Thinking of selling your gold mining shares?

Here's a good interview with Bill Fleckenstein. Mental Insanity – Interview with Bill Fleckenstein

He speaks with an investor who is psychologically rattled by the market, but hanging on. It's a good example of rational thought versus following the emotion of the herd. Many people follow the herd, believing that if many people agree on something, it must be right. In financial markets, there is a penalty for being right and early, and this is why fundamental investors must manage their positions well and stay focused on those fundamentals, not emotion.


China's rebalancing is coming

The local governments may break Beijing's rules, but Beijing is serious about reform. An editorial in today's Beijing Times explains why economic growth will be slower. This is the first time I've seen an article like this in a general audience newspaper. Economic papers have written these stories, but it's not often we see it discussed outside of the financial realm. It comes a few weeks ahead of the National People's Congress, when power will officially transition to Xi Jinping and Li Keqiang. The editorial covers growing debt burdens for local governments, bubbles and the need to turn away from double digit growth targets.



About that Depression: gold tells the tale

Here are several charts, all looking at the total credit market (which includes government debt at all levels). As you can see from the first picture, the growth of credit was a fairly consistent trend. The chart became exponential due to compounding interest. As the second chart shows, the previous decade saw credit growth at a minimum of 7.5% annually before the crisis. Going back to 1949, the slowest year saw 5% credit growth. The only comparable period to now in terms of decline in credit growth rates is the 1980s, when the country saw inflation rates decline throughout the decade. Slowing credit growth that took a decade in the 1980s, and still ended at the prior historical low for credit growth, occurred in a year across 2008/2009 and went to Depression era levels.

Based on history, if a recovery were underway, credit growth would be at least around 5% per annum. At that rate, the total credit market would be about $9 trillion higher than the latest figure indicates, a "credit gap" of 16%. Were the economy to grow credit at the higher 7.5% rate of the previous decade, the "credit gap" grows to $15 trillion, or 27% of GDP. As I have written previously, in Why QE3 will completely fail, the Fed's quantitative easing policies are not enough to fill this gap. There is very low money velocity because there is no demand for credit: the Fed is not printing new money, it is mainly monetizing the federal deficit. Federal deficit spending is the only thing keeping total credit positive and forestalling an "all out" depression. Without the federal deficit, the Fed would be powerless. Now you can understand why Paul Krugman and other Keynesian economists continually attack "austerity" and federal spending cuts.

Further, as I explained in State of play in Q32012: Fed and U.S. government policy is not enough to offset deflation:
There are many ways to estimate how much the Federal Reserve would need to print in order to create inflation. One way is to consider the ratio of credit money to M2. Assuming the economy will return to its “starting position” in 1980, when base money (M2) was one-third of credit money, the economy either needs to deleverage $25 trillion or the Fed needs to print $8 trillion. I do not hold this out as a definite estimate, but I believe these huge numbers are reflective of the depth of the current crisis.
I posted this graph of the ratio:

At the current rate of decline in this ratio, the bottom could be reached around 2020. If the Fed prints more, it will bring M2 up faster, if it doesn't print, private credit will deleverage falling faster than the federal government can leverage up.

While I agree with the general opinion of people such as Peter Schiff and Marc Faber, who point out that Federal Reserve policies and deficits will debase the dollar, in the short-term of 5 to 10 years (assuming no crisis), deflation remains a threat. In general, those arguing that inflation will come say that it doesn't matter if there's deflation, there will be a new QE policy. And there's some truth to that argument; ultimately I suspect they will be proven correct. Yet this week, we saw that Federal Reserve policymakers are growing concerned about Fed asset purchases. The Fed did not anticipate 2008 and they are unlikely to anticipate the next crisis.

Gold is the smart money. (Literally, it is the best money today.) The weakness in gold since the announcement of QE3 reflects the ongoing deflation. However, Fed printing is slowly having an effect, which is why we see higher lows during gold corrections. The net effect for now is inflation, but deflation looms large and suppresses gold rallies. If the Fed slows its quantitative easing, if the federal government reduces the deficit, we could see deflationary forces overwhelm the economy, along with further weakness in gold. Stocks will be pummeled as they were in the summer of 2010 and 2011, or even 2008 if a crisis erupts.

