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It is hard
to find much positive regarding the gold trade lately. The attacks have been
multi-faceted during the weak late summer season. So resort to something of
value: THE TRUTH. As Ralph Waldo Emerson once said, “The greatest
homage one can pay to the truth is to tell it.” When the US
financial lattice work was showing clear signals of near total destruction,
if not simple decimation, when USGovt bailouts seemed certain to cost in the
trillion$ from mortgage agency rescues and FHA mortgage loan mulligans
(second chance shot in golf), when US banks seemed caught in a race to raise
more cash for equity from friendly foreign fools who fail to read the news,
when the USEconomic recession has been turning broad and deep, when General
Motors and Ford seem caught managing their death process toward a certain
bankruptcy, THE USGOVT NEEDED A REALLY GOOD LIE FROM WHICH TO BUILD A DOLLAR
BOUNCE. The Q2 report for the US Gross Domestic Product was a Gross
Deception Perpetrated upon the world. The degree
of its inherent lie was staggering to be sure, powerful in its impact. The
acceleration of the economic recession is as grandiose as the official lie
was grotesque. The importance of the accepted lie was momentous, enough to
generate a significant USDollar bounce.
The story
told at home in the Untied States was that the USEconomy would be the first
to exit the troubled times since first to enter it with the explosion of the
subprime mortgage crisis last August. The story told at home was that the
Untied States is the only nation to eek out some positive growth, while
Europe (including Germany),
England, and Japan
are officially showing negative GDP readings for the first time. The story
told overseas was that the US
has come clean on bank balance sheet damage, when the USGovt has finally
installed powerful rescue plans to deal with the problem. Not a single theme
is true. In fact, the lies have grown worse and the public scrutiny of the
lies has grown almost totally absent.
THE SHAM GDP CALCULATION
The
mechanism used to lie was the same trusty device relied upon in the past: LIE
ABOUT INFLATION. Students of economics statistics seem to be asleep, all
except the Shadow Govt Statistics folks, who never seem to be duped, as in
EVER! The actual stat series involved in the official number crunching is
called the Deflator. It is supposed to remove price inflation from the
nominal growth. It seems to me that since the USGovt hack charlatan conmen
dishing out numeric doctored statistics decided to call it a DEFLATOR so that
sleepy people (including network anchors) do not realize that it is the exact
same concept as the PRICE INFLATION INDEX in its ideal design. So the
Deflator does not resemble the Price Inflation indexes at all, in practical numbers.
That should raise questions, but this nation prefers headline news to
detailed news. Let’s just take the official doctored CPI data and
demonstrate the lie for the Gross Domestic Product in 2Q2008. The exercise
shows how silly obvious the lie is, even shows how grossly inconsistent the
USGovt statistics are. IS ANYONE AWAKE OUT THERE IN THE FINANCIAL NETWORK
MEDIA???
The CPI for
the months of the second quarter 2008 showed April at +0.2%, May at +0.6%,
and June at +1.1%, ending with the highest sequential increases in a long
time. The Q2 period was precisely when everyone including network anchors was
expressing alarm at the high cost of everything, from food to energy to
utility bills to shipping charges, extending to industry feedstocks, even to
import prices from China.
The Dow Chemical pair of 25% price rises was in the news. All these seem
forgotten when the kooky klutzy GDP was released. The July CPI was again high
at +0.8% but that is not the second quarter. So for the heavily doctored CPI
in Q2, a simple average is +0.6% on the sequential calculation comes out. By
the way, the sequential method enables even more nonsense to be built in,
since changes from month to month are notoriously unstable. Annualize the CPI
for this simpleton 0.6% average, and one gets about a 7% recent growth rate.
