PM End of Week Market Commentary – 7/11/2014

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  • Sun, Jul 13, 2014 - 04:48am

    #11
    davefairtex

    davefairtex

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    hyperinflation 2008

John Williams has been projecting imminent hyperinflation for a decade now.  Eventually, just like a stopped clock, he'll be right.  But if you had traded on his specific predictions (say, bought puts with particular expiration dates), you'd be broke by now many times over.

He has provided a valuable service – raising consciousness on the problems in our current CPI – but from all I see, his predictions cannot be taken seriously.  Any more so than Ben Bernanke, who claimed subprime remained contained, and all the other crap he spewed about how things would play out that turned out to be so dreadfully wrong.

If we hold Bernanke's feet to the fire for his vast collection of failed predictions, and use those failures as a way to measure his understanding of how the world really works (clearly, its quite poor), shouldn't we apply that same criteria to John Williams as well?

  • Sun, Jul 13, 2014 - 12:11pm

    #12
    davefairtex

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    that’s it, right there

JimH-

I am just happy that you view Gold through a lens more similar to mine how.. i.e. that paper and banks are not to be trusted generally.  Gold and Silver are trustworthy.

Its not banks and paper I don't trust.  Its the government, and its demonstrated willingness to change the rules of the game and confiscate claims on real wealth "to keep the system alive" (i.e. to rescue favored participants at the expense of chosen losers).  I mean, we agree for sure at one level – we don't trust the digital claims, but the reason I don't trust them is because they are really easily confiscated.  And I see confiscation of digits as a big risk going forward, because "that's where the money is."  And the central authorities are going to need to confiscate a whole lot of claims once trouble strikes which, according to the Martensonian Context, is inevitable at some point in the future.  Our leaders are showing only a desire to maintain their positions and the status quo at any cost – likely confiscation – with no apparent desire to talk about what confronts our society going forward.

In my opinion, gold is not any more trustworthy than (say) a flock of chickens in the backyard – but it is just as hard to confiscate en masse, and in most cases, it stores & travels better than those chickens.  If overall price levels tank, so will gold.  But so will everything else.  And if prices rise again, so will gold.  Who knows what will happen with those computerized digits, assuming you still even have access to the ones that used to be yours.

Now then, about identifying a reason why tapering is not resulting in a declining gold price:

I posted on Japan last night..  and I suggest the answer to why Gold is charging ahead, even in the face of the taper, is there…

[Japan money printing article elided]

That's it.  Right there…. the market is starting to realize that organic growth is not ahead.  Just money growth.  Just inflation.  The turning point is now…it's not going to show up in your charts because it is a sea change.  It's not going to be a news story.

So, might you have any evidence that this claim of yours is true?  That the market overall have just recently (i.e. here in June) figured out there is no organic growth ahead?

One of my favorite things about the Martensonian Context is it has been arrived at by the Martenson Method: all its claims are evidence-based.  So when I ask you for evidence of this claimed sea change, it is an essential Martensonian requirement that there be some kind of strong correlation to back up what you say, otherwise we must admit that we are just engaging in unsubstantiated guessing.  Which is not Martensonian at all.  I can't remember Chris ever suggesting in the crash course that "Oh, it won't show up in the charts."  I wouldn't be here if he did that sort of thing.

So lets assume you are right and look for correlations that might confirm your hypothesis: this price rise in gold here in June is all about "the market figuring out organic growth isn't coming."  Were this true, if the market (those guys who buy COMEX contracts) had just realized the Martenson Context was going to be truth going forward, what other market behaviors might we expect to see?

1) ever-higher energy costs – so, oil prices rising? [no, it has been flat YTD; Brent has plummeted -2.01 to 106.66 just on Friday, down -2% in June]

2) debt more difficult to repay – bond prices dropping? [No, long term US treasury up 10% YTD, and up 2% in June]

3) earnings in real terms very difficult – stock market multiples compressing resulting in stock prices dropping?  [No, SPX up 6% YTD and +2.4% in June]

4) Japan is a Martensonian basket case – the Yen should be having some difficulty. [No, Yen up 3% YTD and up +0.8% in June]

I'm not seeing any correlations with your guess of the arrival of a sea change, which if in fact it was really occurring, would most definitely affect more markets than just gold & silver.  Perhaps you have some?

