsis: “While the US iceberg is ramming the Titanic, the crew leads the passengers in search of dangerous Greek terrorists who may have planted bombs on board!” In propaganda terms, it’s a known recipe: it’s a diversion to allow, first of all, the rescue of the passengers one wants to save (the informed elite who know very well that there are no Greek terrorists on board) since everyone can’t be saved; and then, hide the problem’s true nature for as long as possible to avoid a revolt on board (including some of the crew who sincerely believe that there really are bombs on board).

Focusing on the background, we must emphasize that the “promoters” of a Greek crisis presented as a fatal crisis for the Euro have spent their time repeating it for almost two years without any of their forecasts coming to pass in any shape or form (12) (except to continue talking about it). Facts are stubborn: despite the media outcry that should have seen off many economies or currencies (13), the Euro is stable, Euroland has come on in leaps and bounds in terms of integration (14) and is about to break even more spectacular new ground (15), the emerging countries continue to diversify out of US Treasury Bonds and buy Euroland debt, and Greece’s exit from the Euro zone is still completely beyond consideration except in the Anglo-Saxon media articles whose writers generally have no idea of how the EU functions and even less of the strong trends that drive it.

Comparison of economic data Euroland-USA (2010) (State debt, unemployment, GDP growth, current account balance) – Source: Spiegel, 07/2011

Now our team can do nothing for those who want to continue to lose money by betting on a Euro collapse (16), Euro-Dollar parity, or Greece’s Euroland exit (17). These same people spent lot of money to protect themselves against the so-called “H1N1global epidemic” that experts, politicians and the media of all kinds “sold” for months to people worldwide and proved to be a huge farce fueled in part by pharmaceutical companies and cliques of experts under their orders (18). The rest, as always, is self-propelled by the lack of thought (19), sensationalism and mainstream media conformity. In the case of Euro-Greek crisis, the scenario is similar, with Wall Street and the City in the role of the pharmaceutical companies (20).

When Wall Street and the City panic before the solutions in the course of forging Euroland

In fact we recall that what terrifies Wall Street and the City are the lessons that Euroland’s leaders and its people have been in the process of learning from these three years of crisis and the ineffective solutions that have been applied. The nature of Euroland creates a unique forum for discussion among the elite and American and British public opinion. And this is what disturbs Wall Street and the City, which is systematically trying to kill this forum, either by trying to plunge it into a panic by announcing the end of the Euro for example; or by reducing it to a waste of time and evidencing Euroland’s ineffectiveness, an inability to resolve the crisis. Which is the limit given the complete paralysis prevailing in Washington!

However, it’s really this discussion forum that allows Eurolanders to move forward on the path to a lasting solution to the current crisis. This discussion forum is an integral part of European construction where opposing views of the methods and solutions confront each other before ultimately agreeing on a compromise (and it’s still the case as the very important decisions taken since May 2010 prove). Thus it broadens the debate to a whole raft of participants, coming from 17 different countries (21), several common institutions, and it roots itself in the discussions of seventeen public opinions. Yet it’s from the clash of ideas that light shines forth: of the brutal clash of ideas, the Greek philosopher Heraclitus said 2500 years ago “Some it makes gods, some it makes men, some it makes slaves, some free”. But Euroland’s citizens refuse to let this crisis turn them into slaves and that’s why the current debates within Europe are needed and useful. In three years, between 2008 and 2011, they have made two key things possible in the future:

. they relaunched European integration around Euroland and henceforth placed it on a path of accelerated integration. Our team now expects a strong revival of European politics from the end of 2012 (similar to the 1984-1985 period) including a Euroland political integration treaty which will be put to a Euroland-wide referendum by 2015 (22)

. they allowed the gradual emergence of two simple but very strong ideas: saving private banks is of no use to solve the crisis and it is necessary that the markets (that is to say essentially the big Wall Street and City financial operators) fully assume their risks without any further guarantee from the state. Today, these two ideas are at the heart of the Euroland debate, both in public opinion and amongst the elite … and they gain ground every day. This is what causes fear on Wall Street, in the City, and amongst major private financial operators. This is the wick that has nearly burned down that will trigger the implosive fusion of global financial assets in the fourth quarter (in the prevailing context of the US recession and its inability to reduce its public deficits).