The changes in consumer prices compared to a year ago have been in the 4.5%
to 5.5% range. Oh heck, let’s just say the official doctored
inflation for Q2 was a nice flat 5% for simplicity. And when it comes to
USGovt statistics, simplicity is always a good idea. Their worker bees
actively seek out methods to render the calculation complicated enough to
confuse almost everybody. They like the geometric averages, the hedonic
quality adjustments, the substitutions, all that crappola that the public
does not comprehend, does not care about, and thus tends to trust the CPI
more. The USGovt agencies must know what they are talking about, right?
The official
US
Gross Domestic Product report last week was an exercise in extreme corruption
on the statistical front. It stated a +1.9% GDP growth rate for 2Q2008, in an
exercise in pure unadulterated propaganda deception worthy of the annals of
history. Even Nazi Germany’s Josef Goebbels would be proud. Tell a lie
often enough, loud enough, and the public will believe it. They tell
inflation and growth lies repeatedly. The corollary is to tell the big lie
precisely when the system is most vulnerable and needs some good news. The
public and investment community will latch onto it with glee, and not bother
to check to see how ridiculous and absurd the story is. Then defend the
ramparts, sell the story, and move on. After all, the past is revised toward
reality, but often ignored since a lagged story. The future is where to plant
the big lie, since it moves the markets (stocks, bonds, currencys). In time,
a revision of the big lie will be done, but nobody will care since its story
will again be lodged in the past.
### THE
USGOVT G.D.P. FOR 2Q2008 SHOULD HAVE BEEN MINUS 2% ###
Here are the
highlighted basic facts from the official USGovt economic growth GDP lie:
Ø The
USGovt agency used a 1.1% annualized Deflator for inflation adjustment, which
is absurd given the skyrocketing costs that quarter in every conceivable
corner.
Ø Even
the falsified CPI was registered at close to 5% on successive months within
the second quarter.
Ø So
the Deflator was 4% wrong high, even versus internal USGovt calculations.
Ø To
be consistent within its own corrupted statistics, the nearly 2% GDP growth
should have been published as a minus 2% result, a loud recession
reading.
Ø The
last two official GDP readings would have been –0.9% in Q1, -2% in Q2,
back-to-back negatives for quarterly GDPs.
Ø Accelerating
economic recession with heavy price inflation is nasty STAGFLATION.
TIME OUT TO
EXPLAIN AN EXAMPLE
Time out!
Take a minute to explain what is going on at a higher level. Removal of
inflation from economic statistics is simple, but to be honest, 95% of Americans
have trouble with basic arithmetic. Conversion to another currency on a trip
to Ontario’s Niagara
Falls is a major challenge. Dividing cost by quantity
to find the best deal on large versus small cans of peaches or applesauce or
packages of pens or pencils is a mindboggling challenge itself. If an
entire economy has zero real growth, as in no growth at all, nothing, but
that economy has a 5% price increase across the board, for every product and
service in existence, then in the final wash, the economic growth should show
0% in the final figure. Simply, the 5% increase in the nominal amount of
goods & services from business activity would have a minus 5% removal
from price inflation, enough to render the final figure as 0%. It sounds
simple, and is simple. However, if the officials do not recognize the price
inflation, and call it 0%, then they would call the growth as 5% incorrectly.
They essentially call any improper adjustment to price inflation as growth.
Any
under-statement of price inflation is labeled as growth in a totally
fraudulent fashion. The USGovt has recruited and trained expert
accomplished teams of statistical liars in the Bureau of Labor Statistics.
Better stat rats are employed in the Census Bureau, where years ago a friend
of mine worked. The BLS is just plain conmen doctors of lies. They have been
under-stating the Deflation series, the official measure of price inflation
used for the Gross Domestic Product, for many years. The Deflator series typically
runs lower than the CPI!!! In the above example, temper and moderate the lie.
If they say that price inflation was only 1%, then the nominal 5% growth is
adjusted toward a final 4% growth statement for the final published report.
That is what the USGovt does. They under-state the price inflation, and
whatever they deceive by, that amount is falsely called economic growth. That
is one method how they have avoided reports for announcing negative growth in
25 to 27 out of the last 32 quarters.
