The Markets and The Currency Game

By: Sol Palha | Sat, Dec 11, 2004
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"Suppose that we are wise enough to learn and know -- and yet not wise enough to control our learning and knowledge, so that we use it to destroy ourselves? Even if that is so, knowledge remains better than ignorance. It is better to know -- even if the knowledge endures only for the moment that comes before destruction -- than to gain eternal life at the price of a dull and swinish lack of comprehension of a universe that swirls unseen before us in all its wonder. That was the choice of Achilles, and it is mine, too." - Isaac Asimov 1920-1992, Russian-born American Author

Earlier this year we wrote an essay titled the illusionary Dow Bull . Today we are going to examine the SP 500, NASDAQ and the DOW to see if illusion persists; lo and behold we find out that nothing has really changed. Don't get me wrong, even in such an illusionary bull market one can make a ton of money if one is positioned in the right sectors and the best ones currently are not even in the Gold sector. The key word being currently, as one day this sector will truly erupt like a volcano that has been dormant for a thousand years.

Most individuals are completely ignorant to the fact that the rise in all the indices are nothing but inflation in disguise and that the markets are simply rising in value to compensate for the drop in the Dollar. Now when we start to rise in the face of a strong currency or rise in all currencies as the oil sector did then we can say that we are in a true bull market.

The masses simply think "oh vow the market is going up" and do not stop to see that their economic situation has not changed much when priced in old dollars or the new stronger currencies. One example of this form of complete ignorance is in the housing sector. Everyone is happy because the value of their houses are rising at such an unsustainable rate, they don't stop to think for a moment that if they sold that house and bought another they really made almost no gains. Example towards the end 1999 you could have bought a house in a good neighbourhood such as Bayside in Queens which is one part of New York City for 280-320K, now this same house with no improvements costs in excess of 450K. This happy camper now thinks he is rich so he sells his house only to find out that to buy a house in a better neighbourhood costs him in excess of 500K. Only if he sells and rents, which is something most would shun and look down upon would he come out ahead. The question you have to ask yourself then is, are you really rich or are you just dreaming because you do not have the ability to see that the rise is nothing but inflation in disguise.

The charts below will graphically illustrate this illusion; as the saying goes a picture is worth a 1000 words in this case it's more like 10,000.

A quick simple look reveals that the new highs in all the indices are illusionary in nature and that they are still in a firm down trend when priced in stronger currencies. In 2003 we had stated that when the Canadian dollar started to move, it would really move and move it did. What we are going to suggest now is that one should wait for the Canadian dollar to pull back to its main up trend line and then go long this very strong currency. In 2002 we stated that the South African rand was the strongest currency out there, now we would like to go on record to say that the Canadian dollar has the potential to become the strongest currency in the world; the day that 1 Canadian dollar equals 1 US dollar is not so far off. However a nice pull back is needed before this can happen.

Going back to the above charts, they plainly show that this move is inflationary in nature but if you buy the right stocks you can beat inflation at its own game; that's why inflation is called the silent killer tax. Those that don't know of its existence or don't know how to position themselves are robbed blindly of all their hard earned money. This move up that both I and John Tyler foresee in the markets is going to be the precursor for a huge explosive crash and bring on inflation and suffering of the likes that this nation has not seen in a long time. This inflation explosion then could lead to a deflationary spiral which will only exacerbate the problem. The landscape is going to look very different 10 years from now. However if one is properly positioned one can always benefit no matter what the market does. As we stated in the past, one day we will have almost no long positions. We will be ½ in cash and the other ½ we will be using to aggressively short the market. I would like to conclude with a topic that has nothing to with the above charts, but has a lot to do with investing ones health.

Investing and Stress

We have always stated much to the dismay and anger of many that investing is a way of life and that the number one investment is to make sure that you are in good health. The way to ensure and maintain good health is to make sure your stress levels are low. Almost every newsletter out there only focuses on the monetary aspects of investing; a rather dim way of looking at things in our opinion. Look at it this way, the reason you want to make more money is so that you can do the things you think you cannot do or afford now; in other words you want to enjoy life more. Well if you are sick as a dog or not healthy what is the point of having a huge bloated bank account. It shocks us that health and a stress free life are not promoted by so many of the so called top gurus out there. Our stance is that if you don't have your health, you have nothing.

That is why we have constantly advocated taking a stress free approach to investing, taking time out when you feel things are getting out of control and not looking at your portfolio every day but once a week or less. We have also stated that real time quotes and real times news is nothing but real time misery. You don't need to know what's going in the market tick by tick, because if you do, you end up becoming a clock that ticks away and has no life whatsoever outside the markets. We practice what we preach; quite sometime has passed since we threw all our real time indicators out the window, cancelled all our real time data feeds and we are happy to say not only has our analysis improved but more important our stress levels have been reduced by a factor of 10.

Remember this, we live only once, yes that's right only once and you owe it to yourself to live the best stress free life that you possibly can. There is no second chance you can't go back and say "oh boy" I want to go back and re live last year or the year before that; do it now for tomorrow never comes, yesterday is forever gone and you only have the here and now (today) so make the best of it. In the end if you are not in optimal health, your decision making process can be affected, individuals that are not healthy are usually also not happy and hence you are more likely to follow the secret programmed desire to lose path. Notice misery loves company and happiness and peace are usually single.

I am going to put up extracts from 2 articles below that illustrate the detrimental effects of stress.

Investigators created skin wounds in mice that were exposed to stressful living conditions. The researchers then applied Streptococcus bacteria to the wounds, and compared the healing rates of the stressed mice with those of mice with skin wounds that were also exposed to the bacteria but did not undergo the same levels of stress. Mice that had been stressed out prior to wounding and infection showed a 30% delay in wound healing at 3 and 5 days compared with the mice that were not stressed, the report indicates.

In addition, the investigators found that after 5 days, the stressed mice had 100,000 times more opportunistic bacteria in their wounds than the non-stressed mice. Seven days after the bacteria exposure, about 85% of the wounds in the stressed mice were infected, versus about 27% of the wounds in the non-stressed mice.

In this study, stress increased the rate of wound infection by threefold. Stress disrupts the body's equilibrium, in turn significantly impairing its ability to control and eradicate bacterial infection during wound healing.

The bottom line is that stress shuts down either the recruitment or the function of those immune cells needed to fight infection.

Research in humans has found that psychological stress can take a toll on the immune system by reducing the concentration of cytokines, proteins that help to ward off infections. In one study, skin wounds on the arms of women who had higher levels of the stress hormone cortisol had lower levels of key compounds released by the body to mediate healing.

Long-term stress may cause illness by prematurely ageing the immune system, research suggests.

Scientists have discovered stressful experiences can boost production of chemicals that regulate the body's immune system. One of these, interleukin 6 (IL-6), naturally increases with age, and is linked to heart disease, type 2 diabetes, osteoporosis and other age-related conditions.

A team led by Dr Ronald Glaser, from Ohio State University College of Medicine in Columbus, US, measured levels of this chemical in 119 older men and women who were caring for a spouse with dementia. Over six years, levels of the chemical increased four times faster in the careers compared with 106 people not providing care. Former carers continued to have elevated IL-6 for up to three years after the death of the spouse they were looking after.

"The wise man sees in the misfortune of others what he should avoid." - Marcus Aurelius 121-80 AD, Roman Emperor, Philosopher


Sol Palha

Author: Sol Palha

Sol Palha

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

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