If markets begin to anticipate a 50% drop in Greek and Spanish securities it’s because they really sense the direction which events in Euroland are taking. For LEAP/E2020, there is no doubt that minds are ripe, throughout most of Euroland, for private creditors being asked to pay 50%, or even more, to resolve the future problems of public debt. This is, without doubt, a problem for European banks, but it will be managed to protect depositors. The shareholders themselves will have to take full responsibility: besides it’s really the foundation of capitalism!

Wall Street and the City, and their media intermediaries desperately want this debate not to take place, regardless of whether it’s ended by panic, so that governments should be forced to listen to their “experts” who assure them that the only way is to continue to recapitalize banks, and flood them with liquidity (23) … as is the case in Washington and London. Two countries where these same financial institutions reign supreme in the government.

Incidentally the battle rages around the ECB as we mentioned in a previous GEAB: the appointment of Mario Draghi, a formerly with Goldman Sachs, the resignation of Jurgend Stark (24), … arise out of these attempts to put Frankfurt under the same tutelage as London and Washington. But they are doomed from the start by virtue of this open forum, structurally inscribed in European construction, where discussions are fed by the failed policies of 2008 and the growing outbreak of public opinion in the debate. “Qui va piano va sano e qui va sano va lontano” (25) as the Italians say. This crisis is of historic proportions as we have said since February 2006. The steps to take to get through it as best as possible and come out of it stronger (free men and not slaves to quote Heraclitus) thus require serious and deep discussion (26) … therefore time. And the time taken by the Eurolanders, is money lost to the markets … which explains their fears. LEAP/E2020 thinks, of course, that it’s also necessary to act and we have pointed out from May 2010 that the actions taken in Euroland were of a magnitude unprecedented in recent European history. And we believe that we must allow time for the second aid package to Greece to be implemented. For the rest, we know also that the current leaders are mostly “at the limit” and it will be necessary to wait until the mid-2012 to witness a new and powerful boost to Euroland integration (27).

Meanwhile, with 340 billion USD to find for refinancing in 2012 (28), the European and American banks will continue to kill each other while trying to maintain the pre-crisis situation which gave them unlimited central bank support. As for Euroland, they may have a very bad surprise.

Comparison of the Philadelphia Federal Reserve index and US industrial production (2002-2011) – Sources: Philadelphia Fed, MarketWatch, 08/2011

The fourth quarter 2011 marks the end of two key examples of the world before the crisis

The implosive fusion of the fourth quarter will thus directly result from the encounter between two new realities that contradict two basic conditions of existence of the world before the crisis:

. one, born in Europe, consists of now rejecting the idea that private financial operators, of which Wall Street and the City are the embodiment par excellence, are not fully responsible for the risks they take. Yet for decades, this was the prevailing idea that fueled the tremendous growth of the financial economy: “Heads I win, tails you bail me out”. Even the existence of large Western banks and insurance companies has become intrinsically linked to this certainty. The balance sheets of major players on Wall Street and the City (and of many large Euroland and Japanese banks) are unable to withstand this tremendous paradigm shift (29).

. the other, generated in the United States, is the proven end of the US engine of global growth (30) against a background of the country’s complete political paralysis which, de facto, will end 2011 as Greece ended 2009: the world discovering little by little that the country has a debt it can no longer support, that its creditors are unwilling to lend, and its economy is unable to cope with significant austerity without plunging into a deep depression (31). In some ways, the analogy can be taken further: just as the EU and the banks, from 1982 to 2009, lent freely to Greece … and without pressing for accounts, over the same period, the world has lent freely to the United States believing its leaders’ promises about the state of the economy and the country’s finances. And in both cases, the money has been wasted in real estate booms with no future, in extravagant crony politics (in the US cronyism is Wall Street, the oil industry, health service providers) and in unproductive military spending. And in both cases, everyone discovers that in a few quarters you can’t fix decades of recklessness.

The politico-financial « perfect storm » of November 2011

So, in November 2011 the United States will brace itself for a politico-financial “perfect storm” that will make the summer problems look like a slight sea breeze. The six elements of the future crisis have already come together (32):

. the “super committee” (33) responsible for deciding budget cuts on which there was no agreement this summer will prove incapable of resolving the tensions between the two parties (34)

. the automatic budget cuts required to be made in the absence of agreement will result in a major political crisis in Washington and increasing tensions, especially with the military and the recipients of social benefits. At the same time, this “automatic function” (a real abdication of decision-making authority by Congress and the United States Presidency) will generate major disturbances in the functioning of the state system.

