The Skip Bureau

It's been a long time since my last post. Not that I haven't been thinking a lot.

Ron Paul. Not a Libertarian, but close enough as a Republican. His stance on immigration I can accept although I do not agree with it. Same for his pro life stance and his stance on the sanctity of marriage. I'm not really going to get into abortion or marriage, as those things harken back to either pragmatism or religion and thus are inarguable. I will, however, touch on immigration.

For starters, from a philosophical standpoint, nobody on this continent can call this place 'homeland'. Even the native Americans were not native. They came from Russia or by boat or something. So the Republicans who wander around talking about ruining our 'culture' that we have some inherent right to are being silly.

Not that people aren't free to defend what they rightfully stole; that's history. If they'd honestly say that, then there'd be a reason I can't argue with. It's just natural to want to defend what you have, and the behavior reactionaries show is just exactly what you'd expect.

However, from a financial standpoint, the argument that we ought to stop the influx of immigrants is pretty stupid. We've got a serious future accounts deficit problem with social security and medicare/medicaid. To fix this problem, we need a workforce that grows, not shrinks, which is what we've got.

So, ideally, what we need to do is make it very much easier for immigrants to come into this country and become citizens, so we can attract the kind of dominating workforce we have traditionally enjoyed as well as remain solvent as a country.

So, at least Ron Paul thinks citizenship ought to be easier to achieve, so I can accept his wish to reduce the influx of illegal citizens.

I believe it was 'The Far Side' that had a cartoon
showing a Frankensteinish man, sewn tofether out of parts that didn't seem to fit. Someone was pointing at him and saying, "Oh, him? He's a self-made man."

I find people who have not taken chances and received scars for it to be uninteresting. That brings me to the subject of this bulletin.

The bureau may have to eat crow. For the record, the bureau has cautioned about the possibility of deflation. Now, we have deflation of the worst kind, asset deflation coupled with price inflation in both the producer and retail sectors. If this keeps up, we can expect an eventual asset crash led by silver, selling off nearly everything, followed by massive bank failures.

Or, the fed could 'rescue' the economy by pumping liquidity. This may have already happened, and it is believed this sort of action will lead to structural inflation, although this will not immediately show up in financials. If the fed does it right, the fact that everyone else has been inflating as bad or worse than the fed can be used to make it seem the dollar is not losing value against other currencies when, indeed, they are all losing at the same rate or worse. China, for instance, inflated at the rate of 28% last year.

This possibility would be quite bullish for silver due to the fundamentals in the silver market coupled with mildly cooling demand of the stagflation model economy we'd be in.

Finally, we have the hyperinflationary crash, which is bullish for anything not a dollar.

The bureau still stands by the prediction of a stagflationary economy as the most likely outv¡come but continues to warn that deflation is a very real worry. Analysts will be expanding their positions in metals but will hedge with cash against a deflationary scenario.

Deflation? Howinheck you ask. Well, the financial markets are just chock full of derivatives and carry trade, which has tied up a lot of fake money.

Derivatives are a way to bet on future stock prices without owning stock. This produces lots of money with no value backing but this money just gets locked up in other derivatives. As these derivatives unwind, lots of money that was never really there just goes away, causing potential deflation.

I mentioned other countries are also inflating. Japan, for instance, has targeted a zero percent interest rate for years. This caused the biggest of the carry trade positions. Traders borrow yen in Japan, buy dollars with it and invest in US securities. They make money off the difference with no money up front. Well, if the Yen goes up or the dollar goes down, they get wiped out and go bankrupt. Amid fears of inflation in the US and a tightening of credit in Japan, this has become unprofitable, so the carry trade is being unwound.

Now, one would think that trying to sell all that dollars for Yen would drive the dollar down and the Yen up. and one would be right. Isn't this inflationary? Doesn't this mean there are a lot more dollars and a lot fewer Yen out there? How can this cause deflation? Well, they had to sell US securities to get the dollars, which drove the value of the dollar up relative to securities, causing asset deflation. This can cause bank failure, triggering a derivative led general financial crash, which would wipe out great swodges of money and lead to deflation.

