Q: Do you use fractal geometry? Could you update us on the wave pattern recognition you’re looking for to verify the end of the bear market in gold? Do you look at volume, momentum indicators, gaps, moving averages, etc.?
A: I look at all of that, but none of it is controlling. Wave pattern recognition is too subjective to be a reliable predictor. I only use it as a confirming indicator. I use XAU for the gold shares and spot price for the bullion. I look at many others, but those are the primary charts I use to discern a wave pattern formation. Counting from 25 trading days back, XAU seems to have formed a counter trend rally up in three waves. If that is correct, then we will have one more test of the lows and most likely a new low. If that is not correct and the low of 25 trading days back was the end of the bear market, then I would expect one more wave up toward 1,300 spot on the bullion followed by a retest of the low without making a new low. None of this is a prediction. I will wait for the market to tell me. The fractal part comes into play when you compare the shares to the bullion and various market segment charts to XAU and the bullion.
Q: What lessons did you learn from your speculation during the crash of 2008?
A: Two things that were particular to this bubble:
- The lords of Wall Street got a law enacted in the State of New York that made it legal for them to write gambling contracts.
- The Wall Street lawyers craftily wrote disclosure statements redefining a AAA credit rating for a mortgage pool as assurance that the trustee would pay over the funds collected. This changed the credit to a fiduciary guarantee.
Q: Were you surprised that so few people understood this?
A: No. America’s level of education and morality made it easy to accept as a natural progression from the institutionalized conflict of interest created in 1913 when a private banking system was granted monopoly control over the issuance of money to the Internet bubble of 2000. The crash of 2008 was mostly business as usual: new bottle, same wine. Corruption is inevitable when corrupt laws are passed. A positive here is that many opportunities exist for a speculator to profit from the distortions created.
Q: Are we in a bubble now?
A: Yes, the bond bubble. It’s bigger than the Internet and real-estate bubbles combined. There is now the equivalent of over eight trillion USD in negative interest rate government bonds. This has never happened before. Government debt instruments are used as money. When confidence in governments evaporates, so does today’s money. We live in interesting times. Government-issued promises are the center of this bubble’s fraud.
Q: But government bonds are much safer than subprime mortgage bonds. Aren’t they?
A: With government debt, you have a sovereign guarantee. In my opinion, that amounts to: I promise to pay you until I decide not to. If a government defaults, what recourse do you have? If a private party defaults, you can sue and enforce collection by attachment and sale of the debtor’s property. How often has that been possible when a government defaults?
Q: Governments can always just print up the money required to pay the note holders. Doesn’t that make government debt safer than private debt?
A: It’s true that they can print their own currency. If the currency isn’t accepted at a value equivalent to what was lent, then there is a loss to the debt holder. The government’s ability to require that their currency be used to pay taxes does insure demand for government issued currency. But there are limits. All value is subjective, including the value of money and sovereign debt. With governments, the prisons and hangmen back up the value of government script. It would be different if governments invested what they borrowed. To the extent the money is wasted on consumption, bureaucracy, unnecessary wars, and theft, it is worse than financing subprime mortgage loans.
Q: I do not follow. Please elaborate.
A: Credit and money are functionally equivalent. To the extent that a product or service exists to back up new credit or money, there is a real value that can be given to pay the credit back. If the credit finances consumption, nothing was created from the credit extension — nothing of any value in repaying the credit, at least not any value that was generated by the credit. That is the problem with government expenditures. The credit cannot be paid back with anything that was created from the extension of the credit. That makes the sovereign debt bubble a much larger impending crisis than the 2008 subprime debt crisis was. In both cases the adjust to reality was and now is unavoidable as the loss occurred years earlier when the credit was extended or if you prefer when the value was stolen through the machinations of the fractional reserve system.