Nov 18 2009 3:27PM
We are constantly reading and comparing current economic fundamentals and market action with similar historic experiences in the U.S. Today we discuss key points with eerie similarities to other troubled times. This discussion will get you thinking. As someone once said, “History never repeats exactly but certainly rhymes.” What we envision today as the result of these comparisons creates such a fright your hair will stand on end.
“There can never be any certainty that a debt crisis will not spiral out of control. Risks therefore, must increase until the financial pressure becomes intolerable and the financial authorities move to inject massive amounts of liquidity, reduce interest rates and bail out the large awaiting bankrupts that are about to collapse.” -The Bank Credit Analyst, September, 1982 from Golden Insights compiled by James U. Blanchard III.
That Bank Credit Analyst quote could easily be from last week’s newspaper not 1982. Let’s review a list of old era key points and see if you can determine the dates. The following data was experienced in another economic disruption.
The economy fell down after a prolonged and serious war. There seemed to be a series of never ending recessions and depressions despite a pattern of industrial growth, innovation, and invention.
Foreign capital was pouring into the U.S as Wall Street’s investment bankers and trading houses were booming. Expansion was amazing.
There transpired a physical shock to the land which proved horridly damaging and expensive beyond initial comprehension.
Financial pressures were growing on the national and private treasuries of most Americans. Demands became such that those in the private sector found themselves being “crowded out” by big government seizing credit.
Global capital demands were so extreme against the banks and other sources of credit and liquidity supply that analysts were very seriously concerned about the outcome.
The initial shock nearly paralyzed Wall Street and liquidity dried-up to the extent governments, banks and brokers were running everywhere in a serious panicky strain seeking liquidity and credit to cover debts and repay failing valuations. Shares tumbled, and fear escalated as leverage produced increasing pressures.
After some serious damage, the turbulence subsided and optimism returned. However, robust buying did not return except from those in privileged positions with extraordinary capital access.
Demands on gold had been fierce and even higher demands for this precious metal were expected. No one could see the end or measure the depth of this catastrophe.
The American president was deeply disturbed about the financial system, out of control growth, the numbers and types of immigrants flooding into the nation and very poor living conditions for the masses. The president and others looked at Wall Street not with respect but great fear. Since the war, capitalists were judged to be “looters and self-dealing promoters.”
This president was very aggressive and took immediate steps to rein-in the companies and provide more advantage to labor. Lawsuits were filed against major industries and companies with some of them being arbitrarily resolved.
This president “sued nearly 40 corporations under the Sherman Anti-Trust Act.” This president “In a Memorial Day speech at Indianapolis, railed that the ‘predatory man of wealth’ was the primary threat to private property in the United States.” Later this president was judged to be a prime instigator creating the subsequent crash.
Liquidity strains expanded over the world spreading deeply into Europe setting-off sales of shares and other securities, coupled with a bitter angry rising of new regulations.
Events of this example were not as prolonged as our current debacle but nevertheless they were nasty enough to threaten the very foundations of stock trading and the entire financial system of the United States. What was prolonged were the economic, social and corporate abuses over years.
When Did This Happen?
This disaster was in the making from the early 1870’s after the US Civil War until the final fiscal explosion known as the “The Panic of 1907.” The president was Theodore Roosevelt. The contributing physical event was the San Francisco Earthquake and fires. In hindsight, we see the U.S. was in a prolonged recession-depression from 1873 to 1893. From 1898 to 1906, the rebound and excesses provided a set-up for the Panic of 1907.
Notice Similarities In These Events With Our Current Troubles?
Those ideas reported above were in the book the “Panic of 1907,” by Robert F. Bruner and Sean D. Carr. We would encourage everyone with a stake in our global economy to read this book and think about current conditions. This book details several more similarities to the extent it seems most severely, negative economic events all end the same.
People’s actions and psychological feelings form the basis of human reaction. People react nearly identically under similar circumstances. Then, obviously, the outcome remains the same or is at the very least quite similar.
With the advent of speedy computers we think current conditions are further compressed into a pressure cooker about to explode. Computer acceleration enables a trade in Asia in the night to be felt within seconds throughout the world. We have seen this numerous times with Sunday evening Asia copper trading followed by vastly changed prices on the open in London and in New York the following day.
Global finance is an interconnected daisy chain of creditors and debtors. If one key link let’s go the entire chain can be at risk. Remember Long Term Capital? This event was a freaky non-expected mess that originated from over-leveraged massive hedge fund trading as Russians bonds collapsed. Who would have expected that one?
The next key point relating to the LTC debacle is the extent further unpredictable fallout can subsequently cascade from other parts of our system. Despite the fact we know US bankers and their henchmen in congress joined together to allow trillions in derivatives to go bad, they still have not addressed the majority of these problems. We are still exposed.
All types of very nasty financial derivative instruments remain in lurking piles in back rooms of banks throughout the world. If all that junk had been put on the table and marked to market at once, an immediate global collapse would have been inevitable.
Current theory is to continue to reinforce confidence within the herd. Media and public relations machines of central bankers, corporate types, stockbrokers, and others with a vested interest in prolonging the game are fully engaged. If the herd panics and runs, we could see another 1907 all over again of infinitely greater dimensions.