NOW THE
TRUTH ON G.D.P.
However, the
truth is worse!!! The actual deflator, if reality were chosen, would have
used something much higher. They supplied the graph above. The divergence
between official story and truth is widening to an alarming level. The
Clinton Administration is the original author to this great lie, with Rubin
the co-conspirator, a fraud which costs recipients of Social Security, USGovt
pensions, and US Military pensions every month. The lie is over 7% nowadays,
between the true CPI and official CPI. The Shadow team actually measure 12.5%
as the true honest CPI for people who must live in the United
States, or is it the Untied States? Given
the laws passed and erosion of liberty, it is more like Untied Snakes these
days. The same Shadow Govt Stat folks measure the GDP for Q2 at minus 2.5%,
after taking into consideration far more than simple deflator issues.
But the
USDollar rallied, since even more powerful corruption was dictated before the
US
Presidential election, and while the USDollar was struggling in the face of
both banking system devastation and failing economic prospects. A
reality-based economic growth report would have sent the USDollar into a
tailspin selloff, maybe even a rout. So they amplified the lies. The greatest
production in any US
industry is possibly the fraudulent statistics churned out in the dark
chambers of the USGovt agencies. They do produce growth! Exceptions might be
perhaps the computer, networking, tech telecomm, or biotech industries. To be
sure, the US
excels in military weapon technology, used to destroy things, and
decreasingly on any defensive basis. The difference this time, in my book, is
that the USGovt is lying in much more obvious blatant fashion, without
bothering to use much to shield their gross lies. These are bold naked lies.
THE INCREDIBLE USDOLLAR BOUNCE
The USDollar
has reacted powerfully from three important factors: 1) false USEconomic
growth reports, 2) new weakness in Europe
echoed by the EuroCentral Bank, and 3) a selloff from a frenzied crude oil
price. The August Hat Trick Letter analyzes these items one at a time. An
effective backroom force was also utilized by the central banker brethren,
who find themselves desperately on the defensive to avoid systemic breakdown
and bank system implosion. WHAT DID CENTRAL BANKERS DO??? The foreign
central bankers actually doubled their pace of interventions to purchase
USTreasury Bonds in US Federal Reserve custodial accounts, which broke the
upside resistance. The last three weeks ending early August had twice the
pace of USTBond purchases than the previous twelve months. Details are in the
August report.
Is it
unpatriotic to point out the grotesque economic growth lies and blatant
intervention to corrupt free markets? Nowadays, yes, it seems. The newly
defined patriot uses lies, covers lies, and criticizes those who expose lies.
Such people wear brown shirts underneath their collared dress shirts, a joke
that probably only 2% to 5% of Americans comprehend. Hint: see Nazi and
nickname “brown shirt” movement in 1928 Germany.
The USTBond is the vehicle for US$ support and movement. Clearly, the central
banks are intervening to push the USDollar up, perhaps realizing with
technical assistance from Treasury Secy Paulson that the DX index was
vulnerable to a huge sudden rise.
The
EuroCentral Bank was plain and clear. The ECB is not in a position to hike
the official interest rate. They confirmed the economic slowdown that is
spreading across the European Union. The euro fell right away, and powerfully
so. My analysis a month ago was clear, that the ECB was not going to continue
on rate hikes, and would probably reverse those rate cuts. Now my thinking is
more akin to believing that the ECB wanted to engineer a top of the euro, so
it could reverse from speculative gravity. Details of the disaster unfolding
in Europe, centered in Spain
perhaps, in the August report.
