Gold As Insurance

(Following is the third installment in a series of articles by Chuck Cohen, a seasoned and highly successful investment consultant who lives in New York City. We will be featuring Chuck’s thoughts regularly at Rick’s Picks in order to expand our coverage, in particular, of junior mining shares, a core area of his expertise. In the coming weeks, Chuck will take up the topics of gold as a core investment, and gold as a speculative vehicle. Today he tackles gold’s usefulness as insurance against financial calamity“. RA)

No One-Size-Fits-All Strategy

In spite of the sharp drop in shares over the past nine years or so, most investors remain firmly committed to common stocks. Mutual fund statistics show that very few holders have pulled their money out of their funds. And the recent “Big Money Poll” in Barron’s shows that the big guys are even surer than they were even at the very top. It is clear that investors have been stirred, but far from shaken, by the decade’s decline and by our faltering economy.

And gold? To many investors and even professionals, buying gold is like traveling to Myanmar or northern Pakistan: Few dare to venture there. The truth is, that to our Ivy League and Keynesian educated financial community, gold is viewed as a superstitious relic.

I don’t seek to persuade you to sell everything you own, put it all into gold and gold shares, and then buy guns and ammo before retreating to a barricaded cabin in the Ozarks. Instead, I hope to try to make you understand that gold investments come in different sizes and shapes, with varying degrees of risk and reward. It’s not an all or nothing choice. The better you understand gold, its attributes and how it fits into your financial planning, the more you should feel more comfortable with it. You might then want to take bolder steps that can protect you more fully against the enormous unknowns facing us.

I believe that in spite of a huge move since 2001, gold is still very early in a generational bull market. Bob Hoye, one of the most astute market analyst around, believes it will last for 15-20 years. That gives us 7 to 12 more years to ride it. Remember, the recent bull market in stocks lasted almost 18 years. The gold fundamentals continue to get more and more compelling, and technically gold is rapidly approaching an amazing liftoff stage.

But back to the three approaches towards gold. I have put them into an ascending order of risk and reward: 1) gold as insurance; 2) gold as a core investment, and 3) gold as a speculative vehicle. Today we will discuss the first approach.

Protecting Against the Unknown

What is the purpose of insurance? Of course, it is to protect you against the unknown and the unexpected. You can’t risk not having it in your life, even if you never have to use it. One disastrous episode, even if you had nothing to do with it, could totally change your life.

If you own a house, you undoubtedly carry property, theft and fire insurance. In spite of the onerous costs, you must have life and health insurance. You can’t legally drive a car without adequate property and liability coverage. But strangely, when in comes to finances, most people handle things differently. They tend to be careless without giving any serious thought as to how or where they should put their money. Remember the dot-com era? I don’t know a single person who doesn’t have his tale of woe from it. And to prove that this wasn’t an accident, many then threw the leftovers, plus what the banks and mortgage companies shoveled their way, into the great American housing disaster.

But when it comes to gold, after nearly nine consecutive years of higher prices, a great majority of Americans don’t have one cent in a gold-related investment. And even after watching the government inject trillions of governmental monopoly money, most Americans continue to shun it. Incomprehensibly, most Americans still put their trust in stocks and real estate. And the financial media think that “gold bugs” are weird.

Getting Started

Here is what I am getting at. If you are one of those who feel as though gold is too mysterious or too risky to get involved with, then I want to present the first step to getting comfortable with it. Approach gold just as you would with the different types of insurance you carry. You can get more deeply involved later. Your mindset has to be that if things don’t get much worse, gold may not do much. Although, considering its performance over the past nine years, even through some good times and rising and falling consumer prices, it should continue to do well.

But, if things hit the proverbial fan, gold, like a comprehensive car or property policy, will bail you out, or at least greatly help you in your time of need. Don’t you think that those who really got rocked after 2000 wish they had bought some gold insurance instead of gambling it in those supposedly safe places?

Without going into great detail, there are several ways to buy the insurance. I don’t want to pose as an expert in these areas, but they are simple to buy: coins or some other small amounts in bars, or through the various ETFs or gold funds. Personally, I would start with coins purchased through one of the reputable online dealers, or if you have a coin store nearby that others can recommend, that would be okay. Given my expectations for the future, I am not comfortable with owning gold through a paper deed, especially if there is no formal audit procedure to verify your share. This may ultimately prove to be an important concern. We can get delve into this at another time, or you can email me and I’ll get you a good source of information.