The Sheeple are deliberately lied to and kept in the dark regarding economic reality. If most of them understood the seriousness of our predicament, they would empty bank accounts in massive runs and head for the hills. We think this could happen anyway; but it is not a certainty. Just when the end of the world appears nigh more tricky rabbits jump out of those Bernanke-Geitner hats. The words “slippery snakes” seem a good definition.
As long as the herd can be controlled, inflation rises and debts are inflated away in a more gradual than abrupt scenario. As long as some semblance of order and continuity can be maintained, the manipulators hope they gradually melt down the dollar with inflation and destroy debt values within huge piles of loans. This is why the dollar today is only pennies of its former real value. These crooks have been successful in following this “inflate it away” plan for decades.
Debts can be eliminated or destroyed with inflation as well as in the old fashioned ways of repayment or, repudiation. We suggest the real test comes in the later spring and fall of 2010. The manipulators objective is to hang-on at all costs finally ending it with a new, bailout world war in roughly 2012.
Our physical catastrophe was Katrina, the Iraq war and continuation of expensive treasury draining for Middle Eastern conflicts.
Eventually, when the world finds a recovery, we think it happens after a war similar to WW I in 1914-1918 a few years after the Panic of 1907. Remember the Roaring Twenties” post World War I?
Governments can wail forever about how they can inject more credit and liquidity into financial systems to “Spread It Around.” Their larger problem is one of pushing on a string. Big credit is no credit if business and consumers are wrecked and refuse to participate. For now big banks and investment banks are okay. Everyone else is out in the wind and a typhoon is just ahead. Maybe not tomorrow, but its coming to your house.
In the massive consumer sector, the herd is very touchy both in economic observation and spending their hard earned cash. If they smell a rat they run. And today the herd continues to run steadily over a cliff. They are not spending. Those that can are saving. When some real scary fear arrives next year we’ll see who can pass the final test.
TARP was a gigantic failure for consumers and a homerun winner for crooked bankers and politicians. Banks are recapitalized by taxpayers again and are still foolishly engaged in more bad behavior. Why? Simply because they can; and are permitted to do so. They want the big bonuses. Notice Goldman Sachs is paying out even higher bonuses this year than in those hot years preceding the Lehman mess? The scam remains in full play.
To make matters worse we have the one-worlders, many of whom have gained their millions and are interested in only two things: (1) Prolonging the game for control and (2) an absolute naked global power grab. The elitists and one-worlders are using tools of the UN (money, control and troops), and the IMF and World Bank. Further their gang members and the infamous cabal within the Council on Foreign Relations along with miscellaneous central bank lackeys led by the Federal Reserve all live in the same power grab cesspool.
It was reported the Federal Reserve is now rated lower in the polls than just about any type of profession or institution. Abolishment cries are on the rise to erase this gang. It shall be very interesting to see where it goes next. Reading this kind of stuff can cause depression lasting more than a few days. Don’t get depressed; be a realist and attack these problems with common sense.
Your defense is to extricate yourself, your friends and family from the entire system to the extent possible. It cannot be done entirely but more so than most imagine.
We just finished the book “The Greatest Trade Ever” telling about how one very smart guy set new records for profits shorting housing and housing credit. This same super successful trader is now an advocate of gold and says this is the next bigger opportunity. Our readers and those visiting Kitco knew this already. This news merely re-justifies our positions and signals we are on the correct, longer term trend.
We cannot save the world but we can save ourselves, our families and our friends. Get busy or busier with gold and silver. Buy physical first and then get trading.
We are expecting a mild markets’ move on technical signals at this date. Could it become more extreme? Yes, it could but it increasingly appears we get a mild correction followed by a new shares rally in precious metals and mainstream shares. We would be PM shares buyers on our technical confirmation. We recommended four new trades this week putting our toe reluctantly in the water. We’re skittish as the charts are so toppy.
Financials crashed in fall, 2008 with Lehman. Recovery began with TARP in May, 2009. During November, 2009, we’re ending a dead cat bounce with mild toppy selling later this month. Precious metals and their shares are still peaking on this November 18, 2009; for the shorter term. Next week most trends could reverse and then later move to rallies. Between now and then some selling and corrections should appear. We are at a turning point in most markets with lots of choppy, sideways trading.
Keep in mind, if you own paid for stuff it will most likely remain in your hands; not in somebody else’s. That includes gold and silver. Do not get tangled-up in daily noise. Keep studying the larger view and buy precious metals after each profit-taking correction. Headwinds are building into an economic hurricane. Take care of business right now.
My dire prediction might surprise us and arrive at any time. Selling is mild now. But next summer could be the larger crash. In the coming middle, look for more buying on most everything. Our personal trading year is up over 100%. Markets are giving and giving.
Personally, I can see unbelievable opportunities to trade that we would never see again for many years. Turn these problems into opportunities. Those on the right side of the trade might get rich. Those on the other side are just victims. Stay Alert. –Traderrog.
Editor Trader Tracks Newsletter
The Jay & Rog Blog at webeatthestreet.com
Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information.
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