On Circularity, Bitcoins, and “Demand Crumple”

(Albuquerque, NM)  The bad news yesterday was that the bond yield was down, and that drove the US dollar purchasing power UP.

That, in turn, meant that it didn’t take as many dollars to buy the same thing as it did before.  Or, more practically, if you’d bought the day before, then the number of dollars you’d get for sale of the asset yesterday would have been down.,

This morning, we see the price of gold is up, which means the dollar is down, which means that the number of dollars needed will move up a bit (or at least should) which should turn the market as the day wears on, although some follow-through selling is expected at the open.

If you’re looking for a tool to guide your investments as the gigantic tug of war continues between inflation and deflation, you might consider looking at the Bitcoin prices over here

After setting a high near $1,200 back in December of 2013, the price of Bitcoins dropped to almost $350 in mid-April of last year.  Then it rallied, as could be expected, but now we face the prospect of retesting the $350 level with the most recent bids around $383 when I looked this morning.

imageBack in February of 2014 in an analysis “Beyond Silk Road: Chart Practice With Bitcoin I offered the long-term reader four possible cases for Bitcoin.

Today, it appears to me (although this is not investment advice) that Bitcoin is on the verge of  eliminating two possibilities and working out either the Elliott (continues down case) or the the stasis case.

The stasis case (misspelled on the chart, sorry) will fail with a number of closes below the previous lows.

If that happens, then we might see Bitcoins collapse to mere pennies at some future juncture.

As this is where Bitcoins become something of a deflationary canary in the coal mine.

If they take out the old lows, then it might be a sign that the dollar’s purchasing power is strongly rising again.

And that (remembering how circularity works in economics, push one thing and another will pop out) gets us to the hard reality of gold under $1,000 as it would also mean that oil has busted the $90 level (until the short-term excess production problem disappears) and that’s likely to happen because of falling car use.

All of which means that while the world hasn’t ended with yesterday’s decline, the bigger problems lie immediately ahead this fall.

As a result, we’re watching to see what happens to Bitcoin when it touches the old low.  And, by the same token, it would be graceful for the 10-year Treasury, which has a 52-week low off 2.30% touch bottoms at around the same time.

From there, Bitcoin being a “faster” market might be very useful.  A strong bounce might mean one more year or two of rally as the power blow-off high (as in 1929) arrives, or if both break lower, then the transition to the depths of the second Depression are pressing more immediately.

Despite the rally in gold, what the touts are missing is that falling consumption of basic goods is not when inflation happens:  Price follows demand, not the other way around.

Thus “demand crumple” for anything could be catastrophic, once we work down a bit lower toward those 52-week lows.

Be Wary of Distractions

The US left Iraq too early, history is teaching us, in a mighty painful way:  After how many US combat deaths?  3,771 was the Wikileaks number if I recall.

Having left, though, now we see how the Iraqi army has just suffered (yet another) defeat at the hands of ISIS/ISIL:  Hundreds are missing and their likely fate isn’t pretty.

The US and allies have launched air strikes inside Syria today, but with no commitment to boots on the ground, the battle of mutual extermination seems to be in play.

But off in the background, all the excitement of war is overshadowed by the Ebola outbreak because it now looks like as many as 1-million could be infected by the end of January.  Already, gravediggers in Sierra Leone are running out of room.

But Let’s Blame Something Else…

Rather than say deflation is still around, has sharp claws, and it’s a global problem, and Ebola is likely to reach the US very shortly, we instead see how the markets are blaming the Israeli shoot down of a Syrian jet as a possible “accidental intrusion” into Israeli airspace.

When the news fits, yell it…and it was used to prop up prices of gold this morning, while we await the end of month beat-down, typically due next week, or the week after.

The aware observer will note that business growth in the EU is dropping, and like it or not, that’s more fuel on the deflationary fire.

Ask the Search Engine Oracle

I often use Google as a litmus test for what’s going on:  On the Google News site when I checked, the search for “falling prices” netted 101,000 hits.  “Rising prices” on the other hand were at 96,500…so a deflationary leaning, there, too.

On the fall prices side, I’m sure you’ve seen the stories about on how used car prices are falling….and despite that, inventory is backing up.  I mean, why buy used when a new car may be had often at nearly the same price – and they come with meaningful warranties and are good for 100,000 miles…

Even when you find stories about how prices are rising, they often come with a deflationary angle to them.  Like in this story:  Home prices are up, but the number of sales is dropping…and from this we infer that housing still has a lot of pent-up inventory and that results in no real pricing power when sales fall off quickly on increases.

And in Local News

As long as we’re in Albuquerque, New Mexico…

imageThe flooding in southeast New Mexico seems about over, but with people returning home (some oilfields still closed) there’s now a problem with funding. 

Some things never change…it’s a familiar and well-worn script in newsrooms across the country.

As the sun comes up over the mountains east of Albuquerque this morning, the good news is that the world is still here and the showers and thunderstorms have moved out of the area.

The bad news is that all the other problems of the world reported still remain pretty much in place…

On to Amarillo…