It could also trigger investment flight leading to a dollar tumble, leading to a dollar crash with the internal US economy more or less intact. It could do both as well, leading to assets and materiel in the US being stupid cheap but things imported being prohibitively expensive.

However, the fed knows all this and is likely going to do its best to engineer stagflation, the only outcome that doesn't lead to bank failure, as they are,indeed, bankers. The dead cat bounce right after the selloff is telling and heartening; it shows the gummint is still propping up the stock market. As long as they keep doing that, I'll keep buying silver. As usual, you make up your own mind. If you can'thandle a loss, don't play in commodities. The rest of us have a new batch of scars from this painful correction. We'll stay the course and no doubt take many more wounds before the game is done.

First, the current Social Security crunch would be greatly alleviated by allowing unfettered legal immigration. Such a large increase in the working class would allow an increase in the tax base and hence less of a strain meeting the Social Security obligations. Immigrants are normally reasonably healthy, hard working people, and are often a credit to their communities, no matter which country they come from. As far as analysts from the Bureau are concerned, the concept doesn't warrant further discussion, as the Bureau is unanimous in this analysis and feels that the idea is so blindingly obvious it is mildly embarrassing to have to mention it at all.

The second is the fact that the faction of the Bureau that believes gold and silver will never again be monetized is gaining the upperhand. However, further inspection is necessary, as the issue is more complicated than a simple question of whether precious metals are directly fungible or whether they are indirectly fungible. If directly, they count as 'money' in the common sense in that they are exchangeable for goods and services on the open market. This may be starting in a limited sense in South America and the Middle East as previously mentioned. If indirectly fungible, they represent a value store that is convertible to some other money. As such they are not meet for the modern definition of the term but certainly are for older definitions.

Instead, the debate now rages over the future role of precious metals, with the current editor of the opinion that despite their lack of immediate fungibility, precious metals will begin to take a settlement position where they are used as a storage of value and as a final arbiter of wealth. In other words, precious metals may not change hands, but notes written on them almost certainly will in order to settle accounts, and the only way to securely amass wealth remains in precious metals, although there are developments that could render gold less valuable for this than in the past.

To be sure, the global tilt right now is leaning ever more towards silver. The Bureau is coming to expect increased global usage of silver both as a possible supranational currency and as common specie. It also expects silver to begin a value rally that may eclipse gold due to the ready availability of gold in unconventional forms such as ocean water that will limit the upside for gold more surely than it does for silver. The possibility exists that the profligate use of silver in industrial applications over the last century will render it far more rare than gold. If this occurs, the situation that existed prior to the ascension of gold, where silver was the more valuable metal, may once again exist.

This is all, of course, rank speculation. The Bureau continues to expand silver holdings, but you must do as you feel best, as the Bureau can barely meet the bills, let alone bail you out if you make a mistake. The Bureau still feels that it is best to avoid leverage of all kinds due to the risk of deflationary depression during which you will regret any leverage while stuck in your home contemplating your lack of a job. But, the possibility is becoming every more likely that this will be a fully-employed recession, where everyone just makes less and less, rather than seeing a lot of joblessness. This kind of inflationary recession is really, truly new. Analysis is therefore tricky.

It is time for another analysis report on the status of the world in general. The analysts (really, there are more than one and that's not due to schizophrenia) here at the Skip Bureau have been slaving over a cold LCD for some time, digesting information from many divergent sources to try to determine what is up. As a disclaimer, some of this is pure speculation, and you should, of course, do your own research.

The first order of business is the odd behavior seen in the precious metals market. It seems from a cursory analysis that selloffs began in the LME, the London Metals Exchanged, and were timed to stagger through the day such that one of them coincided with the opening of the Nynex and Comex in New York. There, computer-based trading would continue to drive the price down further. In this fashion, a relatively small and cheap market, the LME, could be used to control a larger and more expensive market in order to suppress what was a roaring bull in silver. The alternate explanation is that it was just a case of profit taking.

