S & P 500

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Hfigures are guilty of static thinking. The rate of change is all that counts. Dynamic thinking please! When the rate of change declines U are shrinking at an increasing rate. What is not rising via rate of change is, by definition, shrinking - the Accelerator Factor, an axiom of economic understanding!

To make it worse, not only is money supply shrinking lately, but the velocity of money is dangerously low. As Jim Sinclair says: "The US Fed talks a big stick & carries a wet noodle." Is this bad news? No, it's horrible news. It is precisely the pattern the Fed followed in 1928, which led to 1929's crash & the Great Depression. If this hesitancy isn't stopped fast, we're headed into the same trap. ··After an airliner takes off, if the pilot cuts back on the takeoff speed too fast, he will go into a stall; he can't pull out of it, & he will crash. It happened to AirIndia at London Heathrow when I lived there, & that kind of speed stall is exactly what the US Fed is doing.

Fed head Greenspin & crew are waiting to see if deflation is really going to hit the US before they do what Fed man Bernanke promised: to use "the electronic printing press." His words, not mine. The press & public bought that jaw-spin & the stock mkt rose largely because of it. "Money for your needs, peasants." But nothing has actually happened. The US money machine is verging on an airliner stall. See M2 chart on pg 2 for proof. Pattern same for M1/M3/MZM. Ironically, the present deflation is coming more from the Fed than via China's exporting price deflation. If the Fed doesn't change tactics immediately & dramatically, the stall/crash is inevitable.

The US Fed & some other CB's (Central Banks) have fought inflation & are into overkill. They need some inflation, badly, but seem frozen like a deer in headlights, afraid to move. Japan has avoided money pumping in sufficient size for a decade & has had a decade-long recession cum depression to prove it. ..This global stock mkt rally rationale & the failure to look at the data reminds me of Chris Jones: "Most people don't believe what they see. They see what they believe."

Before we get into a depression (assuming no course change by the CB's in time) we appear to be sliding into Stagflation, a word I created in the late 1970's, taken up by the press, to reflect rising commodity & service prices & a stagnating economy. So, U see dear reader, govts don't know how to manage our lives after all. They don't learn from their mistakes, I suppose, because different people have the jobs now. Just as the US is running low on presidential candidates with WWII combat experience, the same goes for prior crash experience. It's a generational thing it seems. It's "time" to repeat 1929? Gad.

Collective world economies are already in intensive care. By delaying money inflation (fearing to create price inflation) & depending on the stock mkt to boost biz, they've created more joblessness. They don't understand all they know. The illusions are maintained by a triad of financial-TV, int'l investment firms & govt men. They lie &/or distort, misunderstand, flounder, but keep selling aluminum siding, life insurance & mutual funds all for your own good & their pockets. This hot air is a probable cause of global warming. (Maybe it caused SARS?).

I forgot to mention: increasing money supply&credit is like a narcotic addiction. In the face of growing trade & budget deficits, the economic auto needs ever more fuel/fixes. So what may seem a lot of money supply in yesterday's terms, isn't much anymore. As friend Jim Sinclair says (who, like myself, likes to mix humour with medicine & advice): "Houston, we have a problem! The Fed is fiddling & the economy may again crash & burn. The Fed is indulging in PR & pussyfooting on money supply while velocity of money (turnover) is in a chronic decline." By the time the US Fed is "absolutely sure" of deflation before turning loose their money machine, velocity of money will be so low that a "pushing-on-a-string" syndrome will occur. Nothing will happen. Nothing good that is. Something bad will happen; economic activity will go into a fatal airliner stall. It may already be here.

Until we see whether CB's suddenly wake up & pump like mad, reversing present relatively modest course, I think, dear reader, we pedestrians should prepare for the current Fed mode to continue, til it's too late. That's somehow logical in today's illogical climate. How prepare? Cool it on buying property. Diversify assets. Buy more (unhedged) gold shares. Reduce US$ exposure to absolute minimum. Discontinue buying average stocks & raise stops on current holdings. Freeze bond positions. Increase commodity exposure if U know how. If U really need a shorterm stock mkt to buy: Asia is it, eg, Japan. ··In about 6 wks, we should know enough from central banks' actions to shift our gears down on all the above, or accelerate them. Money makes the world & the eco-car go. So let's follow it, with a Smart car!

Misc: Friend John Hathaway (Tocqueville Fund) puts this neatly: "The credit cycle slopes down as investors & institutions move from a 'trust anything' mentality to 'trust nothing.' This leads to gradual retreat from paper assets to stores of value. For the foreseeable future, paper assets will be in financial purgatory. The 1.5 decades of 1968 to 1982 is a good historical analogy. For 14yrs financial mkts were trapped in a trading range, while gold advanced from $40 to $800." ···London's Financial Times says, re US budget deficit: "The inmates are in charge of the asylum." ···US jobless rate moved over 6%, fulfilling another HSL forecast. Chart says 6.4% possible. ··Last HSL I said: "Oil won't crash." Oil price then: 25, a 6mos low, amidst herd forecasts of 20. Oil since soared to 32.50. Oil still OK.

Bill Gross, world's biggest bond dealer, predicts subdued corp profits, higher px inflation, lower US$, higher interest rates. I agree, but I/R upturn isn't quite due yet. BG sees "an end to US economic domination. Our topcat near-monopoly of the good times is at risk." (Gross-speak for ending) ··A handful of us worry that the downside of current conditions is more than society can handle & so bad that even gold won't protect against. Our concern relates to a mkt & economy drop that will trigger a mountain of "sewage" derivatives implosion. OTC derivatives didn't exist in 1929-which means it can be much worse than '29. Gold can't totally protect against a crumbling society, safety & infrastructure. It may not come to that. But the lack of moral & wise leadership to avert it or repair it is a worry. This is an incredibly delicate stage. Sound survival decisions are needed now. I'll struggle to help, for all our sakes. This is not a time for complacency. Turn up your radar. Together, we may make it.

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