The last
powerful factor was the selloff in the crude oil market. As the crude
oil price falls, typically the USDollar strengthens. Demand for energy
commodities generally are down in the Untied States. The Beijing Olympics
seem to have caused a hiatus in energy imports to the Middle Kingdom. The
result was a profound fall in the oil price, one fully warned and forecasted
here, signaled by the XLE energy stock index. As the crude oil price fell
from the 140s to the 110s, the USDollar was again bolstered. The problem
zones like now Georgia in
SouthWest Asia also create a global shock
toward instability. My view is that a possible second front has opened in the
Global Energy War, catching the depleted US Military and lame duck president
off guard. Depletion of major oil fields continues. Mexico
is now a net importer of crude oil? Gotta check that story which crossed my
desk. Nigeria
will surely continue as a national thug center, thugs in power, thugs armed
at bandits, and thugs cutting deals with them. Crude oil output is not
stable, regardless of the region globally. Even the Saudis are playing shell
games, talking about output, not being clear as to sour crude versus sweet
crude, even as their major Ghawar is in its 8-th inning out of nine.
The
USDollar, via its DX index, has filled in a technical thin region between
73.5 and 76.5, and did so fast. Notice how in early June another milder but
powerful surge was executed, again when the financial system seemed crippled.
What has ensued actually makes possible the next serious decline in coming
months. Notice the crystal clear symmetry in the chart, as the rise was as
sudden as the fall. That spells instability for an easily occurring
correction back down again. The US$
DX index has benefited not from inherent strength, but from relative weakness
being realized in the euro. The British pound has also suffered steep
declines, as forecasted here in the last several private reports. Even the
Canadian Dollar has fallen. The Competing Currency Wars are at work,
overtime. The USDollar is not gaining strength at all. It looks incredibly
vulnerable. What has changed is that the US$
alternatives have vanished quickly.
The chart
above is now encountering the 50-week moving average and the down trendline.
It faces heavy resistance between 75 and 77 from the turn of year 2008. Look
for a more gradual slide back to 73-74 range, as it fills from consolidation
tied to much gyrations, debates, fluctuations, and competing scenarios. Like
Wiley Coyote poised atop the chasm after a hearty chase, past the cliff
ledge, he is in a bad spot. The clownbuck has no legs to stand upon here. The
next round of bank failures and their inability to raise cash selling capital
in balance sheet replenishment should be rather stark and a big wakeup call
for foreigners who view the US$-USTBond tandem as safe haven. Mix some
metaphors, why not? This all reminds me of great Tsunami that hit Thailand
and Indonesia
in late 2005, when a remarkable phenomenon occurred. The tide went out in a
profound manner immediately before the floodwaters hit the shorelines. The
financial markets are often well explained by water and weather analogies, as
they explain market behavior from the ample liquidity flows, built-up
pressures, and exposed differentials. The US$ rally is phony, technical,
pushed by central banks, and owes more to the decline in euro, pound, aussie,
kiwi, and loonie, than to any revival whatsoever in the US or its financial
markets or its banks.
This is a
bear bounce for the US$
DX index, one that rendered my forecasts as incorrect, to my dismay and
surprise. The W-shape of the recovery does have the appearance of a clear
reversal. One must wonder if a heavy long-term oversold condition was
relieved, and nothing more. Time will tell. My radar is on the US
banks, which will next contend with commercial mortgage losses and a
surprising volume of prime mortgage losses, just when car loans, commercial
loans, and credit card loans turn sour from the USEconomic recession fully
denied. When bank losses extend from residential mortgages into the broad
credit portfolios, the recession will finally be admitted, and central banks
will be cutting rates in unison, coordinating their actions.
THE NEXT CHAPTER
Next comes
central bank stimulus, monetary ease, and profound accommodation that
launched the gold trade in 2002. The crude oil story seems the most
paradoxical to the mainstream news anchors and guest. They applaud the demand
destruction for oil sold, even for gasoline. That destruction comes from the
USEconomic recession. The USFed is likely to cut rates next, not hike them.
The crude oil speculation came unraveled partly from the gravity of heights,
but also from the recession that is not recognized. The central banks will
react soon to that recession. Furthermore, the lower crude oil price will
give Arab nations less petro surpluses to invest in USTreasurys from recycle.