There is the jagged selloff pattern, repeated over a week on four separate days, with selloffs at the same time each day. Such a pattern is expected when one is selling specifically to reduce the price of a metal; one dumps, triggers a selloff from computerized traders, waits until a rally starts from other computerized traders and method traders, dumps again to check the rally and trigger the selloff, and repeats it. In this manner, the greatest damage to the raging bull can be done with the least amount of physical silver, especially given that the Comex and Nynex inevitably opened much lower as a result, although, signally, they tended to rebound through the day after the LME closed. Since then, we have been in a much slower market, trading basically sideways. It has presented a great buy opportunity, which the analysts here at the Skip Bureau have taken advantage of, and are grateful for.

Now, that was enough for the decidedly non-aluminum-beanie-wearing analysts at the Skip Bureau to go, 'hmm, wonder what's up', but then the rumors began to fly that the English have increased their position in US T-bonds, and are now third overall in ownership of these bonds. This idea is, of course monumentally stupid of them were they not in a position to be mauled by a US Dollar collapse. The Dollar hegemony is fighting a rear-guard action to stay alive. One thing is for sure, and that is that there is blood in the water.

If (pure speculation alert) the Bank of London or whomever is responsible on that side of the puddle is swapping silver for T-Bonds, it has the effect of simultaneously putting downward pressure on the precious metals sector, including gold, and allowing savings by industry that uses silver. Further, such a large purchase of T-Bonds would go a long way to shoring up the US Treasury as a bond issuer and thus shore up the dollar, which would further erode support for gold. London apparently has a lot of silver that can be used for this purpose.

Previously, the Bureau promised expanded analysis on China, and the China desk has been hard at work preparing this analysis. Much of it is barely sketched out, as the Bureau prides itself in reading between the lines and the lines are getting harder to find as those who wish us to not know get more sophisticated, but the relationship between the US and China has changed in a way that will one day be looked upon as epochal, beyond merely historic. It is the kind of thing that looks like when Eisenhower went to Germany to take overall command in World War II, which most historians view as the point the US seized world leadership from the British.

See, China came for a 'dinner', not a state visit, and left with the US firmly under its control. I don't know what Mr. Hu Jintao said to Mr. Bush, but the esteemed POTUS issued a statement or two and then proceeded to change policy. First was the statement that the Chinese are going to the moon and that the US will help. China needs American engineering help to do it, but they are the primary partner, which is so staggering a reversal that it boggles the mind how this could have come about.

As if that sort of earth-shattering development was not enough, the US ordered the Taiwanese VEEP to refuel in Alaska rather than mainland US en route to somewhere else and refused any diplomatic contact during the event. This is quite an insult. What this signals is that the US is abandoning Bush's earlier policy of supporting Taiwan and the Neocon tendency to feel that China must be checked at all cost. This sort of policy change is very striking to the Bureau.

The administration has also reversed its policy about North Korea, accepting the Chinese position pretty much intact. Previously, Washington had pursued the same aggressive stance to Pyongyang as it had to Beijing, although the threats were substantially more credible. Military force against North Korea is no longer really on the table and the US has pulled back from harrassing Chinese boarders with intelligence planes, the sort of activity that led to the loss of a US P-3 Orion in the early days of the Bush presidency, when the Neocons were still certain they could stop the Chinese juggernaut, all 1.5 billion of them.

So, it is now the opinion of the Bureau that China is calling the shots on the world stage through the US. Also of interest is the fact that it appears that the South American countries are showing signs of getting out from under the shadow of the Eagle. They are working on developing a cross-national currency based on silver. The idea is not new; Mexico used to have a silver peso coin. This new coin will not have a denomination but will be linked to local currencies and allow anyone to exchange local currency for one of these coins and vice versa. The currency policy is very sound and will provide a floor for South American prosperity that may soon eclipse the US.

Many speak of the Brazil-Russia-India-China axis, but of these two, the only ones that really matter are Brazil and China. Brazil is leading the way in South America in becoming largely independant of the dollar-oil trade. China is becoming the world's banker and power broker. India is firmly in orbit around China and Russia is struggling to deal with the many many issues it faces to survive, although Putin has been doing a fairly good job of playing the game.

