Ned W Schmidt CFA's Contributions

Some market participants may be treating 3 November, next Wednesday, as if it will just be another day. However, that day will reveal the results of the U.S. election, and may be the first day of a new era. For the first time in 78 years U.S. voters may, one, declare Keynesian economics a complete and utter failure, and, two, repudiate further mismanagement of the U.S. economy by Keynesian ideologues. Should that happen, some cause for celebration may be in order.

Some market participants may be treating 3 November, next Wednesday, as if it will just be another day. However, that day will reveal the results of the U.S. election, and may be the first day of a new era. For the first time in 78 years U.S. voters may, one, declare Keynesian economics a complete and utter failure, and, two, repudiate further mismanagement of the U.S. economy by Keynesian ideologues. Should that happen, some cause for celebration may be in order.

Businesses, be they purveyors of adult beverages or farms, are different from governments. Governments can, in most cases, print money to pay their expenses, or borrow near unlimited amounts to do so. Businesses, however, must take in sufficient money to cover their input costs, the expenses of labor, and earn a fair return on their invested capital. If current prices do not allow for that, the price of the business’s service or products must rise.

For those living outside of the U.S., on 2 November the most important U.S. election since 1932 will take place. On that day, U.S. voters may repudiate the Keynesian liberal model of government. For nearly 80 years Keynesian liberals have been on a path of wealth confiscation and destruction not seen since the Mongol hordes unleashed their terror across Asia and Europe. On 2 November we may, hopefully, witness the beginning of the death of Keynesianism. If not, we still have Gold.

Munching sound in back ground is that of locusts as they make Australia their Spring snack. Australia is in the process of preparing for war against the worst locust swarms in 75 years.

Have Gold Bugs managed to infiltrate the central banks? Or, do we have another indicator of the frothiness of the current Gold market? From CNN.com and Financial Times we read

With $Gold clearly in a parabolic formation, investors may need to realistically appraise their investing activities. $Gold is likely to suffer inevitable consequences of disappointment that follows from a parabolic move. Investors may want to direct their investment flows elsewhere. With Agri-Food prices marching higher, that sector of investment world is an attractive offensive alternative.

Market metrics, like a thermometer, simply reflect the conditions in a market. They do so without opinion or emotion. Metrics such as valuation do not cause market prices to change. Valuation, however, is often a precursor of change as investors, individually and then collectively, respond to price relationships, altering their buying and selling. Valuations of markets will not make you rich anytime soon, but they could make you poorer if they are ignored.

One road to wealth is to only own those assets for which the price is rising. That seems to be a rule that equity investors have forgotten. In any event, a great market technician once suggested only looking at those things with prices making new 52-week highs. His reasoning was that for the price of something to rise it must eventually make a new high. Well, based on the above chart, that technician would be all over Agri-Food commodities and associated investments. Our Agri-Food Price Index recently made a new high!

Chart above of the Agri-Food Price Index makes a very clear statement on the state of Agri-Food prices. Index continues at a new cycle high. Versus the all time high of 2008, it is down only 3%. Those results compare more than favorably with the dismal results of the U.S. equity markets.

That Keynesian economic dogma has been a complete and utter failure is readily evident as we look around the world. For one, the U.S. economy will reenter recession in first of the new year as Obama Regime’s tax increases crush the potential for economic growth.

Last we talked on Agri-Food part of our discussion was drought in Russia and wetness in Canada. Mother Nature just does not understand that just in time inventory management requires the weather to be properly scheduled. Or, perhaps humans should come to understand that just in time inventory is fine for electronic connectors, but does not work with wheat or corn or soybeans or any of the other Agri-Foods.

We seem to do a lot of waiting. As 2009 ended, U.S. dollar was being forecast to be approaching the end of its existence. Presumably, we must continue to wait for that event. Moving on, forecasters had more recently been calling for imminent collapse of EU and vaporization of the Euro. Presumably, we must continue to wait for that event too. Many are still forecasting an imminent replacement of global currencies with Gold. Presumably, we must continue to wait for that too.

Last we talked was how pigs were being made into bacon in the markets for oats. Many at that time perhaps did not realize that both a cash and futures market existed for their oats. In that discussion we noted that a goodly reason the back of the bear run in oats was broken was too much rain in Canada. Weather, it seems, has a way of ignoring the forecasts of analysts and traders.

While planning the wake would certainly be premature, perhaps some funeral plans could be considered. Could we possibly be witnessing the impending death of Keynesian ideology? For more than 70 years governments have been controlled by Keynesian ideologists and those that have succumbed to their alchemy. Converting sand into Gold was a dream ultimately discarded as futile. However, the siren’s song of Keynesianism offered too much alluring hope.

Investment world has many saying that have come down from those that went before us. They learned those lessons the hard way, by paying for them. We have been told, for example, that bears get rich and bulls get rich, while pigs are made into bacon. Many simply ignore the wisdom of the ages.

As anyone that has bought and sold a house in the past few years can attest, value is indeed neither fixed nor necessary reliable. Valuing a house, or any other asset, is as much science as carving up a chicken in the moon light at midnight with precision surgical instruments. The tools, such as present value, are precise mathematical calculations. However, the inputs border on being sorcery.

RHODIUM TRADING THOUGHTS is about timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. Profits are the goals, not trades. Do not expect all recommendations to be profitable. No system can achieve that lofty goal. Our goal is simply to state whether conditions for a metal are favorable or not. Buy signals are issued when appropriate.

Greece may not be enough. Further economic bodies may be needed for the funeral pyre of Keynesian economics. While one after another nation demonstrates the critical flaws inherent to this dogma, governments seem to simply ignore the ramifications. Keynesian economics has only one terminal phase, and that is not prosperity but bankruptcy.