Ron Paul sums up the crisis in 3 minutes

(thanks again to zerohedge for finding this video)

I remember when I first discovered a speech by Ron Paul back in boom-time 2005, and was shocked that a Congressman was so eloquently warning of the dangers of fractional reserve lending, the Federal Reserve system, and welfare/warfare deficit spending. It was the first time that I could fully respect a standing politician.

Dr. Paul is still the nation’s strongest voice for an honest monetary and banking system, and he delivered a zinger in front of Bernanke and Frank yesterday. If, like me, you haven’t heard him speak in a while, have a listen and you’ll remember why his campaign was so exciting for so many of us.

Money quote: “I would suggest that the problems we have faced so far are nothing compared to what it will be like when the world not only rejects our debt, but our dollar as well. That’s when we’ll witness political turmoil that will be to no one’s benefit.”

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Now wouldn’t it be great to have Peter Schiff to cause the same trouble in the Senate?

Mish takes Peter Schiff to the cleaners

Mish has composed a detailed post on the many ways in which the vociferous Peter Schiff has been dead wrong on just about everything in this crash (the two actually had a little debate in December 2007). Mish’s post is essential reading for anyone who is considering following Schiff’s investment advice. In his own way, the man is usually just as wrong as the Pollyannas that he challenges on bubblevision.

Here is an excerpt:

Schiff’s Investment Thesis

• US Dollar Will Go To Zero (Hyperinflation).
• Decoupling (The rest of the world would be immune to a US slowdown.
• Buy foreign equities and commodities and hold them with no exit strategy.

12 Ways Schiff Was Wrong in 2008

• Wrong about hyperinflation
• Wrong about the dollar
• Wrong about commodities except for gold
• Wrong about foreign currencies except for the Yen
• Wrong about foreign equities
• Wrong in timing
• Wrong in risk management
• Wrong in buy and hold thesis
• Wrong on decoupling
• Wrong on China
• Wrong on US treasuries
• Wrong on interest rates, both foreign and domestic

That’s a lot of things to be wrong about, especially given all the “Peter Schiff Was Right” videos floating around everywhere. The one thing he was right about was the collapse of US equities and no part of his investment strategy sought to make a gain from that prediction.

I will admit that I was nearly taken in by Schiff’s thesis back in 2006 when I first became bearish on the economy and stock market. I even opened an account for someone with his firm, but the only thing I did with it was short the US market — I took none of his brokers’ advice on favored mining juniors.

I owe Mish and Robert Prechter a huge debt of gratitude for beating some sense into me with solid logic. Readers can easily check my archives to see my pre-crash stances on commodities, gold stocks, Treasuries, the dollar, the Swiss Franc and the Euro and the inflation/deflation debate. I can report that things have turned out very well for those who went against the crowd of contrarians, swallowed their fear of the dollar, and shorted not just US stocks but almost everything else in sight. All the world was a bubble.

On the need to stay nimble

Yes, the deflationists were right and hopefully all made some money or at least avoided terrible losses, but nobody can afford to get cocky. The markets do not trade on fundamentals on anything but the longest time-frames, so the ability to read the prevailing mood and adjust accordingly is a critical part of asset management. So is the willingness to contradict yourself and change your mind.

I see now that this deflation can last even longer than I had suspected, and that there may be even ways to avoid hyperinflation, such as negotiated Treasury debt forgiveness, but there is no need to try to guess about outcomes that are years away when you know how to read the signs as they come and remain humble and liquid enough to change your stance as needed.

By the way, Mish manages client accounts

Mish is an investment advisor representative with Sitka Pacific (not Euro Pacific!), a firm that manages private accounts on a percent of assets fee basis. I am not a client, but I would not hesitate to suggest giving them a call. I am working on setting up my own firm of this type, which offers many advantages over hedge or mutual funds, especially when set up with the protections that Sitka Pacific has included. My own style of trading is somewhat different from any of the strategies Mish uses (for example, I am willing to go net short or to a majority cash position), and of course I am not always in agreement with Mish on every aspect of the markets.

Trading note: I’m not buying the anti-dollar rally.

Crash Proof vs. Conquer the Crash

I was thrilled to see Peter Schiff on Bloomberg TV this afternoon, since I knew he’d be all fired up and really let loose on the bailout. I was not disappointed, as he advised Americans to get all of their assets out of the country, and, maybe in a slip, ended by saying “get out of America.” He and I couldn’t agree more on politics (Ron Paul) and about the future of the land that used to be America — currency failure, war, Fascism, and all-around ugliness — and I used to basically believe his investment thesis (get out of the dollar ASAP!) until Mish and Prechter’s more nuanced analyses won me over to the deflation first then inflation camp about 12 months ago.