I expect the government and central bankers will take extreme measures in the end, most likely after another major financial crisis wipes out enough debt for organic growth to resume. Aggressive policies at that point will be unnecessary and will lead to rapid inflation, and then we will see precious metals hit their peak. Until then, the forces of deflation remain strong. The U.S. is truly caught between the Scylla of inflation and the Charybdis of deflation. Deflation is the unmovable object upon which trillions of federal debt and Fed monetization can barely make a dent. Slowly, slowly, inflation grows in strength, chipping away at deflation, but outside of a major positive shift in social mood, we will not see high inflation in the next few years. The United States (and most of the developed world) is in a depression and it ain't over yet.

Looking at gold today, at $1580, down rapidly from around $1700 last month, but up from sell-off lows Wednesday—a bottom here is very bullish, particularly if stocks continue to fall. The most bullish scenario for gold is a flat/rising gold price as stocks tumble and set up the next round of quantitative easing (or at least turn those inflation hawks at the Fed into doves). If we see gold continue to tumble, watch out. We could be headed for the worst market decline since 2008.


Massive head and shoulders in gold miners; do they signal a market panic?

I noticed this pattern today and I'm not the only one. The downside target is the 2009 lows! Are miners signaling a major correction in stocks?

In the light of all this, how do the PM stock index charts look right now? – in a word they look terrible.

Our 6-year chart for the HUI index shows a massive completing Head-and-Shoulders top. We have observed this menacing pattern for some considerable time, but for a while thought it would abort because of the negative extremes of sentiment already afflicting the sector. However, we should recall from 2008 that sentiment can get even worse as prices plunge precipitously. The relative strength of the sector against the broad market in the recent past has been appalling, and this does not bode at all well for it in the event that the broad market goes into reverse as expected. While we are aware that the sector could go contra-cyclical at any point, as it has traditionally done in the past, and we will always be on the lookout for signs of this happening, at this point it looks like it will be subject to a similar cycle of forced liquidation as in 2008. If the broad stockmarket reverses hard it looks likely that the HUI index will crash the crucial support at the lower boundary of the Head-and-Shoulders top pattern and plunge, with a probable downside target in the vicinity of the 2008 lows, and possibly lower. We have a general stop at 358 on this index and will be out of all remaining holdings in the sector if this fails – we are not going to be caught napping like the unfortunate folks in 2008.
Click the link for much more on the current market technicals, including some Elliot Wave analysis.

Elliot Wave analysis of Bitcoins: Wave 3 Edition

Disclaimer: I'm an amateur at Elliot Wave.

I last covered Bitcoins wave structure in Elliot Wave analysis of Bitcoin and Updated Elliot Wave analysis of Bitcoin, back in June of 2011 when Bitcoin made its first big run.

It appeared to undergo a typical 5 wave structure with a blowoff wave 5. It then consolidated for a year before starting another advance. Depending on where one puts the start (and to restate, I'm an amateur), it appears Bitcoins could be entering wave 3 if it can exceed the 2011 price high of $30, which would be a 7% gain from current levels. If it breaks out, it opens up some potentially high price targets, but for now it needs to get above it's old high.


Round up the crazies

In the 1970s, mentally ill patients were released from involuntary care facilities. Remember the homeless problem in the 1980s, blamed on Reaganomics? It was mostly mentally ill people who were no longer in mental hospitals. Now, with social mood turning down again, the approach to the mentally ill is turning authoritarian.
Scoop the nuts
The city is making a major push to sweep the streets of dangerous, mentally ill New Yorkers — and has even compiled a most-wanted list, The Post has learned.

The measure follows a pair of high-profile subway-shove fatalities from December allegedly involving mentally ill individuals.

The city has already drawn up a list of 25 targets, sources said.

“After the Queens subway attack [of immigrant Sunando Sen], the [city] decided to take a proactive approach to track down the most dangerous mental-health patients that currently have mental-hygiene warrants” out for them, a law-enforcement source said.

Those warrants mean that the patients are not wanted for a crime but instead are being sought because they are not getting their court-ordered treatment.


UK left and right turn anti-immigration, U.S. to follow, but is it too late?

First, here's a video of a right-wing politician from the UK, Nigel Farage, making the case that the British will vote against the EU due to the flood of immigrants.

