March 2013

The mechanism of the decline of empires, nations, companies, and individuals is rarely forced upon them by competitors, but instead is a relentless process of self sabotage and poor decision making. The raid on depositors bank accounts in Cyprus over the weekend is just such a case in point.

Meanwhile Gold has once more dropped to levels in its recent range that have forced out weak longs. However when viewed from a distance this recent 1500 to 1900 range seems more like a time based correction that will once finished, break to the upside of 2500. Thus moments such as now when investors doubt the gold faith are times to consider long positions. We believe that gold still remains a store of value in a world of depreciating currencies and the mass printing of money ,but as ever timing of purchases will be key to positive returns.

One of our key leading indicators has been copper. Of special note is that the contracting structure failed at its upper resistance zone and we now expect a break of lower support zone of 3500 to the down side that will herald a drop of some 30% this year. Such a move would be consistent with the medium size long positions embedded in the copper market, and could be a leading indicator to stock market weakness. This would conform with the deflationary mid phase of the 26 year Kondartive cycle which will provide some relief to the commodity squeeze.

There is much talk of the growing mountain of Chinese debt, and comparisons have been made with the predicament of America. However there is one major difference, whilst America has borrowed from the rest of the world, China’s debt is domestic and thus much more controllable for its government. Most notably as mentioned in the BTCH whilst the debt of China is a product of its attempt to expand to empire, America’s is a product of an old empire in decline which cannot afford its position in the world.

Of special note is the situation in Britain which we expect to continue to worsen, as the currency continues its decline, as a reflection of the loss of confidence in the country. Key to this perception is an economy that continues to fail to produce any sign for real GDP growth, which is a deeply destructive phenomenon.

In Europe the picture continues to be very bleak. The bottom line is that the period of relative stability bought by Mario Draghi last summer, has been squandered by the EU politicians who have failed to enact any effective policies that could restart growth in the European economies. To be very clear without growth and positive GDPs Europe and especially the EU is dead in the water. The water rushing into the Good Ship Europe will be of a political colour as the deadlocked leadership in the UK and Italy have shown.

Both Empires and nations need an effective financial system to facilitate trade and wealth creation. For this reason financial centers are have been specifically linked to the empires that they feed. This is clearly illustrated by the preeminence of London as a financial centre with its roots in the power of the British Empire. Similarly New York has served the American empire and now Singapore stands as the banker of a rising Asia. To lose ones financial centre is to lose the life blood of a nation or Empire.

We expect the debt ceiling sequester negotiations to continue for many weeks to come and during this ongoing deadlock crisis, the reality of the US debt burden will slowly sink home more and more to the world in general, specifically the  implications of a failed US government process .

A well known phrase that captures the process of the ganging up of lesser nations against a larger nation is 'The enemy of my friend is my Enemy'.

The relationship between China, North Korea and Iran, each of whom seeks to challenge American power in their respective regions should be viewed from this simple perspective, and it was clearly illuminated by the recent third atomic test by North Korea, who, it is assumed, tested a miniaturised nuclear warhead suitable for delivery by a ballistic missile.