. the other major rating agencies will join S&P in downgrading the US credit rating and diversification out of US Treasury Bonds will accelerate, in the knowledge that the United States now depends primarily on short-term financing (35).

. the inability of the Fed to do anything but talk and manipulate stock markets or gasoline prices in the United States (36), now makes any last-minute “rescue” impossible.

. over the next three months the US public deficit will increase dramatically as tax revenues are now already in the process of collapsing under the impact of the relapse into recession (37). In other words the increased debt ceiling voted in a few weeks ago will be reached well before the November 2012 elections (38)… and this is information that will spread like wildfire in the fourth quarter of 2011 … reinforcing all investors’ fears to see the United States follow Euroland’s example over Greece and force its creditors to take heavy losses.

. Barack Obama’s new plan in the fight against unemployment will have no significant effect. On the one hand, it’s not up to the challenge and, for this reason, can’t rally the country’s energies; and on the other, it will be cut to pieces by the Republicans who will only keep the tax cuts… The only result of which will be to increase the country’s debt even more (39).

The US debt super committee’s connections with Washington lobbyists – Source: Washington Post, 09/2011

So for LEAP/E2020, it’s a combination of all these elements at the end of 2011 that will trigger this major financial shock … a kind of final shock thrusting the planet out of the world before the crisis for good. But the world after is still to be built because many futures are possible, beginning 2012. As Franck Biancheri anticipated in his book, the period 2012-2016 forms an historical crossroads. One must try not to mistake the path (40)!

The problem for the policy makers is that risk is being repriced faster than they counteract.The EU banking system is under-strain because they are being denied funding and also deposits are moving elsewhere. The speed of the adjustment is difficult for the banks to maintain their solvency. The confidence virus is a self-reinforcing one that requires an entity to backstop it just as the Fed did it during 2008. The under-capitalised EU banks are being required to de-leverage faster than they can re-capitalise.

The increasing strains have pushed the EU banks to become more reliant on ECB funding
as a lender of last resort. While the draw-downs are modest at the moment, it hints that as the EU banks need to roll-over more debt, the funding gap will need to be provided by the ECB. Furthermore, other sources of funding may become untenable, particularly the repo markets if further inter-bank strains became evident.

The rapid declines in Asian and emerging market currencies alongside a rallying dollar point to capital flight. It appears that rather than just holding cash overseas, investors are preferring to deposit it in ‘safe havens’.

“Bad news drives out good news”, Spiro Agnew

“Severe financial crises rarely occur in isolation. Rather than being the trigger of recession, they are more often an amplification mechanism: a reversal of fortunes in output growth leads to a string of defaults on bank loans, forcing a pullback in other lending, which leads to further output falls and repayment loans, and so on”,

This time is different , Reinhart and Rogoff.

The events of the past two months are not without precedent. Investors who experienced
the 2008 US financial crisis will remember the headlines concerning ‘funding problems
for banks’ or ‘inter-bank liquidity strains’ and the rout in equity prices as investors sought cash at any price. Sovereign defaults and banking crises have been the staple of economic history since 1800. The adoption of fiat currency systems and the ability to develop a ‘fractional banking system’ empowered bankers to expand credit based on their
customers deposits. Thus dis-intermediation was born. Gresham’s law states that ‘bad money drives out good’. However an alternative law has been proposed by Peter Bernholz, called ‘Thiers’ Law”. He showed under some circumstances that good money drives out bad particularly whenever the bad money eventually becomes worthless. In essence if you gave a person the choice between two currencies to own, people will chose the money they consider to have the highest perceived value.

“With US$2.7 trillion in assets, US money market mutual funds (MMMF) are systemically important institutions. Any change in the MMMF willingness to hold European bank paper is likely to affect the cost and availability of dollar funding. Ample dollar funding had also helped to contain pressures in dollar funding markets despite intensifying sovereign risk. That is no longer the case: Offshore dollar denominated issuance by European banks and dollar denominated foreign issuance has begun to decline, as money funds are reluctant to increase exposure to European banks and pressures in dollar funding markets have risen. The cushion of reserves built up by US branches of European banks helps to buy time, but the cushion is at risk of being depleted if a pullback by the money funds is accompanied by a generalised rise in risk aversion among other lenders. This could lead to further pressures in bank funding markets”

IMF Stability report, September, 2011

The contagion has quite clearly spread and we are heading for a global fall across asset classes. Our technical analysis had already suggested the scenario on Sept 5 when we were laughed to scorn but obviously we are now been subscribed on a fast scale. We do believe we have not yet seen the end of the fall till the time that Bernanke launched QE3.

