Odd Indicators

20 Nov

Which Economic Indicators Indicate the Truth? [courtesy Google Images]

Which Economic Indicators Indicate the Truth?
[courtesy Google Images]

How odd.

I’ve reported the weekly changes in the same nine economic indicators (gold, silver, platinum, palladium, Dow, NASDAQ, NYSE, USDX, and Crude Oil) since April of A.D. 2008.  Usually, at least one or two of those indicators run contrary to the remainder. I.e., if seven or eight are up, one or two are down—or vice versa.

The week of November 6th through 13th is the first time I can recall when all nine of those indicators were down in the same week.  Is that coincidence a “harbinger of doom”—or merely a curious anomaly?

The three pure commodities (platinum, palladium and crude oil) in my list of indicators were down an average of 10% each between November 6th to 13th.  Ten per cent?!!  In one week?!!  Damn.

Historically, falling commodity prices signal an economic depression.

In the same week, the three equity market indicators (DJIA, NASDAQ, and the NYSE) fell by an average of 3.8% each.  In just one week.  That decline isn’t unprecedented, but it’s nevertheless noteworthy.

Falling stock prices are another indication of economic recession or depression.

Silver, which is primarily an industrial metal (commodity) but also, to a lesser extent, a monetary metal, fell by 3.1%.  It did better than the commodity and equity indicators.

Gold—primarily a monetary metal and to a lesser extent a commodity—fell by 0.5%.

As measured on the USDX, the value of the dollar (a monetary device) fell by only 0.4%.

Those indicators that were partially or completely commodities and/or equities fell by a minimum of three percent from November 6th-13th. The two indicators that were most purely “monetary” (physical gold and US dollars) fell by half of a percent or less. Relatively speaking, it was a good week for monetary investments.  They lost a little while commodities and equities lost a much more

One week’s data proves nothing.  Those changes could be mere statistical flukes. Next week’s data could reverse any implication we might imagine in last week’s data.

Still, it’s hard to completely ignore the “coincidence” that while commodities appear to be collapsing (a hallmark for economic depression), and stocks are declining (another indicator of depression), the best performers for the week were the “monetary” indicators:  USDX, gold, and to a lesser extent silver.

Some readers may recall that during the Great Depression (A.D. 1929-1939) it was common knowledge that “cash” (a monetary instrument) was deemed to be “king” because its value (purchasing power) was constantly rising.

So, it’s at least interesting that, while commodity and equity price declines hinted at the approach of an economic depression, the investment vehicles that were “king” (performed the best compared to the others) were the quasi-monetary instrument (silver; down 3.1%) and the monetary instruments—US dollars and gold (down 0.5% or less).

Note also that throughout the Great Depression, the paper “cash” that seemed to be “king” was all backed by either gold or silver.  Thus, the real “cash” that was “king” during the Great Depression was gold (until A.D. 1933) and silver throughout.

Most people agree that, in the event of another Great Depression, “cash” will again be “king”.

But, I’ve also argued that the “cash” that will ultimately be “king” during the next Depression will not be paper, fiat dollars, but will again be the monetary metals (gold and/or silver).

If there’s going to be a Greater Depression, the world may first holler for paper dollars.  But after the paper dollars are understood to be intrinsically worthless, the world will scream—and pay dearly—for the monetary metal gold and, to a lesser extent, for the industrial/monetary metal silver.

If the next depression is anything like the last, “cash will be king” but that “cash” won’t be fiat, paper dollars but will, once again, be physical gold or silver.


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9 responses to “Odd Indicators