Then there's the view from the left, that "mass immigration is making reluctant racists of us all.": 'I feel like a stranger where I live’
In the Nineties, when I arrived, this part of Acton was a traditional working-class area. Now there is no trace of any kind of community – that word so cherished by the Left. Instead it has been transformed into a giant transit camp and is home to no one. The scale of immigration over recent years has created communities throughout London that never need to – or want to – interact with outsiders.

It wasn’t always the case: since the 1890s thousands of Jewish, Irish, Afro-Caribbean, Asian and Chinese workers, among others, have arrived in the capital, often displacing the indigenous population. Yes, there was hateful overt racism and discrimination, I’m not denying that. But, over time, I believe we settled down into a happy mix of incorporation and shared aspiration, with disparate peoples walking the same pavements but returning to very different homes – something the Americans call “sundown segregation”.

But now, despite the wishful thinking of multiculturalists, wilful segregation by immigrants is increasingly echoed by the white population – the rate of white flight from our cities is soaring. According to the Office for National Statistics, 600,000 white Britons have left London in the past 10 years. The latest census data shows the breakdown in telling detail: some London boroughs have lost a quarter of their population of white, British people. The number in Redbridge, north London, for example, has fallen by 40,844 (to 96,253) in this period, while the total population has risen by more than 40,335 to 278,970. It isn’t only London boroughs. The market town of Wokingham in Berkshire has lost nearly 5 per cent of its white British population.

I suspect that many white people in London and the Home Counties now move house on the basis of ethnicity, especially if they have children. Estate agents don’t advertise this self-segregation, of course. Instead there are polite codes for that kind of thing, such as the mention of “a good school”, which I believe is code for “mainly white English”. Not surprising when you learn that nearly one million pupils do not have English as a first language.

I, too, have decided to leave my area, following in the footsteps of so many of my neighbours. I don’t really want to go. I worked long and hard to get to London, to find a good job and buy a home and I’d like to stay here. But I’m a stranger on these streets and all the “good” areas, with safe streets, nice housing and pleasant cafés, are beyond my reach. I see London turning into a place almost exclusively for poor immigrants and the very rich.

It’s sad that I am moving not for a positive reason, but to escape something. I wonder whether I’ll tell the truth, if I’m asked. I can’t pretend that I’m worried about local schools, so perhaps I’ll say it’s for the chance of a conversation over the garden fence. But really I no longer need an excuse: mass immigration is making reluctant racists of us all.
Code words such as a "good school" have been used in the United States for decades.

Farage speaks of the political ramifications of increased immigration at this time, which could lead to the UK pulling out of the EU. In fact, the British government is starting an ad campaign to deter immigrants from coming at this politically sensitive time.
Immigration: Romanian or Bulgarian? You won't like it here
Please don't come to Britain – it rains and the jobs are scarce and low-paid. Ministers are considering launching a negative advertising campaign in Bulgaria and Romania to persuade potential immigrants to stay away from the UK.

The plan, which would focus on the downsides of British life, is one of a range of potential measures to stem immigration to Britain next year when curbs imposed on both country's citizens living and working in the UK will expire.

A report over the weekend quoted one minister saying that such a negative advert would "correct the impression that the streets here are paved with gold".

This was the topic of conversation on a recent morning show in the UK.

And in the U.S., with the flood of immigrants coming via amnesty, anti-immigration sentiment will spill open in America as well, as white left-wing natives turn anti-immigration once they realize that they too are joining the minority.
California Eases Tone as Latinos Make Gains
The state’s changing attitudes are driven, in large part, by demographics. In 1990, Latinos made up 30 percent of the state’s population; they will make up 40 percent — more than any other ethnic group — by the end of this year, and 48 percent by 2050, according to projections made by the state this month. This year, for the first time, Latinos were the largest ethnic group applying to the University of California system.

Towns that just a decade ago were largely white now have Latino majorities. Latinos make up an important power base not only in urban centers like Los Angeles, but also in places that were once hostile to outsiders. There are dozens of city councils with a majority of Latino members, a Mexican-American is the mayor of Los Angeles and another is the leader of the State Assembly. Nearly all of the 15 California Republicans in Congress represent districts where at least a quarter of the residents are Latino.