All over the globe talks of replacing the dollar are popping up. This sort of talk is bad for the dollar. Already Russia trades oil in Roubles, increasing the stability of the Rouble. I've mentioned South America. China and most Asian Rim countries are creating 'basket currencies' that contain a ratio of everyone's currencies that they use to back their own. Everyone knows about the Euro. What people haven't heard of is the noise coming out of the Middle East about a gold-backed exchange, either in physical gold or some sort of gold-backed currency. Turkey has gold settlement banks. That is one reason the administration wishes to go to war with them and continues to act to destabilize them. Further evidence is the discovery recently by one analyst that Beirut, Lebanon had been one such gold settlement center prior to its destabilization in the last dollar crisis in the seventies.

So, the decreasingly small group of major actors on the dollar stage now include the United States, Saudi Arabia, England and Japan. Japan has been distancing its economy from the US but continues the Yen carry trade that allows bankers to sequester large amounts of US debt and make money on what is essentially an exponential ponzi scheme. England appears to be working to hold down metals and absorb more bonds. Saudi Arabia is using what oil it has to prop up the US economy while at the same time funding the 'enemies of the US', which are necessary to justify the current wars against powers that have hit upon the idea they can operate in currencies other than the dollar, countries such as Iran, Venezuela and Turkey.

Because of the way these finances are handled, simply silly amounts of money can be stuffed all over the globe without actually being spent. Very intelligent people are at this moment bent to the task of making sure it stays sequestered and is not allowed on the market in waves, as that would destroy the dollar. However, the pressure builds, and the reserves diminish. The day will come when some event sparks the selloff of US assets, which will precipitate a dollar collapse and cause the US economy to discount. The question that currently worries the Bureau is exactly when this sort of thing may happen and what may cause it.

Due to the nature of the gold and silver swaps where metal is leased and sold to be invested in bonds and the Yen carry trade where bankers borrow yen at zero percent interest to invest in bonds, the bond market can keep inflated with little increase in interest rates, allowing a situation to thrive where the only viable investment for most people is the stock market, which will last as long as the inevitable mass retirement of the baby boomers can be put off. This puts a horizon of around ten to fifteen years, it seems. During that time, the requirements of funding the children and grandchildren will keep driving a modest economic boom, it is thought. This plays well with the estimate of the boom/bust cycle endemic to the US economy, as well as worldwide cycles. It also meshes with the boom/bust cycle in precious metals. Since those cycles are primarily driven by investor thinking, which takes a generation to change, it makes sense that it will last to the end of the current generation.

Essentially, people must eat and clothe themselves, so there will continue to be a consumer economy in the US, and Asia must sell stuff or face massive oversupply, so they continue to supply us with money to buy their stuff. This sort of thing can go on for a very long time.

However, at some point, the Asians will either see a reduction in supply or an increase in demand. Black clouds are on the horizon for China, who has a very difficult road ahead. However, it should be noted that conversion from production for external use to production for internal use is not that hard and has been done before in a few years after the World Wars. It is expected that China in particular, and most of the Asian Rim, including Japan, can survive a collapse of the US economy at this point, with major parts of the world seeing improvements in their macro outlook, such as Brazil, Argentina and Mexico.

As a matter of fact, one of the more interesting reasons to view China as running the world economic is the fact that the Asian countries appear to be specifically inflating their currency to avoid having it rise against the dollar and stop the production bulls they enjoy. No other explanation of their consumption of US bonds can be found. Even China's recent evaluation was weak, given that the currencies in the 'basket' are all ones with dollar ties, and the evaluation was not enough to curb Chinese exports to the US. This sort of thing can't last long, although the Bureau is split on that question. On the one hand, it is important to know that China, in particular, can and has suffered famine on a large scale and so does not have the same resistance to economic loss the US does. As long as food and medical needs are taken care of, they don't need quite the list of gadgets the US does to keep its citizens happy. Also, they are and have nearly always been a command economy, but they have greater decentralization than most nominally free countries do, realizing the sorts of efficiencies that decentralization can cause. In short, China is a totally different game, so macro economic analysis of China using Western methods is at most a curiosity. To insist that a Western-style recession would be considered horrific by the Chinese people is to mistake the mettle of the Chinese people. The same can be said of much of Asia proper, including most of the Rim.