The crux of the matter is the difference in scale and pace between the Market’s deflation and the government’s inflation, and fact that the bankers’ credit inflation machine is broken.

Dollar carry trade still unwinding.

I turned bullish on the dollar vs the euro and pound a few months ago, and have been short-term bearish on oil, gold and other commodities since this spring. Shorting oil and gold last June was as contrarian as you can get — that is, contrary to the contrarians, since their views on a dollar flameout had become mainstream (see Mainstream Contrarianism Crushed).

Since then, commodities have tanked across the board as America’s script made a huge breakout rally against everything on the other side of the dollar carry trade. After a move like that, you have to expect some retracement, and that is what we have been getting for the last few trading days, as oil, gold and the Euro have each made up roughly half of their losses against the dollar.

Play it again, Bob.

I am still going against the grain here and using this as another chance to make the very same play. Anti-dollar sentiment feels almost as strong as this spring, as you would expect on the news that hundreds of billions to trillions more of our government’s notes to pay nothing will be issued to finance this bankers’ coup. The reason for my position is partly trading psychology (the WSJ reports that “Large speculators were net short more than 40,000 contracts in the euro and 49,000 contracts in the British pound, the most negative they’ve been on those currencies in the last 52 weeks”) and partly the fact that the carry trade has a lot further to unwind, since dollars were being handed out in buckets for so long against so many asset classes. He who sells what isn’t his’n must buy it back or go to prison, and there are still buckets and buckets of dollar debt out there that must be repaid or go to money heaven. Either way, it increases the value of the surviving dollars as people desperately need them to pay off debt and keep the lights on.

The US government will have the strength to enforce its legal tender laws for some time to come, if it can do nothing else, so the dollar will still be good for all debts public and private. And now that people are going broke left and right (broke means no money), those who still have some dollars safe in Treasuries or mattresses will find that they can get more and more for them, commodities included, at least through this initial phase of the depression.

Gold: don’t leave home without it.

The speed and magnitude of the bailout at this early stage of the depression is surprising, even though nothing about the substance of Paulson’s (and by Paulson, I mean the cabal that he represents) actions surprises me in the least. It will be interesting to see if these programs can speed us through deflation in a year or two, rather than the two to five years I had been assuming (Japan’s deflation lasted nearly a decade, but they were not as hell-bent on destroying their currency as Paulson and Bernanke are ours). At any rate, when the next inflation comes, it is the big one, so I would not want to risk being completely without hard assets at any time from now on.

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Disclaimer — I have no idea how, if at all, Prechter and Mish are playing the dollar and commodities or anything right now, so just because I cite their ideas here don’t assume mine are in sync with theirs. And, as always, don’t trade like me! Don’t trade at all! It’s too dangerous out there. I’m not an investment advisor, and I may have long or short positions in any of the securities, commodities or currencies mentioned on this site. See disclaimer page.

Mainstream contrarianism crushed

Markets move in whatever way induces the maximum pain on the maximum number of participants. Those players who mock “mainstream” opinion, if experiencing more success than the crowd, are bound to get overconfident and to see their ranks swell at just the wrong time. Then they themselves are the mainstream, and true contrarians are to be found on the other side of their trades.

Here are ten pillars of what I consider the “mainstream contrarian” movement that just ate a big slice of humble pie:

#1 The dollar is toast, and will keep falling until hyperinflation sets in.

#2 Gold and silver’s rise cannot be stopped until the US trade and budget deficits are brought under control and the debt is reduced–that is, never.

#3 Global oil production has peaked, so oil will continue ever upwards. Oh, and we’ll bomb Iran any day now.

#4 China and India’s growth will continue unabated, and with it, their demand for commodities at any price.

#5 Financial stocks will fall without bounces. Long live SKF!

#6 CPI vastly understates inflation. Just look at M3 or shadowstats.

#7 We are experiencing a return to 1970s style stagflation.

#8 US Treasury bonds are toast.

#9 Deflation cannot happen in a fiat money regime. Bernanke told us he wouldn’t allow it.

#10 When the depression comes and the dollar becomes worthless, the sheeple will awake to the truth about their government and demand their republic back, with Ron Paul as their leader and gold as money.

 

Here’s a tip for frustrated contrarians: Join the deflationists. We’re a super-exclusive club of curmudgeons and equal opportunity shorts. We are gold bugs, but just made some righteous dough shorting gold. We know that oil has peaked, but we shorted it anyway! We know China will rule us all, but we shorted commodities. We know the US is bankrupt, but we aren’t afraid to go long the 30-year.

In a few years, we’ll be pretty popular, but then I think most of us will have moved on, maybe to the hyperinflation camp. If recent history is any guide, the ones who make the most noise (ahem, Peter Schiff) will find it hardest to make the necessary corrections and self-contradictions before the next big pivot.