August 2009


Target $103.50 [+/- $0.20]


Buying @ $101.97



On a chart [technical] basis GLD is looking decidedly bullish. With the September effect on stocks in wide discussion through blogoland, gold is entering it’s seasonal [historically] upswing period.

If gold should break through the $1000/oz barrier and successfully retest that as support, gold could be off to the races again after being asleep for the last few months.


*Abolish Central Banks
*Return to Gold Standard
*Allow interest rates to rise to market levels
*Cut back on all Welfare expenditures [eventually eliminating them]
*Allow liquidation of capital
*Withdraw US troops from Iraq/Afghanistan
*Eliminate subsidies & pork


Essentially almost the complete opposite of what is currently taking place. The current solutions will not work in the longer term, and aren’t even working in the short term, so why bother?


So Chinese policymakers have had to choose between policies that boost employment in the short term while making the overcapacity problem in the long term worse and, on the other hand, force a more efficient adjustment in the domestic imbalance while increasing job losses.

Until now, Beijing had come down resolutely on the side of boosting employment. It had shifted a massive amount of resources, mainly through the banking system, into new investment in infrastructure and new production facilities. This created jobs and boosted consumption, but it did so by expanding current and future production even faster, only worsening the domestic imbalances and making China even more reliant on US consumption.

It probably had no choice. As in nearly every major economy, the first instinct of policymakers since the crisis began has been to enact measures to slow unemployment growth. If unemployment grew too quickly and caused consumption to fall, it could easily tip the economy into a long-term and irreversible contraction.

But there was always a limit to how far Beijing should push. It could continue spending like crazy on good and bad projects to keep workers employed, but if all this spending simply increases capacity faster than it raised consumption, the net result would be an unsustainable debt burden and a more difficult reckoning.

That is why we should welcome the signs that Beijing may be reaching the limits of its investment push. The government believes that it has created enough momentum to avoid the worst consequences of the global crisis and the contraction in the export markets, but it is also stepping back from creating a worse crisis.

China inflated at the opposite end from the US. The US because it had no choice, the banking system being on it’s knees, had to inflate via government deficits handed directly to the consumer.

China however could inflate through control of the banking system, directly to the producers. Thus China continued to expand stages of production, which, with more roundabout capitalistic processes increases the supply of products.

This opposite end bailout, is actually quite a good thing if the products being produced are in demand. The problem is, are the products being produced in demand?

How to know?

The market reallocates capital into product production via profit margins. The higher the profit margin, the more capital and resources will be attracted, thus increasing supply, bringing prices down and contracting profit margins, which prevents further investments.

When a government allocates capital and resources, it approaches the problem from a different perspective. China, as the article alludes has approached the problem from unemployment. This then could have a very different outcome.

Labour is more effective in productive processes that are closer to consumption goods. Thus by placing the emphasis on employment we have the following potential problem. That labour has been allocated to the stage of production that is more efficiently served by capital, thus the profitability will be seriously compromised leading to potential losses, which will affect stockmarket valuations. Or, that the labour has correctly been allocated to stages nearer to consumption goods. The effect being similar to the US stimulus.

If so, the effect will be similar to the US. That is as consumer demand stabilises, supply will be falling as current inventories are drawn down, while no replacement supply is forthcoming due to prior liquidations of unprofitable capital.


From the chart, it would appear that the US consumer is exhibiting currently an increased preference for cash, and/or, China is not actually producing products that the US consumer wants or needs. On a fundamental basis, the Chinese economy is in as bad shape as any other. Those looking for a China led recovery and leadership out of the recession are looking at the wrong tree.


It looks unlikely that I’ll get my price @ the CLOSE, so I’ll buy any dip at tomorrows OPEN circa $103.00 – $102.75


Approaching the CLOSE, I’m looking at buying LONG @ circa $103.00 to $102.75 and exiting tomorrow circa $104.00

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