Next week: Gold as Insurance, Part 2.

An Honest Insight Into Politics

Milton Friedman (July 31, 1912 – November 16, 2006) was an American economist, statistician and public intellectual, and a recipient of the Nobel Memorial Prize in Economic Sciences.

California Foreshadows Larger Worries

The feds have bailed out the banks and insurance companies. Can the states be next? If so, more dollars will have to be issued, further devaluing existing dollars.

Why you accept an IOU from someone who cannot repay it, you will eventually lose the value of that IOU.

The dollar represented by your bank account and cash money is an IOU that can never be repaid. Holding paper IOUs is dangerous, and when the music stops, everything you have denoominated by dollars will be worthless.

Gold is the only safe store of value for your wealth at this time.


The following article discusses California's financial situation which could be just the beginning of further woes.





Controller: IOUs show Calif. fiscal mismanagement
By JUDY LIN – Friday, June 26, 2009

SACRAMENTO (AP) — California lawmakers remained at an impasse over solving the state's $24.3 billion deficit Friday as the state controller prepares to hand out roughly $3 billion in IOUs to vendors, low-income seniors and others.

A morning vote on a portion of the Democratic budget plan fell short of the necessary two-thirds support in the Assembly for the second time. Lawmakers were scheduled to work through the weekend, with the beginning of the new fiscal year and an impending cash crisis just days away.

State Controller John Chiang said he will have to start issuing IOUs as soon as Thursday without a budget revision because California will lack enough incoming tax revenue to meet all its payment obligations.

Among those who would not get paid until after October are students expecting college grants, low-income seniors and the disabled, and vendors that provide an array of services. Counties also will have to wait to be paid for administering social services.

The IOUs, also known as registered warrants, offer only a temporary fix to the state's cash-flow problem. Even if California issues the warrants, the state will be $600 million in the red in September, according to the controller's office.

It's not clear whether banks will honor the state's pledge to pay later.

The IOUs will look similar to a check but have the words "registered" printed on the front. If the state has enough cash in October, the state treasurer will pay the IOUs with interest. [The key word here is “IF”]

On Friday, legislative leaders indicated they may make a second attempt to avoid having the state issue IOUs through a complicated cash-saving maneuver that includes delaying billions of dollars in payments to K-12 school districts, community colleges and universities. The vote passed the Assembly on a bipartisan vote Thursday but failed to get enough support from Republicans to pass in the Senate.

Without a new budget, Chiang said Friday that he will have to start issuing IOUs. Students expecting college grants and low-income seniors would not get paid, along with vendors providing services to the state.

Chiang said taxpayers will also owe interest on IOUs.

An Ingenious Plan to Pay All Debts

by Rick Ackerman

With the U.S. sinking hopelessly into a black hole of debt, and households facing an avalanche of tax hikes that will at best postpone the nation’s day of bankruptcy, we are all hard-pressed at this point to see a way to a happy ending. Lo, along comes an anonymous e-mail that describes a way to solve everyone’s debt problems painlessly. If you think the plan can work, I would urge you to forward it to your congressmen. But if you see a fatal flaw in the logic, please drop by the Rick’s Picks forum to explain. The forum can be accessed by clicking on the word “Comments” under the headline on today’s commentary. Here’s the magical plan to cure America’s”Accounts Receivable Crisis”:

“It is the month of August, on the shores of the Black Sea . It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

”Suddenly, a rich tourist comes to town.

”He enters the only hotel, lays a 100-euro note on the reception counter, and goes to inspect the rooms upstairs in order to pick one.

”The hotel proprietor takes the 100-euro note and runs to pay his debt to the butcher.

”The butcher takes the 100-euro note and runs to pay what he owes the pig farmer.

”The pig farmer takes the 100-euro note and runs to pay his debt to his supplier of feed and fuel.
”The supplier of feed and fuel takes the 100-euro note and runs to pay his debt to the town’s prostitute that, in these hard times, proffered her ’services’ on credit.

