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The Price of Gold and the Art of War Part III

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Posted by Darryl Robert Schoon

on Thursday, 18 December 2014 07:04

If you wait by the river long enough, the bodies of your enemies will float 

by Sun Tzu, The Art of War, fifth century BC

In The Price of Gold and the Art of War, Part I and in this Part II, the author explained how the bankers’ war on gold forced down the price of gold between 1980 and 2000. This is a brilliant short summary of the Centrall Banks action to date in simple terms that can readily be understood by most observers - Editor Money Talks

The Price of Gold and the Art of War Part III

When growth slows in capital markets, the bankers’ daisy-chain of credit and debt breaks down; setting in motion defaulting debt which ends in recession, deflation or, in extreme cases, a deflationary depression.

A deflationary depression is a fatal monetary phenomena where the velocity of money—circulating credit and debt—falls so low capital markets are no longer self-sustaining. This happens after the collapse of massive speculative bubbles such as the collapse of the 1929 US stock market bubble which resulted in the world’s first deflationary depression, the Great Depression of the 1930s.

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Throughout history, gold and silver have offered safety in times of economic chaos. Today is no different. What is



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Asset protection

Energy Market Contagion Fear

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Posted by Victor Adair for Money Talks

on Monday, 15 December 2014 15:56

The free-fall in oil prices…WTI down $50 (47%) since June…hit Market Psychology HARD last week…risk aversion soared…credit spreads widened with a vengeance…Treasury yields fell to near All Time Lows…credit risk inspired contagion hit all asset classes…the DJIA…which had closed at a Record All Time High Friday Dec 4…fell 680 pts (3.7%)…creating a Classic Key Reversal Down…closing lower than all FIVE previous weeks!

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Crude: WTI closed the week at $57.50…down $50 (47%) from June highs…down $20 (26%) the last 3



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Asset protection

The Rushing Bear Market & How to Prepare

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Posted by Michael E. Lewitt via Money Morning

on Sunday, 14 December 2014 15:26

Oil prices plunged to their lowest prices in five years last week after the International Energy Agency (IEA) downgraded its forecast for global oil demand for the fifth time in six months.

The IEA report told markets that global growth will remain weak in 2015, triggering an across-the-board sell-off in stocks and junk bonds on Friday that left the major indices with some of their worst percentage losses in three years.

Unfortunately, stocks are still trading within a few percentage points of record highs reached only a week ago and remain severely overvalued in the context of seriously deteriorating economic fundamentals.

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Investors that were complacently expecting stocks to melt up to "Dow 18,000" and "S&P 2,100" by year-end are now facing a the much grimmer reality of a correction and even the potential of a bear market in 2015.

By the Numbers



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Asset protection

How the Rising Dollar Could Trigger the Next Global Financial Crisis

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Posted by John Mauldin - Outside the Box

on Friday, 12 December 2014 10:43

This week’s Outside the Box continues with a theme that I and my colleague Worth Wray have been hammering on for some time: the very real potential for a rising dollar to trigger the next global financial crisis.

We are concerned about the consequences of multi-speed economic growth around the world and the growing divergence between major central banks. In our opinion, if these trends persist, they likely mean (1) a major US dollar rally, (2) a rapid unwind of QE-induced capital flows to emerging markets, (3) a hard slide in fragile emerging-market and commodity-exporter currencies, and (4) financial shocks capable of ushering in a new global financial crisis.

Alongside true macro legends like Kyle Bass, Raoul Pal, Luigi Buttiglione, and Raghuram Rajan, Worth and I have written about this theme extensively in 2014 (“Central Banker Throwdown,” “Every Central Bank for Itself,” “The Cost of Code Red,” “Sea Change,” “A Scary Story for Emerging Markets”). Now it’s quickly becoming a mainstream macro theme on almost everyone’s radar. Virtually every economist and investment strategist on Wall Street has a view on the US dollar and the QE-induced carry trade into emerging markets… and anyone who doesn’t should start looking for a different job.

Policy divergence is really the only macro theme that matters right now. And on that note, the Bank for International Settlements just released its predictably must-read quarterly review, with an urgent warning:

The appreciation of the dollar against the backdrop of divergent monetary policies may, if persistent, have a profound impact on EMEs [emerging-market economies]. For example, it may expose financial vulnerabilities as many firms in emerging markets have large US dollar-denominated liabilities. A continued depreciation of the domestic currency against the dollar could reduce the credit worthiness of many firms, potentially inducing a tightening of financial conditions.

Echoing those comments on Twitter, the “bank for central banks” reiterated how this trend affects all of us (feel free to follow us at @JohnFMauldin and @WorthWray):

@BIS_org: US dollar as global unit of account in debt contracts means a stronger dollar constitutes tightening of global financial conditions.

This is in spite of continued efforts by central banks to ease monetary conditions. Calling attention to that very risk in our Halloween edition of Thoughts from the Frontline, Worth explained that the catalysts are already in position to spark a collapse in a number of fragile emerging markets if the dollar moves even modestly higher (into the low 90s on the DXY Index); but we have struggled to quantify the actual size of the nebulous USD-backed carry trade that could now come unwound at any moment.

Reasonable estimates range from $2 trillion to $5 trillion. The true number could be even larger if more speculative money has slipped through the cracks than has been officially reported in places like China; or it could be smaller if a significant portion of recent inflows represents a more permanent deepening of emerging-market financial systems rather than an attempt to escape financial repression in the developed world. It’s hard to know for sure, and that’s why this week’s Outside the Box is so important.

In a recent presentation at the Brookings Institution, BIS Head of Research and Princeton University Professor Hyun Song Shin shared his research revealing that dollar-denominated credit to non-bank offshore borrowers is now more than $9 TRILLION and at serious risk in the event of continued policy divergence.

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Asset protection

The 10th Man: When the Market Moves Fast, Stuff Blows Up

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Posted by Jared Dillian - Mauldin Economics

on Thursday, 11 December 2014 12:45

shapeimage 22One of my old rules of trading is that whenever a major asset class, index, or other benchmark has a sudden, rapid move in price, something blows up. Sky high. (related by John Mauldin - How the Rising Dollar Could Trigger the Next Global Financial Crisis - Editor Money Talks)

That’s because people get used to regimes. They get used to a certain state of affairs with a lack of volatility. They become complacent. Maybe they stop hedging. Maybe they allow themselves to have unbounded downside risk. Maybe they start gambling.

In the last month, we’ve seen massive moves in the dollar and oil—and I assure you, someone is going to get hurt.

So far I haven’t said anything controversial. Energy companies are going to get hurt by lower oil prices. Exporters are going to get hurt by a rising dollar. A chimpanzee could figure this out.

But there are second-order effects. People are starting to figure out that Canadian banks are going to get hurt by the lack of investment banking business from the energy sector, and the stocks are getting punished.



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