Similarly the Euro-zone has reached the edge of its own event horizon of disappearing into a financial and economic black hole, the response to which is likely to be rampant Euro-zone money printing to monetize PIIGS debts that takes place following the orderly bankruptcy of Greece due to the impossibility of an economically contracting country being able to service an ever expanding debt mountain, a vicious cycle of ever higher debt to GDP triggering ever greater economic austerity, resulting in an even higher debt to GDP ratio as the economy contracts and the tax take falls.

Key measures being contemplated at the time of writing are :
Greece debt holders to take a 50% hair-cut i.e. cut Greece debt from Euro 340billion to Euro 170billion.
Cut the interest rate PAID on Greece debt, perhaps to even ZERO.
Expand the financial stability fund from 440 billion euros to at least Euro 2 trillion and perhaps even Euro 3 trillion by leveraging up by ECB money printing.
Re-capitalise the bankrupt European banks that would take a huge hit on a Greece default.

There are no ifs, or buts, Greece IS bankrupt, this is nothing new but something I have been repeatedly iterating for the past 2 years. A Greece debt default is now imminent because it CANNOT PRINT MONEY! It cannot PRINT EURO’s therefore it cannot do what Britain, and the United States are doing which is to STEALTH DEFAULT by means of HIGH REAL INFLATION. You know it when you go to the super market to do your weekly shop and see that your money can barely buy 85% of what it could a year ago. There is HIGH REAL INFLATION in the UK right now! Far beyond the official CPI of 4.5% or RPI of 5% which in themselves are HIGH, well above government target of 2%.

Yes, I know you still hear the highly vocal the deflation fools, crying DEBT DELEVERAGING DEFLATION, which has shown itself to be a RED HERRING as there has been NO DEFLATION as I warned of now near 2 years ago (18 Nov 2009 – Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend) , and January 2010 Inflation Mega-trend ebook (FREE DOWNLOAD).

The fact of the matter is that even bankrupting Greece that has seen its economy CONTRACT for 2 straight years under the weight of economic austerity without end but yet has has had INFLATION during the whole period, for instance the current INFLATION RATE for Greece is CPI 1.67%. As you can see if there is inflation where there ‘should’ be deflation then what is that telling you about the real state of the global economy?

So how do deflationistas respond to there having been NO DEFLATION during the past 2 years ?

One prominent deflationist states –

“In my model, falling prices are not a requirement for deflation.”

This is what happens when analysts become detached from the real world.

Euro-zone is Following the Inflationary Money Printing Plan

My long standing view has been that once money printing starts it cannot stop whilst large budget deficits exist, and large budget deficits will continue to exist until economies start to grow in real terms at trend, which means that the eurozone is now about to begin playing catch up by rampant money printing both overt (QE) and covert (off balance sheet) that is taking place elsewhere in the world, notably the UK, USA and Japan. For the UK we only need to look at the inflation indices to see proof of rampant money printing at work as all governments have only one solution which is to stealth default by means of high real inflation which stands several points above official indices of CPI and the UK more recognised RPI i.e. rather than at 5%, real inflation as most people actually experience is nearer to 7%.

The Eurozone looks set to leverage the current 440billion financial stability fund to as high as Euro 3 trillion through means of smoke and mirrors borrowings to hide the truth from the general populations as to the inflationary consequences of what is a policy of stealth debt default means of high real inflation as it prepares to finance PIIGS debt write offs.

Financial & Economic Crisis Lessons From History

Top secret documents reveal America’s 1930′s plan of war against the Red Empire, but America’s foe in this war was not the Soviet Union or Japan, it was not even Nazi Germany, plan red was code for an apocalyptic war with Britain and all its dominions. The plan emerged from the Great Depression amidst the rise of evil regimes at a time when even some in America had been seduced by dark forces.

“I am speaking to you from the cabinet Room of 10 Downing Street, this morning the British Ambassador in Washington handed the American Government a final note stating that unless we heard from them by 11 o’clock that they were at once to withdraw their troops from Canada, a state of war would exist between us, I have to tell you now that no such undertaking has been received and that consequently this country is at war with America.”Prime Minister Chamberlain

In the 200 years since the American Revolution, the United States and Great Britain have moved from enemies to firm allies. This documentary follows military experts and historians as they work through the top secret ‘War Plan Red’ to see how a hypothetical battle between America and Great Britain might have unfolded.