I wish it were true, I do.  I just see no evidence for it.

  • Sun, Jul 13, 2014 - 12:40pm

    #13

    KennethPollinger

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    Martenson Method

Great insight Dave.  Martensonian Context of depleting resources and energy, along with Martenson Method of EVIDENCE-Based Methodology!!

 

As for our community:

Which 2 or4 3 of the following would you now buy and why?  OR, not? Help

 

MUX< TGD< SA< HMY>GPL<AG<BVN

 

  • Sun, Jul 13, 2014 - 02:22pm

    #14

    Jim H

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    Evidence of a sea change….

Dave,  I agree with your point that the Gov't needs to be counted in there too amongst the parties not to be trusted.. we could argue about who really pulls the strings of our Gov't (bankers?) but no need.  The Japan reference makes the point that the Keynesian lies are now, more than ever, standing naked for all to see.  There are others;

    http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations

And while a bad GDP print was largely expected, the driver wasn't: personal consumption expenditures somehow crashed from 3.1% to just 1.0%, far below the 2.4% expected, meaning that all hope of a consumer recovery is dead. Finally, as a reminder, US GDP has never fallen more than 1.5% except during or just before an NBER-defined recession since quarterly GDP records began in 1947. Good luck department of truth propaganda machine, because even assuming 3% growth every other quarter in 2014 means 2014 GDP will be 1.5% at best!

And in Germany, the bastion of economic strength….. a bunch of Detroits in the making?

http://www.zerohedge.com/news/2014-07-12/forget-puerto-rico-german-munis-are-trouble

I have warned that about 50% of the German municipalities are on the verge of bankruptcy. The pensions have been unfunded and are absorbing everything. As we saw in Detroit with more than 50% of current revenue going to pensions, taxes either rise, the borrow more, or they are out of business. We are in a giant bull market for taxes increases on every level. This is the real downside of Marxism – they theory that just keeps taking.

As well, the market has had it's eyes opened a bit via Portugal,

Black Swans?

Faber goes on to say in his comment on CNBC that you can only know what triggered a bull/bear market after the fact.  That is the definition of a “black swan.”   There has been a lot of speculation in the last year about what the black swan would be that would trigger the next market collapse.  Of course, once a candidate for the Cigno Nero is identified, that takes it out of contention, right?

The collapse of Banco Espirito Santo, Portugal’s 2nd largest bank, could well prove out to be that black swan, as it is an event that no one saw coming (except maybe the bank’s auditors).  Too be sure, I read a lot of everything and I have not seen any Oracle of Blogosphere previously mention this situation:  Espirito Santo Creditors Doubt Containment on Missed Payment (Bloomberg News).

But this is the reason the U.S. stock market is tanking hard today AND why gold, silver and mining shares are spiking higher.

So, by saying there is a sea change coming.. and we are in it.. I am agreeing with Kranzler's quote immediately above.  Am I speculating?  Of course.  Am I doing so with no evidence?  I would argue no, I have just shown you three more pieces above.  The market knows that the FED has tried to stop QE three times and failed… will this time (tapering) be different?  I think not.  The viral, mass realization that QE does not work is the turning point.  By realizing that QE does not work, the market also realizes that debt will never be extinguished by growth (see Germany story above).       

Please understand that I would not deny the possibility that TPTB will once again slam the PM complex in order to enforce the illusion that everything is OK.  The commercials (bullion banks) are very short right now, and this has historically been a sign that a slam is coming.  I don't know that they will be able to pull off a dump with any legs since dips are being bought.  This is getting very, very interesting, for sure.         

  • Sun, Jul 13, 2014 - 05:06pm

    #15

    Wildlife Tracker

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    Ken

Both BVN and AG are top 20 silver producers which is good because they have investor exposure and they are established companies.

Buenaventura operates seven mines directly and four other mines through interests in other companies. It has numerous competitive advantages over competitors; it owns power generating companies that it uses to power operations at mines, its business is highly diversified with gold being the largest revenue generator but silver quickly catching up, it operates the fourth largest silver mine in the world, has low risk exposure due to strategic joint ventures with other companies and has major reserves of copper, lead and molybdenum with a couple mines capable or producing two or more different minerals.