“The political calculus has changed dramatically,” said Manuel Pastor, a demographer and professor of American studies at the University of Southern California. “Immigrants are an accepted part of public life here. And California is America fast-forward. What happened to our demographics between 1980 and 2000 is almost exactly what will happen to the rest of the country over the next 30 years.
Most people are bad at math and don't realize what has already taken place. If amnesty is pushed through, the United States will go the way of California, which increasingly resembles a middling Latin American country constantly on the brink of financial collapse. Immigration will not be stopped, it will increase greatly as much of the country blends with Mexico and the borders disappear. There will be violent conflict between Hispanics and blacks in the inner cities, while whites flee to the north and east away from immigrants. The South may be the most likely to respond violently in an attempt to drive immigrants out. The U.S. will descend into low level civil war, with foreign powers such as Mexico, Russia and even China extending their influence into American domestic politics. The U.S. dollar will go the way of Argentine peso. And most surprisingly to some, real racism will come back into vogue as the left-wing popularizes it.

For those who think that's an extreme forecast, remember that Brazil, Venezuela, Bolivia, Argentina and Mexico have all gone through devaluations/hyperinflation in the past three decades. California is on its way to becoming an economic basket case. If adding millions of Mexican voters will make things better, why is California going the way of Mexico, instead of Mexico going the way of California? The answer is clear: mass immigration does not lead to assimilation. The new voters establish the culture and voting pattern of their home country once their numbers are large enough. The end game is now in sight for the United States as the trends accelerate and take on new momentum.

Singaporeans protest immigration; U.S. government ignores social mood at its own peril

The U.S. government is headed for disaster as it continues to pursue peak social mood policies during negative social mood. In Singapore, the largest protest since independence opposes increased immigration.

Singapore protest at population policy biggest since independence
One sign, apparently directed at Singapore Prime Minister Lee Hsien Loong, read: "Ah Loong sweetheart, 6.9 (million) is a kinky number, but quality, not quantity," referring to his comment that the country's population could reach 6.9 million by 2030. A speaker at the rally, Kumaran Pillay, said he wanted his country to be led by "a man with vision" and did not want Singaporeans' lives to be controlled by "number Nazis".

Another speaker, Sem Teo, a banking executive, said: "Singaporeans should stop being afraid and speak up for change."

Rally participant Tan Jee Say, an ex-civil servant now in opposition who ran for president in 2011, said: "The prime minister has failed us. Make way for a new prime minister."
In contrast, the U.S. is committed to a quantity over quality policy, combined with a possible new minimum wage hike, that will guarantee a massive increase in unemployment and resulting social dysfunction.

A former visa officer in the United States lays out the case against amnesty in Legalizing illegal immigrants a bad idea
It's not just 11 million people. A substantial percentage of illegal immigrants are here alone, and once they get green cards, they will be able to petition for their wives and children to join them in the U.S. And if they become U.S. citizens, they will also be able to petition for their siblings and parents. Those migrants, in turn, can petition for their relatives and so on. Not all of the immigration preference categories are immediate, but within 10 to 15 years, legalizing 11 million migrants could result in possibly 30 million new arrivals.
I have seen estimates of 20 million illegal aliens or higher, which translates into potentially 60 million or more new arrivals.

Jobs Americans won't do? Proponents of an amnesty for illegal immigrants often claim illegal immigrants do tough, low-paying jobs that Americans and legal immigrants won't do. This notion is flawed now but will be demonstrably false after an amnesty. Illegal immigrants are currently limited to working for employers who pay in cash and don't ask questions, but with an amnesty, they'll be competing for jobs in the mainstream labor market with less educated Americans, who are already struggling with wage stagnation and a tight labor market.

Strain on social services. Legalizing millions of mostly poor people, many of whom have no job security or health insurance, will put a strain on already strapped social services agencies. A study by the Center for Immigration Studies estimated that 57 percent of immigrant households (legal and illegal) used at least one welfare program in 2009. Illegal immigrants aren't eligible for most benefits, but once this group has legal status, they'll be eligible for the full range of benefits
If President Obama has his way and gets a $9 minimum wage, the U.S. could easily be looking at permanent 10% or higher unemployment, with a spike into the 20% range. The current plan is to simultaneously legalize people currently earning black market wages and then price them out of the market by hiking the minimum wage, pushing them into welfare at higher numbers.

Anti-immigration protests are coming to the United States, but the question is, will they happen before or after an amnesty?

Inflation risk in China

Use Google Translate to read the Chinese.