First broadcast at 20:00 20 Sep 2011 – Available until 20:00 19 Sep 2012

The Lesson From History?

Wars follow economic depressions, and the enemy may not be who you think it will be. Whilst we can discount a war between America and Britain today, after all the red empire now only exists in the history books. There remain several candidates beyond the usual suspects.

To the North is Canada (for which the US has been actively planning to invade for close on 200 years), to the South is Mexico (there have been several wars of conquest already), To the West is China and to the East is Africa (the past decade has seen much action).

I think we can discount Europe and Russia, ….. for now as likely the forces of these military blocks could be utilised in an ‘Allied’ attack on China as one empire rises and another empire declines.

Now what usually happens the politicians coupled with the intelligence agencies who’s primary function is to spread misinformation and propaganda via the mainstream media will seek to demonise and dehumanise the Chinese into a new evil empire, to build up a fever of nationalism in the general population so that they will be eager to lay down their lives on mostly the basis of lies just as countless have fallen for the Iraq threat propaganda and many of whom still continue to believe the lie that somehow Iraq was behind Sept 11th stockpiled with invisible WMD’s that were an imminent threat to America and the West.

Economic Depressions are dangerous because they provide easy fuel for the politicians to inflame nationalism with the ultimate conclusion is to mobilise the millions of unemployed towards war on a scale that would make Iraq and Afghanistan look like a picnic. Therefore those that rightly criticise the bailouts of banks and even whole countries and the inflationary stimulus spending (including yours truly) need to contemplate the broader picture beyond monetary considerations in that these fiat paper printing actions are mere tips of an ice-berg of what could follow if trends were allowed to proceed towards their logical conclusions, because just as all countries are trending towards debt default bankruptcy and an hyperinflationary panic event (loss of confidence in fiat currency), all countries are also trending towards their own destruction as we repeatedly see but yet fail to acknowledge i.e. Iraq destroyed, Afghanistan destroyed, Libya, Egypt, Syria, pending….?

The continuing trend of economic stagnation is stoking the fires of paranoid nationalism that will ultimately result in the need to create enemies to be dealt with for which the prime candidate at this point in time is the emerging China superpower, though when paranoid nationalism lets rip anything is possible, anyone can become ‘the enemy’.

The War on Terror and the stripping away of many civil liberties and freedoms so that anyone that does not agree with the military machine must therefore be a traitor, which has created the backdrop for the next phase for the militirisation of America as the only growth industry appears to be the military industrial complex which requires expanding budget deficits and an never ending stream of new enemies to justify its expansion. Watch out for The Patriot Act II, then III, then The Traitor Act I. At the end of the day the enemy will morph to become the general population.

Will Greece Leave the Eurozone ?

On face value Greece appears on the fast track towards economic collapse and war with its neighbours (Macedonia ? Turkey? Albania? ), so I can well understand why the Euro-zone will try its hardest to not let it leave because they understand that it would open Pandora’s box that has kept ancient hatreds in check and thus so far succeeded in preventing a Europe wide war for over 60 years, which is the primary purpose for the creation of the European Union, to anchor Germany down to such an extent so as to prevent Germany from starting its third World War which would result in the annihilation of Europe and much of the rest of the world.

If Greece does leave the euro-zone we may well look back on such an event as the spark that ignited World War III, which means that despite the severity of the current crisis Greece probably won’t leave the Euro-zone even when it does go bankrupt as the 50% hair-cut implies.

So Greece WILL default on its debts AND REMAIN in the Euro-zone.

How Could Greece Go Bankrupt and remain in the Eurozone ?

The problem with Greece is that it’s Government and population have become lazy by spending well beyond their means (not helped by their gambling banks). The first thing Greece needs to do is to cut its budget deficit, it needs to wipeout the welfare state that it could never afford, this is the purpose of the austerity measures, to reduce the burden of the public sector that is acting like a noose around the Greek state, the debt is not the problem, the debt is the stick to beat the Greece economy into a competitive state so that it can grow, because the debt will be defaulted away, but this will only work if the economy becomes competitive.

