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August 29, 2004

Play It Again Sam
by Rob Kirby

Folks who make a habit of charting commodities, equities and indexes generally do so with the underlying premise that history tends to repeat itself. Whether or not history does in fact repeat itself or the degree to which past events enable us to predict future events I personally find debatable. One might surmise the very fact that so many people/traders follow and practice this discipline that markets are highly susceptible to manipulation by any entity with 'deep enough pockets.' In the case of financial markets, when someone has the ability to administer unlimited stimulus (credit/money creation) and knows how people will react to it, I suspect they are most susceptible to losing their objective oversight. In its most depraved forms oversight gone amok is akin to sheep herding. It should never be forgotten that 'herding' has been used throughout time by different races as a means of hunting or killing prey by literally running large numbers of animals over cliffs. I do firmly believe in one's ability to perceive events unfolding in a fluid situation, connect a few dots and make logical and predictive assumptions regarding future events. This type of analysis tends to be more based in the "if it looks, talks, swims and walks like a duck - darn good chance it's a duck approach."

Many years ago there existed an advanced society. They didn't have SUV's or Play Stations but Romans were technologically and most would say culturally superior to virtually all societies of their time. They were expansionist as evidenced by their 'empire' and they thought themselves as being superior to many 'barbaric' cultures as evidenced by their teachings of their ways and culture in many far flung reaches of their empire. They were truly the enlightened ones simply trying to plant their enlightened seeds around their known world. Occasionally, their well intentioned colonialism met nationalist resistance and even led to difficulties like wars. The Romans always took solace though that they were doing the right thing and would ultimately make the world a better place.

Along the way to universal bliss and global enlightenment something happened. The Roman Empire fell. So what happened? I would contend that the first thing that happened was Romans got very used to living the good life. Got so comfortable no one could imagine "not living" the good life - it was always that way for Romans after all. The next thingy that happened, I would contend, is that the currency was debased. They didn't have a Federal Reserve. They were on a gold/silver standard back then but had unscrupulous operators with a nasty habit of mixing cheaper metal with gold and silver to 'make their money go a little further'. This is affectionately known as creating money out of thin air. It was so easily justified because they were Romans after all - with armies, appetites and expansionist tendencies. These things cost money! The next thing, which might be the most critical in my humble opinion, virtually nobody saw it coming. They didn't exactly have a financial press or corporately owned media saying everything was always great. It was simply heresy to even mention such a thing as the Roman Empire falling, especially if you were a Roman. There were no organizations like GATA but the very few that even questioned the status quo were castigated and labeled as outcasts. Nobody wanted to live in such a world.

I know it sounds completely ridiculous - that an advanced race like the Romans could have not seen their own demise sneaking up on them? What could they possibly have been doing that such obvious tell tales went unnoticed? I've read a little bit about this - I mean what the Romans were busy doing while the Empire was busy falling. There were no White House Interns back then but diversions of the time largely centered on entertainment (gladiators and promiscuity) and consumption of alcohol (really just another form of entertainment). Sound familiar? It seems that the citizenry were either too drunk or were simply willing dupes and unaware that their currency was being debased right under their noses. They too had a strong (not so sure about flexible) dollar policy - and everyone knew it. The military never questioned the expansionist ways; they had prestige, reaped the rewards of plunder and had comrades back home with an insatiable thirst for consumption. They were Romans after all! Quite a party the Romans threw eh? No one could party quite like them. Well, one night the Romans all went to sleep really late (and drunk as skunks as usual) and when they woke up the next morning they were utterly astounded to learn that, in their drunkenness, they had burned the frikkin joint down! There was nothing left but ashes. All their worldly possessions literally 'went up in smoke'. Expansionism and a far flung empire went out the window and the armies quickly disbanded - they needed to get real jobs so they could eat.

So what are the odds that history repeats itself? Perhaps it's a crapshoot at best. Empirically, one might argue that a great deal of sheeple have been herded to the cliff's edge. Sure looks like a long drop to the rocks below from up here.

Rob Kirby
Kirby Analytics

Copyright © 2004 - 2006 Rob Kirby

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