警惕通胀 (Wary of Inflation)
2013温和复苏,风险暗藏 (2013: Mild Recovery, Hidden Risks)


Social mood and pornography

What's interesting about this story is something that links it with other developments in the West: authoritarian feminism. Or as John Adams put it in a letter to his wife, the tyranny of the petticoat.
Iceland considers pornography ban
The unprecedented censorship is justified by fears about damaging effects of the internet on children and women.

Ogmundur Jonasson, Iceland's interior minister, is drafting legislation to stop the access of online pornographic images and videos by young people through computers, games consoles and smartphones.

"We have to be able to discuss a ban on violent pornography, which we all agree has a very harmful effects on young people and can have a clear link to incidences of violent crime," he said.
Methods under consideration include blocking access to pornographic website addresses and making it illegal to use Icelandic credit cards to access pay-per-view pornography.


Three headlines on China to consider

Jewellers lose out in Beijing's anti-graft drive
Dynasty warning: wine bubble bursting
People's Bank of China sounds alarm over inflationary pressures

Art and social mood

This blog post notes the different reception art has, and extrapolates to social psychology, where certain ideas are believed to have positive/negative impact. In reality, social mood is driving the positive/negative reaction shifts over time.
Priming: Responses change over time
Today, glass artworks by Tiffany are once again worth a fortune, but they fell radically out of fashion in the 1900s. Teddy Roosevelt had the Tiffany glass in the White House junked. The great screen, like so much Tiffany glass, was destroyed. So this painting is based on black and white photos and some surviving Tiffany works of the same era to create a speculative image of what once was.

The point of these examples are that people once found that the works of Frederic Edwin Church and Louis Comfort Tiffany primed them to experience very positive emotions, and they work almost as well today. If, say, you are invited to a charity event held in a ballroom decorated by Tiffany, you'd probably feel more privileged, pleased, and generous than if the event were held in, say, a suburban church basement. If you invited a date to the charity bash, you might find she finds the Tiffany ballroom more priming than the church basement.

Yet, both Church and Tiffany also each went through decades when their art primed people in the exact opposite direction: they found their masterpieces depressing.


Collapsing government in New York

Many people hear discussion of government collapse and think of the Dark Ages, a civil war, or something on the order of nuking a capital city. In fact, government has effectively collapsed once it is no long able or willing to do its basic functions. The most basic role of government is to provide law and justice, and it when this breaks down that one can say there is effectively no government.

When thinking about the future of the United States, many people think collapse is impossible, absurd, the rantings of conspiracy theorists and radials. But the evidence indicates that American government is currently in the process of collapse.

Flash Mob Mayhem: Violent Groups Of Teens Leave NYC Businesses In Ruins
Judson Bennett, 78, recently ran into a violent group of teens – often described with the once-benign term “flash mob” – as he made his daily trip to buy a newspaper at his favorite news team.

“I’m approaching the newsstand, and then suddenly there is a tremendous force behind me,” Bennett said.

Bennett ended up with a broken arm.

“I was taken completely by surprise,” he said.

In New York and across the country, the mobs of kids – 20, 30, 40 or more — appear out of nowhere and suddenly charge a newsstand or convenience store.

...“They assemble, they do whatever it is that they’re going to do, and then they disassemble in a matter of minutes,” said Jon Shane, assistant professor of criminal justice at John Jay College. “By the time somebody recognizes what is happening or is injured, if the police are able to respond, it’s slow.”
Many gun control advocates ask why someone would need an AR-15 with a 30-round magazine, well the answer is when the mob comes.
The man who manages the newsstand where Bennett was injured said it has been attacked four times in just the past few weeks.

“It’s hard to earn a living, and then they come here and destroy everything, and then they leave,” he said. “It’s sad.”

As quickly as they arrive, the newsstand victims said, the teens are gone — along with thousands of dollars in goods and damages.

Teens have destroyed the newsstand on 57th Street between Eighth and Ninth avenues so many times that the manager has been forced to shut down completely in the afternoon so he doesn’t lose any more money.

“All our displays are broken,” he said.

When CBS 2 contacted the NYPD about the issue, the Department declined to comment.
The police cannot, or will not stop mob violence. What is happening today is occurring during a period of relative peace and prosperity domestically. What happens once people realize the police will do nothing? Eventually, a tipping point is reached, and there will be total mayhem and anarchy in cities across America.