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“Since Bush I, we have intervened in Panama, Kuwait, Iraq, Somalia, Haiti, Bosnia, Serbia, Kosovo, Afghanistan, Pakistan and Libya. Had Sens. John McCain and Joe Lieberman gotten their way, we would have been fighting Russians in Georgia and bombing Iran.

“Add up all those we have killed, wounded, widowed, orphaned or uprooted, and the number runs into the millions. All these wars have helped mightily to bankrupt us.

“Have they made us more secure?”
                                                        Pat Buchanan

Commentary & Analysis

Is gold going to take a breather?

There has been an interesting on again/off again correlation between gold and the euro. Lately, gold and the euro have been positively correlated, i.e. both moving higher against the US dollar. Yesterday, gold put in what looked like a key-day reversal bar. As you can see in the chart below, gold made a new high, likely taking out a lot of buy stop orders for many that wanted to be on this freight train on the next major breakout!

I was clued into the new high in gold by my father in law (FIL) yesterday morning. Was it a bell ringing at the top? He wrote: “How wide and deep do you think I should make the moat [around the house to protect the gold hidden there]?”

LOL…I had no good answer for that one. But of course by the end of the day, gold had indeed staged a very nasty daily bar, assuming you are a bull:

Gold Daily:

Now to my FIL’s credit, he is no willy-nilly bull. He already has some key hedge strategies in place using options…but if the key reversal signal plays out, he will likely hold off a bit longer on that moat.

Gold and Aussie Dancing to the same drummer…

New high today in the Aussie…

Now let’s throw some wave counts on top of the gold chart…risk/reward looks interesting…

“Free trade” is farcical!

I realize it is a very dangerous world out there. But I also believe the US gets itself entangled (using honorable men and women; sorry we didn’t listen Mr. Washington) way too often in order to feed its own powerful interests—big boys playing global strategic chess for keeps—that don’t always align with the best interest of the rest of us. I guess it is no surprise that US trade policy regarding China is now effectively flowing from the National Security Council. Keep the world safe for the Davos literati I might add, assuming I wanted to be sarcastic (and truthful). But, nah…I won’t say it! I will say I am sorry we did listen to Mr. Ricardo!

Anyway, I guess it is no surprise gold has soared as the US continues to drain its Treasury on the back of foreign engagements and “free trade” trade deals, as Pat Buchanan says and has warned about for years. Of course, few want to listen because Pat has been labeled — cover your ears boys and girls — an “isolationist.” OMG!!!!!! Ahhhhh……. Yup those ugly “isolationists” who want tariffs just as all of America’s Founding Fathers wanted…

If “free trade” deals worked so well why does it seem every “free trade” pact signed ends up costing the US jobs? But who can argue with good old David Ricardo; he of comparative advantage fame. [The “free trade” mantra crowd bastardizes Ricardo’s very limited theory; it is used to tar those who argue its usefulness as “isolationists;” it is to laugh!]

The well-heeled “free trade” interest funded think tanks in DC love those trade deals. They always tell us how good they are for us; us means those funding the thoughts. If they let the cat out of the bag, all those economists might have to get real productive jobs shining shoes (not to disparage shoe shiners, an honorable profession providing value for value) or whatever. There are a few good economists out there that don’t buy into the mindless mantra of “free trade.”

I recently ran across a very smart guy named Ian Fletcher who agrees “free trade” deals, as defined, are bad news for America. Even though Mr. Fletcher has a PhD in economics, he has actually worked and played in the real world, making him an exception on a lot of counts. The main exception is he thinks about things as they are, not as limited economic theory says they should be. Yet, his analysis is focused and well grounded in theory proven correct.

Mr. Fletcher decided to dive in and shed the light of fact on this giant fabrication of “free trade,” by penning an excellent book on the topic: Why Free Trade Doesn’t Work.

I assure you Mr. Fletcher’s book is not a puff-piece for the “isolationist” crowd. This is the real deal: Excellent economic analysis exploding the boat load of canards on trade. Most of these deals, we all already know, are absolutely horrible for the average working men and women in America.

If you’d like a taste of the reality bites on trade Mr. Fletcher is dishing up, you can view a C-Span2 BookTV recorded presentation of his that is excellent and covers a whole lot of ground. If you no longer want to be fooled about how bad these “free trade” deals are for America, I suggest you dig into his book.

Don’t get me wrong, there is nothing wrong with free trade. The only thing wrong is what is happening, especially with China as the best current example, is hardly representative of “free trade.” We are in a trade war and have basically surrendered. Strange!

From Peter Oborne, writing in The Telegraph today…

The importance of these statistics is very great. They show that the widespread assumption by bureaucrats, senior politicians and commentators alike that eurozone countries could never go bankrupt is simply wrong.

In fact, the opposite is the case. The normal and indeed the automatic response of Spain, Portugal, Greece and many other European countries to major financial crises such as the one we are living through today has been to renege on their debts. So it would be extraordinary were they not to do so. History also shows that currency unions such as the eurozone invariably fail: the most relevant case in point is the Latin monetary union formed by France, Belgium, Italy and Switzerland in 1865, with Spain and Greece joining a few years later. Once again, these failures are invariably sparked by grand financial crises of the kind the world faces today.

These historical facts make contemporary European political discourse completely baffling. It is universally assumed by members of the European political class that the single currency cannot possibly fail because the political will to make the venture succeed is so powerful. There is no doubt about the will: French president Nicolas Sarkozy announced this year at the World Economic Forum in Davos that he and Angela Merkel, the German Chancellor, will “never, never… turn our backs on the euro… We will never let the euro go or be destroyed.”

Sarkozy and Merkel are dreaming. They are out of their depth, struggling against forces they cannot control and which will in due course wash them away. It is economic reality, not political speeches, that will determine the success or failure of the single currency, and the facts on the ground are so devastating that it is hard to see a way forward.

Yikes! EURUSD down 60 pips at this writing…Have a good weekend!