Secondly the debt interest burden needs to be slashed, this is what debt default and fixed low ECB bailout interest rates will succeed in delivering, i.e. the ECB will likely continue to subsidise Greece interest rates on new debt at well below the market rate for many more years. As long as interest payments continue to be rolled over into new debt, then this will ensure that interest payments are spent within the Greek economy rather than sucked out of the economy, these twin forces should eventually result in igniting economic growth as it will leave Greece with a lower debt interest burden and a more competitive economy. However it may take a several more years of several more hundreds of Euro-zone billions pissed down the Greek drain to get to that stage, given the current lack of competitiveness of the Greek economy as a consequence of the inability to devalue wages via exchange rate adjustments.

Thirdly, Greek and other exposed european banks would have to be fully recapitalised by the ECB (nationalised) to ensure that they do not go bankrupt during a Greek debt default and similarly repeat the process with other PIIGS banking sectors. The effect of preventing the eurozone’s worst run country from leaving the Euro-zone will hugely strengthen the Euro (a major buy signal!) as it would imply other potential bankrupting PIIGS would also similarly have their debt written down without triggering a collapse of the Euro-zone currency block.

This could mark the first of a series of periodic debt write offs that could take place every few years in response to the recycling of budget deficits into debt rather than debt interest leaving the PIIGS as wealth from Core Europe is transferred to Peripheral Europe until a system of transfer payments is formalised in the form of the permanent financing of a large part of Peripheral State deficits to the point where economies are able to compete across the Euro-zone in terms which generally means significantly lower wages for peripheral european workers.

The Decline of the West and Rise of China?

Many argue that debt crisis is a symptom of the west being in terminal decline to be soon replaced by the likes of China or that a clash of civilisations is taking place between the West and Islam. However these are flawed arguments that ignore the reality that the East has not been able to compete against the West for over 400 years due to myriad of fundamental reasons that go far beyond debt and deficits which encompass systems as a whole that include innovation, relatively free political systems and free market competition.

If the European Union is today seen as being a fundamentally flawed entity, it then still is far more robust than the system that operates in China which is at far greater risk of imploding than the EU or the US. In fact rather than witnessing the rise of the East we may soon be witnessing the Peak of the East.

The answer as to why is staring us literally in the face, in that China, and large swathes of the Islamic world are WESTERNSING, i.e. their system CANNOT compete against the WEST but instead are being forced to CONVERT to the WESTERN MODEL in virtually every aspect, and it has to be EVERY aspect, because any element that does not replicate the Western Model will leave such nations at a comparative DISADVANATGE and if it cannot compete then ultimately as GDP per capita converges will stagnate ultimately resulting in economic collapse.

In recent months we have been witnessing the Islamic world in revolt, they want freedom of expression, freedom of thought, economic freedom from corruption, they want free elections, they want to WESTERNISE. The masses don’t want Islamic Sharia Law, they want a WESTERN model of laws for which they are literally willing to die for by the thousands as we have see in Libya and are seeing in Syria.

So all the academics that write reams of books about the decline of the West have it completely wrong ! The West WON 400 years ago! Since which time the trend has been to assimilate the WHOLE WORLD into a Global Western Civilisation.

The West’s Greatest Enemy is the West Itself

The clash of civilisations is nothing more than propaganda, the reality is that the real enemy the west faces is not China or Islam but rather western politicians that are attempting to strip away what has made the west great, namely they wish to diminish capitalism in favour of socialism through the bailout of bankrupt banks and nations, when the lessons of countries going bankrupt such as Iceland show that it is infinity better to experience a couple of years of pain than die a slow lingering economic death like Japan.

Therefore crisis are a good thing, we need crisis, we need recessions we need to clear the decks of all of the froth that has been built up and most importantly we need to inflate the debt away that will be soon forgotten during the next boom so the UK and US have it right, print money and inflate the debt away, the Euro-zone is collectively walking up to this reality.

Stock Market Euro-zone Crisis Correction Over?

For investors crisis present opportunities to accumulate at bargain basement prices with a view to protecting ones wealth in inflation mega-trend proof assets such as dividend paying stocks, commodities and housing. You buy when no one else is willing to buy and sell when everyone else is buying. We had our bust in 2008 into 2009 and are clearly still nowhere near the end of the recovery / boom cycle.