”The prostitute take the 100-euro note and runs to the hotel to pay for the rooms she rented when she brought her clients there.

”The hotel proprietor then lays the 100-euro note back on the counter so that the rich tourist will not suspect anything.

”At that moment, the rich tourist comes down after inspecting the rooms, takes the 100-euro note off the desk, tucks it back into his wallet, and explains that he did not like any of the rooms. He then leaves town.

”No one earned a penny. However, the whole town is now without debt and looks to the future with great optimism.

”And that, ladies and gentlemen, is how the United States Government is doing business.”

Come to think of it, that is almost exactly the way Uncle Sam is handling the debt problem. Your comments are welcome at the forum.

Potential Gold Fail And Why You Should Care

The following rather lengthy article explains the precarious nature on which our financial system sits at present. Our system of paper and electronic currency which is ultimately backed by nothing more than a promise to repay, has begun to crumble. The failure and subsequent bailout of Lehman and AIG show how critical our government finds it to keep confidence in the paper money system.

As the following article points out, banks and insurance companies are no better than the investments they make, and at present they are ALL insolvent. Should the general public every discover this fact, the insuing run would instantly bankrupt the system.

What does that mean in practical terms?

You lose everything in your FDIC Insured bank account, mutual funds, bonds, cash, futures and insurance company annuities and policy cash values.

Of course the only alternative to storing one's wealth in paper assets is gold, silver and/or platinum. As the following article points out, those who have it could reap a thousand percent return overnight in the event of a public panic, leaving them one of the few survivors in a systemic meltdown as almost happened last September. (Watch video of Congressman Kanjorski's candid testimony of how close we came to a banking system collapse last year.)

The following article shows how the current gold shortage could be the breach that breaks open the dam and starts the tidal wave of paper money defaults.




Potential COMEX Gold Fail
June 19, 2009 by Trace Mayer

FUTURES AND FORWARD CONTRACTS
Many commodities trade via forward or futures contracts. A forward contract is is an agreement between two parties to buy or sell an asset at a specified point of time in the future. A futures contract is a standardized contract to buy or sell a specified commodity of standardized quality at a certain date in the future, at a market determined price (the futures price).


REGULATION AND COUNTER-PARTY RISK
Both futures and forward contracts introduce counter-party risk which depends on the financial ability of the counter-party to perform and may result in a failure to deliver. The calculated counter-party risk of futures contracts are assumed to be lower than forward contracts because they are traded on commodity exchanges. This is because generally governments must provide a common insurance or regulatory standard, such as the Commodity Futures Trading Commission (CFTC), and some release of liability, or at least a backing of the insurers, before a commodity market can begin trading.


COMMODITY MARKET SIZE
As a result of this increased confidence the size of futures contracts has grown tremendously. The major commodities exchanges in the United States were the COMEX and NYMEX which merged under the New York Mercantile Exchange and Commodity Exchange, Inc. (NYMEX) name on 3 August 1994.

The notional value outstanding of OTC commodity derivatives contracts increased 27% in 2007 to $9.0 trillion. OTC trading accounts for the majority of trading in gold and silver. Overall, precious metals accounted for 8% of OTC commodities derivatives trading in 2007, down from their 55% share a decade earlier as trading in energy derivatives rose.


BACKWARDATION
Because of the large aboveground stockpiles of the monetary metals threfore gold and silver should never enter backwardation. Backwardation would be evidence of the market’s increased apprehension of counter-party risk and the increased probability of a failure to deliver. The brief gold backwardation or the recent black swan of nine weeks of silver backwardation in the London Bullion Market Association (LBMA) forward markets revealed the extreme fragility of the worldwide financial and monetary system.

Mr. Avery Goodman, a securities attorney and a member of the roster of neutral arbitrators of the National Futures Association (NFA) and the Financial Industry Regulatory Authority (FINRA), has also written extensively about whether the COMEX will default on gold and silver, how the NYSE ran out of gold bars, the evidence that the ECB bailed out Deutsche Bank preventing a failure to deliver of gold on the COMEX and a follow up article on the ECB’s saving of the COMEX from a gold default.