India is another situation entirely. India is being goaded by Pakistan, possibly at the behest of the US. India has structural problems and societal problems that beggar imagination. India is trying to be classic Indian and modern Western at the same time, and the amalgamation has not gone well. India is also showing every sign of being in a bubble driven primarily by Western companies, so a dollar collapse would hit India particularly hard. India has only seen these good times for one generation, but, unlike China, is rapidly becoming consumeristic, so will have civil unrest in the case of a recession.

Given the above analysis, it is apparent that the status quo is on shaky ground indeed. The massive derivitive position hanging over the Western banking hegemony, coupled with the short position in precious metals, puts the US in danger of cross-locking failure of the banking industry at the slightest hiccup. This has nearly happened several times already, averted only by rapid response from the Federal Reserve Bank of the United States. If the Fed proves too slow or the forces too great, they will be overwhelmed.

It has been said that this is not possible due to the fact that the resources available to the Fed are vast, but the truth is that most of them are paper, which brings me to my last point. Currency is used primarily to settle accounts over transactions. For instance, I want to buy a car but I sell hot dogs. I can take a thousand boxes of hot dogs to the car dealership and trade them for a car, or I can sell the hot dogs for a receipt that entitles me to a thousandth of a car. Dollars allow me to do that without reference to the car, indeed, without reference to anything. However, over time, dollars came to be the way countries settled accounts, so, for instance, Indian Rupees were used to buy dollars to settle accounts denominated in Chinese Yuan. This mechanism has been in place for about thirty or forty years. Prior to that, settlement happened largely in gold.

Now, if you take the outstanding dollar transactions, which is the 'demand' for money for settlement purposes, and compare that to the value of gold currently, you find that gold would have to appreciate in value by 40 or 50 times to be used as a settlement currency. If the world goes off the dollar standard and back to the gold standard, gold will shoot up in price like nobody has ever seen in the history of mankind.

If that happens, all those dollars come home to roost, driving up prices in the US at the same time the dollar falls compared to gold, meaning that foreign stuff gets more expensive to get, too. If the US does not play that eventuality right, hyperinflation and the demise of the dollar are sure to follow. Oddly enough, things will get discounted even during hyperinflation, as gold demand is worldwide, not local, so, since currencies are valued in what they can do, gold will see a massive value as well as price increase.

For instance, in Weimar Germany, during the hyperinflationary period, gold went from buying 350 loaves of bread per ounce to buying over 450,000 loaves of bread per ounce.

In other words, as the dollar goes away, if gold replaces it, everyone will have to buy and hold gold, driving gold up. Gold will be 'in flight' in transactions, so not available for sale. People who bought gold at the current rate of $650 per ounce can buy roughly 130 $5 meals with it. If gold goes up by the minimum 40x that it has to to be a settlement replacement for the dollar, you can buy 5200 meals for the same ounce of gold. However, since the US economy will be severely discounted in a dollar collapse, as foreigners sell off US assets, the ratio will be much higher than that. A worst case discount of 90% means that everything is 10x cheaper, which means you can now buy 52,000 meals with an ounce of gold, present value $260,000. Essentially a man with four ounces of gold in his pocket may have as much money as a man with a million dollars does today. Just four ounces.

This is all a lot of speculation. The gold and silver investors are betting that the current group of goofballs can't pull their scheme off for much longer. It seems a safe bet because it has always been a safe bet, but readers of the Bureau know that this time it really is different (tm), although what that actually means is pretty much anyone's guess. The Bureau maintains that eventual collapse of the dollar through either hyperinflationary policy as a response to bankruptcy-driven deflationary pressures is the likely result, as, when the wheels come off the wagon, it has a long way to fall. The harder the nuts who run this nuthouse try to stop it from happening, the worse it will be when it happens. So, the Bureau will take every opportunity to buy gold and silver presented by the market and smile.

