Hat Trick Letter – srpen 2011

Stejně jako před měsícem jsem se rozhodl nečekat týden na další report a publikuji výňatky z první části. Výňatky z druhé budu publikovat pravděpodobně v průběhu příštího týdne.

Jaký je poměr cen zlata a ropy?

THE GOLD VS CRUDE OIL RATIO IS SOARING. IT MEANS THE FINANCIAL SAFE HAVEN IN GOLD HAS BEEN DISCOVERED, CONTRASTED AGAINST HEAVY DEMAND DAMAGE ON THE COMMERCIAL SIDE WITH ENERGY GENERALLY. THIS RATIO HAD BEEN RELATIVELY STABLE FOR OVER TWO YEARS. THE GOLD BREAKOUT IS IN ALL MAJOR WESTERN CURRENCIES. WITNESS LETHAL INFLATION ON THE FINANCIAL FRONT, AND DAMAGING DEFLATION ON THE COMMERCIAL FRONT, COMBINING TO FORM A POWERFUL STORM VORTEX.

Three price directions have been vividly clear in the past few weeks.

• The Gold price has hit record high levels in several major currencies
• The Crude Oil price on West Texas has plunged to multi-month lows
• The Silver price has stayed stable at a still elevated level.

Notice the Gold/Oil ratio over the past three years in the above chart. The ratio has returned to near the post-Lehman high level. The extremes are back. The financial sector damage, dislocation, and abuse are evident in the crumbling sovereign bond market, the wrecked big US bank stocks, and the enlistment of Gold as the true safe haven. Do not be fooled by the knee-jerk pied piper response to flee the frying pan and find the fire, as investors moved from stocks to USTBonds. They have been badly deceived. Last month, the gigantic $9.1 trillion additional Morgan Stanley application was given in details of Interest Rate Swaps. These tools exploit the artificially low short-term USTBill yields and create phony demand in long-term USTreasurys like the 10-year and 30-year maturities. It is a carry trade that exploits low-cost funds in arbitrage. The demand is artificial but felt with impact in a TNX approaching the magic 2.0%. When it reaches the milestone, shrill calls will come of an asset bubble.

The investor community incorrectly believes that actual money is flowing into USTBonds as safe haven. That is not accurate in a majority sense, at least at first. The trend is initially created by the powerful Interest Rate Swaps applied by the big US banks. The only massive asset bubble in existence is the USTreasury Bond. It loudly proclaims USEconomic recession in a marquee billboard, joined by Chairman Bernanke’s admission following the FOMC meeting this week in a voice accompaniment. More still, the Gold/Oil chart eclipses the myopic focused Deflation concentration that ignores the monetary inflation consistently and errantly. They earn their Knucklehead label every passing day, from being half blind. They seem never to see the financial factor nor its effects. My contention is that their camp is lacking intelligence. They see only half the storm.

The conclusion, evident in the Gold/Oil chart, is that Inflation and Deflation are both running hard & fast, each strong & durable, both evident & ugly. The best description of the current situation is a the weather analogy, in a growing powerful tornado. It features the collision of high pressure zones against low pressure zones, described frequently in past reports. The high pressure is the result of thrust by central banks of monetary expansion that has actually wrecked the USFed balance sheet, and the EuroCB balance sheet. Each is the shameful owner of worthless mortgage bonds and sovereign bonds respectively, that nobody wants, that will never recover in price. The next phase will expand those balance sheets further, and wreck them beyond hope of repair in a recognized manner. The low pressure is the result of a powerful push by falling housing prices and big bank balance sheet insolvency. The consumers are handcuffed with lost discretionary funds in costs led by food & energy. The banks are making a transition from insolvent Zombies to undercapitalized Dead Made Men. They are soon to be recognized as dead. They are agents of the Syndicate, and thus guaranteed for slush fund income from multiple sources.