Then there are other commentators like Jason Hommel, the creator of the satirical silver CFTC appreciation medallion above, who alleges regulatory culpability. Still others like the Gold Anti-Trust Action Committee (GATA) who has met with CFTC officials bring considerable intellectual firepower to the allegation of a central bank gold price suppression scheme where Mr. Robert Landis, a Harvard trained attorney, asserts “Any rational person who continues to dispute the existence of the rig after exposure to the evidence is either in denial or is complicit.”


TOOLS OF SPECULATION
Due to the size of the derivative contracts traded on the commodity exchanges and the counter-party risk the contracts are impregnated with therefore a bankruptcy of either the counter-party, the exchange or both could happen. Due to the increased liquidity of these exchanges many of those buying or selling the contracts for speculative purposes neither want possession of the underlying commodity nor possess the underlying commodity and have the ability to physically deliver.

While there are some some legitimate measures such as oil or gold companies that sell forward their production, and the number of gold companies has increasingly withered, in many cases when you buy these gold derivatives you are buying from a speculator who is shorting gold and that gold speculator does not actually own any physical gold.


MECHANICS OF AN EXCHANGE BANKRUPTCY
Let us assume for the sake of argument that gold prices go ballistic and you decide you want your gold by taking delivery on the contract. What if gold prices go up dramatically in one day such as a thousand dollars an ounce. Is it possible? Of course. Is it probable? Not really.

But that means the person who shorted gold is in a very precarious position and could have possibly lost everything or more. Perhaps they had a stop but the market is fast and gaps and as a result they cannot get out of their position. What would happen?

Let us assume this speculator had ten thousand dollars in their commodities account and they were short a gold contract. Suddenly, perhaps overnight, the Chinese press the issue because the International Monetary Fund failed to deliver on their gold sales and needed a line of credit, gold prices rapidly jumped and this speculator lost a hundred thousand dollars overnight. Now the brokerage firm has to attempt to collect on this ninety thousand dollar margin call in the form of an unsecured debt. What if they cannot collect and what if there are hundreds or thousands of speculators in similar situations?

With this failure to deliver and violation of margin requirements what if the exchange, because they do not have adequate capital or liquidity, cannot get the currency to settle the contracts? Then the exchange goes broke unless there is a government bail out but what good would that fiat currency do in purchasing the physical gold or silver bullion?


COUNTER-PARTY RISK MATERIALIZING
This is what happened with the American Insurance Group. The reason AIG went bankrupt is because they were the other side of many speculative contracts. When the flock of black swans they had insured against descended AIG could not perform because they did not have the cash. The government bailed them out at the cost of hundreds of billions if not trillions of dollars.

This means if you buy silver or gold on the COMEX via futures contracts, there is a huge move up, the COMEX goes bankrupt and the government does not bail them out then you are not going to be able to cash out your epic gains from the casino. Like the auto maker’s bond holders you will not realize and enjoy the profits you thought you would.

This is precisely what happened with people who were short a bunch of oranges and other interesting things via hedges with Lehman Brothers and even though they ‘made’ millions of dollars on their positions they lost everything. Why? Because Lehman Brothers went under and did not perform on the contracts. This is counter-party risk.

CONCLUSION
At all time and in all circumstances gold and silver remain money. For the conservative investor the reason to own them is as insurance for when everything else fails. These issues of counter-party risk are important when considering how to buy gold or silver through third parties. There are third-parties, like GoldMoney, that not subject to counter-party risk because of the way ownership is titled and the ability to demand physical delivery at any time.

As I explain in my book The Great Credit Contraction capital is burrowing down the pyramid into safer and more liquid assets. The safest and most liquid of them all are gold and silver. Why? Because the world reserve currency the FRN$ is merely an illusion that can become worthless while gold and silver are money and will always buy something.

Consequently, the conservative investor will determine what their gold standard is considering there are 140 ounces of paper gold for every ounce of physical gold. Then they will take appropriate actions, such as buying gold in a vending machine, to remove the layers of risk between them and their purchasing power in an effort to preserve and safeguard their capital.


CLICK IMAGE TO ENLARGE

3rd Largest Life Insurer Buying Gold

Bloomberg - Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales has bought gold for the first time [in] the company's 152-year history to hedge against further asset declines.

"Gold just seems to make sense; it's a store of value," Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor's in Brooklyn. "In the Depression, gold did very, very well."