The past 2 months have been extremely volatile for the stock market with the market flipping as much as 5% on several days. However despite this my last analysis and concluding forecast trend for the Dow has proved even more accurate than I thought possible at the time as the below graphs illustrate (07 Aug 2011 – Stock Markets Panic Crash Continuing, Is the Stealth Bull Market Over?):

My strategy all along has remained constant as iterated several times in articles and comments that I have viewed the series of panic lows as opportunities to accumulate more for the long-run in target stocks. Where the panic sell offs have cycled through sectors as most notably witnessed in the severe sell off in the metals and mining sector during the past few days.

So what’s next ?

Well, that should be it, times up for the correction that was anticipated to end by about now, and I have seen little to change this expectation, after all there is now plenty of bearish sentiment out there courtesy of the perma-fools that tell people to SELL right at market bottoms which I am sure look set to contribute towards igniting a powerful stock rally for which there will be plenty of reasons published as to why stocks have rallied AFTER the market has risen.

I will seek to map out a probable trend for the the next few months in my next article, ensure you remain subscribed to my always free newsletter to get this in your email in box.

But look, its simple, they print the money, it floods into stocks and other assets. The money printing is perpetual i.e. for ever, as long as you value invest i.e. are leveraged to the effect of the money printing then you can’t really go wrong! Unless you listen to the perma-fools, academics and the journalists, which unfortunately means approx 98% of the media your exposed to.

Deflation ? Deflation is a delusion of delusional minds – as the earlier example illustrated.

Greece didn’t default over the weekend, but it is quickly running out of cash with officials from the International Monetary Fund, European Union and European Central Bank returning to the country Wednesday to determine if Greece will qualify for its next bailout tranche after failing to meet deficit reduction targets.

The probability of a Greek default in the next five years has soared to 98% as Prime Minister George Papandreou fails to reassure international investors that his country can survive the Eurozone debt crisis. The nation’s government now expects the economy to shrink more than 5% this year, which is considerably more than the 3.8% forecast by the European Commission.

The risk of contagion beyond Greece pushed sovereign credit-default swap prices to record highs across the Eurozone. European bank debt risk also rose to the highest ever amid speculation French lenders will be downgraded because of their holdings of Greek bonds.

The contagion impact of a default will be severe and Italy, Spain and Portugal will become the next victims of this crisis. And, that will impact negatively on the entire European banking sector. No wonder credit-default swaps on Portugal, Italy and France surged to records.

In the meantime, in the latest move in the global currency war, last week, The Swiss National Bank shocked global markets on Tuesday by saying it would buy unlimited quantities of foreign currencies to prevent the franc from rising above 1.20 Swiss francs to the euro, as it fights to contain the meteoric rise of its currency that threatens its exports and economy. In a statement made on Tuesday, September 06, 2011 the Swiss National Bank (SNB) said the following:

With immediate effect, we [the SNB] will no longer tolerate a EUR/CHF exchange rate below the minimum rate of 1.20. The SNB will enforce this minimum rate with the utmost determination and is prepared to buy foreign currency in unlimited quantities.”

Immediately after the announcement, the Swiss Franc dropped by around 10% to the Euro and while this action may deter investors from ploughing additional money into the Swiss currency in the short-term ultimately, the SNB cannot control what happens to the economies in the rest of the world. And, unless there is an improvement in the economies of Eurozone and the US – which I can’t see happening anytime soon – it will be very difficult for the SNB to keep the Swiss franc from rising once again. While the Swiss franc is globally well-respected as a safe haven currency, the SNB do not have unlimited resources to continually intervene in the currency market and the currency cannot compare with the US dollar, euro or Japanese Yen, in terms of size and circulation. Thus, further interventions by SNB are rather limited.

Even if the SNB had not intervened in the currency market, the deterioration in the Eurozone debt crisis and the U.S. economy’s inability to create a single job last month will only increase investors’ concerns about global economic growth while at the same time decrease their confidence in paper assets in particular the world’s fiat currencies.

After the SNB intervened in the forex market and as the debt crisis in the Eurozone deteriorated, the euro dropped more than 400 pips in two days against the greenback. Yet the price of gold remained relatively soft and very volatile. In light of the Euro debt crisis and a potential default by Greece, one would expect the price of the yellow metal to be much higher. As the fundamentals have not changed, and by looking at the price action of gold it is clear to see that the US bullion banks are once again attempting to drive prices lower by using the futures markets. In their all too familiar strategy of selling on the open of Comex yesterday’s price action seemed to follow this pattern perfectly. Additional downside action could also be attributed to the stronger US dollar; the possibility of margin calls as well as the liquidation of gold positions in order to cover losses in global stocks. Nevertheless, any market manipulation in gold will be short-lived and the lower prices will only attract prudent buyers of the physical metal as well as bargain hunters.

