Saturday, March 5, 2011

Headed down to the end of the world

Shortly, we'll be on our way to the far ends of South America, so blogging will be sporadic and most likely quite different. Two years ago we went to Argentina about this same time of the year, and I think I arrived there about a week after the market hit its fearsome low in March 2009. This time the trip will be far less burdened by concerns for the future of the country and the health of our investments.

We'll be spending a day in Buenos Aires, then 8 days in southern Patagonia: El Calafate (in the heart of Argentina's glacier district; El Chaltén, at the foot of spectacular Mt. Fitz Roy; and Chile's Torres del Paine national park. We return for a few more days in Buenos Aires, followed by some time in Tucumán, where we will be attending a wedding and getting reacquainted with family and friends. On our way back we'll stop in Chaco, in the northeastern part of Argentina, to check in on a Grameen-style bank that we helped establish some years ago. I hope to have time to post photos and commentary along the way, as this should be a welcome respite for all.


theyenguy said...

The chart of Oil, USO, shows that investors, knowing that when a central bank monetizes debt, commodity price inflation follows. Ben Bernanke’s quantitative easing policy has given seigniorage to oil as a globally sovereign currency, as the price of West Texas Intermediate Crude, $WTIC, has risen from 72.5 to over $100 since QE 2 was first announce in Jackson Hole in August 2010.

Failure of the economic and political paradigm of Neoliberalism occurred, February 22, 2011, as seigniorage failed, with the downturn in distressed securities, like those held in FAGIX, which caused the stock market, ACWI, to turn lower.

Quantitative Easing 1 and 2 have resulting in an explosion of commodity prices, stimulating social revolutions in Middle East, MES, and African, AFK, countries, which have driven oil prices, USO, to the Septemeber 2008 level, and which have in turn, caused inflation destruction, turning down stocks prices, and creating a loss of seigniorage, that is moneyness.

Urban Dictionary defines inflation destruction as the fall in investment value that accompanies derisking and deleveraging out of investments that were formerly inflated by money flows to, and carry trade investing in, high interest paying financial institutions, profitable natural resource companies, and high growth companies.

On March 4, 2011, with oil moving above $103, world stocks, ACWI, succumbed to inflation destruction, and traded 0.8% lower to 48.71.

The chart of world stocks monthly, ACWI Monthly, shows that an Elliott Wave 3 Down commenced in stocks globally on February, 18, 2010 from a high of 49.24.

The chart of the S&P Weekly, SPY Weekly, shows that an Elliott Wave 3 Down has commenced in the S&P, the week ending February 18, 2010, when SPY fell from 134.53.

The turning down of Banks, KBE, means that the world has passed through an inflection point. The world has passed from the Age of Leverage and into the Age of Deleveraging with the exhaustion of Quantitative Easing and with the failure of yen carry trade investing, as seen in the failure of the Optimized Carry ETN, ICI, on the very day that QE 2 was announced.

Evidence of failure of seigniorage also comes from the Jody Shenn Bloomberg report: “Securities backed by option adjustable-rate mortgages, the home loans that allow borrowers to decide how much they pay each month, dropped for a second week as investors speculated a rally pushed values too high. Typical prices for the senior-most option-ARM bonds fell as much as 4 cents to about 62 cents on the dollar, according to Barclays Capital”.

Neoliberalism failed February 22, 2011, as seigniorage failed with the downturn in distressed securities, like those held in FAGIX, which caused the stock market, ACWI, to turn lower.

The Great Bull Market which came through carry trade lending and Quantitative Easing 1 and 2 is history. The short, medium, and long term trend is down. Those who are advising their clients to stay invested long, are doing them a dis-service, as they have cut them off from a profitable short opportunity. Clearly an investment demand for gold has arisen and will remain strong. Wealth can only be preserved by investing in and taking possession of gold, GLD, and silver, SLV, bullion.

John said...


I hope you have a great trip. Best Wishes for safe travels.

Bill said...


Have a great trip. Perhaps I'm superstitious, but it seems whenever we celebrate a bull market anniversary or mark a historical low point, things turns south real fast. I'm very concerned that the unrest in the Middle East is going to cause another recession. I hope the recovery is strong enough to withstand the oil shock, but I'm not so sure.

Steve Fulton said...

have a great trip!!

John said...


The african countries are not significant re oil production. Watch the Persian gulf. The instigators of unrest there are the Iranians. The Saudis will not permit Iranian meddling in their country.

Watch what the Saudis DO re oil production. Despite what might be in the media higher oil prices from here are NOT in the Saudi's interests. They have the ability to bring oil prices back down, and I believe they will.

I do not believe these oil prices will remain this high indefinately. The Saudis do not like it and they usually get what they want.

I think this will pass.

Benjamin Cole said...

At $100 a barrel, there is not an oil field in the world not worth exploiting, and many alternative fuels become viable.

And consumers will use less. It may take a year or two, but I doubt this price cannot hold. As oil prices ease, they may become a third leg on the bull market.

I have never been to Argentina, and look forward to any reports from that nation.

Theyenguy: Well, the yen has done well. The Japanese economy has been wrecked. I hope you kept your assets in something other than equities or property (down 75 percent in the last 20 years), and I hope you were not working in Japan, where wages have fallen for the last two decades.

Other than that, tight money has been a success in Japan.

Cristian said...

I hope that this time you help some of the poor people over there. You are rich enough and do not need to make more money. But some people need your help.

tom said...

Scott - thanks for the ongoing posts and commentary. Enjoy your travels!

Larry said...
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DownSouth said...