Note: this is not investment advice. Make up your own mind. The Bureau makes no promise about future returns or that this information is in any way accurate, or even written in good English and spelled correctly. Any results you may experience from acting on any thoughts that may have escaped your self control while reading this screed are yours to contemplate, whether for good or bad.

As usual, the Bureau seldom reveals its sources in the fervent hope that others will do their own research. Almost all the Bureau's sources are online and readily discoverable. Do your own work and you will be rewarded by being able to take ownership of your mistakes.

We here at the Bureau practice a form of futurology known as 'tilting at the wind', where we try to figure what the weather will do from changes in the eddies around us. We watch the miasma of mostly disinformation pouring out of all sorts of outlets for the occasional slip, such as when Condoleeza Rice told the entire world there were 'mistakes' in Iraq. Then we try to determine the actual significance of these and other events and form a picture of how the mass of power is actually moving. We tend to fixate on events nobody else cares about and ignore *anything* that is of popular interest, as it is almost certainly disinformative at best, fraudulent at worst, and mostly disinteresting to us personally.

This method has been mildly effective at predicting future changes, and, truth be told, the analysts involved have a reasonably good record amongst themselves at predicting the future. For instance, the analysts predicted the decrease in fuel prices following the immediate emergency after Katrina and Rita and continue to hold that fuel prices will go yet lower in the future, but that is another analysis, the conclusions of which are contrary to everything you have heard but logical and not really startling.

However, the method is just guessing so is not to be trusted as anything more than speculation. That is all.

Much has been made recently in the libertarian press about the so-called 'Plunge Protection Team', often abbreviated PPT. This team allegedly steps into the stock market to provide derivitive support that drives essential indices up and thus triggers a recovery. In other words, they issue promises to buy stock that cause an increase in investor confidence by increasing the future valuation of stock without any stock changing hands. This increases one of the more closely watched indices and thus the market goes up.

They stand ready to buy stock outright if necessary and have already allegedly done so. So, on one hand, we have major government banks allegedly conspiring to repress the value of gold, industrial interests conspiring to repress the value of silver, a bond market that is rather transparently manipulated by government interests to the point that the US goverment buys US Treasury bonds using recently printed money, and now we have a Plunge Protection Team.

But, the good little socialist says, what's wrong with the government putting money in the stock market, anyway? Well, in a word, inflation. Yup, here we go again.

When the PPT buys a future, it attracts further investment capital, which is bad because periodically companies issue stock on that valuation. They then receive a greater share of the investment than they should and proceed to drive prices up by bidding against everyon else who is constrained by real, revenues-based spending. It is particularly bad because it causes overvaluations at stunning levels.

So, if I have a stock with a P/E of 30:1, meaning that the price of the stock is thirty times its average earnings, I am making a yield of 3.3%. After taxes, it is a money-losing proposition. It got valued that way because people invested in the stock market on the assumption that the prices in the stock market reflected reality when they have been artificially inflated for political purposes.

However, it isn't real money. First, continued inflation in any security market causes inflation elsewhere as I've already pointed out. Second, the actual value of that security is less, meaning that any liquidation event will cause that security to plummet, destroying massive amounts of capital. Third, it offers yet more chances for politically-connected companies to receive government money.

So, I invest in the market. I see my stock appreciate by 5% in concert with a P/E of 30:1. That means that the total appreciation is somewhere near 8%, as the increase in value of the company causes an increase in the price, so alters the P/E, in this case by about 1.5, taking the P/E to 31.5:1 or about 3.2%, as earnings remain unchanged. As the stock continues to appreciate, its P/E continues to get worse. What I'm trying to say is that the value of the stock is not tracking the price.

It's like taking a diamond and adding mud to it. It is bigger, but not worth more. This tactic works until you try to liquidate the value by selling a major portion of the stock. At that point, either you find other money to replace your money you are removing from the market or you see that you can't get as much money as you thought. In this case, the fed steps in and provides incentive and, if necessary, cash to ensure that there is enough money for you to cash out. What this means is that the difference between the real value of the security and the value you received is now pure inflation, often created out of thin air by some agency of government, either as a debt-backed security that a trader is using for carry trade or through printing of more money by the treasury.