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November.

Exclusive Interview with Future Prediction Expert Gerald Celente

by Terry Easton see article
06/05/2009

It’s the end of the world as the Greater Depression hits after 2010’s failed “W-recovery”

Human Events had the opportunity to interview forecaster extraordinaire Gerald Celente, President of Trends Research Institute, several days ago -- and the future he predicts looks bleak indeed. In fact, as Mr. Celente sees it, the Great Depression will seem like a mild recession as what waits for us in 2011 hits with the force of a Katrina financial hurricane.

In case you’re wondering who Mr. Celente is (if this is still possible), he’s appeared -- along with his predictions -- on Oprah, CNBC, Reuters, NBC, PBS, BBC, the Glenn Beck Show -- the list goes on an on. His Trends Report has been successfully predicting the major future trends impacting our lives for 3 decades, including calling the dot com crash back in the 1990's.

Mr. Celente's forecast on our impending future is based on his study of history. He says we are bent on destroying our currency, bankrupting our government, and unleashing a violent citizen-against-citizen eruption as the economy collapses into chaos and martial law fascism.

Quite a claim. And God help us if he is right -- again.

“We’re sounding the alarm about the ongoing downward economic cycle”, Gerald told Human Events. “In 2002, we predicted that the collapse of the American empire would fall like the World Trade Center in a thunderous crash -- in slow motion before our eyes. And now it’s happening.”

Mr. Celente follows over 300 trends: family, crime, war, education, consumer & business patterns which TRI synthesizes to predict the future.

“The US is becoming a shadow of what it used to be. Take education for example. The OECD group of developed countries ranks quality of life, education, health care of its member nations. The US is now falling down the table as one piece of data after another shows America is in decline. We’re no longer Win, Place or Show in quality of life, education, longevity… all the essentials where we used to be #1. And our economic underpinnings are failing.”

Mr. Celente puts part of the blame squarely on the federal government, and especially FED Chairman Bernanke and Treasury Secretary Geithner, and warns us not to believe a word they say “They’re the same people who didn't see it coming - are now telling us the worst is over, that ‘green shoots are spouting upwards’. But they were wrong before. They’re wrong on this too”.

“When you pump out tons of money manure into this system based on nothing – printing press paper, it’s like giving a patient with a chronic disease a pain killer -- it won’t cure the patient.”

“But let’s go beyond the economics. Our whole Constitution has been abrogated. The president simply writes an Executive Order to do whatever he wants. Nationalize the banks, take over the insurance industry, automobile industry, health care industry…
None of it is constitutional.”

When did the problem begin?

“After Dwight Eisenhower -- our last great president -- the Allied Supreme Commander in WWII – who warned us of the dangers of the military-industrial complex. We've become completely corrupted.”

“We became enmeshed in foreign entanglements. We forgot the lesson of England - and how their global imperial overreach destroyed their empire.”

Of course, the average American doesn’t think that we’re an empire. We’re not like the classical empires of old - raping, pillaging and stealing the wealth of invaded peoples. What does Mr. Celente have to say about this?

“What we’re doing is squandering our wealth, our resources, the genius of our scientists and the future of our children. We’re over-consuming in every way -- but under consuming our education and focusing on the quantity, not the quality, of what we’ve built. So much of today’s culture is counter-productive to what American built it’s foundation on -- a high-quality producing nation building things, not pushing paper.

"And we’ve become not only a consumer society but a low-quality consumer, as well as the most obese society in the world, eating low-quality high-carb, high-fat processed foods.”

“We’re now focused on the lowest cost, the lowest common denominator. Not the best and highest quality. We advertise buying cheapest as the most important thing.”

Mr. Celente argues that we’ve socially destroyed our productivity and have abandoned it to other countries.

“And we have fallen into a moral vacuum. Look at how people used to dress. Smartly. Not like the cheap hoods of today. Fashion now copies the lowest common denominator. Our children wear clothes without belts, and shoes without shoelaces, to copy the styles of the violent criminals -- who have these items removed by the police in prison so they can’t be used as weapons. That’s become the fashion statement of today’s youth. Like rap music from the ghetto. We’ve become an underdeveloped nation.”