  1. dog-move

    November 20, 2015 at 10:00 AM

    With falling commodity prices there exists a real possibility that the developing nations, those nations that produce commodities and have huge social welfare programs will be unable to pay back loans to the Federal Reserve banks. The failure to repay the loans will, and is one of the reasons for the Greater Economic Depression. I believe the bankers want payback on those loans.They have a weakness the are greedy as Gordon Gecko G.G. said, “greed is good” those Wall Street boyz are a greedy bunch. The bankers need to create a hyperinflation,thus higher commodity prices to accomplish this.
    Could the appearance of interest rates ie. the LIBOR rates,currently rising ahead of short term U.S.Treasuries and extreme weakness in junk bonds be indicating an inflationary environment ahead?
    There are alot of “what if’s” as with making any determination of the future economic backdrop in the short, medium, and long term.
    Given the “hive”, ie. majority are usually wrong at most turning points, the hive is seemingly long common stocks and bonds currently. They have become comfortable with soft commodity prices and swelling net worth in financial assets. Being a contrarian, and a market observer I want to keep an eye on divergences in market averages.
    If commodity prices rise and follow the uptrend in LIBOR rates, “if”,— coffee prices rise and cause an expensive cup of cofffee at Starbuck’s to become even more ridiculously expensive, this may cause one of the strongest retail stocks to join the rest of the weak retail sector. When Starbucks drops I suspect we get the bear market signal on the economy, and the general equity averages . When the trendy crowd stops paying 5 to 7 dollars for a cup of coffee it will be an indicator to pay attention to.
    Until then we just watch the indicators and use our minds to survive in the “Great War of Ignorance” being waged on a duped General Dumb Public (GDP). Mr. Adask, it all boils down to what you have been saying for some time ” what can’t be paid, won’t be paid”. I have only heard this concept here by one of the smartest guy’s in the room.

    • Adask

      November 20, 2015 at 12:49 PM

      Thanks for the compliment.

      I’ve been pushing that seeming absurd observation (What can’t be paid, etc.) for most of five years. It sounds kinda stupid, but it struck me as profound when I first realized it was true and continues to impress me.

      Why? Because the second link in that chain of argument is “one man’s debt is another man’s asset”. In other words, for every $100,000 in debt, there’s a $100,000 US bond (promise to pay) that someone is holding as an asset.

      Third link: If we cancel any of the existing debt, we must also void the correlative paper asset (the US bond).

      That means that if the US government’s total debt is $18 trillion and government can’t pay more than half, then half of that $18 trillion in debt won’t be paid. Which means that half of the paper debt-instruments (US bonds) that memorialize the $18 trillion debt will be rendered worthless. And that means that $9 trillion in paper assets will be destroyed and removed from our economy. Whether the economy can withstand the loss of $9 trillion in paper debt instruments is unknown to me.

      But I’m inclined to believe that 1) the US government’s debt is much more than $18 trillion and may be over $200 trillion; and 2) the percentage of debt that can’t/won’t be paid is 80% to 90% of the real debt. If those beliefs are true, the destruction of paper assets (US bonds) will be so enormous that the US and probably global economies will collapse into an horrific Depression.

      Thus, if it’s true that the government can’t pay 80-90% of its debts, then it has to follow that sooner or later government will default on 80-90% of the US Bonds and 80-90% of the people holding US bonds are going to lose their (paper) assets.

      My point is that the “what can’t be paid, won’t be paid” concept–when extended to what appears to be its logical extreme–is a powerful and even scary concept.

      As for being the smartest guy in the room, that’s definitely true. (At least, it’s true in this room because I’m the only guy in this room, so I’m the smartest–and also the dumbest, most normal, most abnormal, oldest, youngest, etc.)

      Thanks again.

  2. Steve

    November 20, 2015 at 10:26 AM

    In the Great Depression, how did the value of gold and silver move, compared to pre-depression value. Did it increase a little, a great amount or did it stay relatively the same.

    Also, would it be appropriate to consider the Baltic Exchange Dry Index another indicator to add to your nine?

  3. Adask

    November 20, 2015 at 12:26 PM

    I was just listening to an interview of Mike Maloney by Greg Hunter. Maloney claimed that the price of gold rose 70% during the Great Depression. Because the prices of almost everything else were falling while gold was rising, those who held gold saw their purchasing power rise by about 250% during the Great Depression. 250% may not sound like all that much, but I guarantee it would be great blessing at a time when everything else was falling.

  4. timmy

    November 20, 2015 at 8:45 PM

    Yeah, gold rose in the depression years because they had to reset the government mandated “price”. I think what your mostly seeing is essentially two things- Deflation signals in commodities and the normal business cycle moving back toward a slowdown/ordinary recession in its usual 6-8 year cycle. Deflation scares them to death- it is kryptonite to debt/credit bases systems like we have now, in the extreme.

    Deflation is not always bad in and of itself- we had decades of it during the 1800s with wild growth and prosperity overall. It can be bad in some scenarios, and is much more of a threat now b/c we have a pure fiat and digital credit monetary system. When the music stops, massive amounts of “wealth” and ‘assets’ will instantly vanish, just as you point out.