BVN was trading at $53 in October 2010 and now is trading at $11.62.  BVN actually made money in 2013 which was rare. BVN took a small loss in the first quarter of this year which was considerable smaller %-wise compared to competition.

Buenaventura is an investment in Gold, Silver, and hydroelectric energy.

First Majestic has extremely nice assets in the silver mining capital of the world (Mexico). They have some of the highest yields in the industry and Mexico is showing little weakness so far in its ability to offer silver to the world. They are also rapidly growing having just recently made the top 20 list. Unlike their competition, they actually turned a profit this last quarter despite extremely low realized silver prices.

First Majestic was trading at around $70 in 2008 and is now trading at around $11.

First Majestic might be the strongest primary (80%+ revenue) silver producer in the market

  • Sun, Jul 13, 2014 - 08:06pm

    #16

    KennethPollinger

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    Thanks Wildlife Tracker

This is what I had hoped for from our community.  Sharing insights in order to preserve our wealth. So, do you consider these two the BEST buys right now?  Better than the others?  Many praise HMY, especially Mish.

Any other opinions, folks?  Jim seems to like MUX best of all–why?  However, Chris and Mike Maloney seem to be in 100% cash and/or gold/silver??

 

Many thanks for sharing.  Ken

  • Sun, Jul 13, 2014 - 09:00pm

    #17
    Hrunner

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    Sea Change Analyzed

Dave, Jim H,
Apologies for being a bit OPP (Off Peak Prosperity), but life duties sometimes take priority.  As usual, I find myself appreciating Dave's analysis, then the further I read, the more the proverbial analytical train comes off the rails.

Dave, you're making a fundamental error in your "Martenson Construct", due to several wrong assumptions, which is the downfall of many constructs.

First, lets level-set through some basic concepts which we seem to have wandered away from.

1.  It's not of matter of selecting whether it's the banks or the government manipulating the market for their ulterior motives.

They work together as one entity.

The government and banks are one entity, acting as divisions within a single corporation.  I don't care to speculate whether Yellen calls up Dimon three times a week, talks with him once a year at Davos, transmit policy concerns and questions via trusted intermediaries, meets with him in an underground bunker in Washington.  These are mostly irrelevant details. 

The government is not some independent entity, calmy working over there in DC, separate and watching over things impartially.  The government and the financial sector are extraordinarily tightly joined in policy making and policy execution.   Overtly and openly, and also in many ways clearly that are hidden from public scrutiny in ways that we will soon learn. 

Recall it took years of lawsuits for Bloomberg to get made public the Fed's documents, that no one knew about and very few people speculated about or reported on, and that the Fed never revealed to anyone in Congress, that showed that the Fed provided trillions in USD currency swaps to European banks.

 If you don't understand this, and continue with your consistent artificial separation of the two leads me to question whether you do understand it.  If you want evidence, let's input a few facts to illustrate the point (There are dozens and dozens of data points, but we won't do a comprehensive view for the sake of conciseness).

Data point 1:  The entire financial system that we are currently using was designed as a collusion of the government with the big banks in the financial system.  Average folks, such as store clerks, pastors, and farmers were not invited to Georgia to draw up the "rules of the game".  The book "Creature from Jekyll Island"  by G. Edwin Griffin documents this highly linked relationship elaborately (not speculation), in deep detail.

Data point 2:  The Federal Reserve (yes, you can argue not technically "government", but yes they are government because they are essentially contracted by the government according to statue to manage monetary systems) openly has a policy to manipulate the price of money.  This is not speculation.  This is published Fed policy which we have documented on this site many times. 

And how does the Fed manipulate money?  Through the banking system.  To inject new fiat currency, the Fed must buy government UST, through the banking system transmission channels to effect monetary control.  By definition they are working as a team with banks to effect monetary policy and thus control the price of money. 

The government working with the Fed decides who and who is not a Primary Dealer.   Last time I checked, neither Jim H, nor Dave, nor Hrunner was listed as Primary Dealer.  So the Fed ain't working with me, and I damn sure would like some of that free money to buy some UST directly from the government and flip it to the Fed for a risk free profitable trade. 