Whether the money was printed or was loaned doesn't matter; the fact remains that the increase in monetary supply is the same. When the system crashes that loaned money will be all gone anyway.

Anyway, as I said, the security was severely overvalued based on the production of the company it represents. I chose to sell to prepare for my retirement. I wished to use it to buy burritoes. Well, while my money was locked up, burritoes cost a given amount because my money locked up in the market was not being used to bid up the price of burritoes. Now that my money is no longer locked up, I am bidding up the price of burritoes. As I have said before, a convenient and only slightly simplistic way of looking at things is that the price of a given thing is the number of things divided by the number of dollars bidding for those things. So, since there are now more dollars bidding for burritoes, there will be an increase in the price of burritoes. Note that the value of the burrito did not change and neither did the underlying relationships of labor and materiel.

So, as before, what we see is a simple increase in price, price inflation. Now, the company I held made burritoes, to simplify things, so sees its revenue go up. This means its P/E ratio begins to return to what it was. And, voila, the stock becomes worth exactly what it was before it inflated. This happens by the money value reducing, not the stock price reducing, meaning that people who are not correctly interpreting market moves in relationship to inflation will still be of the opinion that they are getting richer from the increase in price and that, at the P/E it is now, it is a value.

What this creates is an 'overhang of liquidity', a lot of money that is 'owned' by interests that could pump that into the economy at any time. In a sane market that was not interfered with, selloffs cost dearly. Each investor that is involved in a selloff loses personal money. It is difficult to liquidate a large position in stocks without triggering a reduction in price, which would cost the owner of the stock, so large stock transactions tend not to happen except by agreement with existing purchaser. With the system as it stands, any stock holder can liquidate his position with relatively little worry that it will damage the market and use the proceeds to do whatever he likes. In the old system, money in stocks and bonds were considered 'tied up'. In the new system, they are highly liquid.

More importantly, in a system not distorted an investor must be more careful with his investment. Money invested by the average investor goes into stocks that are considered 'safe', not stocks that are sexy and on a roll, many of which have little or no substance, just the promise of profit. This means a slower growth in the market, to be sure, but it also means that the valuation of the securities more closely reflects the actual valuation of the company.

For this and many other reasons it is not a good idea to let government mess around in private markets. However, it has happened, and now the pragmatist must try to figure out what to do about it in order to protect him and his.

First off, it is reasonable to assume that the stock market will continue to increase slowly for the near term, at least the next two to five years. No real crash of the market is expected, but a growing stagnation is likely as companies become entrenched and inefficient. This trend will prolong the already visible precious metal bull market as there will be continued industrial demand.

The government will continue to meddle with statistics so that mostly sweetness and light plays out of Washington. This, in turn, will drive ever more money into the stock market, which won't go down, so by and large it won't come out. However, at some point in time, we expect to see baby boomers retire, taking money out of the stock market. The fed will ensure that it doesn't go down, so the only possible thing is that the rest of the economy suffers price inflation.

Coupled with a reduction in use of the dollar as the world reserve currency, this could lead to an actual currency collapse, but I think that unlikely. Instead, due to hedonic adjustment and other meddling, our CPI rate will be reported as very low while real inflation roars and the economy stagnates, pretty much like it did in the 1970s. I expect to see ten to fifteen years of this, during which most people develop better spending habits. It is the fabled 'soft landing', known to some of us as the 'slow death'.

This is particularly bullish for silver, as it is both a money metal and a commodity, used all over the place. Expect it to continue to rise. Also, as real inflation becomes ever more apparent, expect gold to rise. Also, prepare to have trouble getting fuel, and, indeed, anything imported, as the country is hit by wave after wave of foreign dollars coming home, devaluing the currency. A lot of that devalued currency will cart off more of our precious metals and real estate. Good luck, America.

Note: this is in no wise investment advice. The reader is strongly encouraged to read elsewhere and make up his or her own mind.