As much as the usual gold critics would like to see gold prices collapse, I think they are going to be in for another big surprise, not that this is will surprising, after all they have been consistently wrong for the last ten years or so; an achievement worth some acknowledgement as far as I am concerned.

With a potential Greek default looming resulting in massive losses for European banks, and, since the U.S. Treasuries lost their triple-A status in August by Standard & Poor’s, and as German Bunds waver as investors ponder the cost to Germany for bailing out its neighbours, and the Swiss franc with limited upside, I find it surprising that the price of gold is not already trading back above $1900 an ounce.

Since gold was less than $500 an ounce I have been continually urging individuals to own some physical gold. Gold has always been a safe-haven asset so named for the reassurance it offers investors when markets become unstable. In today’s global economic climate, it is more important to preserve your wealth than try to locate some high yielding low risk bond or equity. That is why it is essential to own precious metals in particular gold and silver.

Before I begin my essay let me begin with a rousing cheer of “Long Live the King.” The Japanese don’t want it, the U.S. doesn’t want it, and now the Swiss don’t want it either. Gold on the other hand is happy to take the reins.

On Tuesday, Switzerland’s National Bank sent shock waves through the market sending a clear and deliberate message to the world that it doesn’t want to be the de facto safe haven currency.

For months and months, traders have been running to the Swiss franc amid the worldwide turmoil. With the Swiss stepping down as the world’s safe haven currency, gold is now the de facto safe haven currency.

Lest there be any confusion there is now one king – gold. So I say “Long Live the King.”

There has always been a strong correlation between the price of gold and the price of silver. There has also always been a concept that silver, like gold was currency. Indeed, when I was a child growing up silver was currency. I never knew until I went to college that silver had a strong base in industrial usage and industrial use was responsible for a large demand for the supply of silver. Be that as it may, any negative news regarding the industrial use of silver has always been eclipsed by its role as a precious metal.

As gold prices rise, whether in the paper market or the physical market, silver surely benefits. This is because silver offers a greater exposure to the rising demand for a safe haven asset and does so at a cheaper price. Sadly, it has had to wear the thorny crown of being called “poor man’s gold.” I feel while this is a catchy phrase that allows gold to wear the crown of the king it, like most clichés, is untrue. Silver is the perfect currency for bartering. I can’t imagine using a gold double eagle as a medium of barter unless I was trading for a house.

Silver does have a high degree of volatility due to the health of the industrial sector. There a minute traces of silver in almost every electronic device that is made. Computers, IPads, IPods’, are a few examples of devices that use silver and when they are worn out or broken they end up in the landfill. At this time it is too labor intensive to make recycling the silver profitable but the day will come when that is not so.

Investing in silver brings many risks but in spite of these risks many investors still find silver a profitable investment. Indeed many investors say the return on investment (ROI) can far surpass gold exponentially as movements in the price over the last tear has shown. Over the next few years I expect gold to continue to rise in price and continue to reach new highs. I also expect silver to continue to outperform gold on a percentage basis. As gold has enjoyed a parabolic run in the last several months, when I look at the ratio of gold to silver I expect silver to continue to outperform gold and expect silver to be priced at about $80.00 by the middle of next year. Silver is the perfect alternative to gold.

According to the World Silver Survey 2011 world investment in silver rose 40% in 2010 to a new record of 279.3 million ounces. What I found fascinating was that the major demand came from the silver backed ETFs SLV, PSLV, SIVR, SIL, DBS and AGQ.. Physical markets also contributed to the demand.

Strong demand from Asian Markets was a large factor in the growth of import levels reaching record highs. I believe that it is purely human as silver’s allure is especially attractive to the growing middle class of China and India as silver is seen as a cheaper alternative to the safe haven of gold.

In conclusion, demand for silver in China grew by 67% between 2008 and 2010, according to the Hong Kong Mercantile Exchange, which recently began trading silver future contracts due to the amazing growth in the demand for silver. Growth in China and India in the physical markets alone is expected to grow another 30% this year. Physical bar and coin hoarding will continue to gain popularity amongst the Chinese investors as they prefer physical rather than future contracts. Silver demand from India is also expected to do well as the healthy monsoon seasons are increasing the purchasing power of rural Indian farmers who account for 60% 0f India’s total silver demand.