Data point 3:  Please recall what happened in August 2008 when the financial crisis hit.  Last time I checked, the Fed and U.S. Treasury Department did not sit in a room with a bunch of average folks, the Rotary club, or Chamber of Commerce deciding what to do about the Credit Crisis.  It was well documented that only the CEO's of the big commercial banks got called into those closed-door meetings. 

I would direct you to PBS Frontline's excellent documentary on the Financial Crisis if you don't understand the level of collusion between private banks and the U.S. Government during the crisis.  For what it's worth, some large banks were not invited (not clear why other than they were pro free market versus pro government-commercial bank fascism).

So we have established based on evidence, that in times of financial stress the Fed, i.e. the U.S. government, collude with banks to effect monetary policy and decide what markets should and should not do.

Data point 4:  Virtually every regulatory position of consequence is held by a former banker.  Or a future banker or banking consultant.  People like Bernanke are another breed, i.e. economic academics.  I can't decide which is worse, our financial system run by people who have no real world experience using deeply flawed models derived from isolated university departments, or run by bank executives who care only about banks and don't give a rat's ass about people or destruction of the average person's savings and earnings power.

Now I suppose you could make that argument that magically, when bankers assume governmental roles as regulators, they all of sudden switch their bias and allegiance to the average man on the street versus their former employer and colleagues.  Based on everything I know about human nature, based on my direct observations in the real world, and based on the evidence of what actual financial policy is that harms to average person at the expense of the banks, I do not make that argument.

So go ahead and trust banks as if they are separate, isolated entities just listening to Mr. Market and trying to ensure some ill-defined feature such as "liquidity" for the good of the average citizen.  That is a view that ignores the mountains of evidence and data to the contrary.

As far as the deeply misguided discussion about the "Martenson Context" and the "Martenson Method" I confess I don't even understand what you're talking about.

You said:

"So when I ask you for evidence of this claimed sea change, it is an essential Martensonian requirement that there be some kind of strong correlation to back up what you say, otherwise we must admit that we are just engaging in unsubstantiated guessing.  Which is not Martensonian at all.  I can't remember Chris ever suggesting in the crash course that "Oh, it won't show up in the charts."  I wouldn't be here if he did that sort of thing."

Dave, you seem to not have been listening to anything Chris has said for the last year.  Chris has said numerous times that A) all markets are manipulated (some recent pieces actual have this as their title), and B) all markets have lost their utility as price discovery tools due to the severe degree of manipulation, which is by design by TPTB to buy time and keep things patched as they "make it up as they go along" and C) none of the markets make any sense to him, looking at the EVIDENCE. 

Evidence means, to me at least, and I believe for Chris, is the most reliable sources of least-manipulated data available, hopefully as distant from government manipulation as possible.  These more reliable evidences (note that I did not say perfectly reliable) include corporate revenues and profits, corporate capital deployment in new capital projects versus share buybacks, retail sales, ADP jobs, labor participation rates, number of people on food stamps and disability, electricity consumption, Baltic Dry Index.

One caveat that you must understand that, yes the market and supply and demand will eventually rule, and the forces we discuss will eventually be reflected in price, but sometimes price must travel through a period of sometimes significant market distortion on the way to true price discovery.  This is one of those distortion periods.

This is one of your fundamental flaws.  You accept as informative evidence market numbers from headline markets such as SP, oil, gold, thatare highly manipulated and blithely accept that price discovery in these markets is pristine"data".  On what basis, I don't know.  Because you trust that the folks that run theComex have the ability to calmly and dutifully pass electronic digits from one entity to another?  That ain't a market, Dave, that's IT networking and computer software.

I acknowledge that somewhere in these markets are some players contributing that are likely honest buyers and sellers, though I believe that number is becoming smaller each month.  And most markets, especially the stock market, are composed of financial firms gaming the system with programmatic trading, or institutional investors that are forced into the stock market to survive.  Huge numbers of investors who have control and freedom to seek best markets are opting out of the market.  So if half the market participants are carrying out government price manipulation and half are not, how does that add up to an unmanipulated market?

As far as gold, if a commercial bank comes in and smashes price three times a week instead of seven times a week, is that your rational for markets being unmanipulated price discovery engines, and free and fair?

