Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Fed Failure has Put United States on the Path to Hyper-inflation

Economics / Stagflation Jun 16, 2008 - 12:03 PM GMT

By: Captain_Hook

Economics Best Financial Markets Analysis ArticleMan is his own worst enemy – this truism has proven itself over and over in history – and is doing so once again in our handling of economy. As you undoubtedly know the consumer is on the ropes and in need of relief due to excessive credit. True to form however, and consistent with our title today, just when this is happening, commodity prices have lit-up, and are showing no signs of retreat, especially energy prices. This has created a very big problem for central planners they can actually identify within their incompetence, that being, in order to tackle the effects of inflation, they will genuinely (a few choice words in the Fed Minutes won't do the trick) need to show fiscal restraint, or crude oil will go to $200, the dollar will break 70, and it's hyperinflation here we come.


The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Thursday, May 22, 2008. 

Below is information that may have benefited you over the past few weeks. But make no mistake about it; messages contained below are not past their usefulness. So, read carefully, where it is our sincere wish one might take something of value away with you here today. 

Of course with the economy looking so perilous , the orthodox view is commodities are bound to feel the weight of water soon, with prices to follow lower. As you know, this view has proven to be expensive up until now, with the big question being why? Other than the fall of the dollar ($), which doesn't seem to matter much now anyway when it comes to crude, why are commodity prices rising given future prospects in the economy appear bleak, along with True Money Supply (TMS) growth rates suggestive future prospects are not good? Some hypothesize it's the lagged inflation between the mid-90's and 2003 that is causing prices to rise now. And of course in previous similar instances, history has proven this to be the case.

In speaking specifically about crude now however, and its unrelenting rise into increasingly deteriorating economic fundamentals, I can tell you categorically it's more than the above, or peak oil, or growing demand out of Asia . And please, don't get me wrong, these positive factors / fundamentals will definitely continue to play important roles in pricing crude. Further to this, it should be understood that the price of liquid oil, our most vital commodity that becomes increasingly scarce every day, will need to rise in order to cut the population off from access to it. And that is what is happening right now due to a combination of all factors mentioned above, and more, that being a speculative mania. Again, man is his own worst enemy.

Taking this a step further, because conventional world wars that wipe out sufficient numbers to fix this problem are not palatable given the supposed sophistication level of people today, oil is being priced up to accomplish the same end via an economic war of multidimensional complexity. For the ‘haves', this is not a war defined by geography, but by investing acumen, at least for the time being. That is to say, while armed conflict over access to increasingly scarce resources may not appear likely at this moment, this may change, as times get tougher. A desperate man has little to lose.

It's important then to understand that failure to adapt to this condition could prove fatal financially, which again, is the whole idea as it pertains to the masses. And I'm sure most will agree the current run-up in crude prices is accomplishing this, with increasing large percentages of the world's population being cut off from not only energy in a direct sense, but also, all that cheap energy provides. (i.e. food, water, employment, etc.) Moreover, it's important to understand that this is a condition that won't go away anytime soon, even when economies are buckling.

But are economies really buckling from the weight of a rapidly rising crude price? Sure, stocks have turned lower and gold higher, but how can we be sure these are not just temporary conditions? What's more, why does crude keep rising if this is the case? Is demand destruction defunct, as opined the other day ? No, demand destruction is not defunct, but neither is speculation – speculation that if crude / commodities are topping out, then it makes a great deal of sense to short oil (and its related equities), along with precious metals, and go long the stock market.

And this is exactly what stock market speculators are doing these days, as reflected in open interest put / call ratios on US indexes falling hard. As you will see below, speculators are now bullish on the S&P 500 (SPX), bearish on oil stocks, as measured by the Amex Oil Index (XOI), and increasingly short gold stocks as well. After all, if commodity prices are to fall because they are overbought, gold prices are surely to do the same to reflect this condition, or so the orthodox thinker would believe. So, speculators are betting that way these days, where generally investing has become more like a trip to the casino than anything else.

Here are the open interest put / call charts for the above, showing a surge in optimism reflected in plunging SPX values, displayed first: (See Figure 1)

Figure 1

The XOI is second, showing speculators are the most bearish on energy shares in two years based on this measure: (See Figure 2)

Figure 2

The third is the Spiders Energy Select Sector ETF (XLE:AMEX). I am showing this because as opposed to the XOI, investors are getting increasingly bullish over here. The other thing you should know is as opposed to the XOI, XLE has a large open interest, which is better reflective of sentiment. This of course does not mean energy shares will fall apart however, because I went in and looked at the options configuration on XLE, and a floor has been set at 85 until the July contracts expire, so prices should remain buoyant until then. Here's the chart: (See Figure 3)

Figure 3

And the Philadelphia Gold And Silver Index is fourth, where as per our insights above, speculators are becoming increasingly bearish, which is fueling the squeeze in precious metals shares. The best structure for your portfolio right now is to be increasingly long precious metals at the expense of energy given the Gold / Crude Oil Ratio is setting historic lows: (See Figure 4)

Figure 4

So, as you can see above, betting conditions are shaped around the view commodities are topping, which necessarily means stocks should rise to crazed speculators. And this mindset is defining inter-market price action. That is to say while fundamentals definitely play a role in the markets, like a falling $, speculative betting practices are an equally big factor in driving price action these days, with the mania de jour being in crude oil, and it's related equities. As discussed the other day though, it's important to understand that although the crude market will need to correct a manic move higher at some point, because of inelastic bullish fundamentals, it's always difficult to discuss oil in terms of it being in a ‘bubble'. Thus, while there may be a mania in the pricing mechanism right now, oil is essential to our survival and increasingly scarce, which makes pricing inelastic. This is the point the market is proving right now, along with pricing a bunch of people out of the survival game.

Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our newly improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts ,   to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented ‘key' information concerning the markets we cover.

On top of this, and in relation to identifying value based opportunities in the energy, base metals, and precious metals sectors, all of which should benefit handsomely as increasing numbers of investors recognize their present investments are not keeping pace with actual inflation, we are currently covering 69 stocks (and growing) within our portfolios . This is yet another good reason to drop by and check us out.

And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line . We very much enjoy hearing from you on these matters.

Good investing in 2008 all.

By Captain Hook

http://www.treasurechestsinfo.com/

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities, as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

Copyright © 2008 treasurechests.info Inc. All rights reserved.

Unless otherwise indicated, all materials on these pages are copyrighted by treasurechests.info Inc. No part of these pages, either text or image may be used for any purpose other than personal use. Therefore, reproduction, modification, storage in a retrieval system or retransmission, in any form or by any means, electronic, mechanical or otherwise, for reasons other than personal use, is strictly prohibited without prior written permission.

Captain Hook Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules