Guest Post

I'm not going to even begin to try and make sense out of today's market. Watching fires burn and teargas fired in Greece, 100 pip moves in the EUR/USD in minutes and computer algos tripping over each other was surreal beyond words. This market right now is a lottery. Calling equities forward looking or a pricing mechanism is beyond ridiculous. It is during noisy times like these that investors must step back and keep things in perspective. Trading on days like today requires little skill and a lot of luck. When I step back I see a deteriorating economy and an equity market trying to understand what to do. Do they "price in" a soft patch or a full blow recession. Market participants are told it is in fact a soft patch. The slightest hint of positive data reinforces those views.

Since I arrived to Spain a few days ago from London, I’ve been sniffing around to get a sense of how Spain’s crisis is unfolding. We see the news clips and YouTube videos of protests, of governments collapsing, of soaring unemployment, but I wanted to see for myself how feels on the ground, and how things have changed over the last year. The most startling change that I’ve noticed, without doubt, is the inflation. Literally everything I’ve looked at– food prices at the local market, restaurant tabs, local electronics, highway tolls, raw material construction costs, mobile phone tariffs, taxi fare, etc. are much more expensive, to the tune of 10% to 25%. So much for the theory that an economic slowdown would decrease prices. John Maynard Keynes, who is consistently held up as the father of modern macroeconomics, suggested in his General Theory that keeping interest rates low and government spending high in order to sustain a boom (or get an economy moving again) would likely NOT result in inflation. Spain is one of many examples that proves this theory to be utter nonsense. Everyone on the ground knows that inflation is high; local newspapers are even running stories about how to best deal with inflation and preserve your savings.

Yesterday, I noted that Greece Is a Kleptocracy; the U.S. is a kleptocracy, too. Before you object with a florid speech about the Bill of Rights and free enterprise, please consider the following evidence that the U.S. is now a kleptocracy worthy of comparison to Greece: 1. Neither party has any interest in limiting the banking/financial cartel; 2. Our stock markets are dominated by insiders; 3. The rule of law in the U.S. has been divided into two branches: one in name only for the financial Elites and corporate cartels, and one for the rest of us mere citizens; 4. Just as in Greece, taxes are optional for the nation's financial Elites.

This report lays out an investment thesis for gold and one for silver. Various factors lead me to conclude that gold is one investment that you can park for the next ten or twenty years, confident that it will perform well. My timing and logic for both entering and finally exiting gold (and silver) as investments are laid out in the full report. The punchline is this: Gold and silver are not (yet) in bubble territory, and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.

Over the weekend the French announced the outlines of a rollover plan to “help” Greece.  This morning the German banks seem to be on board with the plan.  According to the headlines, this should be good news for Greece.  But is it?  Working through the details as best possible shows it strengthens the positions of the banks and weakens the IMF/EU/ECB (“Troika”) and is expensive for Greece.  The consequences of the rollover plan are that:

• The Troika has to provide more money up-front without being able to enforce austerity compliance
• The Troika is more likely to continue to fund Greece longer than it would otherwise because of the additional up-front payment and the moral suasion the banks will use to encourage further use of public funds
• Greek interest payments will go up, and with the GDP kicker, will be almost 2.5 times what they are currently scheduled to be and are in line with existing Greek long bond yields

The analysis clearly demonstrates that the Troika is put into more risk sooner, and with less control than it would be without the rollover.

Making money is an objective task, either one succeeds or fails. Results are easily testable and outcomes are binary. A trade or investment matures or is closed in the black or red. A trader has never ended up permanently on the “street” (no pun intended) as a result of losing money on a popular trade. People in finance are incentivized to follow the herd. Behavioral economists have studied this idea in-depth and can shoulder the burden of explaining this phenomenon much better than I, so I’ll leave the rest to them. The herd is often blamed for causing the overshooting and mass panics that cause “fat” tails. What I suggest is a different dynamic at play that the ”godfathers” understand.

China boasts world-class infrastructure on a truly impressive scale. Beijing, Shenzhen, and especially Shanghai, have all become modern metropolises with facilities on par with any in the world. Every taxi driver from Melbourne to Manitoba, and every money manager from London to L.A., recite the same mantra: insatiable demand from China (and India) will guarantee decades of prosperity for countries such as Australia and Canada which are blessed with the raw materials that billions of Chinese and Indian consumers require to emulate western lifestyles. So the story goes… Thing is, once anything has become mainstream knowledge in financial markets, it’s usually a sign we’re nearing the END of the boom. Or, at the very least, that all the positive news is already baked in the price. That’s where we are today with China.

Despite a veritable flood of financial and political analysis about Greece, nobody seems to have noticed the obvious: Greece is a kleptocracy. Here's the real dynamic in Greece: The Kleptocracy--broadly, the political and financial Elites of the nation--saw a stupendous opportunity to embezzle hundreds of billions of euros from greed-blinded European banks at super-low rates of interest. Being kleptocrats, they sniffed out the basics of the bezzle right away, and have been playing it ever since: we're not paying any of these loans back, so go get the money from the European Central Bank (ECB) and the German taxpayers, or declare bankruptcy. Your choice. The Greek kleptocrats knew all along that the German, Dutch, French and Finnish taxpayers were easy marks, just as they knew the European Union Power Elites would fall all over themselves to "save the euro" which was the centerpiece of their "one Europe" strategy of domination. Only the Greek kleptocrats just beat them at their own game. The entire game plan of the "one Europe" Elites depends on nation-states actually complying with non-enforceable codes of conduct and on European banks making prudent loans. Neither condition held: Greece's Elites reckoned they could game the system and string along the Eurocrats, if not forever, then certainly long enough to engorge their Swiss accounts with euros skimmed from the banks, and they've played that hand to perfection. Their performance is truly a thing of beauty, a masterful display of the Big Con.

I don’t know if anyone else has noticed, but this country has been thoroughly gutted over the past few decades. Our industrial base has been dismantled and shipped overseas to the benefit of foreign nations and corporate feudalists. Our grain reserves, once ample, have been depleted to an all time low. Our currency has been systematically debased. And now, our oil reserves, without rational cause, are being sold off only to feed the catastrophe our government is supposedly out to stop. Are the American people being prepped like a glazed ham for the fires of the globalist oven? Is this really all due to coincidence and stupidity as skeptics claim, or is there something else at work here? I find it hard to believe that the IEA and our government are not aware that their proposed strategies conflict with their own source data, or that they are completely oblivious to the destruction they are about to reap upon our economy. The latest IEA decision is just one more piece of evidence of an agenda of deliberate financial destabilization trending towards a disaster that serves the interests of a select few, to the detriment of all the rest.

Are you a US taxpayer? Do you have at least $10,000 in overseas accounts? It’s time to put those annual disclosure statements in the mail… and quickly. Let me explain. Each year by June 30th, US taxpayers are obliged to report all foreign financial accounts in which they have either a beneficial interest or signature authority, so long as the aggregate value of all the accounts exceeds $10,000 at any time during the calendar year. The form is known as the FBAR. You must accurately disclose the highest value of each account during the previous calendar year on your FBAR… so make sure you go back through your bank and brokerage statements to check. Let me give you a few examples...

There are a variety of consensus views floating around the Mainstream Media and the blogosphere. The two sets of consensus don't align on much, as might be expected: the financial MSM is still spouting the Federal Reserve/Wall Street's "happy story" about how the recovery is weak but muddling forward with "uneven growth" (i.e. someone else got laid off, you still have a job) but corporate profits (the only metric of "growth" that counts) will still be rising forever (as usual). The financial blogosphere consensus is more or less that the fiscal-stimulus/Fed-goosed "recovery" is obviously rolling over here, and since inflation and fear are baked in, gold will continue its steady climb towards $3,000 an ounce and beyond. Oil, meanwhile, is poised to rise as suppliers either lose production to depletion or ratchet production down to support prices. We all know about confirmation bias, the tendency to seek evidence which supports our views after they have hardened into conviction...Which leads me to play Devil's Advocate: what if both consensus camps are wrong?

If man leaves scarcity behind, and thus the need for money, what about our earlier assertion that “Money…is essential to any society that we would call civil”? If society leaves money behind, won’t it thereby render society uncivil? Of course not. For when society succeeds in evolving beyond money, it will merely be doing what it did when it evolved beyond barter, only vastly more so. That is, society will increase its co-operative powers by orders of magnitude and thereby vastly increase its ability to civilize itself. No more “Getting and spending,” in other words, that “lay waste our powers.” Instead, we will be empowered to not only boldly go where no man has gone before but to become what no man has ever been before...When will this singular event take place and “cascading technological progress” begin? It will begin when the computing power of a typical laptop today surpasses that of “One Human Brain” – roughly 2030 which, ironically, is precisely when Keynes (getting virtually everything else wrong) predicted that “the economic problem” will be solved.

Our global society needs a reset. The insolvency of Greece or the growing US fiscal imbalance are only symptoms of a much deeper problem. It is easy for market participants to sit behind their red and green charts and point blame at "the Bernank." It is easy for homeowners to forego their mortgage payment to fund the expenses they are "entitled" to. It is easy for the Mortgage Bankers Association to "strategically default," after all it's a "business decision."... The solution to the world's problems is simple. People know the answer. The convict who lives on the lam for twenty years is relieved at their capture for they are tired of the hunt. People have debt they know they are slaves to. People have jobs they know brings them misery. People are in relationships they know brings them unhappiness. Yet they do nothing until they are forced to act. Until they are confronted they will continue to run waiting for the day of capture when they must face reality and begin the process of healing.

With
today's release of the corporate profit data I thought it was important
to remind you of the demise of America at the expense of Wall Street.  
America was once a country built on the solid foundation of the hard
work, satisfaction and pride in the building of stuff.   We aren't
talking about "namby pamby" stuff - we are talking about real stuff.  
We used to produce everything from automobiles to steel to blue jeans;
right here in America.   We ran telephone lines, built roadways and
bridges, drilled for oil and constructed buildings.    It was the sweat
of the brow and the strain on the back that built America into its
former shining self.  A country of opportunity and prosperity with a
solid moral foundation and a strong military to back it up.

The third part of the series on information theoretic methods of analysis for dynamic systems is taking longer than anticipated. Crunching the numbers is killing me. So I'll take a break from it and look a little farther forward--how we can use the methods I have been describing so far to forensically examine the algorithms used in various high-frequency trading events of the recent past. As seen on Nanex and Zero Hedge, there has recently been a lot of strange, algorithmically driven behaviour in the pricing of natural gas and individual stock prices on very short time frames. In an earlier article I pointed out that the apparent simple chaos we observe in the natural gas price appeared to be an emergent property of at least two duelling algorithms. In this series of articles we will begin analysis of the algorithms involved. Today's discussion will mostly focus on framing the issues that must be addressed in order to study unknown algorithms on the basis of their time-varying outputs. Future articles will present results from the various analyses.