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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
April 17, 2012
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The Risk Is Never Off:

Anyone who has been paying attention to financial markets for much more than a decade would know that there are long periods of time when the concept of “risk” is all but non existent.  On the stock market, the best recent example of that was the last half of the 1990s when there was NO financial “crisis” anywhere in the world sufficient to induce Americans to sell their stock portfolios.  The 1997-99 “Asian crisis” was in Asia.  The 2008 Russian debt default was in “Europe”.  Even the quite spectacular demise of LTCM was looked at as an aberration which the “monetary authorities” would “fix” as they had all its predecessors.  By the end of the 1990s, American investors were blandly expecting to reap an average 20 percent gain from their stock portfolios in perpetuity.

On January 14, 2000, the Dow closed at 11723.  Well over 12 years later on April 13, 2012, it closed at 12849.  That’s a rise of a bit more than 1100 points or less than 10 percent in well over a decade.  Annually, the compounded gain amounts to 0.80 percent a year.  In Japan, the Nikkei is still languishing about 75 percent below the level it reached at the end of 1989.  In Australia, the All Ordinaries at its present level has lost more than one third of its nominal value from its November 2007 high.  Monetary policy was in full swing in the 1990s just as it has been for a century all over the world.  Admittedly, some of the “unorthodox” measures resorted to since the GFC hit were not yet deemed necessary outside Japan.  The rest of the “developed” world still thought that “risk” was a board game.

Risk On - Risk Off:

Old habits die exceedingly hard but they do alter over time, especially when the justifications used to prolong the old habit are no longer credible.  There were no “risk on - risk off” episodes in the late 1990s.  Any market dip was looked upon as a buying opportunity.  Nobody bothered in the slightest with dividends.  Earnings expectations became passe.  By the height of the “dot com” boom, the bigger a company’s losses, the higher its stock price went.

The term “risk on - risk off” is a child of the GFC, concocted on Wall Street in an attempt to quell the ever more justified fear of the markets which it controls.  A “risk on” day is a day where there is no financial bad news.  On such a day, investors are said to take “risks” and buy such things as stocks, corporate bonds, foreign financial assets, commodities and even simple derivatives like options and futures.  A “risk off” day is an increasingly common occurrence.  It is a day when there IS some economic or financial bad news emanating from somewhere.  On such a day, the first impetus (according to Wall Street) is to avoid risk.  That means (again according to Wall Street) that “investment money” flees out of everything else into the US Dollar and US Treasury paper.

Notice the change here.  At the end of the 1990s, risk was not a word in the lexicon of investors.  The only people silly enough to think that risk had not been banished from the world were buying Gold – the financial “asset” which had been going down for two decades.  Today, the realm of alleged “risk free” investment has been narrowed down considerably, especially on Wall Street.  From “everything”, it has now dwindled down to US Dollars and government debt denominated in US Dollars.  That is as far as Wall Street dares to go.  They are well aware that if the US Dollar and Treasuries ever enter the “risk on” category, the whole thing will come tumbling down around their ears.

The Unelastic Currency:

Gold is no good to a government which wants to GOVERN (run) an economy or the people in it.  It confines the government to only those activities which their citizens are willing to pay for.  Americans have NEVER been willing to pay for the welfare state or for the full monetary costs of war.  That is why since the 1920s, the US government has only run budget surpluses in years when the concept of risk was temporarily banished.  It never stays banished for long.  Gold is the implacable enemy of “monetary policy”.  That is why it has risen inexorably for a decade plus.

The Financial Markets And Monetary Policy:

We all remember the refrain coming from those in charge of “monetary policy” all over the world in the early days of the GFC.  It was, in effect, that the problems which were now too big to conceal in the financial markets were controllable and temporary and besides, they bore no relationship with the “real” economy.  That refrain, now somewhat diluted, is still being resorted to three and a half years after the horrendous damage done to the “real” economy became starkly obvious.  The money managers continue to cling desperately to a false dichotomy.  This is their assertion that the study of money and the study of economics are two different things.  This is what Ben Bernanke is counting on when he continues to assert that the massive interest rate lowerings of 2001-03 had little if anything to do with the real estate bubble of 2002-2006.  That is what Alan Greenspan counted on when he asserted that it was impossible to know whether a booming financial market was a “bubble” - until that “bubble” had popped.

Monetary policy is nothing more or less than the manipulation of money as a means of manipulating markets, economies and the people who rely on both for their livelihood.  What has been sold as a means of safeguarding the prosperity of the people is in reality a means of safeguarding the retention of power OVER those same people.  Once a person no longer retains any confidence in the future purchasing power of the money they earn, they are more and more reluctant to save it.  Once the reward for saving is minimised or eliminated, they cannot afford to save it.  Once that happens, monetary policy gives them two remaining choices.  They can spend as much or more than they earn.  Or they can “invest”.

Monetary policy has shot its bolt and markets are at the end of their tether.  We know that because the only “risk free” investments left - according to the markets - are US Dollars and Treasury debt.  These “investments”, to a greater degree than any other, stand or fall on the efficacy of monetary policy.




.Ó 2009 – The Privateer

(reproduced with permission)


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