You also said:

"So lets assume you are right and look for correlations that might confirm your hypothesis: this price rise in gold here in June is all about "the market figuring out organic growth isn't coming."  Were this true, if the market (those guys who buy COMEX contracts) had just realized the Martenson Context was going to be truth going forward, what other market behaviors might we expect to see?

1) ever-higher energy costs – so, oil prices rising? [no, it has been flat YTD; Brent has plummeted -2.01 to 106.66 just on Friday, down -2% in June]

2) debt more difficult to repay – bond prices dropping? [No, long term US treasury up 10% YTD, and up 2% in June]

3) earnings in real terms very difficult – stock market multiples compressing resulting in stock prices dropping?  [No, SPX up 6% YTD and +2.4% in June]

4) Japan is a Martensonian basket case – the Yen should be having some difficulty. [No, Yen up 3% YTD and up +0.8% in June]"

And thus you are basing your hypothesis for non-manipulation of precious metals markets based on "evidence" from four of the most highly manipulated markets in existence- oil, bonds, SPX, Japanese yen.  ???

A market exists where honest buyers and honest sellers can place bids and offers transparently, based on simple common sense rules. 

Rules like if you offering a commodity to sell and are placing it on offer at the market, then you must have the actual commodity to sell, or a direct physical connection with the commodity.   This is the way that supply and demand can operate normally.  Supply and demand was never intended to work with unlimited fictitious supply created by the whim of a few bankers, and trading with equally unlimited fictitious demand based on a desire to make money off of trades, and not to take delivery and actually use the commodity for a downstream product needed by consumers. 

Suppliers should subject to random periodic inspection of their ability to deliver.  Translation: No naked paper. 

No one entity can possess more than a non-controlling minority position of futures in a market, say 5%. 

Margin requirements are fixed, transparent and fair, not changed at the whim of market managers.  100% margin, like 100% fractional reserve banking, would create much fairer markets and remove much of the cheating, even at the expense of that oft mentioned liquidity.  I'll exchange liquidity and explosive exponential growth for fairness and stable prices and stable markets.

You're not seeing any correlations of the arrival of the sea change because you're not looking at both sides of the force equation, you're only looking at movement.  By force equation, I mean looking at pressure for up movement versus pressure for down movement.  The massive currency and credit creation and continued exponential credit growth in the face of no parallel productivity output, debt reconciliation or aggregate demand creates a massive tectonic force, and massive currency risk, that should be signaled in the price of precious metals as a hedge for that massive risk.  No such price is present.

Think of tectonic plates of currency risk versus government need to have their currency appear stable.  You can stand on top of a piece of land and say it is not moving and consider two interpretations.  One world view is that the land is very stable and no tectonic forces are in operation.  Another view is that, if you look beyond the single variable of movement, and start to fill in the picture with other data such as pressure, historical earthquakes, etc, you would understand the view that reality is that two massive forces are pressing against each other and it is extraordinarily likely there will be a resultant huge shift when one stronger force gets the upper hand over the massive opposing force that is pushing back. 

With every billion dollars the Fed is printing, with every month that interest rates are near zero (or negative), with every quarter with real inflation increases and food prices outstrip wage growth, with every quarter that shows a contraction of the labor force resulting in fewer workers supporting more retirees, with every month that the U.S. (or any financially irresponsible country) adds to its un-payable on-balance sheet debt and off-balance sheet retirement obligations, with every month of trade deficit where the U.S. imports more goods and services than it exports, the forces on the fault line increase. 

I believe, like I think Jim H. does, and perhaps Chris, that before the "Big One" occurs, there will be small tremors and initial "slippage" that will be the sign that the Big One is moments away.  That's why we watch the precious metals closely.  Slippage looks to me like the inability to hold gold price down, the inability to control bond yields, an accelerating pace of bank and municipal defaults, and accelerating inflation. 

Or we can assume the market will go on indefinitely with gold prices defying the laws of supply and demand.