Mr. Celente observes that "people used to think of America as that shining beacon on the hill with 'liberty and justice for all…' ." So what happened?

"Morality is missing from our American public consciousness. Start with Wall Street. It’s run by a criminal gang. The only question is ‘how much can you make, how much can you steal?’ At the bottom, the welfare recipient says ‘how much can I take?’ And the government is in on the take."

“Morality is absolutely the issue. We had a government where we were taught all our lives that we are a free enterprise system -- so we depend on our own strength, our entrepreneurial ideas. The world used to look to us for our innovative spirit.”

“This is being destroyed before our eyes. And our government has become more interventionist than any of the old empires could imagine.”

"Our society is now based on consumption -- 70% of the GDP. This is more than we produce. So to pay our bills, we use funny money invented in 1913 with the creation of the Federal Reserve and the fiat dollar based on credit (debt) -- the fractional reserve system. In 1930's you bought what you could afford. You saved up to buy your home. The easy credit of the 90's has destroyed the country. Now you borrow what you can’t afford - and the nation’s done the same."

Mr. Celente predicts the use of printing press money will cause the "greater depression".

"I predict continuing deflation of real estate, followed by extreme currency inflation -- ultimately becoming worthless. This is why gold is the only honest money -- the government can't counterfeit it. Look for it to top at least $2000 an ounce"

"Our unemployment numbers are also bogus. For example, the construction industry is really above 20% , and the government is creating low-level jobs, not real jobs. The US total real unemployment is more like 16%. Before the crisis is over, it will reach 25% - great depression numbers."

"When people have lost everything they have nothing to lose. Violence and crime will explode. Look at the OECD figures. The number of people not graduating from high school is exploding -- they're wacked out on drugs. New York City will look like Mexico City in a few years. The collapse of morality from top down -- and especially in the government -- makes it inevitable."

"What can we expect in the coming future", we asked.

"Washington has declared 'Economic Martial Law'. Wall Street is putting Main Street out of business. The key to watch is Christmas sales. They’ll fail. Christmas will be when reality sets in."

"Another trend we wrote about over 2 years ago was the tax revolt. What’s happened? Tax revenues have collapsed by 33%. And the wealthy people are leaving."

"We predict state secessionist movements will rival the breakup of the Soviet Union."

"The only way we can ever recover is to return to individual community, personal responsibility, local government. Next, average will disappear, Quality will return. Look at GM. Junk cars financed by junk bonds. Now owned by a junk government. As a consumer, don’t consume quantity -- consume quality."

"How will it all end?", we queried. Will the dollar survive?

"The dot com bubble should have burst and gone away in a short sharp recession. But the boys at the Fed re-inflated the economy by lowering interest rates to a 46 year low -- and in turn created the real estate bubble -- much bigger than the dot com bubble. "

"Now they’re creating the bailout bubble -- which will ultimately dwarf the real estate bubble. It will cause the implosion of the global economy world wide -- which will not be able to be repaired by creating yet another bubble. Every time the government fails, it tells a bigger lie and then a still bigger lie."

"These previous bubbles were not allowed to pop -- but they didn’t destroy the infrastructure of the country. This bailout bubble will."

"But this bubble will be the last one. After the final blowout of the bailout bubble, we are concerned that the government will take the nation into war. This is a historical precedent that’s been done over and over again."

"So, it’s not that the dollar that will survive. We may not even survive. Look at the German mess after WWI. It gave rise to Fascism and WWII. The next war will be fought with weapons of mass destruction."

I Am Right Again

Just saw these numbers this morning on Doug Casey's site.


Casey's Daily Resource Plus - June 06, 2009
The day’s big numbers were in the much-anticipated employment report from the Labor Department, which said that job losses slowed in May. Labor said that nonfarm payrolls declined by 345,000, the smallest job destruction in eight months. That was far under economists’ projections for something closer to 500,000.

The currency market surely took note, as this “may be the stamp of approval we've ended the panic period,” in the words of Max Bublitz, chief strategist at SCM Advisors. “People think they don't need to sell the dollar.”

However, the drop in job loss was nowhere near job creation. “The pace of deterioration is slowing, but we are still a long way from the point of stability in both the labor market and the broader economy,” said David Greenlaw, of Morgan Stanley.