    As many have noted, those with steady or rising incomes in the great depression prospered mightily. Why do you think such fabulous cars and clothes were marketed during those years? If 25% were unemployed, then 75% continued on. Granted, most of those took hits, especially to asset values. But the top 20% of earners with good cash flow were richer than ever. In real terms. And in opportunities that abounded.

    Real things don’t generally disappear, though they may change hands. Hence, hold Good, non cyclical businesses; solid, income producing real estate (though nominal value may drop the cash-flow should continue) the precious metals of course, and plenty of liquid cash, in whatever form you thing most stable and secure (the least worst option of the currencies).

    Of course, for those of us who know the protocols, we expect and are ready for the deliberate crashing and collapse of the house of cards. Do you really think these people are so dumb and ignorant of history that they don’t know very well how it must (mathematically) end? They do, and they have a plan and motives of their own. Our part as they intend it in their scheme is simply to be fleeced and sheared of everything possible… but it doesn’t have to be so.

  5. dog-move

    November 28, 2015 at 10:33 AM

    With the current price of silver at these levels one may surmise that the process of establishing a corporation to mine silver is absurd. One may be money wise to just use one’s capital formation to just buy physical silver. The huge demand may be actually be huge pools of capital that find it more advantageous to buy physical silver instead of risking the establishment of a mining corporation.
    I understand this has been the case for most of the last 80 years. Silver has been in a quiet subtle uptrend since A.D. 1933, the spike down to the 3 dollar level in the late 90’s was an opportunity for the “wise” and the observant.
    A principle in being successful in investing is to be long in an uptrend. Silver is an asset in an uptrend and I revere the resolution of the pattern established and it’s future developement. I suspect only those that possess Wisdom and Understanding can truly appreiciate assets that exist in reality.
    The only exposure I want to the Babylonian asset structure that the masses are positioned in is to use that systems leverage to my advantage and take from it as the power of the Most High allows me to help cause it’s ultimate destruction. I do not ever tangle with “this state” without Yahweh my Gaurdian. Psalms 34:7
    One indicator that i watch is the Japanese Yen. I have observed when it rises siver and gold rise. it is leading the metals probably because it is able to provide liquidy to the enormous capital flows. The Yen also has an adverse effect to the Equity Indexes.– I observe the Yen is in an early stage uptrend, this will be a negative on the markets and a posative for the metals.

  6. timmy

    November 28, 2015 at 10:13 PM

    Here’s how ‘patriots’ suggest you invest (for decades now): don’t buy stocks, we’re going into a depression (stocks still hitting record highs); buy precious metals- you’ll get rich (5+ year bear market continues, no bottom in sight yet…); dump dollars- they’re worthless (dollar hitting multi year highs). So basically these dudes have an almost perfect formula- a formula for being broke that is. As almost all of these guys are… Insanity: doing the same thing over and over and expecting a different result.

    Will all of those strategies come to pass as effective? Yes, certainly. Eventually. One day. But they’ve been dead wrong for as long as I can remember… the music will stop. But it’s not happening tomorrow morning, let alone today. There are plenty of insiders you can watch and follow to see when the rats start jumping ship. Then you’ll know we are close. Not there yet.

    The Word says “be wise”. The Word chastises fools. Don’t be a fool.

  7. dog-move

    December 11, 2015 at 10:31 AM

    The market averages are down hard today, Yen is up, LIBOR 3 month still moving up strong.
    Indicators…well the Yen and the precious metals tend to historically move together. Could the sheer volume of “fear capital” need something like the Yen to absorb the huge “fear capital” liqiudity and thus cause the gold and silver markets to be overlooked? Could the mainstream computer models in place program where “fear capital” is destined to be allocated? Yes and yes.
    The divergence bettween the weakness in silver and gold verses the strength in Yen at present is an overlooked indicator. By understanding divergences,one can continue to accumulate precious metals on weakness confident that they are undervalued related to Yen. The divergence will be resolved in time.
    Also short term government paper is appearing to lead long term Treasuries, another divergence.
    Short term rates are a leading indicator. Could inflation and long term rates be lagging at present and offer opportunities for the astute market observers who use divergent indicators to preserve precious capital?

  8. dog-move

    December 11, 2015 at 10:36 AM

    One more indicator(JNK) junk bond high-yield fund is in freefall, higher borrowing costs for corporations!


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