  • Sun, Jul 13, 2014 - 09:22pm

    #18

    Jim H

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    Miners…

Kenneth,  MUX is known for strong management.  TRX, which I believe is messed with by TPTB more than the others because it is run by Jim Sinclair, is another to consider.  May I suggest that you might want to take advantage of some of the low cost research being published by Kranzler?  Here is some of Dave's philosophy as mentioned in the comments section of his blog;

  http://investmentresearchdynamics.com/how-derivatives-will-trigger-a-bond-market-melt-down-part-1/#comment-17212

Buy Research Reports

Takes time to research and write up good quality research reports. I spent close to 20 hours working Minco Silver and management refused to return my calls. I burned a week working on it. This is my conclusion on Minco: http://seekingalpha.com/article/2311355-minco-silver-doesnt-pass-the-smell-test

FYI, if you do your research well, you should not have 20 of any stock in any portfolio. “Diversification” is a huge myth IF you know who to do the work. I went to the graduate school where modern portfolio theory was conceived and developed. Diversification diversifies away the reason you do research to gain an edge on everyone else.

I like having about 10 or so., along with some GDXJ.  I am not there yet personally.  I may very well take advantage of Wildlife Tracker's research – have owned AG in the past… have EXK and GPL right now.  

If you think of a mining investment as Gold in the ground.. and I primarily do.. then this view helps you place your bets… notice please one of the companies we have been discussing on the top of the list.  You can buy their Gold in the ground much cheaper than you can Newmont's or Barrick's.  If you believe Gold will explode.. and I do.. controlling ounces will be all that matters.    

      http://www.24hgold.com/english/listcompanies.aspx?fundamental=datas&data=company&sort=resources&vc=1&ordre=6&iordre=6&visu=pops&commodity=AU&commodityname=GOLD

 

  • Sun, Jul 13, 2014 - 09:51pm

    #19

    Jim H

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    DaveFairtex is living the seachange….

 Dave said,

I'm not seeing any correlations with your guess of the arrival of a sea change, which if in fact it was really occurring, would most definitely affect more markets than just gold & silver.  Perhaps you have some?

I wish it were true, I do.  I just see no evidence for it.

You and I have talked recently about how your view of paper (and digital) assets has changed.  That is the sea change right there… that awakening.. that dawning.  Alasdair speaks of it here;

  http://www.goldmoney.com/research/analysis/unwinding-unallocated-gold-accounts?gmrefcode=gata

In the past a bullion bank's risk to a rising gold price either went unhedged, or was managed through derivatives, using forwards futures and options. Therefore, so long as systemic risk is not regarded as a material factor, the bullion banking community can absorb significant gold demand from investors by expanding unallocated accounts without any physical buying required. However, the investing public's greater awareness of risk to bank deposits from bail-ins could change this in future. And it was only this week that wealthy German citizens were reminded of deposit risk when its government approved the introduction of bail-in procedures for bank insolvencies.
Increasing awareness of systemic risk by the rich and ultra-rich is likely to lead to a preference for allocated accounts or for vaulted gold held outside the banking system, over unallocated accounts. This being the case, the gold price is likely to rise more quickly for a given degree of increasing demand than it has in the past. For tangible confirmation of this conclusion we need look no further than the action of gold this week, which rose strongly at the same time as European bank shares fell sharply.

There is little evidence that dealers fully appreciate these developing dynamics. The sharp increase in the banks' net short position on Comex reflected in the current Bank Participation Report suggests not.

As more wealthy, unallocated Gold holders come to their own awakenings about the danger of fiat digits… the pressure on the physical Gold system will only build.  

  • Sun, Jul 13, 2014 - 11:08pm

    #20
    KugsCheese

    KugsCheese

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    davefairtex wrote:John

[quote=davefairtex]

John Williams has been projecting imminent hyperinflation for a decade now.  Eventually, just like a stopped clock, he'll be right.  But if you had traded on his specific predictions (say, bought puts with particular expiration dates), you'd be broke by now many times over.

He has provided a valuable service – raising consciousness on the problems in our current CPI – but from all I see, his predictions cannot be taken seriously.  Any more so than Ben Bernanke, who claimed subprime remained contained, and all the other crap he spewed about how things would play out that turned out to be so dreadfully wrong.

If we hold Bernanke's feet to the fire for his vast collection of failed predictions, and use those failures as a way to measure his understanding of how the world really works (clearly, its quite poor), shouldn't we apply that same criteria to John Williams as well?

[/quote]

JW of SGS was originally saying 2018 or so for the $ Crisis.  He moved it up to 2014 in late 2012 IIRC.   He does a lot more than just analyze CPI.

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