Yet the 10-year USTreasury Note (TNX) yield stays under 4.0%. Important
factors keep USTreasury yields down, starting with how price inflation is
lodged within costs. Could we soon see lower Arab petro surpluses and lower
energy costs result in higher long-term interest rates? Time will tell. A
parallel paradoxical effect comes with the sharp reduction in US federal
highway tax revenue from reduced miles driven and reduced gallons of gasoline
purchased. A huge reduction of recycled funds is occurring back to states.
Thousands of job cuts will result at the state level!
The Powerz
are attempting to push down gold and dollar up as much as possible before the
orchestrated autumn bank sector PULLED PLUG. Dozens of US banks are going to
go bust. Also, the geopolitical chessboard seems badly tilted, adding to US
financial vulnerability to the extreme. The Global War for Energy just
witnessed a serious counter-attack by Putin. He must have looked into the US
president’s eyes last month at the summit and seen little to impress,
along with a lame duck in office. The tsunami should come this autumn, one to
inflict serious damage on the USDollar. The gold trade is still an anti-US$
trade. A difficult transition is in progress for gold to become the
global monetary inflation trade. A new foundation on futures
contracts must be built. The past gold trade built upon anti-US$ foundation
has been largely eroded. The next one to be built upon monetary ease and huge
accommodation by major and secondary central banks, in reaction to global
recession. A tough transition must occur. Soon gold is to become the hedge
against global monetary inflation, as central banks fight at least a Western
world economic recession, that includes Japan,
Australia, and New
Zealand.
The USDollar
fundamentals remain extraordinarily weak, and weaker than just a couple
months ago. USGovt deficits have doubled in the last year. Tax revenues
are way down, like 10% down annually, another confirmation of the recession.
Foreclosures for US
homes rose by 55% in July, a sign of continued nightmare. Housing prices are
accelerating down, as lending institutions holding properties have begun to
cave in on price to sell at a time when foreclosures continue in their other
doors. The new reality in the housing industry is that two markets are
apparent and at work, one influencing the other. There are houses demanded
and supplied for the public. There are foreclosures entering and being
disposed. In recent months, the foreclosed properties are increasingly
dominant, not only making up 30% to 40% of final sales, but continuing
relentlessly to supply more homes to be sold, upsetting the balance.
Durable
goods purchases are also consecutively negative. Job losses are reaching huge
levels. Retail sales have turned negative in a skein, not adjusted for
inflation. All the component economic data supports the big recession of more
than 5% economic decline argued above. The US
is mired in the worst STAGFLATION in over 30 years. Until the November US
Presidential election, the USGovt will not admit a recession at all, but
rather LIE MUCH WORSE. And worst of all, the USGovt is spending staggering
money in a futile foreign war to support private profiteering in military
contract fraud, black market arms deals, and without any doubt continued
prolific contraband trafficking out of Afghanistan. They might require more
funding, since Afghan poppy production has tripled under US
aegis (help?), incredibly. How about investing those $200 to $300 billion per
year in US infrastructure, gasoline refineries, bridges, pipelines, port
facilities, wind & solar power systems, ethanol from sugarcane, and
generally projects that employ Americans in ways that do not leave them with
missing limbs, need for prosthetics, suffering from traumatic stress
symptoms. Let’s launch a US
investment program that does not enrich the private profiteers and security
agencies in their syndicate operation.
The Competing
Currency War has weakened foreign currencies to the point that the USDollar
has few if any remaining viable alternatives on the paper fiat currency
front. What remains is gold as that alternative. The transition is soon to
take deep root. The gold trade will emerge in the next couple months as a
response to central bank stimulus, to growing price inflation, to bank
systemic risk, and to corrosive geopolitical risk (see Georgia,
not as in Atlanta).
Watch gold rise in price, perhaps even as the USDollar remains buoyant this
autumn, as its competitor currencies continue to weaken.
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Jim Willie CB
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Jim Willie
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