Mud Season By The BigFisherman

June 24, 2007

The pundit’s disquieting forecasts ring hollow somehow. Having been intuitively obvious for so long, the unfolding of current events warrants action not alarm. But there are a growing number of mavens that understand the applicability of Austrian economic theory in making sense of what has here-to-fore been a neo-Keynesian conundrum. Being right has led to life changing profits for those who have been properly positioned. But my satisfaction is tempered by distress over the masses that do not see the implications: those that mill about unwilling to accept the underlying realities. Realities that were only obscene prophesy a few short years ago. Realities born of fear that may well become nightmares for the unprepared.

It is Kondratieff spring in Japan. But new growth is only beginning, and mud is everywhere. The reversal of the decades long yen carry trade signals a change in the economic landscape of the most fundamental and profound nature. Most will concentrate on the formidable destruction as volatility in financial markets boils off excess liquidity. More than hedge funds will collapse. But the profits will be found in the less recognized underlying process of creation. New technologies, industries and organizational systems will supplant the dysfunctional hierarchical secular institutions. And it is time for an antiquated monetary system to step aside.

Increasingly, monetary authorities are abandoning fiat. Those aligning against dollar hegemony are achieving a consensus sufficient to call the empires debt. A defacto gold standard will likely result, for a time at least. To date, the decrease in the rate of selling by the central banks has been the major factor in the primary bull. As net purchases become positive, either by central banks or by feudal lords that assume this role, prices as measured in debt based currencies will become incomprehensible. Following my credo of personal central banking is now paramount. Maintain your own reserve, in a fraction appropriate to your obligations. After all, even the Council for Foreign Relations is calling for an end to national currencies. I suppose it has become obvious enough. Some tipping points must be near as the shepherds have necessarily become more Austrian to maintain credibility as events unfold. Pay particular attention to Greenspan. While he has formally relinquished the imperial jawbone his uttering’s have become increasingly Randian. His critics will find him to be a conundrum unto himself as totalitarian ideologies of all persuasions are supplanted.

There have been and increasing number of disquieting market phenomena to keep us entertained of late. The acute attention paid to the markets at points of distress offer a unique opportunity. A sea of opinions are offered on causes, but only those who made proper forecasts of these events should be sought for council at this point. Our mavens are even getting more air time, and they are sporting well-deserved smirks of shadenfreude. For many speculating in real estate, their houses have become boxcars to financial genocide. As the housing backed dollar comes into play the debt slaves will clamor for salvation, but would not understand their true predicament if they were packaged up and shipped out as organ donors. While financial survivors who measure their net worth in government scrip will see that number rise, only those with a cogent strategy for negotiating the evolving end of fiat currencies will improve their lot in life.

Present circumstances warrant a call to action. There have been several technical breakouts in the precious metals in the past year. As we have expected, all of them have been hammered, keeping gold and silver in technical consolidation since last years highs. A consensus of the quantitative models at this point tells us that we are still in a long term parabolic market, and that the current consolidation is nearing completion. Near term technical indications for precious metals have also turned up. Interestingly, after regaining much ground over the past year and months the visceral measurable fear has not returned along with the prices. And the short positions and strategies are becoming much less vicious. The situation has been at almost at a complacent extreme until the past few days as lamestream shares have moved nicely forward. But the yen carry trade is due to continue unwinding, putting a drag on the most recent heady increases in global liquidity. A modest reversal of the decline in fear might be the beginning of a move to new highs in precious metals. A significant breakout here would be counter to the seasonals, so the lines of probability favor modest improvement increasing significantly into the fall. But one must be prepared to take advantage of a discontinuity to the upside well before then.

Rodney C. Cook, Ph.D.

Copyright c 2007. Rodney C Cook. All rights reserved.

Dr. Cook manages Bull Trout Capital, a boutique investment company specializing in precious metals and strategic materials. For the past four years he has authored the private newsletter the FishWrapper on Austrian and long cycle investment strategies where he has demonstrated well over a 65% annualized return on his personal investments in the public share markets. Subscription inquiries may be sent to big_fisherman@earthlink.net.