The report also noted that the economy has lost 6 million jobs since the recession began in December 2007. Payrolls have fallen by 4.3%, the biggest loss since the 1957 recession.

Underlining the seriousness of the situation, overall unemployment rose by 787,000 in May to 14.5 million, pushing the jobless rate from 8.9% to 9.4% -- the highest level since August 1983. Unemployment is up 5% from its low, the biggest increase since the Great Depression.

And that’s just the leading edge of the wave. If the data included discouraged workers and those whose jobs have been cut back to part-time status, the number of un- and underemployed rose to 16.4% from 15.8% in April. The number of workers forced into part-time positions rose by 164,000 to 9.1 million.

We are not out of the woods yet.


A few days ago I commented that the official unemployment figures were closer to 15% than the "offical" rate of 8%. Just wanted everyone to know that I was right again. Send your notes of praise and admiration to tannerinvestments@windstream.net.

Happy Days Are Here Again!

This morning's jobs data shows 345,000 jobs lost in May. On this wonderful news, the stock market has rallied while precious metals have tanked.

What a crazy world!

Speaking of unemployment figures, the "official" data is that we are running around 8% unemployment. But unknown to the public, that figure does not include people who have been out of work for more than a year. The government's logic in excluding these workers is that if you are out for more than a year then you are no longer looking for a job. Gee, that makes sense. (I am currently rolling my eyes to signal my disdain for this logic.)

In a May 16th piece by Bob Hoye of INSTITUTIONAL ADVISORS entitled Great Depressions Are So Methodical, notes that a year into the Great Depression, unemployment figures were 8%. Eventually they reached 25%. Let's hope this correlation doesn't hold true, but the fact is, history always repeats itself, only this time it will likely be worse, due to the fact that our "true" unemployment numbers at this stage are estimated to be between 12% and 15%.

Anyway, I just wanted to share this delightful information with you heading into the weekend so that you will at least have a legit excuse for your drunken revelry and frolicing for then next two days. Which reminds me, if we ALL drink and party more, this should really help the adult beverage manufacturers, which in turn could add a substantial amount of jobs to the payroll.

Hey, problem solved, BY ME! And just think, all that intelligence after only 5 years of college.....mostly spent at Tiger Town Tavern enjoying dollar a pitcher happy hour.

Gee, I really am onto something here.

Have a nice weekend!

News Excerpts

from Bullion Vault
Global economic activity up to 2007 was driven by rich world consumers buying things even they couldn't afford. In the US alone they have since lost about $12 trillion of private wealth - $120,000 per family. Judging by estimates published in The Economist this should induce a demand slump of about $500 billion per year, for 10 more years.

That means a typical family will be cutting back spending at the rate of $5,000 per year for a decade. So our economies will stay shrunk, threatening deflation.


from Roger Weigand
After Labor Day, this fall, we forecast a false stock market rise followed by most professional traders selling into strength with ferocity. September, 2009 30-year bond futures are trading this morning at 115.12. Next support is 112.50, 110.00, 108.00 and then 106.00. Our longer range forecast is 80.00 with larger potential for something much worse. We told our readers it gets scary when the 30’s sink under 120.00. Well folks we have arrived.

Our new forecast for later September, 2009 through early October would be a 62% crash from the early fall high. This means a selling event of at least 4-6,000 points lower on the Dow Jones.



The Gold Report
John Kaiser: The Race to Rare Earths
June 02, 2009
These days I'm not only concerned that the United States is losing its relative clout on the global stage, but also that countries like China are going to have to go it on their own. They're sitting on these enormous foreign reserves - $2 trillion - two-thirds of which are U.S. denominated instruments - and all of this was built up when they were very dependent on an export economy. They were making things, selling them to the United States, and then shipping the dollars back for IOUs in the future.

But this game is now over. They know it and they are developing infrastructure internally to develop their own domestic economy. They're looking around and saying, "Where are we going to get all the raw materials that will allow us to keep building our own infrastructure and economy, and what are we going to do with all these IOUs?" So they're taking these IOUs and solving this security-of-supply problem by acquiring deposits and assets around the world to ensure that they will have control of the key raw materials that are needed for their long-range plan.